[CONFORMED COPY]


                 AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED
                                CREDIT AGREEMENT
                    WAIVER UNDER SECOND AMENDED AND RESTATED
                                CREDIT AGREEMENT



     AMENDMENT  and  WAIVER  dated  as  of  October  31,  1997  among   HALLWOOD
CONSOLIDATED  RESOURCES   CORPORATION,   a  Delaware  corporation  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
parties to a Second  Amended and Restated  Credit  Agreement  (as  amended,  the
"Credit Agreement");

     NOW, THEREFORE, the parties hereto agree as follows:

     SECTION 1. Definitions;  References.  Unless otherwise specifically defined
herein,  each term used herein  which is defined in the Credit  Agreement  shall
have 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 Credit  Agreement" and each other similar  reference
contained in the Credit  Agreement shall from and after the date hereof refer to
the Credit Agreement as amended hereby.

     SECTION 2.  Resetting of the  Availability  Limit.  (a) The  definition  of
"Availability Limit" set forth in Section 1.01 of the Credit Agreement is hereby
amended 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)(x) at
     any date prior to the Arcadia Date,  $22,500,000  and (y) at any date on or
     after the Arcadia Date, $28,500,000. The Availability Limit



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     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.

     (b) A new  definition  of  "Arcadia  Date" is added in Section  1.01 of the
Credit Agreement, to read in its entirety as follows:

          "Arcadia  Date" means the date on which the Borrowers  consummate  the
     acquisition of the properties  described in the "Arcadia  Acquisition  Bank
     Case Pricing"  engineering  report dated July 1, 1997  substantially on the
     terms  described  by the  Borrowers  to the  Banks  prior  to the  date  of
     effectiveness  of Amendment No.1 to this Agreement  dated as of October 31,
     1997 among the Borrowers,  the Banks,  the Collateral  Agent, the Agent and
     Prudential.

     SECTION 3. Temporary  Waiver of the Collateral  Coverage  Requirement.  The
Banks hereby waive  compliance by the Borrowers with the  requirement in Section
4.13 of the Credit Agreement that Petroleum Properties representing in value not
less than 80% of the  Hydrocarbon  Property  Base be subject  to first  priority
Liens and any Event of Default  arising under the Credit  Agreement  solely as a
result of  noncompliance  by the Borrowers with such  requirement as a result of
the consummation by the Borrowers of the acquisition of the properties described
in the "Arcadia  Acquisition Bank Case Pricing" engineering report dated July 1,
1997 substantially on the terms described by the Borrowers to the Banks prior to
the date hereof;  provided that (x) the waiver granted  pursuant to this Section
shall expire the date which falls 30 days after the date of consummation of such
acquisition and (y) prior to the expiration of such waiver, such waiver shall be
effective only so long as Petroleum Properties representing not less than 72% of
the value of Petroleum Properties shall be subject to valid first-priority Liens
in favor of the Banks pursuant to the Collateral Documents.

     SECTION 4. 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 5. Effectiveness.  This Amendment and Waiver shall become effective
on the  date on  which  the  Agent  shall  have  received  counterparts  of this
Amendment and Waiver duly executed by the  Borrowers,  the Required  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).



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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 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.


                                       MORGAN GUARANTY TRUST COMPANY
                                         OF NEW YORK


                                       By:  /s/ John Kowalczuk
                                       Title:   Vice President



                                       FIRST UNION NATIONAL BANK
                                         OF NORTH CAROLINA


                                       By: /s/  Joseph Towell
                                       Title:   Senior Vice President




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                                        NATIONSBANK OF TEXAS, N.A.

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



                                        MORGAN GUARANTY TRUST COMPANY
                                          OF NEW YORK, as Agent


                                        By: /s/  John Kowalczuk
                                        Title:   Vice President



                                        FIRST UNION NATIONAL BANK OF
                                          NORTH CAROLINA, as Collateral Agent


                                        By:  /s/ Joseph Towell
                                        Title:   Senior Vice President





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