[CONFORMED COPY]


                 AMENDMENT NO. 2 AND WAIVER TO CREDIT AGREEMENT


         AMENDMENT  AND WAIVER  dated as of January  27, 2000 to the Amended and
Restated Credit  Agreement dated as of June 8, 1999, as amended by Amendment No.
1 dated as of October 15, 1999 (as so amended,  the "Credit  Agreement"),  among
HALLWOOD  ENERGY  CORPORATION,  HALLWOOD  ENERGY  PARTNERS,  L.P.  and  HALLWOOD
CONSOLIDATED RESOURCES CORPORATION  (collectively,  the "Borrowers"),  the BANKS
party thereto (the "Banks"),  FIRST UNION NATIONAL BANK, as Collateral Agent and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent").

                              W I T N E S S E T H :

         WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth  herein and the Banks have agreed to grant a waiver of certain  provisions
thereof as set forth herein;

         NOW, THEREFORE, the parties hereto agree as follows:

         SECTION 1. Defined Terms;  References.  Unless  otherwise  specifically
defined herein,  each term used herein which is defined in the Credit  Agreement
has the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof",  "hereunder",  "herein" and "hereby" and each other similar  reference
and  each  reference  to  "this  Agreement"  and each  other  similar  reference
contained in the Credit Agreement shall, after this Amendment and Waiver becomes
effective, refer to the Credit Agreement as amended hereby.

         SECTION 2.  Resetting of the Availability Limit and the Debt Limit.
(a) The definition of "Availability Limit" set forth in Section 1.01 of the
Credit Agreement is amended by to read in its entirety as follows:

         "Availability  Limit" means, on any date, an amount equal to the lesser
of  (i)  the  aggregate  amount  of  the  Commitments  at  such  date  and  (ii)
$85,000,000.  The  Availability  Limit may be increased  only by an amendment in
accordance  with Section  8.05,  which the Banks may agree to or not agree to in
their sole discretion.

(NY) 27008/757/AMEND/amend00.2.conf




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         (b)  Effective  on and as of the date  hereof,  the  "Debt  Limit",  as
determined  in  accordance  with  subsection  (b) of Section  4.17 of the Credit
Agreement, shall be $85,000,000.

         SECTION 3. Amendment to Section 4.17(c)(ii). Section 4.17(c)(ii) of the
Credit Agreement is hereby amended in its entirety as set forth below:

                  "(ii)  Upon any sale by the  Borrowers  or the  Property  Base
         Subsidiaries of Petroleum  Property having,  together with all previous
         such  sales  not  taken  into  account  in  previous   adjustments   or
         redeterminations of the Debt Limit pursuant to this Section 4.17(c), an
         aggregate fair market value of $1,000,000 or more, under  circumstances
         when subparagraph  (iv) is not applicable,  or, if subparagraph (iv) is
         applicable,   until  the  Debt  Limit  is   redetermined   pursuant  to
         subparagraph  (iv),  the Debt Limit shall be reduced,  effective on the
         date of  consummation  of such sale,  by an amount  equal to 50% of the
         aggregate   net  proceeds  to  the  Borrowers  and  the  Property  Base
         Subsidiaries of (x) such sale and (y) all previous such sales not taken
         into  account in previous  adjustments  or  rederminations  of the Debt
         Limit pursuant to this Section 4.17(c)."

         SECTION 4. Waiver of the Asset Sale  Covenant.  The Banks  hereby waive
compliance by the Borrowers  with the  requirement  in subsection (b) of Section
4.27 of the Credit  Agreement  that the net proceeds of all sales of Property by
HEC  and its  Subsidiaries  not  exceed  $5,000,000  during  any  period  of six
consecutive  calendar months,  such waiver being granted for the limited purpose
of  permitting  HEC and its  Subsidiaries  to sell the  Properties  described in
Schedules A-1 and A- 2 hereto for an aggregate  purchase price of  approximately
$3,950,000 and $2,000,000, respectively, in each case substantially on the terms
described by HEC to the Banks prior to the date hereof.

         SECTION  5. No  Other  Waivers.  Other  than as  specifically  provided
herein,  this  Amendment  and Waiver shall not operate as a waiver of any right,
remedy, power or privilege of the Agent, the Collateral Agent or the Banks under
the Credit  Agreement  or any other  Financing  Document or of any other term or
condition thereof.

         SECTION 6.  Representations of Borrowers.  The Borrowers  represent and
warrant that (i) the  representations  and warranties of the Borrowers set forth
in Article 3 of the Credit  Agreement  are true on and as of the date hereof and
(ii) no Default has occurred and is continuing.

         SECTION 7.  Governing Law.  This Amendment and Waiver shall be
governed by and construed in accordance with the laws of the State of New York.

(NY) 27008/757/AMEND/amend00.2.conf




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         SECTION 8. Counterparts. This Amendment and Waiver may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.

         SECTION  9.  Effectiveness.  This  Amendment  and Waiver  shall  become
effective  as of the date  hereof  on the date on which  the  Agent  shall  have
received from the  Borrowers  and the Banks a counterpart  hereof signed by such
party or facsimile or other written  confirmation  (in form  satisfactory to the
Agent) that such party has signed a counterpart hereof.

(NY) 27008/757/AMEND/amend00.2.conf




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         IN WITNESS  WHEREOF,  the parties hereto have caused this Amendment and
Waiver to be duly executed as of the date first above written.


                           HALLWOOD ENERGY CORPORATION



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


                                            HALLWOOD CONSOLIDATED
                              RESOURCES CORPORATION



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



                                            HALLWOOD ENERGY PARTNERS, L.P.


                         By: HEC Acquisition Corp., its
                                 General Partner

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




(NY) 27008/757/AMEND/amend00.2.conf




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                               MORGAN GUARANTY TRUST
                               COMPANY OF NEW YORK



                             By: /s/ John Kowalczuk
                            Title:   Vice President


                            FIRST UNION NATIONAL BANK



                            By: /s/ Robert Wetteroff
                            Title:   Senior Vice President


                         BANK OF AMERICA, N.A., formerly
                         NATIONSBANK, N.A.



                            By: /s/ Tracey S. Barclay
                                Title: Principal

(NY) 27008/757/AMEND/amend00.2.conf




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Acknowledged by:

                                    HALLWOOD LA PLATA, LLC
                                    LA PLATA ASSOCIATES, LLC

                                    By: HALLWOOD PETROLEUM, INC.

                                    By:/s/ Cathleen M. Osborn
                                         Title: Vice President

                   The Manager of Hallwood La Plata LLC and La
                                            Plata Associates LLC

                                    CONCISE OIL AND GAS PARTNERSHIP
                                    EM NOMINEE PARTNERSHIP COMPANY
                                    MAY ENERGY PARTNERS OPERATING
                                                 PARTNERSHIP LTD.

                                    By: HEC ACQUISITION CORP.

                                    By:/s/ Cathleen M. Osborn
                                         Title: Vice President

                   The General Partner of Concise Oil and Gas
                  Partnership, EM Nominee Partnership Company,
                    May Energy Partners Operating Partnership
                                    LTD.

                                    HALLWOOD CONSOLIDATED PARTNERS,
                                    L.P.

                                    By: HALLWOOD CONSOLIDATED
                                    RESOURCES CORPORATION

                                    By:/s/ Cathleen M. Osborn
                                         Title: Vice President

                                    The General Partner of Hallwood Consolidated
                                            Partners, L.P.


(NY) 27008/757/AMEND/amend00.2.conf




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                                          SCHEDULE A-1

         The  Properties  marked by an  asterisk  in this  Schedule  A-1 are the
Properties  referred to in Section 4 of the  Amendment  and Waiver to which this
Schedule A-1 is attached.

(NY) 27008/757/AMEND/amend00.2.conf



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                                          SCHEDULE A-2

         The  Properties  marked by an  asterisk  in this  Schedule  A-2 are the
Properties  referred to in Section 4 of the  Amendment  and Waiver to which this
Schedule A-2 is attached.

(NY) 27008/757/AMEND/amend00.2.conf



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