COMPENSATION AGREEMENT
                                       FOR
                               ANTHONY J. GUMBINER
                          WITH HALLWOOD PETROLEUM, INC.


     This Compensation Agreement ("Agreement"),  is made and entered into  as of
August 1, 1994 by and  between Hallwood Petroleum, Inc. ("HPI"),  and Anthony J.
Gumbiner ("Gumbiner").


                                    RECITALS

     HPI, through  its affiliates, is actively engaged in oil and gas activities
in  the countries  of Indonesia,  Azerbaijan and  Peru and  may  become actively
involved in similar activities in other countries.

     Gumbiner  is the Chairman of the  Board of HPI and  the parties have agreed
that his  duties in such office  shall be those described in  this Agreement and
shall be performed outside the United States and the United Kingdom.

     HPI  and  Gumbiner  wish   to  promote  their  mutual  best   interests  by
establishing  rights  and  obligations  with respect  to  Gumbiner's  employment
relationship  with HPI  and they  desire to  set forth  in writing  their mutual
understanding and  agreement  with  respect to  the  conditions,  covenants  and
agreements regarding the employment of Gumbiner by HPI.

     HPI and Gumbiner previously entered into an agreement  dated as of April 1,
1992, which incorrectly reflected the terms of their relationship.

                                    AGREEMENT

     In consideration of the  mutual benefits to be derived from  this Agreement
and  the covenants and agreements set  forth herein, the receipt and sufficiency
of which  are acknowledged  by the execution  and delivery  hereof, the  parties
agree as follows:

     1.   Engagement.   HPI agrees  to compensate  Gumbiner  for his  activities
outside  of the United  States and Gumbiner  agrees to  perform these activities
outside  of the United States  upon the terms  and conditions set  forth in this
Agreement.

     2.   Duties of Gumbiner.  Gumbiner's duties and obligations hereunder shall
include:  (a) consulting with and assisting HPI in maintaining its relationships
with officials in Indonesia, Azerbaijan and Peru and other countries outside the
United States and the United Kingdom  in which HPI or its affiliates may  in the
future  enter into  agreements  with  respect to  oil  and gas  activities;  (b)
assisting  HPI in negotiating such agreements with  the governments or state oil
companies of these countries as may be necessary or appropriate to implement the
initial  agreement HPI or  its affiliates entered  into in  those countries; (c)
assist and  consult with  HPI  in structuring  and obtaining  financing for  the
activities of  its affiliates; (d) reporting  to the Boards of  Directors of HPI
and its affiliates (the "Boards") and any other person designated by the Boards;
and (d) observing and complying with all resolutions, regulations and directions
from time to time made or given by the Boards.

     3.   Nondisclosure and  Confidentiality.  Gumbiner understands  that he has
developed  and  been  exposed  to,  or  may  develop  or  be  exposed to  highly
confidential information and trade  secrets of HPI and its  parent, subsidiaries
or associated  companies ("Confidential  Information"), and that  maintenance by
HPI of its proprietary  Confidential Information to the fullest  extent possible
is extremely important.  Except as required during the performance of his duties
for  HPI or otherwise permitted by HPI, Gumbiner agrees never to disclose or use
any Confidential Information either during or  after the term of this  Agreement
and to take all reasonable precautions to prevent inadvertent disclosure, use or
transfer of any Confidential Information.

     4.   Term.   This  Agreement shall  be effective  from August 1,  1994 (the
"Commencement Date") and  shall continue  in effect until  terminated by  either
party giving to the other not less than six calendar month's notice in writing.

     5.   Compensation.    As compensation  for  services  rendered by  Gumbiner
hereunder,  HPI shall pay to  Gumbiner annual compensation  of Two Hundred Fifty
Thousand  Dollars ($250,000) payable in installments quarterly in advance on the
first  day of  each of February,  May, August  and November  each year beginning
August 1, 1994.

     6.   Expenses.  HPI shall within a reasonable time after the occurrence  of
same, reimburse  Gumbiner for reasonable, ordinary  business expenses reasonably
incurred by him in the performance of his duties for HPI, provided that Gumbiner
shall maintain  an accurate record of  such expenses and shall  provide HPI with
evidence thereof.

     7.   Termination.   HPI may terminate  this Agreement at  any time upon the
following events:  (i)  any act of dishonesty on the  part of Gumbiner resulting
or intended to result directly or indirectly in personal gain or benefit  at the
expense of HPI  or material damage  of or to  property of HPI;  (ii) any act  of
fraud, misappropriation, embezzlement or willful misconduct by Gumbiner or (iii)
the willful breach or repeated, habitual neglect by Gumbiner of his duties under
this Agreement to HPI.  Upon such termination HPI shall pay to Gumbiner the pro-
rata portion of the annual compensation to the date of termination, and he shall
be entitled to no  other compensation or benefits hereunder,  including, without
limitation, any other compensation, bonuses or commissions.

     8.   Disability  or Death.   If  as a  result of  illness, injury  or other
disability,  Gumbiner shall  be unable  to  perform his  duties  hereunder on  a
substantially full-time basis for any period of 30 days  or more, HPI may at its
option terminate Gumbiner's employment  hereunder and shall pay to  Gumbiner the
pro-rata portion of annual compensation to the date of termination.  If Gumbiner
shall die during the term of his  employment by HPI, HPI shall pay to Gumbiner's
estate  the pro-rata  portion of annual  compensation to the  date of Gumbiner's
death.

     9.   Certain  Payments.   Gumbiner  acknowledges that  he  is aware  of the
provision   of  United  States  law  relating  to  prohibitions  of  any  person
representing a  United  States  company  from, directly  or  indirectly,  giving
anything of value to any  foreign official to influence the foreign  official in
directing or agreeing to do  business with the United States firm.  In addition,
Gumbiner acknowledges  that he has read  the Statement of Company  Policy of the
Hallwood  Entities  regarding payment  of gifts  to  foreign officials  that has
previously been  supplied to him.   Gumbiner hereby undertakes to  abide by such
laws and  policy and  will not  use  any part  of the  amounts paid  under  this
Agreement or any payments that are prohibited under such laws or policy.

     10.  Relationship  of the Parties.   In performing his  services under this
Agreement, Gumbiner  shall be an independent contractor  and, as between HPI and
Gumbiner, neither  HPI  nor  any of  its  affiliates shall  be  responsible  for
withholding, collection  or payment of  income taxes or  for other taxes  of any
nature on behalf of Gumbiner.

     11.  Miscellaneous.

     (a)  Notices.  Any notice to  be given hereunder is to be given  in writing
by  either party to the  other and delivered or sent  by prepaid airmail post or
facsimile  transmission  addressed to  the address  shown  next to  each party's
signature  to this agreement  or such other  address as  may be notified  by one
party  to the other for  such purposes and  shall be deemed to  be served in the
case of  airmail post  three days  after posting and  in the  case of  facsimile
transmission immediately upon successfully transmission.

     (b)  Severability.   Whenever  possible, each  provision of  this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law,  but if any provision  of this agreement is held  to be invalid, illegal or
unenforceable  in  any  respect   under  any  applicable  law  or  rule  in  any
jurisdiction, such  invalidity, illegality  or unenforceability will  not affect
any other  provision  or any  other  jurisdiction, but  this agreement  will  be
reformed,  construed and  enforced  in such  jurisdiction  as if  such  invalid,
illegal or unenforceable provisions had never been contained herein.

     (c)  Governing  Law;  Venue.   This  Agreement  shall  be  governed by  and
construed  in accordance with the laws of Monaco and the parties agree to submit
themselves to the jurisdiction of Monaco.

     (d)  Counterparts.     This   Agreement   may  be   executed  in   multiple
counterparts, all of  which shall  be deemed originals,  but which  counterparts
shall constitute one and the same instrument.

     (e)  Entire  Agreement.    This  Agreement contains  the  entire  agreement
between  the parties  hereto with  respect to  the subject matter  hereof.    No
variations, modifications or changes herein or  hereof shall be binded upon  any
party unless  set forth  in a  document duly executed  by or  on behalf  of such
party.

     (f)  Supersedes Prior Agreement.  This Agreement replaces and supersedes in
its entirety the  Compensation Agreement for  Anthony J. Gumbiner with  Hallwood
Petroleum, Inc. dated as of April 1, 1992.


     IN WITNESS  WHEREOF, the parties have executed this Agreement as of the day
and date above first written.

                                             HPI:

4582 South Ulster Street Parkway             HALLWOOD PETROLEUM, INC.
Suite 1700
Denver, Colorado 80237                       By:  /s/William L. Guzzetti
                                                  ------------------------
                                                  William L. Guzzetti
                                                  President


24, Avenue Princesse Grace                   GUMBINER:
Monte-Carlo MC98000
Principality of Monaco                       /s/Anthony J. Gumbiner
                                             ----------------------------
                                             ANTHONY J. GUMBINER