LETTER AMENDMENT NO. 2

                                  June 30, 2000

The Prudential Insurance Company
   of America
c/o Prudential Capital Group
Attention:  Carmella B. Wilson
2200 Ross Avenue, Suite 4200E

Dallas, Texas  75201

Ladies and Gentlemen:

         We refer to the  Amended  and  Restated  Subordinated  Note and Warrant
Purchase  Agreement  dated  as of June  8,  1999  (the  "Agreement")  among  the
undersigned,   Hallwood  Energy  Corporation,  Hallwood  Consolidated  Resources
Corporation and you. Unless otherwise  defined herein,  the terms defined in the
Agreement shall be used herein as therein defined.

         Paragraph  6B(6)  of  the  Agreement   requires  that  Indebtedness  of
Subsidiaries  of the Parent not exceed the  greater of  $1,000,000  or 2% of the
Consolidated  Net Worth of the  Parent.  As of June 30,  2000,  Indebtedness  of
Subsidiaries  of the Parent,  other than the Company,  computed after marking to
market Hedging Transactions,  was approximately $26,000,000. We request that you
amend paragraph 6B(6) of the Agreement to allow for the exclusion of the hedging
exposure amounts.

         You have indicated your willingness to so agree. As a condition to your
agreement you have requested, and we have agreed, to further amend the Agreement
by amending paragraph 6B(7) as provided herein. Accordingly, it is hereby agreed
by you and us as follows:

     The Agreement is, effective the date first above written, hereby amended as
follows:

     (a) Paragraph 6B(2).  Liens. Clause (v) of Paragraph 6B(2) of the Agreement
is amended in full to read as follows:

          "(v) other  Liens on  properties  of Parent,  the Company or any other
     Subsidiary  of the  Parent,  provided  that  (i) the  aggregate  amount  of
     Indebtedness or other obligations  secured by such Liens plus (ii) (without
     duplication)  the aggregate  amount of  Indebtedness of Subsidiaries of the
     Parent,  other than (A)  Indebtedness  of the Company and (B)  Indebtedness
     that constitutes  Senior Debt, does not exceed, at any time, the greater of
     $1,000,000 or 2% of Consolidated Net Worth of the Parent.  For the purposes
     of this clause (v) only,  "Indebtedness"  of  Subsidiaries  contemplated by
     clause  (ii)  will not  include  the  amount  of  Hedging  Transactions  of
     Subsidiaries  of the  Parent  if  such  Hedging  Transactions  comply  with
     paragraph  6B(7)."

     (b) Paragraph  6B(6).  Priority Debt.  Paragraph  6B(6) of the Agreement is
amended in full to read as follows:

          "6B(6).  Priority Debt. Permit (i) Indebtedness of Subsidiaries of the
     Parent,  other than (A)  Indebtedness  of the Company and (B)  Indebtedness
     that constitutes Senior Debt, plus (without  duplication) (ii) Indebtedness
     secured by Liens permitted by clause (v) of paragraph  6B(2) to exceed,  at
     any time, the greater of $1,000,000 or 2% of Consolidated  Net Worth of the
     Parent.  For the purposes of this paragraph 6B(6) only,  "Indebtedness"  of
     Subsidiaries  contemplated  by clause  (i) will not  include  the amount of
     Hedging  Transactions  of  Subsidiaries  of  the  Parent  if  such  Hedging
     Transactions comply with paragraph 6B(7)."

     (c) Paragraph 6B(7). Hedging Transactions. Paragraph 6B(7) of the Agreement
is amended by adding to the end thereof the following sentences:

          "In addition,  the Company will not and will not permit any Subsidiary
     to enter into a Hedging Transactions with respect to crude oil, natural gas
     or liquid  hydrocarbons other than Hedging  Transactions (i) that by volume
     apply to not more  than 75% of the  proved  developed  producing  reserves,
     (based  on the  most  recent  engineering  report  furnished  to the  Banks
     pursuant to the Credit Agreement)  projected to be produced in any calendar
     year (the "Subject Year")  (determined using basis adjusted prices from the
     New York Mercantile Exchange in the preceding fiscal quarter) and (ii) that
     do not extend beyond the three calendar  years  following the Subject Year.
     The Company will deliver to the holders of each Note a statement  detailing
     its hedge  position as of the end of the previous  fiscal quarter in a form
     satisfactory  to the  Required  Holders  of the  Notes at the same  time it
     delivers the financial  statements  contemplated  by  paragraphs  5A(i) and
     5A(ii). Such statement will set forth (a) all Hedging  Transactions,  (b) a
     valuation of the Company's proved developed  producing reserves using basis
     adjusted prices from the New York Mercantile Exchange as of the last day of
     the previous fiscal  quarter,  and (c) the amount of the obligations of the
     Company and its Subsidiaries under any Hedging Transaction determined as of
     the end of the  then  most  recently  ended  fiscal  quarter,  based on the
     assumption that such Hedging  Transaction had terminated at the end of such
     fiscal quarter."

     (d) Paragraph 12B.  Other Terms.  Paragraph 12B of the Agreement is amended
by amending the definition of "Indebtedness" to add a closing parenthesis at the
end of clause (i) in front of the semicolon.

     On and after the effective date of this Letter Amendment, each reference in
the  Agreement  to "this  Agreement,"  "hereunder,"  "hereof,"  or words of like
import  referring  to the  Agreement,  and each  reference  in the Notes to "the
Agreement,"  "thereunder,"  "thereof," or words of like import  referring to the
Agreement,  shall mean the  Agreement as amended by this Letter  Amendment.  The
Agreement,  as amended by this Letter Amendment,  is and shall continue to be in
full force and effect and is hereby in all respects ratified and confirmed.  The
execution, delivery and effectiveness of this Letter Amendment shall not, except
as expressly provided herein,  operate as a waiver of any right, power or remedy
under the Agreement nor constitute a waiver of any provision of the Agreement.

     This Letter  Amendment may be executed in any number of counterparts and by
any  combination of the parties hereto in separate  counterparts,  each of which
counterparts  shall  be an  original  and  all of  which  taken  together  shall
constitute one and the same Letter  Amendment.  The effectiveness of this Letter
Amendment  is  conditioned  upon the accuracy of the factual  matters  described
above and the execution of the Consent attached hereto.

     If you agree to the terms  and  provisions  hereof,  please  evidence  your
agreement  by executing  and  returning  at least a  counterpart  of this Letter
Amendment to Hallwood  Energy  Corporation,  4610 S. Ulster  Street,  Suite 200,
Denver,  CO 80237,  Attention:  Legal  Department.  This Letter  Amendment shall
become  effective as of the date first above written when and if counterparts of
this Letter Amendment shall have been executed by you and us.

                                             Very truly yours,

                                             HALLWOOD ENERGY CORPORATION

                                             By:      /s/ William J. Baumgartner

                                                      Title:  Vice President

                                             HALLWOOD CONSOLIDATED
                                             RESOURCES CORPORATION
                                             By:      /s/ William J. Baumgartner

                                                      Title:  Vice President

Agreed as of the date first above written:

THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA

By: /s/ Ric E. Abel

   Title:  Vice President


<PAGE>


                                     CONSENT

       Hallwood  Consolidated  Partners,  L.P., is a Guarantor  under the Senior
Subordinated  Guaranty  Agreement dated as of December 23, 1997, and each of the
other undersigned entities are Guarantors under the Senior Subordinated Guaranty
Agreement  dated as of June 8, 1999 (each  being a  "Guaranty")  in favor of The
Prudential  Insurance  Company of  America  ("Prudential")  with  respect to the
obligations of Hallwood Consolidated Resources Corporation (the "Company") under
that  certain  Amended  and  Restated  Subordinated  Note and  Warrant  Purchase
Agreement dated as of June 8, 1999 (the "Agreement"). Prudential and the Company
are entering into Letter  Agreement No. 2 to the  Agreement  (the  "Amendment").
Each of the  undersigned  hereby  consents  to the  Amendment,  and each  hereby
confirms  and agrees  that its  Guaranty  is, and shall  continue to be, in full
force and effect and hereby  confirmed and ratified in all respects except that,
upon the  effectiveness  of,  and on and  after  the date of this  Consent,  all
references in the Guaranty of the undersigned to the "Agreement,"  "thereunder,"
"thereof,"  or words of like import  referring to the  Agreement  shall mean the
Agreement  as amended by the  Amendment,  as the same may be further  amended or
modified from time to time.

Dated as of June 30, 2000

HALLWOOD CONSOLIDATED                              MAY ENERGY PARTNERS OPERATING
   PARTNERS, L.P.                                   PARTNERSHIP, LTD.
By:  Hallwood Consolidated Resources               By:  HEC Acquisition Corp.,
        Corporation                                     Its General Partner
       Its General Partner

                                                   By:/s/ William J. Baumgartner

By:    /s/ William J. Baumgartner                      Title:  Vice President

       Title:  Vice President

HALLWOOD ENERGY PARTNERS, L.P.                 CONCISE OIL & GAS PARTNERSHIP
By:    HEC Acquisition Corp.,                  By:  HEC Acquisition Corp.,
       Its General Partner                          Its General Partner

By:    /s/ William J. Baumgartner              By: /s/ William J. Baumgartner

       Title:  Vice President                      Title:  Vice President

LA PLATA ASSOCIATES, LLC                       EM NOMINEE PARTNERSHIP COMPANY
By:    Hallwood Petroleum, Inc.                By:  HEC Acquisition Corp.
       Its Manager                                  Its General Partner

By:    /s/ William J. Baumgartner              By:/s/ William J. Baumgartner

       Title:  Vice President                     Title:  Vice President

HALLWOOD LA PLATA, LLC
By:  Hallwood Petroleum, Inc.
       Its Manager

By:    /s/ William J. Baumgartner

       Title:  Vice President