SECOND AMENDED AND RESTATED CREDIT AGREEMENT


     SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 31, 1997 among
HALLWOOD CONSOLIDATED RESOURCES CORPORATION, a Delaware corporation ("HCRC") and
HALLWOOD   CONSOLIDATED   PARTNERS,   L.P.,  a  Colorado   limited   partnership
(individually a "Borrower" and collectively the  "Borrowers"),  the BANKS listed
on the  signature  pages hereof (the  "Banks"),  First Union  National  Bank, as
collateral agent (the "Collateral Agent"),  MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as Agent (the "Agent").


                              W I T N E S S E T H :


     WHEREAS,  the Borrowers,  the Banks, the Collateral Agent and the Agent are
party to an Amended and Restated Credit Agreement dated as of March 31, 1995 (as
amended prior to the Effective  Date (as defined  below),  the "Original  Credit
Agreement"  and as amended and restated by this Amendment and  Restatement,  the
"Credit Agreement"); and

     WHEREAS,  pursuant to the Original  Credit  Agreement,  the Borrowers  have
issued  to the  order of each  Bank  promissory  notes  (the  "Original  Notes")
substantially in the form of Exhibit A to the Original Credit Agreement; and

     WHEREAS,  the  Borrowers,  the Banks,  the  Collateral  Agent and the Agent
desire to amend the Original Credit Agreement as set forth herein and to restate
the  Original  Credit  Agreement  in its  entirety  to read as set  forth in the
Original Credit Agreement with the amendments specified below;

     NOW, THEREFORE, the parties hereto agree as follows:



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     SECTION  1.  Definitions;  References;  Amendment  and  Restatement  of the
Original Credit Agreement.  Unless otherwise  specifically  defined herein, each
term used herein which is defined in the Original  Credit  Agreement  shall have
the  meaning  assigned  to  such  term  therein.  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
Original Credit Agreement shall, from and after the Effective Date, refer to the
Original Credit Agreement as amended and restated hereby. Effective on and as of
the Effective Date, the Original Credit  Agreement shall be amended and restated
in its entirety to read as set forth in the Original  Credit  Agreement with the
amendments specified below.

     SECTION 2.  Increase in  Commitments.  With effect from and  including  the
Effective  Date,  the  Commitment  of each Bank  shall be the  amount  set forth
opposite the name of such Bank on the signature pages hereof, as such amount may
be reduced from time to time pursuant to Section 2.09 of the Credit Agreement.

     SECTION 3. Amendments to the  Definitions  Contained in the Original Credit
Agreement.  (a) The definitions of "Drawdown  Termination  Date" and "Term Date"
contained in Section 1.01 of the Original  Credit  Agreement are amended to read
in their entirety as follows:

                    "Drawdown  Termination  Date"  means the earlier to occur of
               May 31, 1999 or the date on which the Borrowers elect to commence
               The Term Period.

                    "Term  Date"  means the  earlier to occur of May 31, 1999 or
               the last day of May,  August,  November or  February  which first
               occurs  after the date on which the  Borrowers  elect to commence
               the Term Period.

          (b) Definitions of "Availability Limit", "CD Margin",  "Commitment Fee
     Rate", "Euro-Dollar Margin", "Level I Status", "Level II Status" and "Level
     III Status" are added in alphabetical order in Section 1.01 of the Original
     Credit Agreement, to read in their 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)  $25,000,000.   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.

                    "CD Margin" means, on any date, (i) 1.375%,  if on such date
               Level I Status  exists,  (ii)  1.625%,  if on such date  Level II
               Status exists and (iii) 1.875%,  if on such date Level III Status
               exists.

                    "Commitment  Fee Rate" means,  on any date, (i) .375%, if on
               such date Level I Status or Level II Status exists and (ii) .50%,
               if on such date Level III Status exists.



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                    "Euro-Dollar  Margin" means,  on any date, (i) 1.25%,  if on
               such date  Level I Status  exists,  (ii)  1.50%,  if on such date
               Level II Status exists and (iii) 1.75%, if on such date Level III
               Status exists.

                    "Level I  Status"  exists  on any  date if on such  date the
               aggregate  outstanding principal amount of the Loans is less than
               50% of the Availability Limit.

                    "Level II Status" exists on any date if on such date (i) the
               aggregate  outstanding principal amount of the Loans is less than
               or equal to 85% of the Availability Limit and (ii) Level I Status
               does not exist on such date.

                    "Level  III  Status"  exists  on any  date if on  such  date
               neither Level I Status nor Level II Status exists.

     SECTION 4. Change in the Interest  Rate  Applicable  to the Loans.  (a) The
first sentence of Section 2.04(a) of the Original Credit Agreement is amended to
read in its entirety as follows:

               Each Bank's CD Loans shall bear interest on the unpaid  principal
               amount  thereof until payment in full thereof at a rate per annum
               equal to the sum of (i) the  Adjusted  CD Rate for each  Interest
               Period  applicable  thereto  plus (ii) the CD  Margin,  but in no
               event to exceed the Highest  Lawful  Rate of such Bank;  provided
               that if any CD Loan or any portion  thereof shall, as a result of
               clause (2) (b) (i) of the definition of Interest Period,  have an
               Interest  Period  of less than 30 days,  such CD Loan or  portion
               thereof  shall bear interest  during such Interest  Period at the
               rate applicable to Base Rate Loans during such period.

          (b) The first  sentence  of  Section  2.04(b) of the  Original  Credit
     Agreement is amended to read in its entirety as follows:

               Each Bank's  Euro-Dollar  Loans shall bear interest on the unpaid
               principal  amount thereof until payment in full thereof at a rate
               per annum equal to the sum of (i) the Adjusted  Euro-Dollar  Rate
               for  each  Interest  Period  applicable  thereto  plus  (ii)  the
               Euro-Dollar  Margin, but in no event to exceed the Highest Lawful
               Rate of such Bank.

          (c) Section 2.04(f) of the Original Credit Agreement is deleted in its
     entirety.

          (d) Section 2.04(g) of the Original Credit Agreement is renumbered as
     Section 2.04(f).



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     SECTION 5. Change in  Calculation  of Commitment  Fee.  Section 2.20 of the
Original Credit Agreement is amended to read in its entirety as follows:


                    SECTION 2.20.  Commitment Fees.  During the Revolving Credit
               Period,  the Borrowers  shall pay to the Agent for the account of
               each  Bank  (which  payment  shall be  distributed  to each  Bank
               ratably in accordance  with each Bank's  Commitment) a commitment
               fee at the  Commitment  Fee Rate  calculated  for each day on the
               daily average amount by which the Availability  Limit exceeds the
               aggregate  outstanding  principal amount of the Loans. Subject to
               Section  2.09(b)  hereof,  such commitment fees shall accrue from
               and including the Effective Date to but excluding the last day of
               the  Revolving  Credit  Period and shall be payable  quarterly on
               each March 31, June 30,  September  30 and December 31 during the
               Revolving  Credit  Period  and on the last  day of the  Revolving
               Credit Period.

     SECTION  6.  Amendments  to  Distribution  Covenant.  Section  4.21  of the
Original Credit Agreement is amended to read in its entirety as follows:



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                    Section 4.21. Distributions, Etc. HCRC will not make, pay or
               declare any dividend or distribution on any class of its stock or
               any  distribution  of profits or  purchase,  redeem or  otherwise
               acquire  for  value  any  shares of any class of its stock now or
               hereafter  outstanding  ("Distributions")  (a)  if  an  Event  of
               Default has occurred  and is  continuing  and the Required  Banks
               have  notified  HCRC in writing  not to make such  Distributions;
               provided  that no such notice  shall be required  for an Event of
               Default  pursuant to  subsections  (a) (g), (h) or (l) of Section
               5.01;  (b) if the  aggregate  Debt of the Borrowers  exceeds,  or
               would  immediately after such  Distribution  exceed,  100% of the
               Debt Limit; or (c) on any date (a "Measuring Date") in any fiscal
               quarter of HCRC if at such Measuring Date, after giving effect to
               any such proposed Distribution to be made on such Measuring Date,
               the  aggregate  amount  of  Distributions  made in the  period of
               twelve  consecutive  calendar months ended on such Measuring Date
               would exceed the  Distribution  Percentage  of an amount equal to
               (A) the sum of the  amounts  which  are set  forth  opposite  the
               captions  "Cash  provided by operations  before  working  capital
               changes"  and   "Distributions   received  from   affiliates"  on
               consolidated  statements  of cash flows of HCRC for the period of
               four consecutive  fiscal quarters most recently ended on or prior
               to such  Measuring  Date and with respect to which the  Borrowers
               have delivered to the Lenders the financial  statements  required
               to delivered by them  pursuant to Section 1 (it being  understood
               that such financial  statements  are prepared in accordance  with
               generally accepted  accounting  principles  consistent with those
               utilized in preparing the  consolidated  statements of cash flows
               of HCRC as filed in  HCRC's  annual  report  on Form 10-K for the
               fiscal  year ended  December  31,  1994 with the  Securities  and
               Exchange  Commission  pursuant to the Securities  Exchange Act of
               1934) minus (B) the aggregate  amount of payments made by HCRC in
               such period to make  purchases  permitted by Sections  4.19(m) or
               (n); provided,  however, that the provisions of subparagraphs (b)
               and (c) of this Section 4.21 shall not prevent the payment of any
               Distribution  within 60 days of the  declaration  thereof,  if at
               said date of  declaration  such payment  would have complied with
               the provisions hereof. In addition,  for purposes of this Section
               20:

                    "Distribution Percentage" means, at any date, (i) 65%, if on
               such date Monthly  Exposure is less than 50% of the Debt Limit on
               such date and (ii) otherwise, 50%.

                    "Monthly  Exposure"  means,  on any date,  the daily average
               outstanding  principal  amount of Debt of the Borrowers and their
               Subsidiaries  (including without limitation the Loans) during the
               30-day period ending on the date immediately preceding such date.

     SECTION 7. Additional Condition to Borrowing.  Section 6.03 of the Original
Credit  Agreement  is  amended  by  adding  the  following  new  subsection  (f)
immediately after subsection (e) thereof, to read in its entirety as follows:

          (f) the fact that,  immediately  after such  Borrowing,  the aggregate
     outstanding  principal amount of the Loans will not exceed the Availability
     Limit.

     SECTION 8.  Change in  Amendments  Section.  Section  8.05 of the  Original
Credit Agreement is amended as follows:

          (a) by deleting the "or" at the end of clause (iii) thereof and
     replacing it with a comma;

         (b) by deleting the period at the end of clause (iv) thereof and
     replacing it with an "or"; and

         (c) by adding a new clause (v)  immediately  after clause (iv) thereof,
     to read it its entirety as follows:

               (v)  increase  the  amount  set  forth  in  the   definition   of
                    Availability  Limit or  change  the  provisions  of  Section
                    6.03(f).

     SECTION  9.  Amendment  to  Exhibit  A.  Exhibit A to the  Original  Credit
Agreement is amended to read in its entirety as set forth on Exhibit A hereto.

     SECTION 10.  Amendments  to Schedule D.  Schedule D to the Original  Credit
Agreement is amended to read in its entirety as set forth on Schedule D hereto.



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     SECTION 11 . Transitional Provisions.  On the Effective Date but subject to
the  conditions  set forth in  Section  14  hereof,  the  Euro-Dollar  Loans and
Domestic  Loans  outstanding  to each Bank under the Original  Credit  Agreement
shall be deemed to be the initial  Euro-Dollar  Loans or Domestic  Loans, as the
case may be,  made by such  Bank  under  the  Credit  Agreement,  it  being  the
intention  of the parties  hereto  that (i) all  indebtedness  evidenced  by the
Original Notes shall,  on and after the Effective  Date, be solely  evidenced by
the Notes (as defined in the Credit Agreement), (ii) the Loans outstanding under
the Original Agreement on the Effective Date shall continue to be outstanding on
such  date as  Domestic  Loans or  Euro-Dollar  Loans,  as  appropriate,  having
Interest Periods determined in accordance with the Original Credit Agreement and
bearing  interest as provided  with respect to Loans in Article II of the Credit
Agreement  and  (iii) the  liens  created  by the  Collateral  Documents  on the
properties and assets described therein shall be carried forward and continue in
full force and effect for the purpose of securing the Notes. Upon receipt of its
Note,  each Bank will mark its Original Note "Replaced" and in due course return
its Original Note to HEP.


     SECTION 12. Governing Law. This Amendment and Restatement shall be governed
by and construed in accordance with the laws of the State of New York.

     SECTION 13.  Counterparts.  This Amendment and Restatement 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 14.  Effectiveness.  This  Amendment and  Restatement  shall become
effective  on the  date  (the  "Effective  Date")  when  each  of the  following
conditions shall have been satisfied:

          (a) this Amendment and  Restatement  shall have been duly executed and
     delivered by the Borrowers,  the Banks,  the Collateral Agent and the Agent
     (or, in the case of any party as to which an executed counterpart shall not
     have been  received,  the Agent shall have received  telegraphic,  telex or
     other  written  confirmation  from such party of execution of a counterpart
     hereof by such party);

          (b) the Agent  shall  have  received  for the  account of each Bank an
     executed  Note  substantially  in the form of Exhibit  A, duly and  validly
     issued  and in the  amount of such  Bank's  Commitment  as set forth on the
     signature pages hereof, dated on or prior to the Effective Date;


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          (c) the Agent shall have  received a signed copy of a  certificate  of
     the  Secretary or an Assistant  Secretary or other  appropriate  officer of
     each of HCRC certifying (i) the names and true signatures of the Authorized
     Persons authorized to sign the Notes, and the Collateral Documents to which
     HCRC is or will be a party,  on behalf of itself or as  general  partner of
     HCP  (including  without  limitation any  Collateral  Documents  Amendments
     referred to in subsection  (f)) and the other  documents or certificates to
     be  delivered  pursuant  thereto,  (ii)  the  resolutions  of the  Board of
     Directors  (or  equivalent  body)  of  HCRC  authorizing  the  transactions
     contemplated  hereby to which is or will be a party (on behalf of itself or
     as general partner of HCP),  together with all documents  evidencing  other
     necessary  partnership  or  corporate  action with  respect to any thereof,
     (iii) no amendments to the true copies of the Partnership  Agreement of HCP
     delivered to the Agent prior to the Effective  Date, and (iv) no amendments
     to the true copy of the  Articles  of  Incorporation  and  By-Laws  of HCRC
     delivered to the Agent prior to the Effective Date;

          (d) the Agent shall have  received  from King & Spalding,  counsel for
     the Borrowers,  an opinion  substantially to the effect of Exhibit B hereto
     and covering such  additional  matters as the Required Banks may reasonably
     request;

          (e) the Agent shall have received from Davis Polk & Wardwell,  special
     counsel for the Agent,  an opinion in  substantially  the form of Exhibit C
     hereto;

          (f)  the   Collateral   Agent  shall  have   received   duly  executed
     counterparts   of   the   documents    numbered    (C)(1)(f),    (C)(2)(e),
     C(3)(d),(D)(4)(h),  (D)(5)(d), (D)(5)(d),  (D)(6)(d),  (D)(7)(c),(E)(2)(e),
     (E)(5)(e)   listed  on  Schedule  D  hereto  (the   "Collateral   Documents
     Amendments"); and

          (g) the Collateral Agent shall have received from counsel satisfactory
     to it in each jurisdiction in which any Collateral Documents Amendments are
     to be recorded or filed a favorable  written opinion as to the validity and
     binding effect of the Collateral  Documents and the perfection of the Liens
     created  thereunder under the law of such jurisdiction and as to such other
     matters  incident to the transactions  herein  contemplated as the Required
     Banks may reasonably request.


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



                                    BORROWERS:

                                   HALLWOOD CONSOLIDATED
                                   RESOURCES CORPORATION

                                   By: /s/  Robert S. Pfeiffer
                                   Title:   Vice President

                                   HALLWOOD CONSOLIDATED PARTNERS, L.P.

                                   By: HALLWOOD CONSOLIDATED
                                         RESOURCES CORPORATION

                                         By: /s/  Robert S. Pfeiffer
                                         Title:   Vice President
                                    The General Partner of Hallwood
                                      Consolidated Partners, L.P.



                                    BANKS:


Commitment

$11,666,667                        MORGAN GUARANTY TRUST COMPANY
                                     OF NEW YORK


                                   By: /s/  John Kowalczuk
                                   Title:   Vice President




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$11,666,667                        FIRST UNION NATIONAL BANK



                                   By: /s/  Michael J. Kolosowsky
                                   Title:   Vice President


$11,666,666                        NATIONSBANK OF TEXAS, N.A.


                                   By: /s/  Richard P. Stults
                                   Title:   Vice President


================
Total Commitment:

$35,000,000
================


                                   MORGAN GUARANTY TRUST COMPANY
                                     OF NEW YORK, as Agent


                                   By: /s/  John Kowalczuk
                                   Title:   Vice President



                                   FIRST UNION NATIONAL BANK,
                                     as Collateral Agent


                                   By: /s/  Michael J. Kolosowsky
                                   Title:   Vice President