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

                                   Form 10-K/A
                           (Amended January 15, 1998)

  MARK ONE
         |X|      ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                   For the Fiscal Year Ended December 31, 1996

         |_|      TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                          Commission File Number 1-8921


                         HALLWOOD ENERGY PARTNERS, L. P.
             (Exact name of registrant as specified in its charter)



         Delaware                                                     84-0987088
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                            Identification Number)
4582 South Ulster Street Parkway
              Suite 1700
         Denver, Colorado                                                  80237
(Address of principal executive offices)                              (Zip Code)

       Registrant's telephone number, including area code: (303) 850-7373

           Securities Registered Pursuant to Section 12(b) of the Act:

                                                           Name of each exchange
                Title of each class                          on which registered
Class A Units of Limited Partnership Interests           American Stock Exchange
Class C Units of Limited Partnership Interests           American Stock Exchange

           Securities Registered Pursuant to Section 12(g) of the Act:
                                      None

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|


The  aggregate  market  value  of  the  Class  A  and  Class  C  Units  held  by
nonaffiliates  of  the  registrant  as  of  March  20,  1997  was  approximately
$67,601,500.
Number of Units outstanding as of March 20, 1997
         Class A                                                      9,977,254
         Class B                                                        143,773
         Class C                                                        664,063

                                  Page 1 of 52


<PAGE>



                                    PART III


ITEM 10 -         DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The registrant is a limited  partnership  managed by the general partner and has
no officers or directors.  The general partner is HEPGP Ltd., a Colorado limited
partnership.  The  general  partner of HEPGP Ltd.  is  Hallwood  G.P.,  Inc.,  a
Delaware corporation, which is a wholly owned subsidiary of Hallwood Group.

The principal  duties and powers of the general partner are arranging  financing
for HEP,  seeking out,  negotiating  and acquiring  for HEP suitable  leases and
other prospects,  managing  properties owned by HEP,  generally  dealing for HEP
with third  parties and attending to the general  administration  of HEP and its
relations with the limited partners.

HEPGP Ltd.  is the sole  general  partner of HEP.  HEPGP Ltd.  is a limited
partnership,  and its general partner is Hallwood G. P., Inc. ("Hallwood G.P.").
Hallwood  Petroleum,  Inc.  ("HPI") performs duties related to the management of
HEP,  including  the  operation  of  various  properties  in  which  HEP owns an
interest.

Directors, Officers and Key Employees

Neither  the  Partnership  nor  its  general  partner  has  any  employees.
Following are brief biographies of the directors,  officers and key employees of
Hallwood G.P. and HPI.

Anthony J. Gumbiner, 53, has served as a director and Chief Executive Officer of
Hallwood G.P. since March 1997. He was Chairman of the Board of Hallwood  Energy
Corporation  ("HEC") from May 1984 until HEC's  merger into The  Hallwood  Group
Incorporated ("Hallwood Group") in November 1996. He was Chief Executive Officer
of HEC from  February  1987 to November  1996. He has also served as Chairman of
the Board of Directors of Hallwood  Group,  a diversified  holding  company with
energy,  real estate,  textile products and hotel operations,  since 1981 and as
Chief  Executive  Officer of Hallwood Group since April 1984.  Mr.  Gumbiner has
been a director and Chief Executive Officer of Hallwood  Consolidated  Resources
Corporation  ("HCRC")  since  February  1992.  Mr.  Gumbiner  has also served as
Chairman of the Board of Directors and as a director of Hallwood  Holdings S.A.,
a Luxembourg  real estate  investment  company,  since March 1984. He has been a
director  of  Hallwood  Realty  Corporation  ("Hallwood  Realty"),  which is the
general partner of Hallwood Realty Partners,  L.P., since November 1990. He is a
Solicitor of the Supreme Court of Judicature of England.

William L.  Guzzetti,  54, has been  President  of Hallwood  G.P.  and HPI since
October 1989,  and a director of Hallwood G.P. and HPI since August 1989. He was
President,  Chief  Operating  Officer and a director of HEC from  February  1985
until November 1996. Mr. Guzzetti joined HEC in February 1976 as Vice President,
Secretary and General Counsel and served in these positions until November 1980.
He served as Senior Vice  President,  Secretary and General  Counsel of HEC from
November 1980 until February 1985, when he became President of HEC. Mr. Guzzetti
has been  President,  Chief  Operating  Officer and a director of HCRC since May
1991. Mr.  Guzzetti is also an Executive Vice President of Hallwood Group and in
that  capacity  may devote a portion of his time to the  activities  of Hallwood
Group,  including the management of real estate  investments,  acquisitions  and
restructurings  of entities  controlled by Hallwood  Group. He is a director and
President  of Hallwood  Realty and in that  capacity may devote a portion of his
time to the activities of Hallwood Realty.

Russell P. Meduna,  42, has served as Executive  Vice President of Hallwood G.P.
and HPI since October 1989.  He was  Executive  Vice  President of HEC from June
1991 until  November 1996. He was Vice President of HEC from May 1990 until June
1991.  Mr.  Meduna became  Executive  Vice  President of HCRC in June 1992.  Mr.
Meduna was Vice  President  of Hallwood  G.P. and HPI from April 1989 to October
1989 and Manager of Operations from January 1989 to April 1989. He joined HPI in
1984 as Production Manager.  Prior to joining HPI, he was employed by both major
and independent oil companies.  Mr. Meduna is a registered professional engineer
in the States of Colorado and Texas.



                                                        -2-

<PAGE>



Cathleen M.  Osborn,  45, has served as Vice  President,  Secretary  and General
Counsel of Hallwood G.P. and HPI since  September  1986. She was Vice President,
Secretary and General  Counsel of HEC from June 1991 until  November  1996.  Ms.
Osborn  became  Secretary  and  General  Counsel  of HCRC in May  1992  and Vice
President in June 1992. She joined Hallwood G.P. and HPI in 1985 as senior staff
attorney. Ms. Osborn is a member of the Colorado Bar Association.

Robert Pfeiffer, 41, has served as Vice President of Hallwood G.P. and HPI since
August 1986. He was Vice  President of HEC from June 1991 until  November  1996.
Mr.  Pfeiffer  became Chief  Financial  Officer of HPI in June 1994. He has been
Vice President of HPI since June 1992. He joined  Hallwood G.P. and HPI in 1984.
From July 1979 to May 1984,  he was  employed  by Price  Waterhouse  as a senior
accountant.  Mr.  Pfeiffer is a member of the  American  Institute  of Certified
Public Accountants and the Colorado Society of Certified Public Accountants.

Betty J. Dieter,  49, has been Vice  President of HPI  responsible  for domestic
operations  since January 1995.  Her previous  positions  with HPI have included
Operations  Manager,  Rocky  Mountain  and  Mid-Continent  District  Manager and
Manager for Operations  Accounting and  Administration.  She joined HPI in 1985,
and has 25 years experience in accounting and operations, 18 of which are in the
oil and gas industry. Ms. Dieter is a Certified Public Accountant.

George  Brinkworth,  55, has been Vice  President-Exploration  and International
Division of HPI since August 1994. He became associated with HPI in 1987 when he
was President of a joint venture  program  funded by HPI and two other  domestic
oil companies.  Mr. Brinkworth has 33 years experience with various  exploration
and production  companies,  including previous  responsibility for operations in
the United  Kingdom,  Spain,  Morocco,  Egypt and Indonesia.  He is a registered
geophysicist in the State of California.

William H. Marble,  47, has served as Vice President of HPI since December 1990.
His previous positions with HPI have included Texas/Gulf Coast District Manager,
Manager of Nonoperated  Properties and Chief  Engineer.  He joined a predecessor
general partner of the Partnership in 1984. Mr. Marble is a registered  engineer
in the State of Colorado and has 23 years oil and gas engineering experience.

Brian M. Troup,  50, has served as a director of Hallwood G.P. since March 1997.
Mr. Troup was a director of HEC from May 1984 until  November  1996. He has been
President and Chief Operating Officer of Hallwood Group since April 1986, and he
is a director.  He has been a director of HCRC since February 1992. Mr. Troup is
a director of Hallwood  Holdings S.A. and of Hallwood Realty. He is an associate
of the  Institute  of  Bankers  in  Scotland  and a  member  of the  Society  of
Investment Analysts in the United Kingdom.

Hans-Peter  Holinger,  55, has served as a director of Hallwood G.P. since March
1997. He was a director of HEC from May 1984 until November  1996. Mr.  Holinger
served as Managing  Director  of  Interallianz  Bank  Zurich  A.G.  from 1977 to
February  1993.  Since February 1993, he has been the majority owner of Holinger
Asset Management AG, Zurich.
Mr. Holinger is a citizen of Switzerland.

Rex A. Sebastian, 68, has served as a director of Hallwood G.P. since March
1997.  He was a director  of HEC from  January  1993 until  November  1996.  Mr.
Sebastian is a member of the board of directors of Ferro Corporation.  He served
as Senior Vice  President--Operations  of Dresser Industries,  Inc. from January
1975 until his retirement in July 1985. He joined Dresser in 1966. Mr. Sebastian
is now a private investor.

Nathan C.  Collins,  63, has served as a director of Hallwood  G.P.  since March
1997. He was a director of HEC from January 1993 until November 1996. From March
1, 1995 to March 1,  1996,  he was  President,  Chief  Executive  Officer  and a
director of Flemington National Bank & Trust Co. in Flemington, New Jersey. From
November  1987 until  December  1994, he was Chairman of the Board of Directors,
President  and Chief  Executive  Officer of  BancTexas  Group Inc.  He began his
banking career in August 1964 with the Valley National Bank in Phoenix,  Arizona
and held various  positions there,  finally  becoming  Executive Vice President,
Senior  Credit  Officer and Manager of  Asset/Liability  Group of the bank.  Mr.
Collins is now a private investor.


                                                        -3-

<PAGE>



Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the  Securities  Exchange Act of 1934 requires the officers and
directors of Hallwood  G.P.,  Inc., and persons who own more than ten percent of
HEP's  Units,  to file reports of  ownership  and changes in ownership  with the
Securities  and Exchange  Commission.  Officers,  directors and greater than ten
percent  owners are required by SEC regulation to furnish HEP with copies of all
Section 16(a) forms they file.

Based  solely on its  review  of the  copies of such  forms  received  by it, or
written  representations  from  certain  reporting  persons  that no forms  were
required for those persons,  HEP believes  that,  during the year ended December
31, 1996,  all officers and  directors of Hallwood  G.P.,  Inc. and greater than
ten-percent beneficial owners complied with applicable filing requirements.


ITEM 11 -         EXECUTIVE COMPENSATION

General

Neither the Partnership  nor its general  partner has any employees.  Management
services  are  provided  to  the   Partnership  by  HPI,  a  subsidiary  of  the
Partnership.  Employees of HPI perform all duties  related to the  management of
the  Partnership  on  behalf of the  General  Partner.  Since HPI also  performs
services for HCRC, the  Partnership  is charged for  management  services by HPI
based on an  allocation  procedure  that takes into  account  the amount of time
spent on management,  the number of properties  owned by the Partnership and the
Partnership's  performance  relative  to HCRC and other  related  entities.  The
allocation  procedure is applied  consistently to all related entities for which
HPI performs services. In 1996 the Partnership  reimbursed HPI for approximately
$1.9 million of expenses,  of which $675,338 was  attributable  to  compensation
paid to executive officers of Hallwood G.P.

Compensation of Executive Officers

The following table sets forth the  compensation to the Chief Executive  Officer
of Hallwood G.P. and each of the four other most highly compensated  officers of
Hallwood G.P. whose  compensation paid by HPI exceeded $100,000  (determined for
the  year  ended  December  31,  1996)  for  services  to the  Partnership,  its
subsidiaries  and its General  Partner for the years ended  December  31,  1996,
1995, and 1994.



<PAGE>
<TABLE>
<CAPTION>



                                            Summary Compensation Table


                                                                                  Long Term
                                                  Annual Compensation            Compensation
                                                                                 Securities
                                                                                 Underlying
Name & Principal Position                                                       Options/SARs      LTIP              All Other
                                   Year          Salary         Bonus          (#)                Payouts        Compensation (1)
                                   ----          ------         -----          ---               --------       -----------------
<S>                                <C>         <C>            <C>                         <C>  <C>                <C>           
Anthony J. Gumbiner (2)..........  1996        $250,000       $     0                     0    $        0         $            0
         Chief Executive           1995         250,000             0                    (3)            0                      0
         Officer                   1994         125,000             0                     0             0                      0

William L. Guzzetti..............  1996         204,294       131,500                     0        33,170                  5,699
         President and Chief       1995         204,412        75,000                    (3)       15,753                  6,004
         Operating Officer         1994         200,240        72,800                     0         9,449                  6,004

Russell P. Meduna................  1996         163,664       101,900                     0        33,170                  4,500
         Executive Vice            1995         167,364       161,000                    (3)       15,753                  4,810
         President                 1994         164,024        24,200                     0         9,449                  4,409

Robert S. Pfeiffer...............  1996         107,518        56,700                     0        23,092                  4,300
         Vice President and        1995         109,949        94,000                    (3)       11,692                  3,160
         Chief Financial           1994         107,755        25,700                     0         6,963                  3,160
         Officer

Cathleen M. Osborn...............  1996         105,685        62,400                     0        23,092                  4,500
         Vice President and        1995         109,069        95,000                    (3)       11,692                  3,160
         General Counsel           1994         105,848        24,600                     0         6,963                  3,160
----------------------
<FN>

(1)      Employer contribution to 401(k) and a service award of $1,199 paid to Mr. Guzzetti.
</FN>
<FN>

(2)      For 1994, 1995 and 1996, Mr. Gumbiner had a Compensation Agreement with HPI.  $250,000 was paid
         under this agreement in 1995 and 1996; $125,000 was paid in 1994.  The Compensation Agreement was
         effective August 1, 1994 and terminated effective December 1996.  In addition to compensation listed in the
         table, HPI has a consulting agreement with Hallwood Group for 1994 through 1996, pursuant to which
         Hallwood Group received an annual consulting fee of $300,000 from affiliates of HPI.  The consulting
         services were provided by HSC Financial Corporation ("HSC Financial"), through the services of
         Mr. Gumbiner and Mr. Troup, and Hallwood Group paid the annual fee it received to HSC Financial.
</FN>



<PAGE>


<FN>

(3)      Consists of the  following  options  granted in 1995.  The HCRC Options
         have been  adjusted to give effect to the 3-for-1  split  effective  in
         1997.
</FN>
</TABLE>

<TABLE>
<CAPTION>

                                                                                  Securities Underlying
               Name                             Company                              Options/SARs (#)
<S>                                                                                       <C>    
Anthony J. Gumbiner............................. HEP                                      127,500
                                                 HCRC                                      47,700
William L. Guzzetti............................. HEP                                       63,750
                                                 HCRC                                      23,850
Russell P. Meduna............................... HEP                                       59,500
                                                 HCRC                                      22,260
Robert S. Pfeiffer.............................. HEP                                       25,500
                                                 HCRC                                       9,540
Cathleen M. Osborn.............................. HEP                                       25,500
                                                 HCRC                                       9,540
</TABLE>
<TABLE>
<CAPTION>

Option Grants and Exercises in Last Fiscal Year

         No options were granted  during 1996.  No executive  officer  exercised
options during 1996.


                Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values

                                         Number of Securities Underlying             Value of Unexercised
                                         Unexercised Options/SARs at FY-       In-the-Money Options/SARs at FY-
                                                     End (#)                               End ($)
Name                                    Exercisable/Unexercisable (1)(3)       Exercisable/Unexercisable (2)(4)
----                                    --------------------------------       --------------------------------
<S>                                              <C>      <C>                         <C>       <C>     
Anthony J. Gumbiner      HEP                     85,425 / 42,075                      $266,593 /$131,484
                         HCRC                    31,800 / 15,900                      524,700 / 262,350
William L. Guzzetti      HEP                     42,713 / 21,038                       133,477 / 65,742
                         HCRC                    15,900 / 7,950                       262,350 / 131,175
Russell P. Meduna        HEP                     39,975 / 19,635                       124,578 / 61,359
                         HCRC                    14,838 / 7,422                       244,827 / 122,463
Robert S. Pfeiffer       HEP                     17,085 / 8,415                        53,391 / 26,297
                         HCRC                     6,360 / 3,180                        104,940 / 52,470
Cathleen M. Osborn       HEP                     17,085 / 8,415                        53,391 / 26,297
                         HCRC                     6,360 / 3,180                        104,940 / 52,470

----------------------
<FN>

(1)      All of the HEP options expire January 31, 2005.
</FN>
<FN>

(2)      The exercise price of the HEP options is $5.75 per Class A Unit.  The closing price of the Class A Units was
         $8.875 on December 31, 1996.
</FN>




<PAGE>


<FN>

(3)      The HCRC options have a ten-year term and vest  cumulatively over three
         years at the rate of 1/3 on each of the date of grant and the first two
         anniversaries  of the grant date.  All options vest  immediately in the
         event of  certain  changes in  control  of the  Company.  The number of
         options has been adjusted to reflect a 3-for-1 stock split effective in
         1997.
</FN>
<FN>

(4)      The exercise price of the HCRC options is $6.67 per share.  The closing
         price of the common stock was $23.17 on December  31, 1996.  The number
         of options  and the  exercise  and closing  price has been  adjusted to
         reflect a 3-for-1 stock split effective in 1997.
</FN>
</TABLE>

Long-Term Incentive Plan

The  following  table  describes  performance  units  awarded  to the  executive
officers of Hallwood G.P. for 1996 under the Incentive Plan (as described below)
for the Partnership and affiliated entities. The value of awards under each plan
depends  primarily  on the  Partnership's  success in drilling,  completing  and
achieving production from new wells each year and from certain recompletions and
enhancements of existing wells.
<TABLE>
<CAPTION>

                                Long-term Incentive Plan Awards in Last Fiscal Year



                                                               Performance or            Estimated Future
                                       Number of                Other Period          Payouts under Non-Stock
             Name                        Units                  Until Payout           Price-Based Plans(1)
             ----                        -------               --------------          --------------------
<S>                                     <C>                       <C>                         <C>
Anthony J. Gumbiner(2)                     --                        --                        $ - -
William L. Guzzetti                      0.0841                     2001                      25,835
Russell P. Meduna                        0.0841                     2001                       25,835
Robert S. Pfeiffer                       0.0580                     2001                       17,817
Cathleen M. Osborn                       0.0580                     2001                       17,817
-----------------------
<FN>

(1)      This amount represents an award under the Incentive Plan.  There are no minimum, maximum or target
         amounts payable under the Incentive Plan.  Payments under the awards will be equal to the indicated
         percentage of Plan net cash flow from certain wells for the first five years after an award and, in the sixth
         year, the indicated percentage of 80% of the remaining net present value of estimated future production from
         the wells allocated to the Plan.  The amounts shown above are estimates based on estimated reserve quantities
         and future prices.  Because of the uncertainties inherent in estimating quantities of reserves and prices, it is
         not possible to predict cash flow or remaining net present value of estimated future production with any
         degree of certainty.
</FN>
<FN>

(2)      In addition,  an award of .4200 units,  with an estimated future payout
         of  $129,024,  was made to HSC  Financial,  with which Mr.  Gumbiner is
         associated. The payout period ends in 2001.
</FN>
</TABLE>

The Incentive Plan for the  Partnership and its affiliated  entities,  including
HCRC, is intended to provide  incentive and motivation to HPI's key employees to
increase the oil and gas reserves of the various  affiliated  entities for which
HPI  provides  services  and to enhance  those  entities'  ability  to  attract,
motivate and retain key employees and  consultants  upon whom, in large measure,
those entities' success depends.




<PAGE>



Under the Incentive  Plan, the Board of Directors of Hallwood G.P. (the "Board")
annually determines the portion of the Partnership's collective interests in the
cash flow from certain  international  projects and from domestic wells drilled,
recompleted  or  enhanced  during  that year (the  "Plan  Year")  which  will be
allocated to  participants  in the plan and the  percentage of the remaining net
present value of estimated  future  production from domestic wells for which the
participants  will  receive  payment in the sixth year of an award.  The portion
allocated to  participants in the plan is referred to as the Plan Cash Flow. The
Board then determines which key employees and consultants may participate in the
plan for the Plan Year and allocates the Plan Cash Flow among the  participants.
Awards  under the plan do not  represent  any actual  ownership  interest in the
wells. Awards are made in the Board's discretion.

Each award under the  Incentive  Plan  represents  the right to receive for five
years a specified share of the Plan Cash Flow  attributable to certain  domestic
wells drilled,  recompleted or enhanced  during the Plan Year. In the sixth year
after  the  award,  the  participant  is paid an  amount  equal  to a  specified
percentage of the remaining  net present  value of estimated  future  production
from the  wells  and the  award is  terminated.  Cash  flow  from  international
projects,  if any, allocated to the Incentive Plan is paid to participants for a
10-year period, with no buy-out for estimated future production.

The  awards for the 1996 Plan Year were made in January  1996.  No other  awards
were  made in 1996.  For the 1996  Plan  Year,  the  Compensation  Committee  of
Hallwood G.P. determined that the total Plan Cash Flow would be equal to 2.4% of
the cash flow of the domestic wells  completed,  recompleted or enhanced  during
the Plan  Year.  Accordingly,  the  value of awards  for each Plan Year  depends
primarily on the  Partnership's  success in drilling,  completing  and achieving
production  from  new  wells  each  year  and  from  certain  recompletions  and
enhancements of existing wells. The Compensation  Committee also determined that
the  participants'  interests in eligible  domestic wells for the 1996 Plan Year
would be purchased in the sixth year at 80% of the  remaining  net present value
of the  wells  completed  in the Plan  Year.  The  Compensation  Committee  also
determined that the total award would be allocated among key employees primarily
on the  basis  of  salary,  to the  extent  of 70% of the  total  award,  and on
individual performance, to the extent of 30% of the total award.

Director Compensation

Each director of Hallwood G.P. who is not an officer of Hallwood G.P. or HCRC or
an  employee of HPI,  is paid an annual fee of $20,000  that is  proportionately
reduced if the director attends fewer than four regularly  scheduled meetings of
the Board during the year. During 1996, Messrs. Holinger,  Sebastian and Collins
were each paid $20,000.  In addition,  all directors  are  reimbursed  for their
expenses in attending meetings of the Board and committees.

Compensation Committee Interlocks and Insider Participation

The Board of Directors of Hallwood  G.P.  makes  compensation  decisions for the
Partnership  during  the first  quarter  of each  year.  Mr.  Gumbiner  is Chief
Executive  Officer of Hallwood G.P. and serves on the compensation  committee of
Hallwood  Group,  of which Mr. Troup is President and Mr.  Guzzetti is Executive
Vice President.  Mr. Gumbiner is also Chief Executive  Officer and a director of
HCRC,  of which Mr.  Troup is a director  and Mr.  Guzzetti  is a  director  and
President.  Messrs.  Gumbiner,  Troup and  Guzzetti  served  on HCRC's  Board of
Directors  which  made  compensation  decisions  for HCRC in January  1996.  Mr.
Gumbiner  is  Chief  Executive  Officer  and a  director,  and Mr.  Guzzetti  is
President and a director,  of Hallwood Realty. During 1996, Mr. Gumbiner and Mr.
Guzzetti served on the compensation committee of Hallwood Realty.

The Partnership participates in a financial consulting agreement between HPI and
Hallwood  Group,  pursuant to which  Hallwood  Group  furnishes  consulting  and
advisory services to HPI, the Partnership and their affiliates.  Under the terms
of this  agreement,  HPI and its  affiliates are obligated to pay Hallwood Group
$550,000 per year until June 30, 2000.  The agreement  automatically  renews for
successive  three year terms;  either party may  terminate  the agreement on not
less than 30 days written notice prior to the expiration of any three year term.
The financial consulting agreement replaced both a previous financial consulting
agreement and a compensation agreement with Mr. Gumbiner. Under the terms of the
previous financial consulting  agreement,  HPI and its affiliates were obligated
to pay Hallwood Group three annual payments of $300,000 beginning June 30, 1994,
and Hallwood Group was obligated to furnish


<PAGE>



consulting  and  advisory  services to HPI and its  affiliates  through June 30,
1997.  In  1996,  the  consulting   services  were  provided  by  HSC  Financial
Corporation,  through the services of Mr.  Gumbiner and Mr. Troup,  and Hallwood
Group paid the annual fee it received to HSC Financial.  A fee of  approximately
$158,850 was paid in 1996 by the Partnership  pursuant to this arrangement.  For
1994, 1995 and 1996, Mr. Gumbiner had a compensation agreement with HPI pursuant
to which Mr.  Gumbiner  was paid  $250,000  by HPI,  the  Partnership  and their
affiliates.  This  agreement was  terminated  effective  December 31, 1996.  See
"Summary  Compensation  Table" and footnotes for  additional  discussion of this
arrangement.

The Partnership reimburses Hallwood Group for expenses incurred on behalf of the
Partnership.  In 1996, the Partnership  reimbursed  Hallwood Group approximately
$152,000 of expenses.




<PAGE>


SIGNATURES

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.


                                                 HALLWOOD ENERGY PARTNERS, L.P.
                                                 BY:   HEPGP LTD.
                                                       General Partner
                                                 BY:   HALLWOOD G.P., INC.
                                                       General Partner


Date: January 15, 1998                           By: /s/Robert S. Pfeiffer
     ---------------------------                     ----------------------
                                             Robert S. Pfeiffer, Vice President
                                                    Chief Financial Officer
                                                 (Principal Accounting Officer)





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