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

                                     Form 10-K

   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, 1995

               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
    (State or other jurisdiction                  84-0987088       
    ofincorporation or                         (I.R.S. Employer    
    organization)                            Identification Number)
    4582 SOUTH ULSTER STREET
    PARKWAY SUITE 1700
    DENVER, COLORADO                                  80237        
    (Address of principal                           (Zip Code)     
    executive offices)

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

            SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

    Title of each class                Name of each exchange 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
<TABLE>
<CAPTION>
    The aggregate market value of the Class A and Class C
    Units held by nonaffiliates of the registrant as of 
    February 27, 1996 was approximately $32,364,708.<PAGE>
    Number of Units outstanding as of February 27, 1996         
       <S>                                            <C>       
       Class A                                         9,977,254
       Class B                                           143,773
       Class C                                           480,734

</TABLE>
                                      PART I


   ITEM 1 - BUSINESS

   Hallwood Energy  Partners, L.P. ("HEP"  or the "Partnership"), is  a publicly
   traded  Delaware limited  partnership  engaged in  the  production, sale  and
   transportation  of  oil  and  gas   and  in  the  acquisition,   exploration,
   development  and  operation  of  oil  and  gas  properties.    The  principal
   objectives of HEP are  to maintain or expand its reserve base  and to provide
   cash distributions to  the holders of its units  of limited partner interests
   ("Units").  The general partner of HEP is Hallwood Energy Corporation ("HEC")
   which has been  engaged in oil and gas exploration  and development since its
   incorporation  in  1968.   HEP  commenced  operations  in August  1985  after
   completing an exchange offer in which HEP acquired oil and gas properties and
   operations from HEC, 24 oil and gas limited partnerships of which HEC was the
   general partner and certain working  interest owners that had participated in
   wells with HEC and the limited partnerships.

   The activities of HEP are conducted by HEP Operating Partners, L.P.  ("HEPO")
   and EDP Operating, Ltd. ("EDPO").  HEP is the sole limited partner and HEC is
   the  sole general  partner  of HEPO.    Hallwood G.P.,  Inc., a  wholly-owned
   subsidiary  of HEC, is the  sole general partner and HEP  is the sole limited
   partner of EDPO.  Solely for purposes of  simplicity herein, unless otherwise
   indicated,  all  references   to  HEP  in  connection   with  the  ownership,
   exploration,  development or  production of  oil and  gas properties  include
   HEPO and EDPO.

   HEP  does not  engage in  any other  line of  business nor  does it  have any
   employees.  Hallwood Petroleum, Inc. ("HPI"),  an affiliated entity, operates
   the  properties and  administers the  day to  day activities  of HEP  and its
   affiliates.  On February 27, 1996, HPI had 133 employees.

   MARKETING

   The oil and gas produced from the properties owned by HEP has typically  been
   marketed through normal channels for such products.  Oil is generally sold to
   purchasers at field prices posted by the principal purchasers of crude oil in
   the areas where  the producing properties  are located.   In response to  the
   volatility  in the  oil markets,  HEP  entered into  financial contracts  for
   hedging transactions  of between 3% and  22% of its estimated  oil production
   for 1996 through 1999.  

   The majority  of HEP's  gas production  is  sold on  the spot  market and  is
   transported in  intrastate  and  interstate  pipelines.    HEP  entered  into
   financial  contracts for hedging transactions  of between 17% and  47% of its
   estimated gas production for 1996 through 2000.  

   The purpose of the hedges is to provide protection against price drops and to
   provide a measure of stability in the volatile environment of oil and natural
   gas  spot pricing.   The amounts  received or  paid upon  settlement of these
   contracts is  recognized as oil or gas revenue at the time the hedged volumes
   are sold.

   Both oil  and natural gas are  purchased by refineries,  major oil companies,
   public  utilities, industrial  customers and  other users  and  processors of
   petroleum  products.   HEP is not  confined to,  nor dependent  upon, any one
   purchaser or  small group of purchasers.   Accordingly, the loss  of a single
   purchaser,  or a few purchasers,  would not materially  affect HEP's business
   because there are  numerous purchasers in  the areas in  which HEP sells  its
   production.  However,  sales to  Conoco Inc. and  Marathon Petroleum  Company
   accounted for 30% and  14%, respectively, of total oil  and gas sales of  the
   Partnership  for   the  year  ended  December  31,  1995  and  23%  and  12%,
   respectively, of  total oil  and gas  sales of the  Partnership for  the year
   ended December 31, 1994.  Sales to Conoco Inc., Koch Oil Company and Marathon
   Petroleum Company accounted for 21%, 11% and 10%,  respectively, of total oil
   and gas sales of the Partnership for the year ended December 31, 1993. 

   Factors, if  they were  to occur,  which might  adversely affect HEP  include
   decreases in  oil and gas  prices, the reduced  availability of a  market for
   production, rising  operational costs  of producing oil  and gas,  compliance
   with,  and changes in, environmental control statutes and increasing costs of
   transportation.  

   COMPETITION 

   In the course of its exploration and development activities, HEP must compete
   with  other entities for the acquisition of undeveloped acreage and desirable
   leaseholds.   As described above under "Marketing," production is sold on the
   spot  market, thereby reducing sales  competition; however, oil  and gas must
   compete with coal,  atomic energy,  hydro-electric power and  other forms  of
   energy.

   REGULATION 

   Production  and  sale of  oil  and  gas  is  subject  to  federal  and  state
   governmental  regulation  in  a  variety  of  ways,  including  environmental
   regulations,  labor laws,  interstate  sales, excise  taxes  and federal  and
   Indian lands royalty payments.  Failure to comply with these  regulations may
   result  in fines, cancellation of licenses to do business and cancellation of
   federal, state or Indian leases.

   The  production of  oil  and  gas  is  subject to  regulation  by  the  state
   regulatory agencies in the states in which HEP does business.  These agencies
   make and enforce regulations to prevent  waste of oil and gas and  to protect
   the rights  of owners to produce  oil and gas from  a common reservoir.   The
   regulatory agencies regulate the amount  of oil and gas produced by assigning
   allowable production rates to wells capable of producing oil and gas.

   ENVIRONMENTAL CONSIDERATIONS 

   The exploration for, and development of, oil and gas involves the extraction,
   production and  transportation of materials which,  under certain conditions,
   can be  hazardous or can cause environmental pollution problems.  In light of
   the current interest  in environmental  matters, the  general partner  cannot
   predict what effect possible future public  or private action may have on the
   business of HEP.  The general partner is continually taking actions necessary
   in its operations  to ensure  conformity with applicable  federal, state  and
   local environmental  regulations and does  not presently anticipate  that the
   compliance with federal, state and local environmental  regulations will have
   a  material  adverse  effect  upon  capital  expenditures,  earnings  or  the
   competitive position of HEP in the oil and gas industry.

   INSURANCE COVERAGE 

   HEP  is  subject to  all  the  risks inherent  in  the  exploration for,  and
   development  of, oil and gas, including blowouts, fires and other casualties.
   HEP maintains insurance  coverage as is  customary for entities of  a similar
   size engaged in operations similar to that of HEP, but losses  can occur from
   uninsurable risks or  in amounts  in excess of  existing insurance  coverage.
   The occurrence of  an event which is  not insured or not  fully insured could
   have an adverse impact upon HEP's earnings and financial position.


   ITEM 2 - PROPERTIES

   OIL AND GAS PROPERTIES

   The following reserve information for HEP represents estimated quantities  of
   proved  oil and gas  reserves which are  located in  the United States.   The
   determination of  oil and gas reserves is based on estimates which are highly
   complex and interpretive.   The estimates are subject to continuing change as
   additional information becomes available.

   The Partnership's  reserves have  been  calculated using  two  methodologies:
   "average price" and the pricing case mandated by the Securities and  Exchange
   Commission,  "SEC case."   Average  price reserves  are calculated  using the
   average price  received per lease for  the twelve months  ended September 30,
   1995,  1994, 1993  and 1992.    SEC case  reserves are  calculated  using the
   December  31 year end  price received per  lease.  HEP  has presented average
   price  reserve disclosures  in  recent years  in an  attempt to  mitigate the
   significant price fluctuations which have historically occurred at  year end.
   The gas market, however,  has experienced such dramatic price  movements over
   the past two years, that in the  opinion of management, the use of an average
   price no longer provides a stable measure for reserve calculation.  In future
   years, the Partnership will present only an SEC price case reserves.

   CHANGE IN RESERVE QUANTITIES - (in thousands except for price)

   The  following  table  presents  the  SEC  case  and  average  price  reserve
   information for the Partnership.
<TABLE>
<CAPTION>
     PROVED RESERVE QUANTITIES            SEC Case          Average Price
                                          Reserves            Reserves (1)
                                      Gas        Oil        Gas        Oil 
                                     (Mcf)      (Bbls)     (Mcf)      (Bbls)

     <S>                        <C>         <C>       <C>          <C>   
     BALANCE, DECEMBER 31, 1992 103,817      6,580     102,759      6,734

     Extensions and discoveries   5,213        530       5,213        530
     Revisions of previous       
      estimates (2)              (5,050)    (1,134)     (2,339)      (191)
     Sales of reserves in place  (4,536)      (319)     (4,536)      (319)
     Purchase of reserves in     
      place                       6,236        677       6,236        677
     Production                 (14,073)      (881)    (14,073)      (881)
                                 -------     ------    --------      -----


     BALANCE DECEMBER 31, 1993   91,607      5,453      93,260      6,550

     Extensions and discoveries   5,985      1,052       5,985      1,052
     Revisions of previous
     estimates                    1,318      1,113       1,760         67
     Sales of reserves in place    (816)       (84)       (816)       (84)
     Purchase of reserves in
     place                          699        143         699        143
     Production                 (13,208)      (939)    (13,208)      (939)
                                --------      -----     -------      ----

     BALANCE, DECEMBER 31, 1994  85,585      6,738      87,680      6,789

     Extensions and discoveries   5,997      1,902       5,997      1,902
     Revisions of previous
     estimates                    4,248        464      (1,809)        12
     Sales of reserves in place     (45)       (41)        (45)       (41)
     Purchase of reserves in
     place                          362         28         362         28
     Production                 (13,035)      (993)    (13,035)      (993)
                                -------      ------     -------       ----

     BALANCE, DECEMBER 31, 1995  83,112      8,098      79,150      7,697
                                 ======      =====      ======      =====


     PROVED DEVELOPED RESERVE QUANTITIES
     Balance, December 31, 1992  97,035      6,195      96,052      6,345
                                 ======      =====      ======      =====
     Balance, December 31, 1993  79,858      5,006      81,511      6,093
                                 ======      ======     ======      =====
     Balance, December 31, 1994  79,699      6,166      81,718      6,215
                                 ======     ======      ======      =====
     Balance, December 31, 1995  77,378      7,444      73,447      7,049
                                 ======      =====      ======      =====

     PRICES USED IN RESERVE CALCULATIONS - (SEE PARAGRAPH ABOVE)
        December 31, 1992          $2.02      $18.13      $1.72      $19.47   

        December 31, 1993          $2.38      $13.27      $2.22      $17.83   

        December 31, 1994          $1.72      $15.80      $1.96      $15.51   

        December 31, 1995          $2.03      $17.95      $1.56      $16.94   

</TABLE>
<TABLE>
<CAPTION>
    PRESENT VALUE OF FUTURE CASH
    INFLOWS
       <S>                            <C>               <C> 
       December 31, 1992              $141,000          $128,000
       December 31, 1993              $121,000          $129,000
       December 31, 1994              $104,000          $110,000
       December 31, 1995              $124,000          $ 94,000
<F1>
      (1)   The average prices used  in the reserve calculations differ
            from the  average prices received for  calendar years 1993,
            1994 and 1995  as the reserve prices  were calculated based
            upon the twelve month period  ended September 30, for  each
            year presented.
<F2>
      (2)   Amount includes the interest conveyance  relating to the SAS lawsuit
            discussed in Note 13 to the Financial Statements in Item 8.
</TABLE>
   EXPLORATION AND DEVELOPMENT PROJECTS

   In  1995,  HEP   incurred  $11,131,000  in  direct   property  additions  and
   exploration and  development costs, and $5,844,000  for indirect expenditures
   through  its  investment  in  Hallwood  Spraberry  Drilling  Company,  L.L.C.
   ("HSD").   HEP's  budget  for  1995  was $11,600,000  for  direct  costs  and
   $4,200,000  for indirect costs.   The  costs were comprised  of approximately
   $1,580,000 for exploration activities  in Indonesia, approximately $6,824,000
   for  domestic  exploration  and  development  expenditures  and approximately
   $2,727,000  for  property  acquisitions.    In  1995,  HEP  participated   in
   approximately 150  drilling or recompletion projects, the highlights of which
   are  discussed  below.   Overall,  HEP's  1995  capital  program led  to  the
   replacement, through acquisitions  and drillings, of  131% of the  equivalent
   barrels produced  during 1995, including  revisions to  prior year  reserves.
   Sales of  reserves in  place  in 1995  were excluded  from this  calculation;
   however, they were less than 2% of depletion.

   CAPITAL PROJECTS

   HSD  has incurred  approximately $5,844,000,  net to HEP's  interest, through
   December 31, 1995 for  33 drilled wells, 30 recompletions and  acquisition of
   drilling leases on the Rocker "b" Ranch in Reagan County, Texas.  HSD has its
   own line of credit of $4,650,000, net to HEP's interest, provided by a  third
   party  lender.    Based   on  the  initial  results   of  the  drilling   and
   recompletions, HEP spent  approximately $907,000 on additional acreage in the
   Rocker "b" Ranch  during the second and third quarters,  HSD has expanded its
   project area to include certain sections of this acreage, and HEP has pursued
   drilling  on the remaining acreage.   The line  of credit is  secured only by
   certain leases on  the Rocker "b" Ranch and is  otherwise nonrecourse to HEP.
   HSD has funded the drilling to date  from the line of credit as well as  from
   cash  flow generated  from drilling  activities.   The  63  wells drilled  or
   recompleted since January 1,  1995, have increased HEP's share  of production
   on the Rocker "b" properties by 725 equivalent barrels of oil per day.  These
   wells have  added a total of  1.3 million equivalent barrels  of reserves, of
   which 640,000 equivalent  barrels were booked as  proved undeveloped reserves
   at  December 31, 1994.  An additional  400,000 equivalent barrels of reserves
   were booked as proved undeveloped reserves at December 31, 1995.

   HEP  expended  approximately $1,055,000  in 1995  for  the drilling  of seven
   exploitation  wells in  Reagan County,  Texas.   Six of  the seven  wells are
   currently producing at  an average rate of 275 equivalent  barrels of oil per
   day and one well was unsuccessful.  HEP has also spent approximately $530,000
   on two successful development wells in Reagan County, Texas in which it has a
   90% working interest.  HEP also will participate in several multiple lateral,
   horizontal wells  in the  Giddings Austin  Chalk play  in Lee  County, Texas,
   under an acreage farmout agreement completed in 1995.  HEP  will have working
   interests between 2% and 15% in this project.

   HEP  spent approximately $790,000 on  six successful drilling  wells and nine
   recompletions, seven of which were  successful, in the West Texas Kermit area
   where HEP has working interests  ranging from 25% to 80%.   Gross incremental
   production on these properties is currently averaging 635  barrels of oil per
   day and 1,050 mcf  per day.  It is  anticipated that eight to ten  more wells
   will be drilled or recompleted in 1996.  Future projects in the  area include
   secondary  recovery in the San Andres  and Holt Formations.  HEP's waterflood
   potential  for  this  area  is  estimated  by  to  be  approximately  600,000
   equivalent barrels of oil, and unitization will begin in 1996.

   In Richland  County,  Montana,  the Lewis  #1  well was  recompleted  to  the
   Interlake Formation in the first  quarter of 1995, and the well  continues to
   flow  210 barrels  of oil per  day and 135  mcf per day  following an initial
   producing rate of 496 barrels of oil per day.  HEP has incurred approximately
   $200,000 for the drilling of a Red River/Interlake development well which was
   spud  in early  September and   was  completed in  November.   HEP has  a 22%
   working interest in  the area.  The  flowing rate for this well  is currently
   averaging 200  gross  barrels  of  oil  per day.    Several  exploratory  and
   development wells are planned to be drilled within this area in 1996.

   In  1995, HEP spent approximately $365,000 on an exploitation program started
   in late 1994  in New Mexico.   This amount includes  five successful and  one
   unsuccessful non-operated  development wells in  Lea County, New  Mexico, and
   four  successful operated recompletions  in Eddy  County, New  Mexico, having
   gross combined initial flowing potentials of 3,350 barrels of oil per day and
   4,200 mcf  per day.   To  date, thirteen successful  wells have  been drilled
   under this program.   HEP has a 5%  working interest in the Lea  County field
   and 25% to 50% interests in  the Eddy County wells.  Additional drilling  and
   recompletion will continue in this area in 1996.

   In May 1995, HEP completed an exploratory well in Hot Springs County, Wyoming
   for approximately  $130,000.  The well  continues to flow 615  barrels of oil
   per day.  A delineation well was drilled in August and completed in September
   at a cost of $80,000 and is flowing over 600 barrels of oil per day.  A third
   exploratory well, on a separate but nearby structure, was drilled  in October
   for $60,000  and  is  shut-in  awaiting  additional  evaluation.  Preliminary
   results  from work done in early  1996 indicate it is a  commercial well.  In
   addition  to  limited  seismic  already  obtained,  additional  seismic  data
   acquisition on defined  structures and other structures is  being considered.
   Additional drilling  is also being considered for  this area.  HEP  has a 15%
   working interest in this field.

   During  1995, HEP completed two additional coal bed methane development wells
   and acquired working  interests in the  San Juan Basin of  New Mexico, for  a
   total of  approximately $220,000.   The two  new wells  have increased  gross
   production in this area by  700 mcf per day, to approximately 20,000  mcf per
   day.   HEP has working interests in these new wells  of 18% and 25%.  Limited
   drilling potential remains on existing acreage.

   In  1995,  HEP acquired  interest in  two  three dimensional  ("3-D") seismic
   prospects in Taylor and Jones  Counties, Texas and is pursuing two  other 3-D
   projects in this  area.  HEP  participated in the  drilling of a  nonoperated
   exploratory well  in one of the 3-D  prospects in this area  during the third
   quarter.  This well is flowing 65 barrels of oil per day from the deep Strawn
   Reservoir,  and additional behind pipe  reserves were recorded  in the Canyon
   Reef  which is the primary  target.  Additional  Strawn Formation development
   drilling on this discovery is anticipated in 1996.  HEP has a 12% interest in
   this  area.   HEP presently  holds  a 44%  working interest  in approximately
   16,000 net  acres within these areas.   Approximately 45 square  miles of 3-D
   seismic data acquisition is planned for the first half of 1996. 

   1996 PLANS

   For  1996, HEP's capital budget, which will  be paid from cash generated from
   operations and cash on hand, has been set at $11,500,000.  In addition to the
   above mentioned  activity  plans,  HEP's  domestic  exploitation  plans  also
   include projects  in the Delaware and  Permian Basins of Texas,  the Big Horn
   Basin of Wyoming, the Sweetgrass Arch in Montana, Williston Basin  of Montana
   and North Dakota, the  Michigan Basin, the Gulf Coast of  Louisiana, Blanding
   Basin  in Utah,  Sabine Uplift  in Louisiana  and others.   During  1996, HEP
   intends  to  complement its  domestic  operated  exploration and  development
   activities  by  participating  in  nonoperated  activities  which  would,  in
   general, limit HEP's exposure on a per well basis to less than $150,000, with
   maximum  working interests  of  25%.    HEP  will  consider  acquisitions  in
   strategic areas utilizing capital budget supplemented by external  financing.
   Utilizing  stringent  screening  criteria  HEP  will  continue  to   consider
   international projects in 1996, with an emphasis in South America.

   PARTNERSHIP RESERVES,  PRODUCTION AND  DISCUSSION  BY SIGNIFICANT  AREAS  AND
   FIELDS

   The   following  table  presents  the  December  31,  1995  reserve  data  by
   significant areas and fields.
<TABLE>
<CAPTION>

                          Proved        Present Value of Future Net
                         Reserve                Cash Flows 
                        Quantities
                      Mcf of   Bbls     Proved      Proved
                       Gas    of Oil  Undeveloped  Developed  Total  

                                        (In thousands)

  <S>             <C>        <C>         <C>      <C>      <C>     
  Scott/West Ridge 23,582     513                $ 43,188 $ 43,188
  West Texas       17,304   5,040      $ 2,043     32,159   34,202
  Kansas              702     550          312      2,054    2,366
  San Juan Basin   11,070                  214      5,177    5,391
  Southeastern New
    Mexico          8,830     202                   8,449    8,449
  East Riceville    1,803       2                   2,176    2,176
  South Texas       3,584     132        1,474      3,020    4,494
  Other            16,237   1,659        1,611     22,123   23,734
                   ------   -----        -----     ------   ------
                   83,112   8,098      $ 5,654   $118,346 $124,000
                   ======   =====        =====   ======== ========
</TABLE>
   The following table presents the oil and gas production for significant areas
   and fields.
<TABLE>
<CAPTION>
                         Production for the     Production for the
                           Year Ended 1995       Year Ended 1994  
                          Mcf of    Bbls of     Mcf of     Bbls of
                           Gas        Oil         Gas        Oil
                                       (In thousands)

    <S>                 <C>         <C>       <C>         <C>   
    Scott/West Ridge     4,501         108      3,766        112
    West Texas           1,351         458        982        317
    Kansas                 146          60        132         68
    San Juan Basin       3,216                  2,075
    Southeastern New
    Mexico               2,067          52      2,262         21
    East Riceville         286           1        280          2
    South Texas            364          20        119         15
    Other                1,104         294      3,592        404
                        ------        ----     ------       ----
                        13,035         993     13,208        939
                        ======       =====     ======       ====
</TABLE>
   The following table presents the  Partnership's extensions and discoveries by
   significant areas and fields.
<TABLE>
<CAPTION>
                         For the Year Ended     For the Year Ended
                                1995                   1994
                          Mcf of    Bbls of     Mcf of     Bbls of
                           Gas        Oil         Gas        Oil
                                      (In thousands)

    <S>                 <C>         <C>         <C>         <C> 
    Scott/West Ridge                              318          7
    West Texas           3,560       1,397      3,100        961
    Kansas                              19        117         42
    San Juan Basin         794                  1,940
    Southeastern New
      Mexico               432          97         90         25
    South Texas            582          28
    Other                  629         361        420         17
                          ----        ----       ----       ----
                         5,997       1,902      5,985      1,052
                        ======       =====      =====      =====
</TABLE>
   SCOTT/WEST RIDGE

   The  Scott/West Ridge  area consists  of  12 gas  wells located  in Lafayette
   Parish, Louisiana.  The wells produce principally from the Bol Mex formations
   at 13,500 to 14,500 feet and  are operated by HPI, an affiliate of HEP.   The
   four most significant wells  in the area,  all of which  were drilled by  HPI
   since  1989, are the A.  L. Boudreaux #1, the G.  S. Boudreaux Estate #1, the
   Lessin  Fontenot #1  and the  Evangeline Shrine  Club #1.   During  1995, HEP
   performed  three  workovers in  this  area,  two  of which  were  successful.
   Surface  facilities  were  upgraded  on  several  wells  to  improve  product
   handling.  

   WEST TEXAS

   The West Texas area is comprised of two significant groups of properties each
   containing significant projects.   The West Texas Spraberry  area consists of
   367 producing wells  in Borden, Upton, Reagan, Glasscock  and Martin counties
   of Texas.   HPI and its affiliates operate  357 of these wells.   Most of the
   current production  from these wells  is from the  Upper Spraberry, Jo  Mill,
   Dean  and Upper  Wolfcamp  formations which  are at  depths  that range  from
   approximately 5,000 to  9,000 feet.  HEP discovered a  new field during 1995,
   adding the  SRH (Clearfork) as  a producing  horizon to 70  wells in  eastern
   Reagan  County.   HEP  drilled  44 successful  wells  and one  dry  hole, and
   recompleted 30 wells  on acreage in the Rocker  "b" Ranch.  Most of  the work
   was  performed under a  line of credit  of $4,650,000 net  to HEP's interest,
   provided by a  third party lender.   The line  of credit  is secured only  by
   leases in the project area and is otherwise nonrecourse to HEP.  HEP plans to
   purchase additional producing wells and to perform recompletions in this area
   in 1996.

   The West  Texas  Kermit area  consists  of 39  wells  in Gaines  and  Winkler
   Counties, Texas, 36 of  which are operated  by HPI and  its affiliates.   The
   primary  focus of this  area is  the development of  the Holt and  San Andres
   formations at  a depth of  5,100 feet  on several leases  in Winkler  County.
   During  1995, HEP  drilled seven  wells,  one of  which was  a dry  hole, and
   performed  ten recompletions,  two  of  which were  unsuccessful.   HEP  also
   purchased interests in eleven wells in the area in 1995.  Up to ten new wells
   may be drilled in 1996, and a secondary recovery project is being planned for
   the area beyond 1996.

   KANSAS

   The Kansas area consists of 310 producing wells, of which 294 are operated by
   HPI  and 16 are operated by unaffiliated  entities, located in 15 counties in
   Kansas.    The wells  produce  principally  from  the Arbuckle  and  numerous
   Lansing-Kansas City formation  zones from 3,000 feet  to 6,500 feet.   During
   1995,  HEP drilled  two development wells,  one of which  was successful, and
   performed 15 successful recompletions.  The Kansas area is a mature operation
   where  recompletions  and limited  development  drilling  represent the  most
   prudent  plans for  future asset base  protection.   HEP plans  to sell three
   properties in  this area  in 1996  and will continue  to evaluate  and divest
   nonstrategic properties.

   SAN JUAN BASIN

   The  San Juan Basin region  consists of 52 wells located  in San Juan County,
   New Mexico.  The wells produce from the Fruitland Coal, Pictured Cliffs, Mesa
   Verde and  Dakota formations at depths  of 1,900 to 7,000  feet.  Twenty-four
   wells are coal bed  methane wells qualifying for  the Section 29  alternative
   fuels  tax  credit.    During  1994,  HEP,  Hallwood  Consolidated  Resources
   Corporation  (" HCRC")  and an  unaffiliated entity  formed a  partnership to
   utilize  effectively  the  Section   29  tax  credits.    During   1995,  HEP
   successfully drilled  two additional coal bed  methane wells.   For 1996, HEP
   plans to drill one additional well.

   SOUTHEASTERN NEW MEXICO

   The Southeastern New Mexico area consists of 63 producing wells,  43 of which
   are  operated by  HPI, which  produce primarily  gas and  are located  on the
   northwestern edge of the Delaware Basin in Lea, Eddy and Chaves Counties, New
   Mexico.  These wells produce at depths ranging from  approximately 2,500 feet
   to 14,000 feet from the Delaware, Atoka, Bone Springs and Morrow  formations.
   During 1995, HEP performed nine successful recompletions  and participated as
   a nonoperator in six successful development wells.  During 1996, HEP plans to
   perform  additional  recompletions   and  to  exploit   development  drilling
   opportunities.

   EAST RICEVILLE

   The East Riceville  area consists of three gas wells and one oil well located
   in  Vermillion Parish,  Louisiana.   The wells  produce principally  from the
   Barton Sand  formation at a depth of approximately 14,800 feet, and the wells
   are  operated by  HPI.  No  significant development  plans for  this area are
   expected for 1996.

   SOUTH TEXAS

   The  South  Texas basin  consists of  approximately  fifteen wells  which are
   operated by  unaffiliated entities,  producing primarily  from the Wilcox  at
   depths of  10,000 to 12,000 feet.  The  majority of the reserves in this area
   are located in the Mercy Field in San Jacinto County in the Houston Embayment
   Basin.   In 1995, four miles  of existing pipeline were  purchased and joined
   with two miles  of newly-constructed  pipeline.  Several  shallower wells  of
   approximate  depths of 800 feet  were also purchased  for deepening potential
   and to alleviate high salt water disposal expense.  Over 500 acres of  leases
   were  also acquired to drill a  step-out test in 1996.   There have also been
   several successful workovers in 1995 that have potential future benefits.

   PROPERTY SALES

   During 1995, HEP received $394,000 in connection with the sale of properties.
   The  proceeds  are  comprised  of  numerous  sales  of  various  nonstrategic
   properties, none of which are individually significant.

   AVERAGE SALES PRICES AND PRODUCTION COSTS

   The following table presents the average oil and gas sales  price and average
   production costs  per equivalent barrel computed  at the ratio of  six mcf of
   gas to one barrel of oil.

<TABLE>
<CAPTION>
                                             1995      1994      1993 
             <S>                           <C>       <C>       <C>
             Oil and condensate -
             includes the effects of           
             hedging (per bbl)              $17.36    $16.47    $17.71

             Natural gas -
             includes the effects of
             hedging (per mcf)                1.82      1.97      1.94
             Production costs (per
             equivalent bbl of oil)           3.57      3.88      3.47
</TABLE>
   PRODUCTIVE OIL AND GAS WELLS

   The following  table  summarizes the  productive  oil  and gas  wells  as  of
   December  31, 1995 attributable to HEP's  direct interests.  Productive wells
   are producing  wells and wells  capable of production.   Gross wells  are the
   total number of wells in which HEP has an interest.  Net wells are the sum of
   HEP's fractional interests owned in the gross wells.
<TABLE>
<CAPTION>
                                            Gross       Net 
                      <S>                   <C>       <C>
                      
                      Productive Wells
                                            
                         Oil                 892       378
                         Gas                 351       114
                                            ----      ----
                            Total          1,243       492
                                            ====      ====
</TABLE>
   OIL AND GAS ACREAGE

   The  following  table  sets forth  the  developed  and  undeveloped leasehold
   acreage  held directly by HEP  as of December 31, 1995.   Developed acres are
   acres which  are spaced or assignable to productive wells.  Undeveloped acres
   are acres on which wells have  not been drilled or completed to a point  that
   would  permit  the  production of  commercial  quantities  of  oil  and  gas,
   regardless  of whether or not  such acreage contains proved  reserves.  Gross
   acres are the total number of acres in which HEP has a working interest.  Net
   acres are the sum of HEP's fractional interests owned in the gross acres.
<TABLE>
<CAPTION>
                                              Gross         Net 

                 <S>                       <C>          <C>    
                 Developed acreage         135,500       76,800

                 Undeveloped acreage       189,350       39,337
                                          --------      -------
                       Total               324,850      116,137
                                           =======      =======
</TABLE>
   States  in which  HEP  holds undeveloped  acreage  include Texas,  Louisiana,
   Montana, Wyoming, New Mexico, Kansas, Colorado, North Dakota and Michigan.

   DRILLING ACTIVITY

   The following  table sets  forth the number  of wells  attributable to  HEP's
   direct interests drilled in the most recent three years.
<TABLE>
<CAPTION>
                                         Year Ended December 31,         
                                                    
                                  1995           1994           1993 
                              Gross    Net   Gross    Net   Gross    Net

          <S>                 <C>   <C>      <C>   <C>      <C>    <C>
          DEVELOPMENT WELLS:
             Productive        66    28.0     30    14.6     12     6.2
             Dry                2      .5      4      .7      4     1.2
                               --    ----     --    ----     --     ---
               Total           68    28.5     34    15.3     16     7.4
                               ==    ====     ==    ====     ==    ====

          EXPLORATORY WELLS:
             Productive         5      .6      2      .1      6     1.1
             Dry                1      .9      6     1.2     10     3.9
                               --    ----     --    ----     --    ----
               Total            6     1.5      8     1.3     16     5.0
                               ==    ====     ==    ====     ==    ====

</TABLE>
   OFFICE SPACE

   HPI leases office  space in Denver, Colorado containing  approximately 41,000
   square feet,  for approximately $600,000  per year.   The lease  payments are
   included in the allocation of general and administrative expenses to  HEP and
   other affiliated  entities.  HEP is guarantor of 60% of the lease obligation,
   and HCRC is guarantor of the remaining 40% of the obligation.  


   ITEM 3 - LEGAL PROCEEDINGS

   See  Notes 13  and  14 to  the financial  statements  in Item  8  - Financial
   Statements and Supplemental Data.


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

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


                                      PART II


   ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED UNITHOLDER MATTERS

   HEP's  Class  A  Units  are  traded  on  the  American  Stock  Exchange  (the
   "Exchange") under the symbol "HEP."  As of February 27, 1996, 9,977,254 Class
   A Units were outstanding, held by approximately 23,650 Unitholders of record;
   143,773 Class B Units were outstanding,  held by HEC.  The Class  B Units are
   not publicly  traded.   The  following  table  sets forth,  for  the  periods
   indicated, the high  and low reported sales  prices for the Class  A Units as
   reported  on the Exchange and the distributions paid  per Class A and Class B
   Unit for the  corresponding periods.   HEP's debt agreements  limit aggregate
   distributions paid by HEP in any twelve month period to 50% of cash flow from
   operations before working  capital changes plus  distributions received  from
   affiliates.  
<TABLE>
<CAPTION>
                   HEP Units        High      Low       Distributions
              <S>                   <C>       <C>            <C> 

              First quarter 1994    8 5/8     6 1/2          $.20
              Second quarter 1994   7 3/4     6 3/8           .20
              Third quarter 1994    8         6 1/8           .20
              Fourth quarter 1994   6 1/2     4 7/8           .20
                                                            ------
                                                             $.80
                                                            ====== 
                                                              
              First quarter 1995    6 1/4     5 3/8          $.20
              Second quarter 1995   5 15/16   5 1/8           .20
              Third quarter 1995    5 1/2     4               .20
              Fourth quarter 1995   4 11/16   3 3/4           .20
                                                             -----
                                                             $.80
                                                            ======
</TABLE>
   On  January 17, 1996, HEP's  new Class C Units began  trading on the Exchange
   under the symbol  "HEPCWI."  As of  February 27, 1996, 654,481  Class C Units
   were  outstanding held by  approximately 17,465  Unitholders of record.   The
   high and low reported sales prices  for the Class C Units as reported on  the
   Exchange  were $7.75 and $7.50 per Class  C Unit, respectively, for the month
   of January 1996.


   ITEM 6 - SELECTED FINANCIAL DATA 

   The  following  table  sets forth  selected  financial  data  regarding HEP's
   financial position and results of operations as of the dates indicated.  As a
   result  of the  issuance of  Class A  Units in  connection with  a litigation
   settlement, described  in Item 8 Note  13, all Unit and  per Unit information
   has been  retroactively restated.   In connection  with the  change in  HEP's
   reserve calculation  methodology,  which is  further described  in  Item 8  -
   Supplemental Oil and Gas Reserve Information, all  periods have been restated
   to reclassify HEP's share of internal overhead  charges attributable to wells
   operated  by   HPI  from   production  operating   expense  to   general  and
   administrative expense.  Additionally, the periods prior to May 18, 1992 have
   been  restated  to  present  the  effects  of   the  conversion  of  Hallwood
   Consolidated Partners,  L.P., an entity owned 40% by HEP, into a corporation,
   HCRC, on a consistent basis.
<TABLE>
<CAPTION>
                               As of and For the Years Ended December 31,
                              1995      1994      1993      1992      1991 
                                        (In thousands except per
                                                 Unit)
       SUMMARY OF
       OPERATIONS

       <S>                <C>     <C>       <C>        <C>       <C>
       Oil and gas
       revenues and
       pipeline              
       operations         $43,454   $43,899  $ 44,106   $52,755  $ 51,961
       Litigation
       settlement                              11,466
       Total revenue       43,780    44,482    49,613    60,730    66,218
       Production
       operating expense   11,298    12,177    11,200    14,107    15,655
       Depreciation,
       depletion and
       amortization        15,827    18,168    17,076    18,866    17,165
       Impairment          10,943     7,345
       General and
       administrative
       expense              5,580     5,630     6,812     7,732     8,550
       Net income (loss)   (9,031)  (10,093)   13,064     3,613     4,468

       Net income (loss)
       per Unit             (1.07)    (1.20)    1.14       .21       .36    
       Distributions per
       Unit                  .80       .80       .80       .80      1.60    

       BALANCE SHEET
       Working capital
       (deficit)         $ (4,363) $ (9,390) $  7,020  $  6,306  $ (9,700)
       Property, plant
       and equipment, net  94,926   107,414   122,133   129,029   141,220
       Total assets       125,152   136,281   171,624   186,087   196,766
       Long-term debt      37,557    25,898    38,010    52,814    49,850
       Long-term contract
       settlement
       obligation           2,397     2,666     3,673     4,179     4,888
       Long-term lawsuit
       settlement
       liability                                          2,370
       Deferred liability   1,718     1,931     1,504     1,626     1,425
       Minority interest
       in subsidiaries      3,042     2,923     3,346     3,782     3,344
       Partners' capital   57,572    78,803    98,576    89,779    94,737

</TABLE>
   ITEM 7 - MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION AND
            RESULTS  OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES

   LIQUIDITY AND CAPITAL RESOURCES

   CASH FLOW 

   HEP generated $18,449,000 of cash flow from operating activities during 1995.

      The other primary cash inflows were:

      .  $15,000,000 in proceeds from long-term debt;
    
      .  $394,000 in proceeds from the sale of property.

      Cash was used primarily for:

      .  Distributions to partners of $10,020,000;

      .  Additions  to property, exploration  and development costs  incurred of
           $11,131,000;

      .  Payments of long-term debt of $7,379,000;

      .  Payments of contract settlement obligations of $1,336,000.

   When  combined with  miscellaneous other cash  activity during  the year, the
   result was  an  increase in  HEP's  cash of  $2,568,000,  from $2,409,000  at
   December 31, 1994 to $4,977,000 at December 31, 1995.

   PROPERTY PURCHASES, SALES AND CAPITAL BUDGET

   In   1995,  HEP  incurred  $11,131,000   in  direct  property  additions  and
   exploration and development costs,  and $5,844,000 for indirect  expenditures
   through its  investment in  HSD. HEP's budget  for 1995  was $11,600,000  for
   direct costs and $4,200,000  for indirect costs.  The costs were comprised of
   approximately $1,580,000 for  Indonesia exploration, approximately $6,824,000
   for  domestic  exploration  and  development  expenditures and  approximately
   $2,727,000 for  property acquisitions.   Overall, HEP's 1995  capital program
   led to  the replacement, through  acquisitions and  drilling, of 131%  of the
   equivalent barrels produced  during 1995, including  revisions to prior  year
   reserves.  Sales of reserves in place in 1995 were less than 2% of depletion.

   Through HEP's investment in HSD, HEP has incurred approximately $5,844,000 on
   the drilling of 33 wells, the recompletion of 30 wells and the acquisition of
   additional drilling leases on the Rocker "b" Ranch in Reagan County, Texas.

   HEP's  significant direct  exploration and  development expenditures  in 1995
   included approximately  $1,055,000 for  the  drilling of  seven  exploitation
   wells  in Reagan County, six of which were successful; approximately $790,000
   on six successful drilling wells  and nine recompletions, of which seven were
   successful, in the  West Texas  Kermit area; approximately  $200,000 for  the
   drilling  of a Red River/Interlake development well which was successful; and
   approximately $365,000 on  five successful and  one unsuccessful  nonoperated
   developmental wells and four successful operated recompletions in New Mexico.
   Additionally, HEP  completed  a successful  exploratory well  in Wyoming  for
   approximately $130,000, drilled two successful coal bed methane developmental
   wells,  acquired additional  working  interests in  the  San Juan  Basin  for
   approximately $220,000 and drilled two successful  development wells in Texas
   for approximately $530,000.

   HEP received $394,000 during 1995  in connection with the sale of properties.
   The  proceeds are comprised of  the sale of  various nonstrategic properties,
   none of which are individually significant.

   For 1996, HEP's  capital budget, which will be paid  from cash generated from
   operations and cash on hand has been set at $11,500,000.  In addition  to the
   above mentioned  activity  plans,  HEP's  domestic  exploitation  plans  also
   include projects  in the Delaware and  Permian Basins of Texas,  the Big Horn
   Basin of  Wyoming the Sweetgrass Arch in Montana,  Williston Basin of Montana
   and North Dakota, the  Michigan Basin, the Gulf Coast of  Louisiana, Blanding
   Basin  in Utah,  Sabine Uplift  in Louisiana  and others.   During  1996, HEP
   intends  to  complement its  domestic  operated  exploration and  development
   activities by participating in nonoperated activities which would in general,
   limit HEP's exposure, on a per well basis, to less than $150,000 with maximum
   working interests of 25%.  HEP will consider acquisitions in strategic  areas
   utilizing  capital  budget  supplemented by  external  financing.    HEP will
   continue to  consider international  projects  in 1996,  utilizing  stringent
   screening criteria.

   During  1995,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
   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 No.  121").  SFAS  121 provides the  standards for accounting  for the
   impairment  of various  long-lived assets.   The  Partnership is  required to
   adopt  SFAS  121 no  later  than 1996.    HEP uses  the full  cost  method of
   accounting  for its  long-lived assets,  which requires  an impairment  to be
   recorded when total capitalized costs exceed the present value, discounted at
   10%,  of estimated  future net  revenues from  proved oil  and  gas reserves.
   Therefore, the adoption of SFAS 121 is not expected to have a material effect
   on the financial position or results of operations of HEP.

   See Item 2 - Properties, for further discussion.

   DISTRIBUTIONS 

   During  1995 HEP declared $.80 per Unit  in distributions to its Unitholders.
   Oil and gas prices continue  to be low, and the resulting negative  effect on
   cash flow from operations will  impact the amount of distributions which  HEP
   will be able to make.  <PAGE>
   On January 19, 1996, HEP paid a dividend of one new Class C Unit for every 15
   HEP Class A Units held as of the record date of December 18,  1995.  Pursuant
   to the  regulation of the American  Stock exchange, holders of  Class A Units
   who sold their Units between December 14, 1995 and January 19, 1996 also sold
   their right to receive the  associated Class C Unit dividend.   Class C Units
   are a newly created class of units that trade separately from HEP's currently
   outstanding Units.  The Class C Units have a distribution preference of $1.00
   per year, payable quarterly, and distributions on the new units will commence
   for the first quarter of 1996.   Class C Units have been created to give  HEP
   greater  flexibility in  structuring future acquisitions  by allowing  HEP to
   issue a  security with a fixed distribution rate.   Currently outstanding HEP
   Units are referred  to as Class A Units but will continue to be listed on the
   American Stock Exchange using the symbol "HEP."

   If there are no  further adverse changes in the factors which effect HEP cash
   flow, including oil  and gas  prices, property and  partnership expenses  and
   other relevant information, and there is no change in the limitation in HEP's
   Credit Facilities on the amount of distributions permitted, HEP believes that
   it can distribute $.13 per Class A Unit and $.25 per Class C Unit for each of
   the  four quarters of 1996.   The combined effect of the  issuance of the new
   Class  C Units and the decrease  in distributions on the  Class A Units would
   result in  the $.80 annual distribution  that has been paid  since 1992 being
   reduced to  an annual rate of $.58 on a Class  A and associated Class C Unit.
   Future distributions  will be  determined after taking  into account  reduced
   cash  flow and  the limitation in  HEP's Credit  Facilities on  the amount of
   distributions.

   UNIT OPTION PLAN

   On January 31, 1995, the  board of directors of the general  partner approved
   the  adoption  of a  Unit  option  plan to  be  used for  the  motivation and
   retention of directors and employees performing  services for HEP.  The  plan
   authorizes the issuance of 425,000 options to purchase Class A Units.  Grants
   of  the total options authorized were made  on January 31, 1995, vesting one-
   third  at that  time, an  additional one-third  on January  31, 1996  and the
   remaining one-third on January 31, 1997.  In addition, the plan provides that
   vesting  of the options  may be  accelerated under  certain conditions.   The
   exercise price of the  options is $5.75, which  was the closing price of  the
   Class A Units on January 30, 1995.  No options have been exercised.

   During 1995 the FASB  issued Statement of Financial Accounting  Standards No.
   123,  "Accounting for  Stock  Based Compensation"  ("SFAS  123").   SFAS  123
   requires  entities to  use the fair  value method  to either  account for, or
   disclose,  stock  based compensation  in  their  financial  statements.   The
   Partnership is required to  adopt SFAS 123 no later  than 1996.  Because  the
   Partnership intends to  elect only the disclosure provisions of SFAS 123, the
   adoption  of SFAS  123  is not  expected to  have  a material  effect  on the
   financial position or results of operations of HEP.

   FINANCING 

   During the  first quarter of 1995,  HEP and its lenders  amended and restated
   HEP's Amended  and Restated Credit  Agreement ("Credit Agreement")  to extend
   the term  date of  its line  of credit  to May  31, 1997.   Under the  Credit
   Agreement ("Credit  Agreement")  and an  Amended and  Restated Note  Purchase
   Agreement ("Note Purchase Agreement") (collectively referred to as the Credit
   Facilities),  HEP  has a  borrowing  base of  $42,000,000.   HEP  has amounts
   outstanding  at December 31, 1995  of $24,700,000 under  the Credit Agreement
   and $12,857,000 under the Note  Purchase Agreement.  HEP's borrowing  base is
   further  reduced   by  an  outstanding  contract   settlement  obligation  of
   $2,771,000 and a capital lease obligation of $87,000; therefore, its   unused
   borrowing base totaled $1,585,000 at February 27, 1996.<PAGE>
   Borrowings  under the Note Purchase Agreement bear interest at an annual rate
   of  11.85%, which  is  payable  quarterly.    Annual  principal  payments  of
   $4,286,000 began April  30, 1992, and the debt is required to be paid in full
   on April 30, 1998.  HEP intends to fund the payment due in April 1996 through
   additional borrowings under the  Credit Agreement; thus, no portion  of HEP's
   Note Purchase Agreement is classified as current as of December 31, 1995.  

   Borrowings against  the Credit Agreement  bear interest  at the lower  of the
   Certificate of Deposit rate  plus 1.875%, prime plus 1/2%  or the Euro-Dollar
   rate plus 1.75%.  At December 31, 1995 the applicable interest rate was 7.5%.
   Interest  is   payable  monthly,  and  16  quarterly  principal  payments  of
   $1,812,000,  as  adjusted for  the anticipated  borrowings  to fund  the Note
   Purchase Agreement payment due in 1996, commence May 31, 1997.

   The  borrowing base for the Credit Facilities is redetermined semiannually in
   March and September  of each year.   The Credit  Facilities are secured  by a
   first lien  on approximately 80%  in value of  HEP's oil and  gas properties.
   Additionally, aggregate  distributions paid by HEP in any 12 month period are
   limited to  50% of cash flow  from operations before  working capital changes
   plus distributions received from affiliates.

   The current portion of  long-term debt represents a capital  lease obligation
   of $87,000.

   Included in net  working capital deficit of affiliates  is $4,650,000, net to
   HEP's interest, which represents the current portion of the long-term debt of
   HSD.   HSD's line of credit  of $4,650,000, net  to HEP's interest,  which is
   provided by a  third party lender, is  secured by certain leases  held by HSD
   and is  otherwise nonrecourse to  HEP.  Borrowings  under the line  of credit
   bear interest  at  the prime  rate  plus 8.5%  (17%  at December  31,  1995).
   Interest is payable monthly,  and the entire outstanding principal  is due on
   August 31, 1996.  The current intention is to refinance the debt on or before
   the due date so as to extend the repayment term.

   HEP entered into  contracts to hedge its interest rate payments on $5,000,000
   of  its debt  through the  end of  1995, $10,000,000  for 1996  and  1997 and
   $5,000,000 for  1998.  HEP does not use the  hedges for trading purposes, but
   rather for the purpose of providing a measure of predictability for a portion
   of  HEP's interest  payments under  its debt agreement  which has  a floating
   interest rate.   In general, it is  HEP's goal to hedge  50% of the principal
   amount of its debt for each year of the remaining term of  the debt.  HEP has
   entered into two hedges, one of which is an interest  rate collar pursuant to
   which it pays  a floor rate  of 7.55% and  a ceiling rate  of 9.85%, and  the
   other of  which is an  interest rate swap  with a fixed  rate of 5.74%.   The
   amounts received or paid upon settlement of these transactions are recognized
   as interest expense at the time the interest payments are due.

   GAS BALANCING

   HEP  uses the  sales method  for  recording its  gas balancing.    Under this
   method,  HEP recognizes revenue  on all of  its sales of  production, and any
   over-production or under-production is recovered at a future date.

   As of December 31, 1995, HEP  had a net over-produced position of 105,000 mcf
   ($191,000 valued at average annual gas prices).  The general partner believes
   that this  imbalance can be made up from production on existing wells or from
   wells  which  will be  drilled as  offsets  to existing  wells and  that this
   imbalance will  not have a  material effect  on HEP's results  of operations,
   liquidity and capital resources.  The reserves disclosed in Item 2 and Item 8
   have been  decreased by 105,000 mcf  in order to reflect  HEP's gas balancing
   position.

   INFLATION AND CHANGING PRICES

   Prices  obtained for oil and gas production depend upon numerous factors that
   are beyond the  control of HEP, including the extent  of domestic and foreign
   production, imports  of foreign  oil, market  demand, domestic  and worldwide
   economic and political conditions,  and government regulations and  tax laws.
   Prices  for both  oil and  gas have  fluctuated significantly  in 1995.   The
   following table presents the average prices received per year by HEP, and the
   effects of the hedging transactions discussed below.
<TABLE>
<CAPTION>

                     Oil            Oil           Gas            Gas
                 (excluding     (including     (excluding     (including
                   effects        effect        effects        effects
                 of hedging     of hedging     of hedging     of hedging
                transactions)  transactions) transactions)  transactions)
                  (per bbl)      (per bbl)     (per mcf)      (per mcf)

          <C>    <C>            <C>           <C>            <C> 
          1995   $16.98         $17.36         $1.58          $1.82  
          1994    15.50          16.47          1.90           1.97
          1993    16.79          17.71          2.12           1.94
</TABLE>
   HEP has entered  into numerous financial contracts to hedge  the price of its
   oil and natural  gas.   The purpose of  the hedges is  to provide  protection
   against price drops  and to provide  a measure of  stability in the  volatile
   environment of oil and natural gas spot pricing.  

   The following table provides a summary of HEP's financial contracts:
<TABLE>
<CAPTION>
                                         Oil                      

                               Percent of
                               Production           Contract
                   Period        Hedged            Floor Price
                                                    (per bbl)

                   <C>            <C>                <C>   
                   1996            22%               $15.08
                   1997            18%               $14.87
                   1998            15%               $14.83
                   1999             3%               $15.38
</TABLE>
   Between 16% and 100% of the oil volumes hedged in  each year are subject to a
   participating hedge whereby HEP will receive the contract price if the posted
   futures price is lower than the contract price, and will receive the contract
   price plus between  25% and 75% of the difference  between the contract price
   and the posted futures price if the posted  futures price is greater than the
   contract price.  Between 75% and 100%  of the volumes hedged in each year are
   subject to a collar agreement whereby  HEP will receive the contract price if
   the  spot price is lower than  the contract price, the cap  price if the spot
   price is  higher than  the cap price,  and the  spot price  if that price  is
   between the contract  price and  the cap price.   The  cap prices range  from
   $16.50 to $18.85.
<TABLE>
<CAPTION>
                                         Gas                     
                               Percent of
                               Production           Contract
                   Period        Hedged            Floor Price
                                                    (per mcf)

                   <C>            <C>                 <C> 
                   1996            47%                $2.04
                   1997            39%                $2.06
                   1998            41%                $2.10
                   1999            17%                $2.01
                   2000            20%                $2.01
</TABLE>
   Between 0% and 50%  of the gas volumes hedged  in each year are subject  to a
   collar agreement  whereby HEP  will receive  the contract  price if the  spot
   price  is lower than the  contract price, the cap price  if the spot price is
   higher than the cap price,  and the spot price  if that price is between  the
   contract price and the cap price.  The cap prices range from $2.65 to $2.93.

   During  the first  quarter  through February  14, 1996,  the  oil price  (for
   barrels  not hedged)  averaged between  $17.00 and  $18.50 per  barrel.   The
   weighted average price of  natural gas (for mcf not hedged) was between $1.35
   and $4.00 per mcf.

   INFLATION

   Inflation  did  not  have  a material  impact  on  HEP  in  1995 and  is  not
   anticipated to have a material impact in 1996.

   RESULTS OF OPERATIONS

   The following tables  are presented  to contrast HEP's  revenue, expense  and
   earnings  for discussion purposes.  Significant fluctuations are discussed in
   the  accompanying  narrative.   The  "direct owned"  column  represents HEP's
   direct royalty and  working interests in oil and gas  properties.  The "Mays"
   column represents the results  of operations of six May  Limited Partnerships
   which  are consolidated with HEP.  In  1995, HEP owned interests which ranged
   from 54.5% to 68.3% of the  Mays; in 1994 HEP's ownership in  the Mays ranged
   from  54.1% to 67.8%;  and in  1993 HEP's ownership  in the  Mays ranged from
   53.9% to 67.0%.  
<TABLE>
<CAPTION>

                  TABLE OF HEP EARNINGS FOR MANAGEMENT DISCUSSION
                            (In thousands except price)
                       For the Year Ended December 31, 1995



                                  For the Year Ended December 31, 1995
                                        Direct
                                        Owned         Mays      Total 

            <S>                            <C>       <C>       <C>  
            Oil production (bbl)             895        98       993
            Gas production (mcf)          11,497     1,538    13,035


            Average oil price             $17.32     $17.74    $17.36  

            Average gas price             $ 1.81     $ 1.92    $ 1.82  


            Oil revenue                 $ 15,501   $ 1,739  $ 17,240
            Gas revenue                   20,822     2,948    23,770
            Pipeline, facilities
            and other revenue              2,444               2,444
            Interest income                  263        63       326
                                           -----       ---      ----

                  Total revenue           39,030     4,750    43,780
                                          ------     -----    ------

            Production operating
            expense                       10,658       640    11,298
            Facilities operating
            expense                          794                 794
            General and
            administrative
            expense                        5,131       449     5,580
            Depreciation,
            depletion, and
            amortization                  14,058     1,769    15,827
            Impairment of oil
            and gas properties            10,943              10,943
            Interest expense               4,245               4,245
            Litigation
            settlement expense               337        49       386
            Equity in loss of
            HCRC                           2,273               2,273
            Minority interest                        1,465     1,465
                                           -----     -----     -----

               Total expense              48,439     4,372    52,811
                                          ------    ------   -------

               Net income (loss)        $ (9,409)  $   378  $ (9,031)
                                        =========  ======== =========
</TABLE>
<TABLE>
<CAPTION>


                  TABLE OF HEP EARNINGS FOR MANAGEMENT DISCUSSION
                            (In thousands except price)
                       FOR THE YEAR ENDED DECEMBER 31, 1994


                                      For the Year Ended December 31, 1994
                                            Direct
                                            Owned         Mays      Total 

        <S>                                    <C>       <C>       <C>  
        Oil production (bbl)                     826       113       939
        Gas production (mcf)                  11,521     1,687    13,208

        Average oil price                     $16.54     $15.98    $16.47  

        Average gas price                     $ 1.93     $ 2.22    $ 1.97  


        Oil revenue                         $ 13,664   $ 1,806  $ 15,470
        Gas revenue                           22,287     3,739    26,026
        Pipeline, facilities and
        other revenue                          2,403               2,403
        Interest income                          525        58       583
                                                 ---       ---       ---

           Total revenue                      38,879     5,603    44,482
                                             -------     ------   ------

        Production operating expense          11,491       686    12,177
        Facilities operating expense             730                 730
        General and administrative
        expense                                5,107       523     5,630
        Depreciation, depletion, and
        amortization                          15,894     2,274    18,168
        Impairment of oil and gas
        properties                             7,345               7,345
        Interest expense                       3,839               3,839
        Litigation settlement
        expense                                3,370               3,370
        Equity in loss of HCRC                 1,499               1,499
        Minority interest                                1,822     1,822
        Other                                     (5)                 (5)
                                               ------    -----     ------

           Total expense                      49,270     5,305    54,575
                                              ------     -----    -------

              Net income (loss)             $(10,391)   $  298  $(10,093)
                                            ========    ======  =========
</TABLE>
<TABLE>
<CAPTION>


                  TABLE OF HEP EARNINGS FOR MANAGEMENT DISCUSSION
                            (In thousands except price)
                       FOR THE YEAR ENDED DECEMBER 31, 1993


                                      For the Year Ended December 31, 1993
                                            Direct
                                            Owned         Mays      Total 

        <S>                                    <C>       <C>       <C>  
        Oil production (bbl)                     781       100       881
        Gas production (mcf)                  12,171     1,902    14,073

        Average oil price                     $17.73     $17.52    $17.71  

        Average gas price                     $ 1.88     $ 2.34    $ 1.94  


        Oil revenue                         $ 13,847   $ 1,752  $ 15,599
        Gas revenue                           22,848     4,446    27,294
        Gas marketing and
        transportation                         5,046               5,046
        Pipeline, facilities and
        other revenue                          1,624      (411)    1,213
        Interest income                          407        54       461
                                              ------     -----    ------
              Total revenue                   43,772     5,841    49,613
                                              ------    ------    ------

        Production operating expense          10,442       758    11,200
        Facilities operating expense             489                 489
        Gas purchase and
        transportation                         4,611               4,611
        General and administrative
        expense                                6,188       624     6,812<PAGE>
        Depreciation, depletion, and
        amortization                          14,834     2,242    17,076
        Interest expense                       4,688               4,688
        Litigation settlement
        expense                                1,015       683     1,698
        Equity in (loss) of HCRC                (112)               (112)
        Minority interest                                1,549     1,549
        Litigation settlement income         (11,466)            (11,466)
        Other                                      4                   4
                                              ------    ------    ------
           Total expense                      30,693     5,856    36,549
                                              ------    ------    ------


              Net income (loss)             $ 13,079   $   (15) $ 13,064
                                            ========   ========  =======
</TABLE>

   1995 COMPARED TO 1994

   GENERAL

   The fluctuations related to  the "Mays"   column are either insignificant  or
   attributable to the same reasons set forth below.

   OIL REVENUE

   Oil revenue  for HEP's  direct owned  properties increased  $1,837,000 during
   1995 as compared with 1994.   The increase is  comprised of a 5% increase  in
   the average oil price from $16.54 per barrel in 1994 to $17.32 per  barrel in
   1995, combined  with an 8%  increase in production,  from 826,000  barrels in
   1994  to 895,000  barrels in  1995.   The increase  in production  is  due to
   increased  production  from developmental  drilling projects  in  West Texas,
   offset by normal production declines.

   The  effect  of HEP's  hedging  transactions described  under  "Inflation and
   Changing Prices" on the direct owned properties was to increase HEP's average
   oil price  from  $16.90 per  barrel  to $17.32  per  barrel, resulting  in  a
   $376,000 increase in revenue for 1995.

   GAS REVENUE

   For HEP's direct owned properties, gas revenue decreased by $1,465,000 during
   1995 as compared with  1994.  The decrease is comprised of  a slight decrease
   in gas production from  11,521,000 mcf during  1994 to 11,497,000 mcf  during
   1995 combined with a 6% decrease in  the average gas price from $1.93 per mcf
   in  1994 to $1.81  per mcf  in 1995.   The decrease  in production is  due to
   decreases  in  allowable production  limits and  normal  production declines,
   partially offset by increased production from developmental drilling projects
   in West Texas.

   The effect of  HEP's hedging transactions on  the direct owned  properties as
   described under "Inflation and Changing Prices" was to increase HEP's average
   gas price from  $1.54 per mcf to $1.81  per mcf, representing   an $3,104,000
   increase in revenues for 1995.

   INTEREST INCOME

   The decrease in  total interest income  of $257,000 during  1995 as  compared
   with 1994 resulted from  a lower average cash balance during 1995 as compared
   with 1994.

   PRODUCTION OPERATING EXPENSE

   Production operating expense for HEP direct decreased $833,000 during 1995 as
   compared with 1994, primarily as a result of general cost  reductions in West
   Texas.

   FACILITIES OPERATING EXPENSE

   Facilities operating  expense represents  operating expenses  associated with
   various  smaller  gathering  systems  operated  by  HEP.    The  increase  in
   facilities operating expense  of $64,000  is primarily due  to the  increased
   maintenance activity during 1995.

   DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE

   Total depreciation,  depletion and amortization  expense decreased $2,341,000
   during 1995 as compared with 1994.   The decrease is primarily the result  of
   lower capitalized costs in 1995  as compared with 1994, primarily due  to the
   property impairment recorded during the second quarter of 1995 and the fourth
   quarter of 1994.

   IMPAIRMENT OF OIL AND GAS PROPERTIES

   Impairment of oil and gas properties during 1995 represents the impairment of
   $7,000,000 recorded because capitalized  costs at June 30, 1995  exceeded the
   present  value  (discounted at  10%) of  estimated  future net  revenues from
   proved oil and gas  reserves, based on prices at that date of  $16.50 per bbl
   of oil and $1.50 per mcf of gas, as well as the write-off of HEP's Indonesian
   operations of $3,943,000.   The impairment  of oil and gas  properties during
   1994 represents  an impairment  of  $6,000,000 recorded  because  capitalized
   costs at December 31, 1994 exceeded the present value (discounted  at 10%) of
   estimated future  net revenues from  proved oil  and gas  reserves, based  on
   prices at  that date of $15.80  per bbl of oil  and $1.72 per mcf  of gas, as
   well as the write-off of certain foreign drilling projects of $1,345,000.

   INTEREST EXPENSE

   Total interest expense for HEP increased by $406,000 during  1995 as compared
   with 1994.  The increase is due to  a higher average outstanding debt balance
   during 1995 as compared to 1994.

   LITIGATION SETTLEMENT EXPENSE

   Litigation settlement  expense during  1995  consists primarily  of  expenses
   incurred  to settle  various individually  insignificant claims  against HEP.
   Litigation settlement expense during 1994 represents the settlement of claims
   against  HEP  which  are  further  discussed  in Note  13  to  the  Financial
   Statements  in  Item 8,  as well  as  an amount  paid to  settle a  claim for
   royalties on a 1989 take-or-pay settlement.

   EQUITY IN EARNINGS (LOSS) OF HCRC

   Equity in  loss of HCRC  represents HEP's share  of its equity  investment in
   HCRC.   HEP's  equity in  HCRC's loss  increased by  $774,000 during  1995 as
   compared to 1994.  The increase is primarily the result  of HCRC's impairment
   expense resulting  from the  write-off  of its  Indonesian operations  during
   1995, as well as a second quarter property impairment recorded by HCRC.

   1994 COMPARED TO 1993

   GENERAL

   The fluctuations  related to the "Mays"   column are  either insignificant or
   attributable to the same reasons set forth below.

   OIL REVENUE

   Oil  revenue for HEP's direct owned properties decreased $183,000 during 1994
   as compared with  1993.  The  decrease is comprised of  a 7% decrease in  the
   average oil  price from $17.73  per barrel  in 1993 to  $16.54 per barrel  in
   1994, partially offset by a 6% increase in production from 781,000 barrels in
   1993 to  826,000 barrels  in 1994.    The increase  in production  is due  to
   property  acquisitions which  occurred late in  1993 combined  with increased
   production from  developmental drilling  projects  in West  Texas, offset  by
   normal production declines.

   The  effect of  HEP's  hedging transactions  described  under "Inflation  and
   Changing Prices" on the direct owned properties was to increase HEP's average
   oil  price  from $15.43  per  barrel to  $16.54  per barrel,  resulting  in a
   $917,000 increase in revenue for 1994.

   GAS REVENUE

   For HEP's direct owned  properties, gas revenue decreased by  $561,000 during
   1994 as compared with 1993.   The decrease is  comprised of a 5% decrease  in
   gas  production from 12,171,000 mcf during 1993 to 11,521,000 mcf during 1994
   offset by a 3% increase in the  average gas price from $1.88 per mcf in  1993
   to $1.93  per mcf in 1994.   The decrease  in production is  due to decreased
   production  in  the Scott  Field, due  to  decreases in  allowable production
   limits  and  normal  production  declines,  partially  offset  by   increased
   production from property acquisitions which occurred late in 1993.

   The effect  of HEP's hedging transactions  on the direct  owned properties as
   described under "Inflation and Changing Prices" was to increase HEP's average
   gas price  from $1.86 per  mcf to $1.93  per mcf,  representing  an  $806,000
   increase in revenues for 1994.

   GAS MARKETING

   Gas marketing and transportation revenue and expense represent gas  marketing
   activities conducted by HEP  in West Virginia, including purchases  and sales
   through  a pipeline  interconnect  between two  interstate  gas pipelines  in
   Cabell  County, West Virginia.  The decrease  in this activity during 1994 as
   compared with  1993 is the result  of discontinued third  party gas marketing
   activity due to the sale of the West Virginia properties in March 1993.

   PIPELINE, FACILITIES AND OTHER REVENUE

   Total pipeline, facilities and other revenue consists primarily of facilities
   income from two  gathering systems  located in New  Mexico, revenues  derived
   from salt water disposal and  incentive payments related to certain  wells in
   San  Juan County, further described in Note  3 to the Financial Statements in
   Item 8.  Total pipeline and other revenue increased $1,190,000 during 1994 as
   compared  with  1993.   The  increase  is the  result  of incentive  payments
   received  during 1994, combined with an increase in facilities income arising
   primarily from  the connection of  several wells in  the Catclaw Draw  and La
   Plata areas in New Mexico during 1994.

   INTEREST INCOME

   The increase  in total interest  income of  $122,000 during 1994  as compared
   with 1993 resulted from a higher average cash balance during 1994 as compared
   with 1993.

   PRODUCTION OPERATING EXPENSE

   Production operating expense for HEP direct increased $1,049,000 during  1994
   as compared with 1993, primarily as a result of increased salt water disposal
   costs in  the Scott/West  Ridge area,  increased ad  valorem tax  expense and
   increased operating expenses due to property acquisitions which occurred late
   in 1993.

   FACILITIES OPERATING EXPENSE

   The increase in facilities operating expense  of $241,000 is primarily due to
   the connection of several wells in the Catclaw Draw and the La Plata areas in
   New Mexico during 1993 and 1994.

   GENERAL AND ADMINISTRATIVE EXPENSE

   General and administrative expense for HEP direct includes costs incurred for
   direct  administrative services such as  legal, audit and  reserve reports as
   well  as allocated  internal overhead  incurred by  the operating  company on
   behalf  of  HEP.   These  expenses  decreased by  $1,081,000  during 1994  as
   compared with 1993,  primarily as a  result of a  $400,000 decrease in  legal
   expenses during 1994  as well as  a $500,000  decrease in allocated  internal
   overhead incurred by HPI.

   DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE

   Total depreciation,  depletion and amortization  expense increased $1,092,000
   during 1994 as compared with 1993.   The increase is primarily the  result of
   higher  capitalized costs  in 1994 as  compared with  1993, primarily  due to
   property acquisitions previously discussed.

   IMPAIRMENT OF OIL AND GAS PROPERTIES

   Impairment of oil  and gas  properties represents the  impairment expense  of
   $6,000,000 recorded because  capitalized costs at December 31,  1994 exceeded
   the present value (discounted  at 10%) of estimated future net  revenues from
   proved oil  and gas reserves, based on prices  at that date of $15.80 per bbl
   of oil and  $1.72 per mcf of gas, as well as the write-off of certain foreign
   drilling projects of $1,345,000.

   INTEREST EXPENSE

   Total interest expense for HEP  decreased by $849,000 during 1994 as compared
   with  1993.  The decrease is due to  a lower average outstanding debt balance
   during 1994 as compared to 1993, partially offset by higher interest rates.

   LITIGATION SETTLEMENT EXPENSE

   Litigation settlement expense represents the settlement of claims against HEP
   which are further discussed in Note 13 to the Financial Statements in Item 8,
   as well as an amount paid to settle  a claim for royalties on a 1989 take-or-
   pay settlement.

   EQUITY IN EARNINGS (LOSS) OF HCRC

   HEP's equity in HCRC's earnings (loss) decreased by $1,611,000 during 1994 as
   compared to 1993.  The decrease is primarily the result  of HCRC's impairment
   of its oil and gas properties which exceeded the present value (discounted at
   10%) of  estimated future net revenues  from proved oil and  gas reserves and
   the impairment of  certain foreign drilling projects which  HCRC is no longer
   pursuing.

   LITIGATION SETTLEMENT INCOME

   Litigation settlement income in  1993 represents the proceeds from  a lawsuit
   settlement  which is further discussed in Note 13 to the Financial Statements
   in Item 8 of Form 10-K for the year ended December 31, 1995.



   ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

               INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


   FINANCIAL STATEMENTS:                                                   PAGE 

   Independent Auditors' Report                                               27

   Consolidated Balance Sheets at December 31, 1995 and 1994               28-29

   Consolidated Statements of Operations for the years
     ended December 31, 1995, 1994 and 1993                                   30

   Consolidated Statements of Cash Flows for the years 
     ended December 31, 1995, 1994 and 1993                                   31

   Consolidated Statements of Partners' Capital for the 
     years ended December 31, 1995, 1994 and 1993                             32

   Notes to Consolidated Financial Statements                              33-49

   SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION - (UNAUDITED)              50-53



                           INDEPENDENT AUDITORS' REPORT


   TO THE PARTNERS OF HALLWOOD ENERGY PARTNERS, L.P.:

   We have  audited  the consolidated  financial statements  of Hallwood  Energy
   Partners, L.P.  as of December  31, 1995 and  1994 and for each  of the three
   years in the period  ended December 31, 1995, listed in  the index at Item 8.
   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, such consolidated financial statements present fairly, in all
   material respects,  the financial position of Hallwood  Energy Partners, L.P.
   at December 31, 1995 and 1994, and the results of its operations and its cash
   flows for each of the  three years in the  period ended December 31, 1995  in
   conformity with generally accepted accounting principles. 



   DELOITTE & TOUCHE LLP<PAGE>
   Denver, Colorado
   February 27, 1996

<TABLE>
<CAPTION>


                          HALLWOOD ENERGY PARTNERS, L.P. 
                            CONSOLIDATED BALANCE SHEETS
                                  (In thousands)

                                                         December 31, 
                                                      1995       1994

            <S>                                  <C>        <C>     
            CURRENT ASSETS
                                                                    
               Cash and cash equivalents          $  4,977  $  2,409
               Accounts receivable:
                  Oil and gas sales                  6,767     6,220
                  Trade                              2,860     3,042
               Due from affiliates                   2,808     1,647
               Prepaid expenses and other current
               assets                                1,091     1,352
                                                    ------     ------

                     Total                          18,503    14,670
                                                    -------   -------

            PROPERTY, PLANT AND EQUIPMENT, at cost
            Oil and gas properties (full cost
            method):
               Proved mineral interests            601,323   588,758
               Unproved mineral interests -
               domestic                                684       380
               Unproved mineral interest - foreign             2,399
            Furniture, fixtures and other            3,090     2,980
                                                   --------  --------
                     Total                         605,097   594,517

               Less accumulated depreciation,
               depletion, amortization and
               property impairment                (510,171) (487,103)
                                                  ---------  -------
                     Total                          94,926   107,414
                                                   --------   -------

            OTHER ASSETS
               Investment in common stock of HCRC   11,491    13,764
               Deferred expenses and other assets      232       433
                                                    -------   -------
                     Total                          11,723    14,197
                                                    ------   -------

            TOTAL ASSETS                          $125,152  $136,281
                                                   =======   =======

</TABLE>
<TABLE>
<CAPTION>
                          HALLWOOD ENERGY PARTNERS, L.P. 
                            CONSOLIDATED BALANCE SHEETS
                                  (In thousands)

                                                       December 31,   
                                                      1995       1994

            <S>                                 <C>         <C>     
            CURRENT LIABILITIES

               Accounts payable and accrued                         
               liabilities                        $ 17,344  $ 18,407
               Net working capital deficit of
               affiliate                             5,061       103
               Current portion of contract
               settlement                              374     1,425
               Current portion of long-term debt        87     4,125
                                                       ---       ---
                     Total                          22,866    24,060
                                                    ------    ------


            NONCURRENT LIABILITIES
               Long-term debt                       37,557    25,898
               Contract settlement                   2,397     2,666
               Deferred liability                    1,718     1,931
                                                    -------   -------
                     Total                          41,672    30,495
                                                    -------   ------

                        Total Liabilities           64,538    54,555
                                                    ------    ------

            MINORITY INTEREST IN SUBSIDIARIES        3,042     2,923
                                                     -----     -----

            PARTNERS' CAPITAL
               Class A Units - 9,977,254 Units
               issued, 9,193,159 and 9,659,504
               outstanding at December 31, 1995
               and 1994, respectively               59,614    77,342
               Class B subordinated Units -
               143,773 Units outstanding             1,062     1,350
               Class C Units - No Units issued
               General Partner                       2,981     4,051
               Treasury Units - 784,095 and
               317,750 Units at 1995 and 1994,
               respectively                         (6,085)   (3,940)
                                                    -------   -------
                        Partners' Capital - Net     57,572    78,803
                                                    ------    ------

            TOTAL LIABILITIES AND PARTNERS'
            CAPITAL                               $125,152  $136,281
                                                  ======== =========



</TABLE>
<TABLE>
<CAPTION>
                          HALLWOOD ENERGY PARTNERS, L.P. 
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                          (In thousands except per Unit)

                                     For the Years Ended December 31,
                                         1995      1994      1993 

    <S>                            <C>        <C>      <C>      
    REVENUES:
                                                    
       Oil revenue                  $ 17,240  $ 15,470  $ 15,599
       Gas revenue                    23,770    26,026    27,294
       Gas marketing and
       transportation                                      5,046
       Pipeline, facilities and other  2,444     2,403     1,213
       Interest                          326       583       461
                                      ------    ------     -----
                                      43,780    44,482    49,613
                                      ------    ------    ------


    EXPENSES:
       Production operating           11,298    12,177    11,200
       Facilities operating              794       730       489
       Gas purchases and
       transportation                                      4,611
       General and administrative      5,580     5,630     6,812
       Depreciation, depletion and
       amortization                   15,827    18,168    17,076
       Impairment of oil and gas
       properties                     10,943     7,345
       Interest                        4,245     3,839     4,688
       Litigation settlement             386     3,370     1,698
                                      ------    ------    ------
                                      49,073    51,259    46,574
                                      ------    ------    ------

    OTHER INCOME (EXPENSES):
       Equity in earnings (loss) of
       HCRC                           (2,273)   (1,499)      112
       Minority interest in net
       income of subsidiaries         (1,465)   (1,822)   (1,549)
       Litigation settlement                              11,466
       Other                                         5        (4)
                                      -------    ------    ------
                                      (3,738)   (3,316)   10,025
                                      -------   -------   ------

    NET INCOME (LOSS)               $ (9,031) $(10,093) $ 13,064
                                     ========   =======   =======

    ALLOCATION OF NET INCOME LOSS:

    General partner                 $  1,289  $  1,631  $  2,394
                                    ========  ========  ========
    Limited partners                $(10,320) $(11,724) $ 10,670
                                    ========  ========= =========
       Per Class A Unit and Class B
       Unit                            $ (1.07)   $(1.20)   $ 1.14 
                                         ======    =====    ====== 
                                                                   
       Weighted average Class A Units
       and Class B Units outstanding   9,683     9,807     9,365
                                       =====     =====     =====

</TABLE>
<TABLE>
<CAPTION>
                          HALLWOOD ENERGY PARTNERS, L.P.
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In thousands)

                                            For the Years Ended
                                              December 31, 
                                         1995      1994      1993 

    <S>                             <C>       <C>        <C>    
    OPERATING ACTIVITIES:
                                                                
       Net income (loss)            $ (9,031) $(10,093) $ 13,064
       Adjustments to reconcile net
       income (loss) to net cash
       provided by operating
       activities:
         Depreciation, depletion,
         amortization and impairment  26,770    25,513    17,076
         Depreciation charged to
         affiliates                      256       348       395
         Amortization of deferred
         loan costs and other assets     201       260       319
         Noncash interest expense        289       394       485
         Minority interest in net
         income                        1,465     1,822     1,549
         Take-or-pay recoupment         (571)     (313)
         Equity in (earnings) loss
         of HCRC                       2,273     1,499      (112)
         Undistributed (earnings)
         loss of affiliates             (886)      158        95
                                         ---       ---       ---


         Cash from operations before
         working capital changes      20,766    19,588    32,871

       Changes in operating assets
       and liabilities provided
       (used) cash net of noncash
       activity:
         Oil and gas sales
         receivable                     (547)    3,341     1,247
         Trade receivable                182     2,757     2,460
         Due from affiliates          (1,161)   (1,529)      368
         Prepaid expenses and other
         current assets                  261     3,590    (2,406)
         Accounts payable and                         
         accrued liabilities          (1,052)   (6,172)   (5,228)
                                      -------    ------   -------
                Net cash provided by                            
                operating activities  18,449    21,575    29,312
                                      ------    ------    ------

    INVESTING ACTIVITIES:
       Additions to property, plant
       and equipment                  (2,727)   (3,657)   (6,269)
       Exploration and development
       costs incurred                 (8,404)   (9,978)   (6,287)
       Proceeds from sales of
       property, plant and equipment     394     2,599     4,549<PAGE>
       Distributions received from
       affiliates                                          3,204
       Decrease in restricted cash                         2,050
       Other investing activities                  (25)     (117)
                                         ---       ---       ---
             Net cash used in
             investing activities    (10,737)  (11,061)   (2,870)
                                     --------   --------   -------

    FINANCING ACTIVITIES:
    Payments of long-term debt        (7,379)  (12,375)  (19,421)
    Proceeds from long-term debt      15,000     4,300     4,300
    Distributions paid               (10,020)   (9,547)   (8,703)
    Distributions paid by
    consolidated subsidiaries to
    minority shareholders             (1,346)   (2,245)   (1,985)
    Payment of contract settlement    (1,336)   (1,343)   (1,150)
    Other financing activities           (63)      (34)      (72)
                                         ---       ---       ---
             Net cash used in
             financing activities     (5,144)  (21,244)  (27,031)
                                      -------   -------  --------

    NET INCREASE (DECREASE) IN CASH
    AND CASH EQUIVALENTS               2,568   (10,730)     (589)

    CASH AND CASH EQUIVALENTS:

       BEGINNING OF YEAR               2,409    13,139    13,728
                                         ---       ---       ---

       END OF YEAR                  $  4,977  $  2,409  $ 13,139
                                     =======   =======   =======


</TABLE>
<TABLE>
<CAPTION>
                          HALLWOOD ENERGY PARTNERS, L.P. 
                   CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
                            (In thousands except Units)


                                 General   Class A   Class B  Treasury
                                 Partner    Units     Units    Units  

            <S>              <C>        <C>       <C>       <C>     
            BALANCE,                                                
            DECEMBER 31, 1992  $ 4,646  $ 87,461   $ 1,586  $ (3,914)
            Adjustments
            relating to
            therepurchase of
            Units previously
            held by non-U.S.
            citizens
            Issuance of Units              4,703
            Syndication costs                 (3)
            Cancellation of
            previously
            escrowed Units
            Distributions       (2,168)   (6,684)     (115)
            Net income           2,394    10,479       191          
                                ------    -------      ---     -----

            BALANCE, 
            DECEMBER 31, 1993    4,872    95,956     1,662    (3,914)
            Increase in
            Treasury Units                                       (26)
            Syndication costs                (34)
            Distributions       (2,452)   (7,052)     (116)
            Net income (loss)    1,631   (11,528)     (196)         
                                ------    -------     -----      ----

            BALANCE,                                                
            DECEMBER 31, 1994    4,051    77,342     1,350    (3,940)
            Increase in
            Treasury Units                                    (2,145)
            Syndication costs                (63)
            Distributions       (2,359)   (7,517)     (116)
            Net income (loss)    1,289   (10,148)     (172)         
                                ------   --------     ------   ------

            BALANCE, 
            DECEMBER 31, 1995  $ 2,981  $ 59,614   $ 1,062   $(6,085)
                               =======   =======   =======   ========

<FN>1

   (Consolidated Statements of Partners' Capital - Continued)
</TABLE>
<TABLE>
<CAPTION>
                         Class A      Class B     Treasury
                          Units        Units       Units  

    <S>                <C>           <C>         <C>     
    BALANCE,                                
    DECEMBER 31, 1992  9,125,078     143,773      313,725
    Adjustments
    relating to the
    repurchase of
    Units previously
    held by non-U.S.
    citizens                (107)
    Issuance of Units    549,908
    Syndication costs
    Cancellation of
    previously
    escrowed Units       (11,350)
    Distributions
    Net income                                           
                             ---         ---          ---

    BALANCE, 
    DECEMBER 31, 1993  9,663,529     143,773      313,725
    Increase in
    Treasury Units        (4,025)                   4,025
    Syndication costs
    Distributions
    Net income (loss)                                    
                             ---         ---          ---
    BALANCE, 
    DECEMBER 31, 1994  9,659,504     143,773      317,750
    Increase in
    Treasury Units      (466,345)                 466,345
    Syndication costs
    Distributions
    Net income (loss)                                    
                         -------     -------       ------

    BALANCE, 
    DECEMBER 31, 1995  9,193,159     143,773      784,095
                       =========     =======      ========

<FN>1
           The accompanying notes are an integral part of the financial
                                    statements.
</TABLE>

                          HALLWOOD ENERGY PARTNERS, L.P. 
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


   NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

   Hallwood Energy  Partners, L.P. ("HEP"  or the  "Partnership") is a  publicly
   traded  Delaware limited  partnership  engaged in  the  production, sale  and
   transportation  of  oil   and  gas  and  in   the  acquisition,  exploration,
   development  and operation  of  oil and  gas properties.    The Partnership's
   properties are primarily located in the Rocky Mountain,  Mid-Continent, Texas
   and Gulf Cost regions of the  United States.  The principal objectives of HEP
   are to maintain or  expand its reserve base and to provide cash distributions
   to holders  of its  units representing  limited partner  interests ("Units").
   The general partner of HEP is  Hallwood Energy Corporation ("HEC") which  has
   been   engaged  in  oil  and  gas   exploration  and  development  since  its
   incorporation in  1968.    HEP  commenced operations  in  August  1985  after
   completing an exchange offer in which HEP acquired oil and gas properties and
   operations from HEC, 24 oil and gas limited partnerships of which HEC was the
   general partner, and certain working interest owners that had participated in
   wells with HEC and the limited partnerships.

   The  activities of  HEP are  conducted through  HEP Operating  Partners, L.P.
   ("HEPO") and EDP Operating, Ltd.  ("EDPO").  HEP is the sole  limited partner
   and HEC is the sole general partner of HEPO.  Hallwood G.P., Inc. ("HGPI"), a
   wholly-owned subsidiary of HEC,  is the sole general  partner and HEP is  the
   sole limited  partner of  EDPO.  Solely  for purposes  of simplicity  herein,
   unless  otherwise indicated,  all references  to HEP  in connection  with the
   ownership,  exploration, development or production of  oil and gas properties
   include HEPO and EDPO.

   ACCOUNTING POLICIES

   CONSOLIDATION 

   HEP  fully  consolidates majority  owned  entities  and  reflects a  minority
   interest  in the  consolidated financial  statements.   HEP accounts  for its
   interest in 50% or less owned affiliated oil and gas partnerships and limited
   liability   companies  using  the   proportionate  consolidation   method  of
   accounting.  HEP's investment in approximately 40% of the common stock of its
   affiliate, Hallwood Consolidated Resources Corporation ("HCRC"), is accounted
   for under the equity method.

   The accompanying  financial statements  include  the activities  of HEP,  its
   subsidiaries, Hallwood Petroleum, Inc. ("HPI") and Hallwood Oil and Gas, Inc.
   ("Hallwood Oil")  and majority owned affiliates, the May Limited Partnerships
   1983-1,  1983-2, 1983-3, 1984-1, 1984-2,  1984-3 ("Mays").   Also included is
   HEP's pro rata share of  the activities of Nycotex Gas  Transport ("Nycotex")
   through March 31, 1993, the effective date of its disposition.

   DERIVATIVES

   HEP has entered into numerous  financial contracts to hedge the price  of its
   oil and  natural gas.   The purpose  of the  hedges is to  provide protection
   against price  drops and to  provide a measure  of stability in  the volatile
   environment  of oil and  natural gas spot  pricing.  The  amounts received or
   paid upon settlement of these contracts are recognized as oil  or gas revenue
   at the time the hedged volumes are sold.

   GAS BALANCING

   HEP  uses  the sales  method for  recording  its gas  balancing.   Under this
   method, HEP recognizes  revenue on all  of its sales  of production, and  any
   over-production or under-production is recovered at a future date.

   As  of December 31, 1995, HEP had a net over-produced position of 105,000 mcf
   ($191,100 valued at average  gas prices).  The general partner  believes that
   this imbalance can be made up from production on existing wells or from wells
   which will  be drilled as offsets  to existing wells and  that this imbalance
   will not have a material effect on HEP's results of operations, liquidity and
   capital resources.   The December 31,  1995 reserves have  been decreased  by
   105,000 mcf in order to reflect HEP's gas balancing position.

   ALLOCATIONS 

   Partnership costs and revenues  are allocated to Unitholders and  the general
   partner  pursuant to the partnership agreement ("the Agreement") as set forth
   below.  
<TABLE>
<CAPTION>

                                                           General
                                             Unitholders   Partner

               <S>                            <C>          <C>    
               Property Costs and Revenues
                  Initial acquisition costs
                  - Acreage other than              
                  exploratory                   100%          0%
                    Exploratory acreage          98%          2%
                  Producing wells -
                    Costs and revenues           98%          2%
                  Development wells (1) -
                    Costs through
                    completion                  100%          0%
                    All other costs and
                    revenues                     95%          5%
                  Exploratory wells (1) -
                    Costs through                90%         10%
                    completion
                    All other costs and            
                    revenues                     75%         25%
                  All other costs and              
                  revenues                       98%          2%
<FN>1
      (1)   The percentages  set forth above  are for wells  drilled under<PAGE>
            the EDPO partnership agreement.  The majority of wells drilled
            under  the  HEPO  partnership agreement  share  costs  through
            completion in a ratio of 7.5% to the general partner and 92.5%
            to the Unitholders and share all other costs and revenues in a
            ratio  of  18.75% to  the general  partner  and 81.25%  to the
            Unitholders.  
</TABLE>
   PROPERTY, PLANT AND EQUIPMENT 

   HEP  follows the full cost method of  accounting whereby all costs related to
   the acquisition  of oil and gas  properties are capitalized in  a single cost
   center ("full cost pool") and  are amortized over the productive life  of the
   underlying  proved reserves using the  units of production  method.  Proceeds
   from property sales are generally credited to the full cost pool.  

   Capitalized costs of oil and gas properties may not exceed an amount equal to
   the present value,  discounted at 10%, of estimated future  net revenues from
   proved oil and gas reserves plus the cost, or estimated fair market value, if
   lower, of unproved properties.  Should capitalized costs exceed this ceiling,
   an impairment  is recognized.   The  present value  of estimated  future  net
   revenues is computed by applying  current prices of oil and gas  to estimated
   future  production  of proved  oil  and gas  reserves  as of  year  end, less
   estimated  future expenditures to be incurred in developing and producing the
   proved reserves assuming continuation of existing economic conditions.

   HEP  does not  accrue costs  for future  site restoration,  dismantlement and
   abandonment  costs related  to  proved oil  and  gas properties  because  the
   Partnership estimates that such costs will be offset by the  salvage value of
   the  equipment sold upon abandonment  of such properties.   The Partnership's
   estimates are based upon its historical experience and upon review of current
   properties and restoration obligations.

   Unproved properties are withheld  from the amortization base until  such time
   as they  are either  developed or  abandoned.  The  properties are  evaluated
   periodically.

   During  1995,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
   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").   SFAS  121  provides  the standards  for  accounting for  the
   impairment of various  long-lived assets.  HEP is required  to adopt SFAS 121
   no later than 1996.  HEP uses the full cost method of accounting for its only
   long-lived assets, which  requires an  impairment to be  recorded when  total
   capitalized costs exceed the  present value, discounted at 10%,  of estimated
   future  net revenues  from  proved  oil and  gas  reserves.   Therefore,  the
   adoption  of SFAS  121  is not  expected  to have  a material  effect  on the
   financial position or results of operations of HEP.

   DEFERRED LIABILITY

   The deferred liability as of December 31, 1995 and 1994 consists primarily of
   HEP's share of the unrecouped  portion of a 1989 take-or-pay settlement which
   is recoupable in gas volumes through February 1997.

   DISTRIBUTIONS

   HEP paid a $.20 per Unit distribution  on February 15, 1996 to Unitholders of
   record  on  December  31,  1995.     This  amount  and  the  general  partner
   distribution were accrued  as of year  end.  At December  31, 1995 and  1994,
   distributions  payable  of  $2,477,000   and  $2,505,000,  respectively  were
   included  in  accounts   payable  and  accrued  liabilities.    HEP  declared
   distributions of $.80 per Unit for  each of the years ended December 31, 1995
   and 1994.

   INCOME TAXES 

   No  provision for  federal  income  taxes  is  included  in  HEP's  financial
   statements because, as a partnership, it is not subject to federal income tax
   and the tax  effect of its  activities accrues to  the partners.  In  certain
   circumstances,  partnerships may  be  held  to  be  associations  taxable  as
   corporations.  The  IRS has issued regulations specifying circumstances under
   current law when such a finding may  be made, and management has obtained  an
   opinion of  counsel based on those regulations that HEP is not an association
   taxable as a  corporation.  A finding that HEP is an association taxable as a
   corporation  could have a material  adverse effect on  the financial position
   and results of operations of HEP.

   As of December 31, 1995, the inside tax basis of HEP's net assets exceeds the
   book basis by approximately $34,000,000.

   CASH AND CASH EQUIVALENTS

   All  highly liquid investments purchased  with an original  maturity of three
   months or less are considered to be cash equivalents.

   COMPUTATION OF NET INCOME PER UNIT 

   Net income  per Unit is computed  by dividing net income  attributable to the
   limited partners'  interest by the weighted  average number of  Class A Units
   and Class B Units outstanding.   All Unit and  per Unit information has  been
   restated  to  reflect the  issuance of  Class  A Units  in connection  with a
   lawsuit settlement further described in Note 13.

   At December  31, 1995, HEP owns  approximately 40% of  the outstanding common
   stock of HCRC,  which owns  approximately 19% of  HEP's Class  A and Class  B
   Units; consequently, HEP has an interest in 784,095 of its own Units.   These
   Units are treated as treasury Units in the accompanying financial statements.

   The Unit options described in Note  9 have been considered in the computation
   of net income per Unit but are antidilutive in 1995.

   USE OF ESTIMATES

   The preparation of the financial statements for the Partnership 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 reported amounts of revenues and expenses
   during  the reporting  period.    Actual  results  could  differ  from  these
   estimates.

   SIGNIFICANT CUSTOMERS

   Sales to  Conoco Inc. and  Marathon Petroleum Company  accounted for 30%  and
   14%, respectively  of total  oil and  gas sales  of  HEP for  the year  ended
   December 31, 1995, and 23% and 12%, respectively,  of total oil and gas sales
   of the  Partnership for the year  ended December 31,  1994.  Sales  to Conoco
   Inc., Koch Oil Company and Marathon Petroleum Company  accounted for 21%, 11%
   and 10%, respectively, of  total oil and gas sales of HEP for  the year ended
   December 31,  1993.  Although the  Partnership sells the majority  of its oil
   and  gas production to a few  purchasers, there are numerous other purchasers
   in  the area,  therefore, the  loss of  its significant  customers  would not
   adversely affect HEP's operations.

   ENVIRONMENTAL CONCERNS

   HEP  is  continually taking  actions necessary  in  its operations  to ensure
   conformity  with   applicable   federal,  state   and   local   environmental
   regulations.  As of  December 31, 1995, HEP has  not been fined or  cited for
   any  environmental violations which would have a material adverse effect upon
   capital expenditures, earnings or the competitive position  of HEP in the oil
   and gas industry.

   RECLASSIFICATION 

   Certain reclassifications have been  made to prior years' amounts  to conform
   to the classifications used in the current year.


   NOTE 2 - OIL AND GAS PROPERTIES

   The  following table summarizes certain cost information related to HEP's oil
   and gas activities:
<TABLE>
<CAPTION>
                                            For the Years Ended 
                                                December 31,
                                      1995           1994      1993 
                                               (In thousands)


          Property acquisition
          costs:
          <S>                       <C>            <C>         <C>  
             Proved                 $ 2,727        $ 3,724   $ 7,631
             Unproved                   793            183     1,468
          Development costs          11,880          4,995     4,877
          Exploration costs           2,368          4,983     1,410
                                        ---            ---       ---
               Total                $17,768        $13,885   $15,386
                                    ========        =======   =======
</TABLE>
   Depreciation,  depletion, amortization  and  impairment  expense, related  to
   proved  properties, per equivalent barrel  of production for  the years ended
   December 31, 1995, 1994 and 1993, was $7.21, $7.70 and $5.29, respectively. 

   At December 31, unproved domestic properties consist of the following:
<TABLE>
<CAPTION>

                                                 1995           1994
                                                     (In thousands)

               <S>                              <C>            <C>  
               South Louisiana                   $ 86           $335
               Texas                              227
               Utah                               137
               Other                              234             45
                                                  ---            ---
                                                 $684           $380
                                                  ===            ===
</TABLE>
   At  December   31,  1994,  unproved  foreign   properties  represented  HEP's
   investment  in its  Indonesian project which  was abandoned  during the first
   quarter of 1995.


   NOTE 3 - PRINCIPAL ACQUISITIONS AND SALES 

   1995

   During  1995, HEP  had no individually  significant property  acquisitions or
   sales.

   1994

   During the  second quarter of 1994, HEP and HCRC formed a limited partnership
   with a third party for the purpose of producing natural gas qualified for the
   Section 29 tax  credit under the Internal Revenue Code.   A limited liability
   company owned by HEP and HCRC is the general partner of the partnership.

   HEP  and HCRC  sold  a term  working interest  in certain  wells in  San Juan
   County, New  Mexico to the limited  partnership, in return for  which HEP and
   HCRC received a cash  payment totaling $3,400,000  when the sale was  closed.
   HEP and HCRC will receive 97% of the cash flow from production from the wells
   sold through the year  2002, and 80% of  the cash flow  thereafter.  HEP  and
   HCRC will also receive quarterly cash incentive payments equal to  34% of the
   Section 29  tax credit generated from the production from the wells.  HEP and
   HCRC will share in all proceeds 55%  and 45%, respectively.  HEP recorded its
   $1,870,000 share  of the cash  payment received as  a credit  to oil and  gas
   properties in the accompanying financial statements.

   1993

   During  September and October 1993, HEP  and its affiliate HCRC completed the
   following  transactions which resulted in the acquisition of interests in the
   following properties  (the purchase amounts  are net to  HEP):  130  wells in
   twelve counties in central Kansas for $1,200,000, of which  $367,000 was paid
   in cash and $833,000 was paid in the  form of 96,607 Class A Units; six wells
   in Comanche County, Kansas for $750,000; nine wells in Russell County, Kansas
   for $600,000;  three wells in San  Juan County, New Mexico  for $425,000; and
   nine wells in Toole County, Montana for $350,000.  Additionally, HEP acquired
   50% of the stock of Sunburst Exploration, Inc. ("Sunburst") for $1,700,000 by
   issuing 197,103  Class A Units.  The remaining  50% of the stock was acquired
   by HCRC.  Sunburst owns interests in  130 wells in Toole County, Montana,  45
   of which are operated by Sunburst.

   These acquisitions were effective as  of various dates from August  1 through
   October 29, 1993  and added an estimated 464,000 barrels of oil and 5 billion
   cubic feet of gas to HEP's reserves at December 31, 1993. 

   On March  5, 1993,  HEP sold its  interest in  Nycotex and its  West Virginia
   properties which included natural gas reserves estimated at approximately 3.4
   billion cubic feet of gas.  The proceeds after adjustments were approximately
   $1,600,000.  


   NOTE 4 - DERIVATIVES

   HEP  has entered into numerous financial contracts  to hedge the price of its
   oil and natural gas.  HEP does not use these hedges for trading purposes, but
   rather for the purpose of  providing a protection against price drops  and to
   provide a measure of stability in the volatile environment of oil and natural
   gas spot  pricing.   The amounts  received or paid  upon settlement  of these
   contracts is recognized as oil or  gas revenue at the time the hedged volumes
   are sold.

   The financial contracts used by HEP to hedge the price of its oil and natural
   gas production are  swaps, collars and participating hedges.   Under the swap
   contracts, HEP  sells its oil  and gas production  at spot market  prices and
   receives or makes  payments based  on the differential  between the  contract
   price and a floating price which is based on spot market indices. 

   The following table provides a summary of HEP's financial contracts:

<TABLE>
<CAPTION>
                                        Oil                        
                       Quantity of Production
              Period           Hedged            Contract Floor Price
                               (bbl)                  (per bbl)

              <C>              <C>                      <C>   
              1993             439,000                 $18.53 
              1994             361,000                  17.93
              1995             380,000                  17.41
              1996             200,000                  15.08
              1997             148,000                  14.87
              1998             103,000                  14.83
              1999              16,000                  15.38
</TABLE>
   From 1995 forward,  between 16% and  100% of the  oil volumes hedged  in each
   year are  subject  to a  participating  hedge whereby  HEP  will receive  the
   contract price if the posted futures price is lower than  the contract price,
   and  will  receive  the contract  price  plus  between  25%  and 75%  of  the
   difference between  the contract  price and the  posted futures price  if the
   posted futures price is greater than the contract price.   From 1995 forward,
   between  75% and  100% of the  volumes hedged in  each year are  subject to a
   collar agreement  whereby HEP will  receive the  contract price  if the  spot
   price is  lower than the contract price,  the cap price if  the spot price is
   higher  than the cap price, and  the spot price if that  price is between the
   contract  price and  the cap  price.   The cap  prices range  from $16.50  to
   $18.85.
<TABLE>
<CAPTION>

                                         Gas                       
                       Quantity of Production
             Period            Hedged            Contract Floor Price
                               (mcf)                  (per mcf)

              <C>             <C>                       <C>  
              1993           6,413,000                  $1.69 
              1994           6,461,000                   1.88
              1995           6,439,000                   1.94
              1996           5,180,000                   2.04
              1997           3,946,000                   2.06
              1998           3,635,000                   2.10
              1999           1,260,000                   2.01
              2000           1,244,000                   2.01
</TABLE>
   From 1995 forward, between 0% and 50%  of the gas volumes hedged in each year
   are subject to a collar agreement whereby HEP will receive the contract price
   if the spot price is lower than the contract price, the cap price if the spot
   price is  higher than  the cap price,  and the  spot price  if that price  is
   between the contract  price and  the cap price.   The  cap prices range  from
   $2.65 to $2.93.

   In  the  event  of  nonperformance by  the  counterparties  to  the financial
   contracts, HEP is exposed to  credit loss, but has no off-balance  sheet risk
   of accounting loss.  The Partnership anticipates that the counterparties will
   be  able  to  satisfy  their  obligations  under  the contracts  because  the
   counterparties consist of well-established banking and financial institutions
   which  have been in  operation for many  years.  Certain  of HEP's hedges are
   secured by the lien on HEP's oil and gas properties which also secures  HEP's
   Credit Facilities described  in  Note 6.

   NOTE 5 - INVESTMENT IN AFFILIATED CORPORATION

   HEP accounts for its approximate 40% interest in HCRC using the equity method
   of accounting.  The  following presents summarized financial  information for
   HCRC at December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
                                     1995          1994          1993 
                                                   (In thousands)

          <S>                      <C>           <C>           <C>    
          Current assets           $ 7,931       $ 7,076       $12,933
          Noncurrent assets         65,627        55,049        58,053
          Current liabilities       15,133         6,646         6,960
          Noncurrent
          liabilities               21,790        11,890        17,430
          Revenue                   25,484        20,644        21,007
          Net income (loss)         (4,670)       (2,974)          809
</TABLE>
   No other individual entity in which HEP owns an interest comprises in  excess
   of 10% of the revenues, net income or assets of HEP.  

   HCRC  repurchased  approximately 99,000  shares  of  its  common stock  in  a
   repurchase offer which was  completed January 26, 1996.  As a  result of this
   transaction,  HEP's ownership in HCRC increased to  44% at the end of January
   1996.

   The following amounts represent HEP's share of the property related costs and
   reserve quantities and values of its equity investee HCRC (in thousands):

   CAPITALIZED COSTS RELATING TO OIL AND GAS ACTIVITIES:
<TABLE>
<CAPTION>
                                            As of December 31, 

                                       1995        1994         1993 

           <S>                      <C>          <C>         <C>     
           Unproved properties -                                     
           domestic                 $    230    $     93     $    106
           Unproved properties -
           foreign                                   959          826
           Proved properties          94,925      89,284       87,282
           Accumulated
           depreciation,
           depletion, amortization
           and property impairment   (74,168)    (68,587)     (66,602)
                                     --------    --------    -------
           Net property             $ 20,987    $ 21,749     $ 21,612
                                    ========    ========      ========
</TABLE>
<TABLE>
<CAPTION>
   COSTS INCURRED IN OIL AND GAS ACTIVITIES:
                                             For the Years Ended
                                               December 31, 
                                       1995        1994         1993 

           <S>                        <C>         <C>          <C>   
           Acquisition costs          $4,168      $1,531       $2,961
           Development costs           2,124       1,531        1,028
           Exploration costs             845         825          518
                                      ------      ------       ------
              Total                   $7,137      $3,887       $4,507
                                      ======      ======       ======
</TABLE>
   RESULTS OF OPERATIONS FOR OIL AND GAS ACTIVITIES:
<TABLE>
<CAPTION>
                                      For the Years Ended December 31,
                                       1995        1994         1993 

           <S>                       <C>         <C>          <C>    
           Oil and gas revenue       $ 7,825     $ 6,522      $ 6,741
           Production operating
           expense                    (2,894)     (3,008)      (2,736)
           Depreciation,
           depletion, amortization
           and property impairment
           expense                    (2,792)     (3,695)      (1,822)
           Income tax benefit                           
           (expense)                    (813)         73         (633)
                                         ---         ---          ---
              Net income (loss)
              from oil and gas
              activities             $ 1,326     $  (108)     $ 1,550
                                     =======     ========      =======
</TABLE>
   PROVED OIL AND GAS RESERVE QUANTITIES:
<TABLE>
<CAPTION>
                                                 Gas            Oil
                                                 Mcf           Bbls

                                                   (unaudited)

            <S>                              <C>             <C>   
            Balance, December 31, 1995        15,782          2,482
                                              =======         ======
            Balance, December 31, 1994        14,548          1,771
                                              ======          ======
            Balance, December 31, 1993        15,277          1,268
                                              ======          ======
</TABLE>
<TABLE>
<CAPTION>
   STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS:
                                                    (unaudited)

                    <S>                                 <C>    
                    December 31, 1995                   $25,532
                                                        =======
                    December 31, 1994                   $16,466
                                                        =======
                    December 31, 1993                   $18,810
                                                        =======

</TABLE>
   NOTE 6 - DEBT

   HEP's  long-term  debt  at December  31,  1995  and  1994  consisted  of  the
   following:
<TABLE>
<CAPTION>
                                                1995           1994 
                                                        (In thousands)<PAGE>

            <S>                               <C>            <C>    
            Note Purchase Agreement           $12,857        $17,143

            Credit Agreement                   24,700         12,700

            Capital lease obligation -
            monthly payments of $8,423,
            which include interest at
            5.5%, through December 1,
            1996                                   87            180
                                                  ---            ---

            Total                              37,644         30,023
            Less current maturities               (87)        (4,125)
                                               -------        -------
            Long-term debt                    $37,557        $25,898
                                              =======        ========
</TABLE>
   During the  first quarter of 1995,  HEP and its lenders  amended and restated
   HEP's  Amended and Restated  Credit Agreement ("Credit  Agreement") to extend
   the term date  of its  line of  credit to  May 31,  1997.   Under the  Credit
   Agreement  ("Credit Agreement")  and an  Amended and  Restated  Note Purchase
   Agreement ("Note Purchase Agreement") (collectively referred to as the Credit
   Facilities),  HEP has  a borrowing  base  of $42,000,000.    HEP has  amounts
   outstanding  at December 31, 1995  of $24,700,000 under  the Credit Agreement
   and  $12,857,000 under the Note Purchase  Agreement.  HEP's borrowing base is
   further  reduced   by  an  outstanding  contract   settlement  obligation  of
   $2,771,000 and a capital lease obligation of  $87,000; therefore, its  unused
   borrowing base totaled $1,585,000 at February 27, 1996.

   Borrowings under  the Note Purchase Agreement bear interest at an annual rate
   of  11.85%, which  is  payable  quarterly.    Annual  principal  payments  of
   $4,286,000 began April 30, 1992,  and the debt is required to be paid in full
   on April 30, 1998.  HEP intends to fund the payment due in April 1996 through
   additional borrowings under the  Credit Agreement; thus, no portion  of HEP's
   Note Purchase Agreement is classified as current as of December 31, 1995.  


   Borrowings  against the Credit  Agreement bear interest  at the  lower of the
   Certificate  of Deposit rate plus 1.875%, prime  plus 1/2% or the Euro-Dollar
   rate plus 1.75%.  At December 31, 1995 the applicable interest rate was 7.5%.
   Interest  is  payable  monthly,  and  16  quarterly  principal  payments   of
   $1,812,000,  as  adjusted for  the anticipated  borrowings  to fund  the Note
   Purchase Agreement payment due in 1996, commence May 31, 1997.

   The  borrowing base for the Credit Facilities is redetermined semiannually in
   March and  September of each  year.  The  Credit Facilities are  secured by a
   first lien  on approximately 80% in  value of HEP's oil and  gas properties. 
   Additionally, aggregate distributions paid by  HEP in any 12 month period are
   limited to 50% of  cash flow from operations  before working capital  changes
   plus distributions received from affiliates.

   The current portion of  long-term debt represents a capital  lease obligation
   of $87,000.

   Included in net working capital deficit  of affiliates is $4,650,000, net  to
   HEP's interest, which represents the current portion of the long-term debt of
   HSD.   HSD's line of  credit of $4,650,000,  net to HEP's  interest, which is
   provided  by a third party  lender, is secured by  certain leases held by HSD
   and is otherwise  nonrecourse to HEP.   Borrowings under  the line of  credit
   bear  interest at  the  prime rate  plus  8.5% (17%  at  December 31,  1995).
   Interest is payable monthly,  and the entire outstanding principal is  due on
   August 31, 1996.  The current intention is to refinance the debt on or before
   the due date so as to extend the repayment term.

   HEP entered into contracts to hedge its interest rate  payments on $5,000,000
   of its  debt through  the  end of  1995, $10,000,000  for 1996  and 1997  and
   $5,000,000 for  1998.  HEP does not use  the hedges for trading purposes, but
   rather for the purpose of providing a measure of predictability for a portion
   of HEP's interest  payments under  its debt  agreement which  has a  floating
   interest rate.   In general, it is HEP's  goal to hedge 50% of  the principal
   amount of its debt for each year of the remaining term of  the debt.  HEP has
   entered into two  hedges, one of which is an interest rate collar pursuant to
   which it pays  a floor rate  of 7.55% and  a ceiling rate  of 9.85%, and  the
   other of  which is an  interest rate swap  with a fixed  rate of 5.74%.   The
   amounts received or paid upon settlement of these transactions are recognized
   as interest expense at the time the interest payments are due.

   At December 31, 1995, HEP's debt maturity schedule is as follows:
<TABLE>
<CAPTION>
                                                    (In thousands)

                             <C>                      <C>    
                             1996                     $    87
                             1997                       9,721
                             1998                      11,532
                             1999                       7,246
                             2000                       7,246
                          Thereafter                    1,812
                                                          ---
                                                       37,644

                 Less:  Current maturities of
                        long-term debt                    (87)
                                                          ---


                   Long-term debt balance at
                       December 31, 1995              $37,557
                                                      =======
                                                             
</TABLE>
   NOTE 7 - CONTRACT SETTLEMENT OBLIGATION

   In the first quarter of 1989, HEP settled a take-or-pay contract claim on its
   Bethany-Longstreet  field.  In  accordance with the  settlement, HEP received
   $7,623,000 in cash.   This amount is recoupable  in cash or gas  volumes from
   April 1992  through March 1996,  with a cash  balloon payment due  during the
   first quarter of 1998.   A liability has been  recorded equal to the  present
   value of this amount discounted  at 10.68%, HEP's estimated borrowing cost at
   the time of  settlement.  HEP  is also  repaying $1,629,000 which  represents
   suspended  payments  to  the pipeline  for  previous years  in  equal monthly
   installments  of  $33,937  which began  April  1992 and  which  will continue
   through March 1996.  This amount was  previously recorded as an offset to the
   full  cost  pool at  the time  the  contract was  initially abrogated  by the
   pipeline.  As  payment of this obligation is  made it will be charged  to the
   full cost pool.

   At December 31, 1994, HEP's five year contract settlement obligation maturity
   schedule, including accretion of discount, is as follows:
<TABLE>
<CAPTION>
                                                    (In thousands)

                             <S>                      <C>    
                             1996                     $   428
                             1997                           -
                             1998                       2,814
                             1999                           -
                             2000                           -
                                                          ---
                                                        3,242

               Less:    Unaccreted discount at
                           December 31, 1995             (471) 
                        Current maturities of
                        contract settlement debt         (374)
                                                          ---

               Long-term contract settlement
               balance at December 31, 1995            $2,397
                                                       ======

</TABLE>
   NOTE 8 - PARTNERS' CAPITAL

   HEP Units that trade  on the American Stock  Exchange under the symbol  "HEP"
   are referred to as "Class A Units."

   CLASS B SUBORDINATED UNITS

   The Class  B Units have equal liquidation rights and identical tax allocation
   rights and provisions to the Class A Units.   However, the Class B Units have
   the following subordinated distribution provisions:

   1. Distribution rights  equal to  Class A Units  while the  Class A  Units
      receive  distributions of  $.20 or more  per Class A  Unit per calendar
      quarter.

   2. No   current   distribution  right   should  Class   A   Units  receive
      distributions less than $.20 per Class A Unit for any calendar quarter.

   3. An accumulated distribution deficit account will be maintained for  the
      benefit of  the Class B Units  for any distributions  suspended under 2
      above.   The amount in the deficit account will  be payable in whole or
      in  part  to  the  Class  B   Unitholders  in  any  quarter  in   which
      distributions equal to  or greater than $.20 per Class  A Unit are made
      on Class A Units.

   The Class  B Units may be converted into Class A  Units on a 1:1 ratio at the
   option of  the  holder or  holders  thereof.   Upon  conversion,  any  amount
   remaining unpaid in the accumulated distribution deficit account relating  to
   Class B Units converted is waived.

   The  Class B  Units  vote as  a separate  class  on all  matters  required or
   otherwise brought for a vote of the Unitholders of HEP.

   CLASS C UNITS

   The Class C Units have  a distribution preference of $1.00 per  year, payable
   quarterly, commencing in the  first quarter of 1996.  HEP may  not declare or
   make  any cash  distributions on  the Class  A or  Class B  Units  unless all
   accrued and unpaid distributions on the Class C Units have been paid.

   Class C  Units vote  as a  separate class  on all  matters submitted  to  the
   Unitholders of HEP for a vote.

   RIGHTS PLAN

   On February  6, 1995 the board  of directors of the  general partner approved
   the adoption of a rights plan designed to protect Unitholders in the event of
   a  takeover action  that would otherwise  deny them  the full  value of their
   investment.

   Under the terms of the rights  plan, one right was distributed for each Class
   A Unit  of HEP to holders of record at the  close of business on February 17,
   1995.   The  rights trade with  the Class  A Units.   The rights  will become
   exercisable only in  the event,  with certain exceptions,  that an  acquiring
   party accumulates 15% or more of HEP's Class A Units, or if a party announces
   an offer to acquire 30% or more  of HEP.  The rights will expire on  February
   6, 2005.  In addition, upon the occurrence of certain  events, holders of the
   rights  will be entitled  to purchase, for $24,  either HEP Class  A Units or
   shares in an "acquiring entity," with a market value at that time of $48.

   HEP  will generally be entitled to redeem the rights at one cent per right at
   any time until the tenth day following  the acquisition of a 15% position  in
   its Units.  HEP is  not aware of any  hostile effort to acquire control,  but
   believes that  the rights  plan represents  a sound and  reasonable means  of
   safeguarding the interests of the Unitholders.


   NOTE 9 - UNIT OPTION PLAN

   On January 31,  1995, the board of directors of  the general partner approved
   the  adoption of  a  Unit Option  Plan  to be  used  for the  motivation  and
   retention of directors and  employees performing services for HEP.   The plan
   authorizes the issuance of 425,000 options to purchase Class A Units.  Grants
   of the total options authorized  were made on January 31, 1995,  vesting one-
   third  at that  time, an  additional one-third  on January  31, 1996  and the
   remaining one-third on January 31, 1997.  In addition, the plan provides that
   vesting of  the options  may be  accelerated under  certain conditions.   The
   exercise price of  the options is $5.75, which  was the closing price  of the
   Class A Units on January 30, 1995.

   During 1995 the FASB  issued Statement of Financial Accounting  Standards No.
   123,  "Accounting for  Stock  Based Compensation"  ("SFAS  123").   SFAS  123
   requires entities  to use the  fair value  method to either  account for,  or
   disclose, stock  based  compensation  in  their financial  statements.    The
   Partnership is required to  adopt SFAS 123 no  later than 1996.   Because the
   Partnership  intends to elect only the disclosure provisions of SFAS 123, the
   adoption  of SFAS  123  is not  expected  to have  a material  effect  on the
   financial position or results of operations of HEP.

   Under the terms  of the Domestic  Incentive Plans ("Plans")  which have  been
   adopted  for every  year beginning  in 1992,  the Board  of Directors  of the
   general partner each  year determines a  percentage of HEP's interest  in the
   cash flow from certain wells drilled, recompleted or enhanced during the year
   which will be allocated to the Plan for that year.  The specified  percentage
   was 1.4% for the 1995 Plan and 1% for the 1994 and 1993 Plans.  The specified
   percentage of cash flow is then allocated among certain key employees who are
   participants in the Plan for that year.  Each award under the Plan represents
   the right to receive for five  years a portion of the specified  share of the
   cash award, the participants  are each paid a share  of an amount equal  to a
   specified percentage (80%  for 1995, 40% for 1994 and  1993) of the remaining
   net present  value  of the  qualifying  wells and  the  award for  that  year
   terminates.   The  expense attributable  to the Plans  was $119,000  in 1995,
   $88,000  in  1994  and  $37,000  in  1993 and  is  included  in  general  and
   administrative expense in the accompanying financial statements.<PAGE>

   NOTE 10 - PIPELINE, FACILITIES AND OTHER

   Included in  pipeline, facilities and other  income is a loss  of $120,000 in
   1993 representing HEP's  share of the net pipeline loss  of Nycotex.  Nycotex
   was  a gas  gathering and  transmission facility in  West Virginia  which was
   owned by HEP and HCRC.   HEP's 28% share of the gross  activity of Nycotex is
   as follows:
<TABLE>
<CAPTION>
                                                        1993 

                     <S>                             <C>   
                     Sales                           $  696
                     Cost of purchased gas             (708)
                     Pipeline operating expense        (108)
                                                        ---
                        Net pipeline loss            $ (120)
                                                        ===
</TABLE>
   HEP sold  its interest  in  Nycotex and  its West  Virginia properties  which
   included natural gas  reserves estimated at  approximately 3.4 billion  cubic
   feet of  gas.  The proceeds  were $2,808,000 after adjustments,  and the sale
   closed on March 5, 1993.


   NOTE 11 - RELATED PARTY TRANSACTIONS

   HPI  manages  and operates  certain  oil  and  gas  properties on  behalf  of
   independent joint interest owners, HEP and its affiliates.  In such capacity,
   HPI pays  all costs and expenses  of operations and distributes  all revenues
   associated with such properties.  HPI has receivables from affiliates of  HEP
   of  $2,808,000 and $1,647,000  at December  31, 1995 and  1994, respectively,
   which  represent net  revenues  net of  operating  costs and  expenses.   The
   intercompany balances are settled monthly.

   HPI is  reimbursed by HEP for  costs and expenses which  include salaries and
   associated overhead  for  personnel of  HPI engaged  in  the acquisition  and
   evaluation  of  oil and  gas  properties  (technical  expenditures which  are
   capitalized  as costs  of oil  and gas  properties) and  lease  operating and
   general and administrative expenses necessary to conduct  the business of HEP
   (nontechnical expenditures  which are expensed as  general and administrative
   or production operating expenses).  Reimbursements during 1995, 1994 and 1993
   were as follows:
<TABLE>
<CAPTION>
                                      1995         1994        1993 
                                               (In thousands)

           <S>                       <C>         <C>          <C>   
           Technical                 $1,100      $  747       $  570
           Nontechnical               1,321       1,502        1,918
</TABLE>
   Included in the nontechnical allocation attributable to HEP's direct interest
   for 1995,  1994 and 1993 is  approximately  $156,000, $159,000  and $167,000,
   respectively of consulting fees  under a consulting agreement, which  expires
   June 30, 1997, with The  Hallwood Group Incorporated ("Hallwood"), the parent
   of HEC.   Also included in the nontechnical  allocation is $369,000, $363,000
   and  $350,000  in  1995,  1994  and  1993,  respectively,  representing costs
   incurred by Hallwood and its affiliates on behalf of the Partnership.

   During  the third  quarter of 1994,  HPI entered into  a consulting agreement
   with  its Chairman  of the Board  to provide advisory  services regarding the
   international  activities of its affiliates.   The amount  of consulting fees
   allocated to the Partnership under  this agreement is $125,000 and $62,500 in
   1995 and 1994, respectively.


   NOTE 12 - STATEMENT OF CASH FLOWS

   Cash  paid  during  1995, 1994  and  1993  for  interest totaled  $3,356,000,
   $3,185,000 and $3,889,000, respectively.

   The noncash  financing and  investing activities  of HEP for  the year  ended
   December 31, 1993  was as  follows (there were  no noncash activities  during
   1994 and 1995):
<TABLE>
<CAPTION>
            <S>
            Acquisition of oil and gas properties         <C>       
            for Class A Units                             $2,533,000
                                                          ==========
            Issuance of Class A Units in
            satisfaction of a liability                   $2,170,000
                                                          ==========

</TABLE>
   NOTE 13 - LITIGATION SETTLEMENTS

   During  1995,  the  parties settled  the  lawsuit styled  Stutes  v. Hallwood
   Petroleum, Inc. et al.  The plaintiff in the lawsuit alleged that as a result
   of  exposure to benzene  in the petroleum  he was hauling  from various wells
   owned and operated by approximately 80 defendants, he contracted  myelogenous
   leukemia.   HEP  owns  an interest  in certain  of the  wells covered  by the
   lawsuit.  HEP's share of the settlement not covered by insurance is $19,000.

   In  1994, the  Minerals  Management Service  ("MMS")  of the  Bureau of  Land
   Management notified HEP  that the MMS had  preliminarily determined that  the
   MMS was owed  royalty payments on  take-or-pay settlements involving  federal
   oil and gas leases.  In the  fourth quarter of 1995, HEP and the  MMS reached
   an agreement  in principle that HEP  would pay $321,000 in  settlement of all
   claims.   This  amount has been  accrued in  the December  31, 1995 financial
   statements and HEP anticipates that the settlement amount will be paid in the
   first quarter of 1996.

   In  September 1995,  the court  order approving the  settlement in  the class
   action  lawsuit  styled  In re.  Hallwood  Energy  Partners, L.P.  Securities
   Litigation  became final.  As part of  the settlement, on September 28, 1995,
   HEP paid $2,870,000 in cash (which was recorded as an expense in the December
   31,  1994 financial  statements  as the  estimated cost  associated  with the
   litigation)  and  issued  1,158,696 Class  A  Units with  a  market  value of
   $5,330,000 to a nominee of the  class.  HCRC subsequently exercised an option
   to  purchase these  Units from  the nominee  for $5,330,000  in cash.   Other
   defendants contributed an additional $900,000 in cash to the settlement.  The
   net  proceeds of the  settlement were  distributed to  a class  consisting of
   former  owners of limited  partner interests in  Energy Development Partners,
   Ltd. ("EDP")  who  exchanged their  units in  that entity  for  Units of  HEP
   pursuant to the merger of EDP and HEP on May 9, 1990 (the "Transaction").

   Upon  issuance, these  Class A  Units were  treated, for  financial statement
   purposes only,  as additional Class  A Units  issued in  connection with  the
   Transaction, which was  accounted for as a  reorganization of entities  under
   common control, in a  manner similar to a pooling of interest,  and have been
   reflected as  outstanding Class A  Units since May  9, 1990, the date  of the
   Transaction.   As a result of the settlement, the number of Units outstanding
   and  the net  income (loss)  per Class  A Unit  and  Class B  Unit have  been
   retroactively restated for all periods subsequent to the Transaction.

   On June  24,  1993, HEP  settled two  lawsuits and  all  related claims  with
   Louisiana  Intrastate Gas  Corporation  ("LIG").   The  lawsuits against  LIG
   involved the  prices paid for  natural gas production  under a long-term  gas
   contract.  The settlement terminates  the contract with LIG and resolves  all
   issues and  claims relating to  the gas  purchase contract for  the Northeast
   Montegut  Field located in Terrebonne  Parish, Louisiana.   The proceeds from
   the  settlement  after  payment of  royalties  and  related  legal costs  are
   reflected in HEP's earnings during the  year ended December 31, 1993 and were
   used to pay down debt and for working capital purposes.

   In January 1994, Hallwood Oil paid $525,000 to the former shareholders of the
   general partner  of a predecessor  entity to  settle a claim  for payment  of
   Hallwood  Oil's  $800,000  guaranty  of  the  promissory  note  of  a  former
   affiliate.  The promissory note was  made in 1985 when EDP was formed.   This
   payment was accrued as litigation settlement expense as of December 31, 1993.


   In February  1994,  HEP and  the  other parties  to  the lawsuit  styled  SAS
   Exploration, Inc.  v. Hall Financial Group, Inc. et  al. settled the lawsuit.
   The plaintiffs alleged that  certain leases in the A. L.  Boudreaux #1 and A.
   M. Duhon #1  wells expired and terminated at  the end of their  primary lease
   terms as a result of production being from  Bol Mex 4 Sand rather than the A.
   B. Sand.  In the settlement, the plaintiffs and the defendants cross-conveyed
   interests in  certain leases  to  one another  and  HEP paid  the  defendants
   $388,000.  The  cash paid by HEP  was paid from the  revenues attributable to
   the disputed leases that were escrowed  beginning in February 1990.  The cash
   paid by HEP, as well as its share of the cash paid by the Mays, were included
   in  litigation  settlement  expense  in  the   December  31,  1993  financial
   statements.   The  interest  conveyance  resulted  in  a  decrease  in  HEP's
   consolidated reserves as  of December 31, 1993  totaling 698,000 mcf of  gas,
   15,000 bbls  of oil and $1,317,000  in discounted future net  revenues.  This
   reduction has been included in the revisions line in the Supplemental Oil and
   Gas Reserve Information for the year ended December 31, 1993.


   NOTE 14 - LEGAL PROCEEDINGS

   In  June 1993,  14  lawsuits were  filed  against HEP  in  the 15th  Judicial
   District Court, Lafayette  Parish, Louisiana, Docket  Nos. 93-2332-F  through
   93-2345-F, styled Lamson Petroleum Corporation v. Hallwood Petroleum, Inc. et
   al.   The  plaintiffs  in the  lawsuits  claim that  they  have valid  leases
   covering streets and roads in the units of the A. L. Boudreaux #1 well, G. S.
   Boudreaux #1 well, Paul  Castille #1 well,  Mary Guilbeau #1 well,  Evageline
   Shrine Club #1 well  and Duhon #1 well and  are entitled to a portion  of the
   production  for the  wells dating  from February  1990.   The plaintiffs  are
   claiming  between .4% and 2.3%  of HEP's interest in the  wells.  HEP has not
   recognized  revenue attributable to the contested  leases since January 1993.
   These revenues, totaling $303,000 at  December 31, 1995, have been placed  in
   escrow  pending resolution of the lawsuits.   At this time, HEP believes that
   the difference between  the escrowed amount and  the amount of  any liability
   that may result upon resolution of this matter will not be material.

   In  June 1995,  an  additional lawsuit  was  filed against  HEP  in the  15th
   Judicial District Court, Lafayette Parish,  Louisiana, Docket No. 95-2601 3B,
   styled Lamson Petroleum  Corporation v. Hallwood Petroleum, Inc.  et al.  The
   plaintiffs  in the  lawsuit  claim that  they  have additional  valid  leases
   covering streets and roads in the units of the A. L. Boudreaux #1 well, G. S.
   Boudreaux  #1 well, Paul Castille #1 well, Mary Guilbeau #1 well and Duhon #1
   well and are entitled to a portion of the production from the wells.  HEP has
   not yet  determined the amount of its interest in  the properties which is at
   issue.  At  this time, HEP  believes that the  difference between the  amount
   already in  escrow as a result  of the litigation described  in the preceding
   paragraph and  the amount of any liability that may result upon resolution of
   this  matter and the matter described in  the preceding paragraph will not be
   material.

   The Partnership  is involved in other legal proceedings and claims which have
   arisen  in the  ordinary course  of its  business and  have not  been finally
   adjudicated.   The Partnership  believes that  its liability,  if any,  as  a
   result  of such  proceedings  and  claims  will  not  materially  affect  its
   financial condition or operations.


   NOTE 15 - COMMITMENTS 

   HPI leases office  facilities under  operating leases which  expire in  1999.
   Rent expense  under these  leases  is allocated  to HEP  and its  affiliates.
   Remaining commitments under these leases mature as follows:
<TABLE>
<CAPTION>
                          Year Ending
                         December 31,       Annual Rentals
                                            (in thousands)

                             <C>                 <C>  
                             1996               $  622
                             1997                  632
                             1998                  632
                             1999                  316
                                                ------
                                                $2,202
                                                ======

</TABLE>
   NOTE 16 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

   The following disclosure of the estimated fair value of financial instruments
   is  made in  accordance with the  requirements of SFAS  No. 107, "Disclosures
   about Fair Value of Financial Instruments."  The estimated fair value amounts
   have been determined by  the Partnership, using available  market information
   and appropriate  valuation methodologies.  However,  considerable judgment is
   necessarily required in interpreting market data to  develop the estimates of
   fair value.  Accordingly, the estimates presented  herein are not necessarily
   indicative of  the amounts  that the Partnership  could realize in  a current
   market exchange.  The use  of different market assumptions and/or  estimation
   methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
                                                     December 31, 1995   
                                                   Carrying    Estimated
                                                    Amount     Fair Value
                                                      (In thousands)


          <S>
          LIABILITIES:
                                                 <C>           <C>    
             Oil and gas hedge contracts         $      -      $   472
             Interest rate hedge contracts              -           20
             Current portion of contract
             settlement                               374          374
             Current portion of long-term debt         87           87
             Long-term debt                        37,557       38,179<PAGE>
             Contract settlement                    2,397        2,377
</TABLE>
   The estimated fair  value of the oil and gas hedge contracts is determined by
   multiplying the difference between  year end oil and gas prices and the hedge
   contract  prices by  the quantities  under contract.   This  amount  has been
   discounted using an interest rate that could be available to the Partnership.

   The estimated fair value of the interest rate hedge contracts is computed  by
   multiplying  the  difference  between  the year  end  interest  rate  and the
   contract  interest rate by the amounts under  contract.  This amount has been
   discounted using an interest rate that could be available to the Partnership.

   The current portions of contract settlement and long-term debt are carried in
   the accompanying balance  sheets at an amount which is  a reasonable estimate
   of their fair value.

   The  estimated  fair  value  of long-term  debt  and  contract  settlement is
   determined  using interest rates  that could be  available to the Partnership
   for similar instruments with similar terms.

   The fair value estimates presented herein are  based on pertinent information
   available to management as  of December 31, 1995.  Although management is not
   aware of any factors that would significantly affect the estimated fair value
   amounts, such amounts have not been comprehensively  revalued for purposes of
   these  financial statements since  that date,  and current estimates  of fair
   value may differ significantly from the amounts presented herein.


                          HALLWOOD ENERGY PARTNERS, L.P.
                   SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION
                                 DECEMBER 31, 1995
                                    (Unaudited)


   The  following reserve quantity and future net  cash flow information for HEP
   represents proved  reserves which  are  located in  the United  States.   The
   reserves  have been  estimated by  HPI's in-house  engineers.  A  majority of
   these  reserves have been  reviewed by independent  petroleum engineers.  The
   determination of oil and gas reserves is based  on estimates which are highly
   complex and interpretive.  The estimates are subject  to continuing change as
   additional information becomes available.

   The standardized  measure  of discounted  future net  cash  flows provides  a
   comparison  of HEP's  proved oil  and  gas reserves  from year  to year.   No
   consideration has been given to  future income taxes for  HEP as it is not  a
   tax paying  entity.   Under the guidelines  set forth  by the Securities  and
   Exchange  Commission (SEC),  the  calculation  is performed  using  year  end
   prices.  At December 31, 1995, oil  and gas prices averaged $17.95 per bbl of
   oil  and $2.03 per mcf  of gas for  HEP, including its  indirect interests in
   affiliated partnerships and the  Mays.  Future production costs  are based on
   year end costs and include severance taxes.  The present value of future cash
   inflows is  based on  a 10% discount  rate.   The reserve calculations  using
   these December  31, 1995  prices result in  8.1 million  bbls of oil,  and 83
   billion cubic feet of  gas and a standardized  measure of $124,000,000.   The
   Mays are  included on a  consolidated basis, and 70,000  bbls of oil  and 1.8
   billion  cubic  feet  of  gas, representing  a  discounted  present  value of
   $4,000,000, are  attributable to  the minority ownership  of these  entities.
   This standardized  measure is  not necessarily  representative of the  market
   value of HEP's  properties.  The portion of the  reserves attributable to the
   general partner's  interest totaled 0.4 million  bbls of oil  and 6.2 billion
   cubic feet of gas  with a standardized measure of $10,000,000 at December 31,
   1995.

   As  of  December 31,  1994,  HEP no  longer  includes its  share  of internal
   overhead charges attributable  to wells  operated by HPI  in lease  operating
   expense for reserve  calculation purposes.   These overhead  charges are  now
   included  in  general   and  administrative  expenses   in  HEP's   financial
   statements.  This  change resulted in  an upward revision  of HEP's  reserves
   during 1994  of 1,180,000 barrels of oil, 5,752,000 mcf of gas and $8,354,000
   of discounted future net cash flows.  This change was  implemented to conform
   HEP's reserve calculation methodology to, what management believes is, a more
   accurate representation of  reserves and  the most common  practice of  HEP's
   industry peers.

   HEP's  standardized measure  of future net  cash flows has  been decreased by
   $472,000 at December 31, 1995 for  the effects of its hedge contracts.   This
   amount represents the difference between year  end oil and gas prices and the
   hedge contract  prices  multiplied by  the  quantities subject  to  contract,
   discounted at 10%.
<TABLE>
<CAPTION>
                          HALLWOOD ENERGY PARTNERS, L.P.
                                RESERVE QUANTITIES
                                  (In thousands)
                                    (Unaudited)


                                                      Gas          Oil 
                                                      Mcf          Bbls

          PROVED RESERVES:
          <S>                                     <C>            <C>   
             Balance, December 31, 1992            103,817        6,580

             Extensions and discoveries              5,213          530
             Revisions of previous estimates (a)    (5,050)      (1,134)
             Sales of reserves in place             (4,536)        (319)
             Purchase of reserves in place           6,236          677
             Production                            (14,073)        (881)
                                                       ---          ---


             Balance, December 31, 1993             91,607        5,453

             Extensions and discoveries              5,985        1,052
             Revisions of previous estimates         1,318        1,113
             Sales of reserves in place               (816)         (84)
             Purchase of reserves in place             699          143
             Production                            (13,208)        (939)
                                                       ---          ---

             Balance, December 31, 1994             85,585        6,738

             Extensions and discoveries              5,997        1,902
             Revisions of previous estimates         4,248          464
             Sales of reserves in place                (45)         (41)
             Purchase of reserves in place             362           28
             Production                            (13,035)        (993)
                                                       ---          ---

             Balance, December 31, 1995             83,112        8,098
                                                    ======        =====

          PROVED DEVELOPED RESERVES:
             Balance, December 31, 1993             79,858        5,006
                                                    ======        =====
             Balance, December 31, 1994             79,699        6,166
                                                    ======       ======
             Balance, December 31, 1995             77,378        7,444
                                                    ======        =====
<FN>1

        (a)    Amount  includes the  interest  conveyance relating  to the
               SAS  lawsuit  discussed   in  Note  13  to  the   Financial
               Statements.
</TABLE>
<TABLE>
<CAPTION>
                          HALLWOOD ENERGY PARTNERS, L. P.
             STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
                                  (In thousands)
                                    (Unaudited)


                                                     December 31,       
                                          1995         1994      1993  

          <S>                           <C>          <C>       <C>     
          Future cash flows             $317,000     $262,000  $286,000
          Future production and
           development costs            (130,000)    (109,000) (107,000)
                                        --------     --------- --------
          Future net cash flows before
           discount                      187,000      153,000   179,000
          10% discount to present value  (63,000)     (49,000)  (58,000)
                                         --------     --------  --------
          Standardized measure of
          discounted future net cash
          flows                         $124,000     $104,000  $121,000
                                        ========     ========  ========
</TABLE>
<TABLE>
<CAPTION>

                          HALLWOOD ENERGY PARTNERS, L. P.
      CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
                                  (In thousands)
                                    (Unaudited)



                                   For the Years Ended December 31,

                                     1995         1994      1993 
    <S>                          <C>          <C>       <C>      
    Standardized measure of
    discounted future net cash                                   
    flows at beginning of year    $104,000     $121,000  $141,000
    Sales of oil and gas
    produced, net of production
    costs                          (29,712)     (29,319)  (31,693)
    Net changes in prices and
    production costs                17,015      (19,175)   (2,783)<PAGE>
    Extensions, discoveries and
    other additions, net of
    future production and
    development costs               16,836       10,537     8,430
    Changes in estimated future
    development costs              (11,868)      (5,614)   (6,248)
    Development costs incurred      11,880        4,995     4,877
    Revisions of previous
    quantity estimates               6,817        6,852   (11,906)
    Purchases of reserves in place     513        1,334    10,343
    Sales of reserves in place        (281)      (1,131)   (6,478)
    Accretion of discount           10,400       12,100    14,100
    Changes in production rates                        
    and other                       (1,600)       2,421     1,358
                                    -------       -----     -----

    Standardized measure of
    discounted future net cash
    flows at end of year          $124,000     $104,000  $121,000
                                  ========      =======   =======
</TABLE>
   ITEM   9  -  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND  FINANCIAL
   DISCLOSURES 

      None.


                                     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  Hallwood Energy
   Corporation, a Texas corporation organized in 1968.

   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.

   HEC  is the sole general partner of  HEP.  Hallwood Petroleum, Inc., performs
   duties related to the  management of HEP, including the operation  of various
   properties in which HEP owns an interest.

   Section 16(a) of the  Securities Exchange Act of  1934 requires the  officers
   and directors of  HEC, 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, 1995,  all officers  and directors  of HEC  and greater  than ten-percent
   beneficial owners complied with applicable filing requirements.


   ITEM 11 - EXECUTIVE COMPENSATION 

   HEP pays no  salaries or other direct remuneration to  officers, directors or
   key  employees of  the general  partner.   HEP is  charged  for a  portion of
   compensation paid by  the general  partner based upon  the general  partner's
   allocation procedures which are applied consistently to all entities which it
   manages.

   For  information regarding reimbursement made to the general partner see Item
   8 - Financial  Statements and  Supplementary Data (Note  11 to the  Financial
   Statements).

   ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 

   The following table sets forth information as of February 27, 1996, about any
   individual,  partnership or  corporation  which is  known  to HEP  to be  the
   beneficial  owner  of  more  than  5%  of each  class  of  Units  issued  and
   outstanding.
<TABLE>
<CAPTION>

               Name and Address of Owner    Class A         Class A
                                              Unit            Unit
                                             Amount         Percent
          <S>                                <C>      <C>     <C>     <C> 
          Hallwood Energy Corporation         657,260 (1)     6.5     (1)
          3710 Rawlins Street, Suite 1500
          Dallas, Texas 75219

          Hallwood Consolidated Resources   1,948,189         19.5
          Corporation
          4582 S. Ulster Street Parkway,
          Suite 1700
          Denver, Colorado 80237

          Heartland Advisors, Inc.            620,000 (2)     6.2     (2)
          790 North Milwaukee Street
          Milwaukee, WI 53202
<FN>1
   (Continued)
</TABLE>
<TABLE>
<CAPTION>
                   Name and Address of Owner     Class C     Class C
                                                  Unit        Unit
                                                 Amount      Percent

              <S>                               <C>           <C> 
              Hallwood Energy Corporation        53,400        7.9
              3710 Rawlins Street, Suite 1500
              Dallas, Texas 75219
              Hallwood Consolidated Resources   129,879       19.5 
              Corporation
              4582 S. Ulster Street Parkway,
              Suite 1700
              Denver, Colorado 80237

              Heartland Advisors, Inc.
              790 North Milwaukee Street
              Milwaukee, WI 53202<PAGE>
<FN>1
      (1)   Includes 143,773 Class  B Units  (100% of the  Class B  Units)
            which are convertible into Class A Units one-for-one.
<FN>2
      (2)   According  to the Schedule 13  G filed by  Heartland Advisors, Inc.,
            the Partnership Units  to which  this schedule relates  are held  in
            investment  advisory  accounts of  Heartland  Advisors, Inc.    As a
            result, various  persons have the right  to receive or  the power to
            direct the receipt of dividends from,  or the proceeds from the sale
            of, the  securities.   No  such account  is known  to  have such  an
            interest relating to more than 5% of the class.
</TABLE>
   As of February 27, 1996, officers and directors  of the general partner, as a
   group, held 803  Class A Units and currently  exercisable options to purchase
   133,167  Class  A  Units,  or  1.4% of  the  total  Class  A  Units currently
   outstanding assuming exercise  of all currently  exercisable options, and  52
   Class  C  Units, or  less  than .01%  of the  total  Class C  Units currently
   outstanding.

   See  Item 8  - Financial  Statements and  Supplementary Data  (Note 9  to the
   Financial Statements) for a description of HEP's Unit Option Plan.


   ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 

   See Item  8 -  Financial Statements  and Supplementary Data  (Note 11  to the
   Financial Statements).

                                      PART IV

   ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

      (a)      Financial Statements  and  Financial Statement  Schedules.   (See
               Index at Item 8).
      (b)      Reports on Form 8-K.
               HEP filed no current reports  on Form 8-K during the last quarter
               of the period covered by this report.
      (c)      Exhibits.

    (1) 4.1 - Third Amended  and Restated Agreement of  Limited  Partnership  of
        Hallwood Energy Partners, L. P.
    (5) 4.2  -  Unit Purchase  Rights Agreement  dated  as of  February 6,  1995
        between HEP and The First National Bank of Boston.
        4.3 -  First Amendment to  the Third  Amended and Restated  Agreement of
        Limited Partnership of Hallwood Energy Partners, L. P.
    (3) 10.1 -  Third Amended and Restated  Agreement of  Limited Partnership of
        HEP Operating Partners. 
    (7) 10.3 -  Second Amended  and Restated  Credit Agreement  dated March  31,
        1995. 
    (2) 10.4 - Amended and Restated  Note Purchase Agreement dated May  7, 1990.
        (Exhibit 10.2)
    (3) 10.5 -  Amended and  Restated Agreement  of Limited  Partnership of  EDP
        Operating, Ltd.
    (8) 10.6  -  Financial  Consulting  Agreement  between  The  Hallwood  Group
        Incorporated and Hallwood Petroleum, Inc. dated June 30, 1993.
    (4) 10.7  -  Financial  Consulting  Agreement  between  The  Hallwood  Group
        Incorporated and Hallwood Petroleum, Inc. dated June 30, 1994.
   *(4) 10.8  - Compensation  Agreement  between  Hallwood Petroleum,  Inc.  and
        Anthony J. Gumbiner dated August 1, 1994.
   *(7) 10.9  - Domestic  Incentive Plan  between  the Partnership  and Hallwood
        Petroleum, Inc. dated January 14, 1993.
   *(8) 10.10 - 1995 Unit Option Plan
   *(7) 10.11 - 1995 Unit Option Plan Loan Program<PAGE>
        21 - Subsidiaries of Registrant
        23.1 - Consent of Deloitte & Touche LLP
        23.2 - Consent of Deloitte & Touche LLP

                                           

            (1)  Incorporated by reference to  Prospectus/Proxy Statement  dated
                 February 14,  1990 as  supplemented March 22,  1990, March  30,
                 1990  and April  5, 1990, of  Hallwood Energy  Partners, L. P.,
                 filed as part of Registration Statement No. 33-33452.
            (2)  Incorporated by reference to  the exhibit shown  in parentheses
                 filed with  current report on  Form 8-K  dated May  9, 1990  of
                 Hallwood Energy Partners, L.P.
            (3)  Incorporated  by  reference to  the  same exhibit  number filed
                 with the Registrant's  Annual Report  on Form  10-K for  fiscal
                 year ended December 31, 1990.
            (4)  Incorporated  by  reference to  the  same exhibit  number filed
                 with the  Registrant's Quarterly  Report on  Form 10-Q for  the
                 quarter ended September 30, 1994.
            (5)  Incorporated  by  reference  to   Exhibit  1  filed   with  the
                 Registrant's Form  8-A for Limited Partner Unit Purchase Rights
                 filed with the SEC on February 8, 1995.
            (6)  Incorporated  by  reference to  the  same exhibit  number filed
                 with the Registrant's  Annual Report  on Form  10-K for  fiscal
                 year ended December 31, 1993.
            (7)  Incorporated  by  reference to  the  same exhibit  number filed
                 with  Registrant's  Quarterly  Report  on  Form  10-Q  for  the
                 quarter ended March 31, 1995.
            (8)  Incorporated  by  reference to  the  same exhibit  number filed
                 with the  Registrant's Annual  Report on Form  10-K for  fiscal
                 year ended December 31, 1994.

            *Designates   management   contracts   or   compensatory   plans  or
            arrangements.


   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:  HALLWOOD ENERGY
                                    CORPORATION
                                    GENERAL PARTNER


    Date:  February 29, 1996        By:  /s/William L. Guzzetti    
                                             William L. Guzzetti
                                             President and
                                             Director

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


           Signature              Capacity              Date




    /s/Anthony J. Gumbiner   Chairman of the     February 29, 1996 
    Anthony J. Gumbiner      Board and Director                    
                             (Chief Executive
                             Officer)


    /s/Brian M. Troup        Director            February 29, 1996 
    Brian M. Troup                                                 




    /s/Hans-Peter Holinger   Director            February 29, 1996 
    Hans-Peter Holinger                                            




    /s/Rex A. Sebastian      Director            February 29, 1996 
    Rex A. Sebastian                                               



    /s/Robert S. Pfeiffer    Principal           February 29, 1996 
    Robert S. Pfeiffer       Accounting Officer