UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-Q

MARK ONE
    [X]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended March 31, 1999

    [  ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number 0-19931


                   HALLWOOD CONSOLIDATED RESOURCES CORPORATION
             (Exact name of registrant as specified in its charter)


              Delaware                                                84-1176750
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                            Identification Number)

  4582 South Ulster Street Parkway
                    Suite 1700
               Denver, Colorado                                           80237
(Address of principal executive offices)                              (Zip Code)

       Registrant's telephone number, including area code: (303) 850-7373

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [x] No [ ]

Shares of Common Stock outstanding at May 11, 1999                     3,007,852













<TABLE>
<CAPTION>

PART I.    FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS

                                    HALLWOOD CONSOLIDATED RESOURCES CORPORATION
                                            CONSOLIDATED BALANCE SHEETS
                                                    (Unaudited)
                                                  (In thousands)


                                                                       March 31,                December 31,
                                                                          1999                      1998

CURRENT ASSETS
<S>                                                                  <C>                         <C>       
    Cash and cash equivalents                                        $      181                  $      551
    Accrued oil and gas revenue                                           2,661                       3,053
    Due from affiliates                                                   5,207                       4,246
    Prepaid and other assets                                                436                         285
    Current assets of affiliates                                          3,463                       4,431
                                                                      ---------                   ---------
             Total current assets                                        11,948                      12,566
                                                                       --------                    --------

PROPERTY, PLANT AND EQUIPMENT, at cost
    Oil and gas properties (full cost method)
        Proved oil and gas properties                                   340,005                     336,713
        Unproved mineral interests - domestic                             2,859                       2,813
                                                                      ---------                   ---------
             Total                                                      342,864                     339,526

    Less - accumulated depreciation,
      depletion, amortization and impairment                           (255,641)                   (252,204)
                                                                        -------                     -------
             Net property, plant and equipment                           87,223                      87,322
                                                                       --------                    --------

OTHER ASSETS
     Deferred expenses                                                    1,188                       1,201
     Noncurrent assets of affiliate                                          80                          78
                                                                    -----------                 -----------
             Total other assets                                           1,268                       1,279
                                                                      ---------                   ---------

TOTAL ASSETS                                                           $100,439                    $101,167
                                                                        =======                     =======
</TABLE>



















                        (Continued on the following page)


<PAGE>

<TABLE>
<CAPTION>

                                    HALLWOOD CONSOLIDATED RESOURCES CORPORATION
                                            CONSOLIDATED BALANCE SHEETS
                                                    (Unaudited)
                                           (In thousands except Shares)


                                                                                    March 31,        December 31,
                                                                                      1999               1998

CURRENT LIABILITIES
<S>                                                                                <C>               <C>       
    Accounts payable and accrued liabilities                                       $    3,034        $    3,886
    Current portion of long-term debt                                                   6,624             4,781
    Current liabilities of affiliates                                                   9,888             9,595
                                                                                    ---------         ---------
         Total current liabilities                                                     19,546            18,262
                                                                                     --------          --------

NONCURRENT LIABILITIES
    Long-term debt                                                                     43,955            44,774
    Long-term obligations of affiliates                                                 8,013             8,482
    Deferred liability                                                                     53                60
                                                                                  -----------       -----------
         Total noncurrent liabilities                                                  52,021            53,316
                                                                                     --------          --------

         Total liabilities                                                             71,567            71,578
                                                                                     --------          --------

COMMITMENTS AND CONTINGENCIES (NOTE 5)

STOCKHOLDERS' EQUITY
    Common stock, par value $.01; 10,000,000 shares
       authorized; 3,007,852 shares issued in 1999 and 1998                                30                30
    Additional paid-in-capital                                                         81,283            81,283
    Accumulated deficit                                                               (48,577)          (47,860)
    Treasury stock - 258,395 shares in 1999 and 1998                                   (3,864)           (3,864)
                                                                                    ---------         ---------
         Stockholders' equity - Net                                                    28,872            29,589
                                                                                     --------          --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                           $100,439          $101,167
                                                                                      =======           =======
</TABLE>




















               The accompanying notes are an integral part of the
                             financial statements.


<PAGE>

<TABLE>
<CAPTION>

                                    HALLWOOD CONSOLIDATED RESOURCES CORPORATION
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                                    (Unaudited)
                                       (In thousands except per Share data)


                                                                                 For the Three Months Ended
                                                                                          March 31,
                                                                               1999                       1998

REVENUES:
<S>                                                                          <C>                        <C>     
   Gas revenue                                                               $  5,207                   $  4,312
   Oil revenue                                                                  2,063                      2,745
   Pipeline and other                                                             880                        320
   Interest income                                                                 25                         85
                                                                            ---------                  ---------
                                                                                8,175                      7,462
                                                                              -------                    -------

EXPENSES:
   Production operating                                                         2,965                      2,763
   General and administrative                                                   1,157                        909
   Interest                                                                     1,295                        821
   Depreciation, depletion and amortization                                     3,437                      2,531
                                                                              -------                    -------
                                                                                8,854                      7,024
                                                                              -------                    -------

INCOME (LOSS) BEFORE INCOME TAXES                                                (679)                       438
                                                                             --------                   --------

PROVISION FOR INCOME TAXES:
   Current                                                                         38                        123
                                                                            ---------                   --------

NET INCOME (LOSS)                                                           $    (717)                 $     315
                                                                             ========                   ========

NET INCOME (LOSS) PER SHARE - BASIC                                         $    (.26)                 $     .11
                                                                             ========                   ========

NET INCOME (LOSS)  PER SHARE - DILUTED                                      $    (.26)                 $     .11
                                                                             ========                   ========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
                                                                                2,749                      2,740
                                                                              =======                    =======
</TABLE>


















               The accompanying notes are an integral part of the
                             financial statements.


<PAGE>
<TABLE>
<CAPTION>


                                    HALLWOOD CONSOLIDATED RESOURCES CORPORATION
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (Unaudited)
                                                  (In thousands)

                                                                            For the Three Months Ended
                                                                                     March 31,
                                                                          1999                      1998

OPERATING ACTIVITIES:
<S>                                                                    <C>                        <C>     
    Net income (loss)                                                  $   (717)                  $    315
    Adjustments to reconcile net income (loss)
      to net cash provided by operating activities:
        Depreciation, depletion and amortization                          3,437                      2,531
        Amortization of deferred loan costs and
         debt discount                                                       53                         50
        Noncash interest expense                                                                         6
        Undistributed earnings of affiliates                             (1,461)                      (698)
        Recoupment of take-or-pay liability                                  (7)                        (7)

    Changes in  assets  and  liabilities  provided  (used)  cash net of  noncash
      activity:
        Accrued oil and gas sales                                           392                        953
        Due from affiliates                                                (961)                    (1,057)
        Prepaid and other assets                                           (180)                      (494)
        Deferred expenses                                                    13
        Accounts payable and accrued liabilities                           (852)                    (1,131)
                                                                       --------                     ------
                Net cash provided by (used in)
                  operating activities                                     (283)                       468
                                                                       --------                    -------

INVESTING ACTIVITIES:
    Additions to oil and gas properties                                    (787)                      (115)
    Exploration and development costs incurred                           (1,660)                    (2,221)
    Proceeds from oil and gas property sales                                 12
    Distributions received from affiliates                                1,348                        286
                                                                         ------                    -------
                Net cash used in investing activities                    (1,087)                    (2,050)
                                                                          -----                     ------

FINANCING ACTIVITIES:
    Proceeds from long-term debt                                          1,000
    Payments on contract settlement obligation                                                      (1,045)
    Exercise of stock options                                                                          113
                Net cash provided by (used in)
                    financing activities                                  1,000                       (932)
                                                                         ------                    -------

NET DECREASE IN CASH AND CASH
   EQUIVALENTS                                                             (370)                    (2,514)

CASH AND CASH EQUIVALENTS:

BEGINNING OF PERIOD                                                         551                      4,492
                                                                        -------                     ------

END OF PERIOD                                                          $    181                    $ 1,978
                                                                        =======                     ======
</TABLE>



               The accompanying notes are an integral part of the
                             financial statements.


<PAGE>


                   HALLWOOD CONSOLIDATED RESOURCES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



NOTE 1    -  ORGANIZATION AND BASIS OF PRESENTATION

Hallwood  Consolidated  Resources  Corporation  ("HCRC" or the  "Company")  is a
Delaware   corporation  engaged  in  the  development,   production,   sale  and
transportation of oil and gas, and in the acquisition,  exploration, development
and operation of oil and gas properties.  The Company's properties are primarily
located in the Rocky  Mountain,  Mid-Continent,  Greater  Permian and Gulf Coast
regions of the United  States.  The  principal  objective  of the  Company is to
maximize shareholder value by increasing its reserves,  production and cash flow
through  a  balanced  program  of  development  and high  potential  exploration
drilling, as well as selective acquisitions.

The  interim  financial  data  in  the  accompanying  financial  statements  are
unaudited;  however, in the opinion of management,  the interim data include all
adjustments,  consisting only of normal recurring  adjustments,  necessary for a
fair  presentation  of the  results  for the interim  periods.  These  financial
statements  should be read in  conjunction  with the  financial  statements  and
accompanying notes included in the Company's 1998 Annual Report on Form 10-K.


NOTE 2    -  ACCOUNTING POLICIES

Consolidation

The Company accounts for its interest in affiliated oil and gas partnerships and
limited  liability  companies using the  proportionate  consolidation  method of
accounting.  The accompanying financial statements include the activities of the
Company and its pro rata share of the  activities of Hallwood  Energy  Partners,
L.P. ("HEP").

Treasury Stock

At March 31, 1999 and December 31, 1998, the Company owned  approximately 19% of
the  outstanding  units of HEP which  owns  approximately  46% of the  Company's
common  stock;  consequently,  the Company had an interest in 258,395 of its own
shares at March 31, 1999 and  December  31,  1998.  These  shares are treated as
treasury stock in the accompanying financial statements.

Computation of Net Income (Loss) Per Share

Basic income  (loss) per share is computed by dividing net income  (loss) by the
weighted average number of common shares  outstanding.  Diluted income per share
includes the potential  dilution  that could occur upon exercise of  outstanding
options to acquire  common stock  computed using the treasury stock method which
assumes  that the  increase  in the number of shares is reduced by the number of
shares which could have been  repurchased  by the Company with the proceeds from
the exercise of the options (which were assumed to have been made at the average
market price of the common shares during the  reporting  period).  The warrants,
described in Note 3, have been ignored in the  computation of diluted net income
(loss) per share in all periods and the stock  options  have been ignored in the
computation  of diluted loss per share for the three months ended March 31, 1999
because their inclusion would be antidilutive.


<PAGE>


The following  table  reconciles  the number of shares  outstanding  used in the
calculation of basic and diluted income (loss) per share.
<TABLE>
<CAPTION>

                                                                          Income
                                                                          (Loss)         Shares         Per Share
                                                                            (In thousands except per Share)

For the Three Months Ended March 31, 1999
<S>                                                                        <C>            <C>              <C>   
   Net loss per share - basic                                              $(717)         2,749            $(.26)
                                                                            ----          -----             ====
     Net Loss per share - diluted                                          $(717)         2,749            $(.26)
                                                                            ====          =====             ====

For the Three Months Ended March 31, 1998
   Net income per share - basic                                            $ 315          2,740             $ .11
                                                                                                             ====
   Effect of Options                                                                         81
                                                                        --------        -------
     Net Income per share - diluted                                        $ 315          2,821             $ .11
                                                                            ====          =====              ====
</TABLE>

Recently Issued Accounting Pronouncements

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 130 "Reporting  Comprehensive  Income" ("SFAS
130"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components (revenues,  expenses, gains, and losses) in a full set
of general-purpose  financial statements.  SFAS 130 requires that all items that
are  required to be  recognized  under  accounting  standards as  components  of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Reclassification of financial
statements for earlier periods  provided for  comparative  purposes is required.
The Company  adopted SFAS 130 on January 1, 1998.  The Company does not have any
items of other comprehensive  income for the three month periods ended March 31,
1999 and 1998. Therefore,  total comprehensive income (loss) was the same as net
income (loss) for those periods.

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  131  "Disclosures  about  Segments  of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for  reporting  selected   information  about  operating  segments  and  related
disclosures about products and services,  geographic areas, and major customers.
SFAS 131 requires that an entity report  financial and  descriptive  information
about  its  operating  segments  which  are  regularly  evaluated  by the  chief
operating  decision maker in deciding how to allocate resources and in assessing
performance. HCRC adopted FAS 131 in 1998.

The Company engages in the development,  production and sale of oil and gas, and
the  acquisition,   exploration,  development  and  operation  of  oil  and  gas
properties in the continental  United States.  These activities  exhibit similar
economic  characteristics and involve the same products,  production  processes,
class of  customers,  and  methods of  distribution.  Management  of the Company
evaluates its  performance as a whole rather than by product or  geographically.
As a result, HCRC's operations consist of one reportable segment.

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 133 "Accounting for Derivative  Instruments
and  Hedging  Activities"  ("SFAS  133").  SFAS 133  establishes  standards  for
derivative  instruments,  including certain derivative  instruments  embedded in
other  contracts  (collectively  referred  to as  derivatives)  and for  hedging
activities. SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities  in the statement of financial  position and measure those
instruments  at fair value.  If certain  conditions are met, a derivative may be
specifically  designated  as (a) a hedge of the  exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted  transaction,  or
(c) a hedge of the foreign  currency  exposure of a net  investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign- currency-denominated forecasted transaction. The accounting for changes
in the fair value of a derivative (gains and losses) depends on the intended use
of the  derivative  and the  resulting  designation.  The Company is required to
adopt SFAS 133 on January 1, 2000.  The Company has not completed the process of
evaluating the impact that will result from adopting SFAS 133.


<PAGE>


Reclassifications

Certain  reclassifications have been made to the prior period amounts to conform
to the classifications used in the current period.


NOTE 3    -  DEBT

On December 23, 1997, HCRC sold $25,000,000 of 10.32% Senior  Subordinated Notes
("Subordinated Notes") due December 23, 2007 to The Prudential Insurance Company
of America  ("Prudential").  HCRC also sold  Warrants to  Prudential to purchase
98,599 shares of Common Stock at an exercise price of $28.99 per share.  Because
of the grant and  vesting of  options to  purchase  shares of the  Company,  the
number of warrants to purchase  shares of Common  Stock has  increased to 99,361
and the  exercise  price has  decreased  to $28.77 per share as  required by the
terms of the Subordinated Note Agreement.  The Subordinated  Notes bear interest
at the rate of 10.32% per annum on the unpaid balance, payable quarterly. Annual
principal  payments of  $5,000,000  are due on each of December 23, 2003 through
December 23, 2007.

The proceeds  from the  Subordinated  Notes were  allocated to the  Subordinated
Notes  and  to  the  Warrants  based  upon  the  relative  fair  values  of  the
Subordinated  Notes  without the Warrants and of the Warrants  themselves at the
time of issuance. The allocated value of the Warrants of $1,032,000 was recorded
as  paid-in-capital.  The discount on the  Subordinated  Notes will be amortized
over  the  term  of  the  Subordinated   Notes  using  the  interest  method  of
amortization.

During 1997, the Company and its banks amended the Company's Credit Agreement to
extend the term date to May 31,  1999.  Under the Credit  Agreement,  HCRC has a
borrowing  base of  $26,500,000.  The  Company  had  $26,500,000  in  borrowings
outstanding  as of March  31,  1999  and,  therefore,  had no  available  unused
borrowing base.

Borrowings against the credit line bear interest,  at the option of the Company,
at either (i) the banks'  Certificate of Deposit rate plus from 1.375% to1.875%,
(ii) the  Euro-Dollar  rate plus from  1.25% to 1.75% or (iii) the higher of the
prime  rate of  Morgan  Guaranty  Trust  or the sum of  one-half  of 1% plus the
Federal funds rate,  plus .75%. The  applicable  interest rate was 6.9% at March
31,  1999.  Interest  is payable at least  quarterly,  and  quarterly  principal
payments  of  $1,656,000  commence  May 31,  1999.  HCRC  intends  to extend the
maturity  date  of  its  Credit  Agreement  prior  to  the  commencement  of the
amortization  period.  The  credit  facility  is  secured  by a  first  lien  on
approximately 80% in value of the Company's oil and gas properties.

The borrowing base for the Credit  Agreement is redetermined  semiannually,  and
the  next  redetermination  will  occur  in the  second  quarter  of 1999 if the
proposed  consolidation  discussed in Note 6 is not approved..  HCRC anticipates
that,  its lenders will reduce the borrowing base and that HCRC will be required
to make a principal  payment on its debt.  Any required  principal  payment will
reduce the amount available for HCRC's capital budget.

As part of its risk management strategy, HCRC enters into contracts to hedge its
interest rate payments related to a portion of its outstanding  borrowings under
its Credit  Agreement.  HCRC does not use the hedges for trading  purposes,  but
rather to protect  against  the  volatility  of the cash flows  under its Credit
Agreement, which has a floating interest rate. The amounts received or paid upon
settlement of these  transactions are recognized as interest expense at the time
the interest payments are due.

All of the contracts  are interest rate swaps with fixed rates.  As of March 31,
1999, HCRC was a party to four contracts with three different counterparties.



<PAGE>


The following table provides a summary of HCRC's financial contracts.

                                        Amount of             Contract
            Period                     Debt Hedged           Floor Rate

Last nine months of 1999               $15,000,000              5.60%
2000                                    15,000,000              5.65%
2001                                    12,000,000              5.23%
2002                                    12,500,000              5.23%
2003                                    12,500,000              5.23%
2004                                     2,000,000              5.23%


NOTE 4    -  STATEMENTS OF CASH FLOWS

Cash paid for interest during the three months ended March 31, 1999 and 1998 was
$1,160,000 and $645,000, respectively.


NOTE 5    -  ARBITRATION

In connection with the Demand for Arbitration  filed by Arcadia  Exploration and
Production Company ("Arcadia") with the American Arbitration Association against
Hallwood Consolidated  Resources  Corporation,  Hallwood Energy Partners,  L.P.,
E.M.  Nominee  Partnership  Company and  Hallwood  Consolidated  Partners,  L.P.
(collectively  referred  to as  "Hallwood"),  the  arbitrators  ruled  that  the
original  agreement  entered  into  in  August  1997  to  purchase  oil  and gas
properties  should  proceed,  with a reduction  to the total  purchase  price of
approximately  $2,500,000 for title  defects.  The  arbitrators  also ruled that
Arcadia  was not  entitled to enforce its claim that  Hallwood  was  required to
purchase an additional  $8,000,000 in properties and denied  Arcadia's claim for
attorneys fees. The  arbitrators  granted  Arcadia  prejudgment  interest on the
adjusted  purchase price, in the amount of $452,000.  That amount was accrued in
the  December  31,  1998  financial  statements  of the Company and will be paid
during the second quarter of 1999.

In October 1998, HCRC and its affiliate,  HEP, closed the acquisition of oil and
gas properties from Arcadia, pursuant to the ruling, which included interests in
approximately  570 wells,  numerous  proven  and  unproven  drilling  locations,
exploration  acreage,  and 3-D seismic data.  HCRC's share of the purchase price
was $8,200,000.


NOTE 6 - SUBSEQUENT EVENT

On April 30, 1999, a Joint Proxy Statement/  Prospectus for the consolidation of
HCRC  with HEP and the  energy  interests  of The  Hallwood  Group  Incorporated
("Hallwood Group") into a new corporation called Hallwood Energy Corporation was
declared effective by the Securities and Exchange Commission.  The consolidation
must be  approved by a majority  of the  outstanding  shares of HCRC and of each
class of outstanding Units of HEP. The consummation of the consolidation is also
subject to a number of other conditions.


ITEM 2    -  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS
             
During the first three months of 1999, HCRC had a net loss of $717,000, compared
to net income of  $315,000  for the first  three  months of 1998.  The  weighted
average  prices  received  by HCRC for oil and gas have  declined in each of the
last four quarters.  HCRC's hedges have mitigated the price  reductions.  HCRC's
weighted average oil and gas prices, when the effects of hedging are considered,
were 25% and 8% lower, respectively, for the first three months of 1999 compared
to the first three months of 1998.

In December 1998 HCRC announced a proposal to consolidate  HCRC with HEP and the
energy interests of Hallwood Group into a new corporation called Hallwood Energy
Corporation.  The consolidation  proposal was approved by the Board of Directors
of HCRC and the general  partner of HEP in December 1998.  Because of the larger
size of the new corporation, HCRC anticipates that the new company will have the
ability to take  advantage  of  opportunities  that are  unavailable  to smaller
entities such as HCRC and will have a better ability to raise capital.  Hallwood
Energy   Corporation   will   focus   on   reserve   growth.   A   Joint   Proxy
Statement/Prospectus  for the consolidation  filed with the Securities  Exchange
Commission,   was  declared  effective  on  April  30,  1999.  The  Joint  Proxy
Statement/Prospectus  was mailed on May 4,  1999,  to  shareholders  of HCRC and
unitholders of HEP of record as of April 14, 1999. A meeting of the shareholders
of the Company will be held on May 25, 1999.

If the consolidation is approved,  public stockholders of Hallwood  Consolidated
Resources  will  receive  1.5918  shares  of  common  stock of  Hallwood  Energy
Corporation  for each  share of stock they now hold.  Public  holders of Class A
Units of Hallwood Energy Partners will receive 0.7417 of a share of common stock
of Hallwood  Energy  Corporation for each Class A Unit they now hold, and public
holders of Class C Units will receive one share of redeemable preferred stock of
Hallwood Energy Corporation for each Class C Unit they now hold.  Hallwood Group
will also  contribute  its energy  interests to Hallwood  Energy  Corporation in
exchange for additional shares of common stock of Hallwood Energy Corporation.

Liquidity and Capital Resources

Cash Flow

HCRC used $283,000 of cash flow in operating activities during the first quarter
of 1999.

The primary cash inflows were:

   o     $1,000,000 from borrowings under long-term debt and

   o     $1,348,000 in distributions received from affiliates.

Cash was primarily used for $2,447,000 of property  additions,  exploration  and
development costs.

When combined with  miscellaneous  other cash activity during the first quarter,
the result was a decrease in HCRC's cash and cash  equivalents  of $370,000 from
$551,000 at December 31, 1998 to $181,000 at March 31, 1999.

Exploration and Development Projects and Acquisitions

Through March 31, 1999, HCRC incurred  $2,447,000 in direct property  additions,
development,  exploitation,  and exploration  costs. The costs were comprised of
$787,000 for property  acquisitions  and  approximately  $1,660,000 for domestic
exploration  and  development.  HCRC's 1999 capital budget is set at $5,152,000.
During the first  quarter  of 1999,  HCRC  postponed  development  drilling  and
recompletions  for many  oil-targeted  projects due to the  historically low oil
prices  experienced during that time. In April 1999, oil prices began to rebound
and HCRC is  reevaluating  the  economics  of these  projects.  The  significant
capital expenditures for first quarter of 1999 are discussed below.

Rocky Mountain Region

HCRC expended approximately $686,000 of its capital budget in the Rocky Mountain
Region  located in Colorado,  Montana,  North  Dakota,  Northwest New Mexico and
Wyoming.  Of  this  amount,  approximately  $626,000  was for  the  purchase  of
overriding royalty interests and working interests in 18 of the coal bed methane
properties currently owned and operated by HCRC, located in San Juan County, New
Mexico. Most of the interests purchased qualify for tax credits under Section 29
of the  Internal  Revenue  Code.  The majority of the  acquired  interests  were
purchased  by 44 Canyon LLC ("44  Canyon") a special  purpose  entity owned by a
large East Coast  financial  institution  in  exchange  for cash,  a  production
payment,  and promissory  notes.  HCRC's activity in the area began in 1990, and
the acquisition increases HCRC's net current average daily production by 475 mcf
per day.


<PAGE>


Greater Permian Region

During the first quarter of 1999,  HCRC expended  approximately  $241,000 of its
capital budget in the Greater  Permian Region located in Texas and Southeast New
Mexico. The major projects within the Region are discussed below.

Catclaw   Draw/Carlsbad  Area  Projects.   HCRC  spent  approximately   $192,000
successfully recompleting one operated well and drilling one development well in
the  Carlsbad/Catclaw  Draw areas in Lea, Eddy and Chaves Counties,  New Mexico.
The development well is currently being completed.

Gulf Coast Region

In the first  quarter of 1999,  HCRC  expended  approximately  $1,234,000 of its
capital  budget in the Gulf Coast Region in Louisiana  and South and East Texas.
The following are major projects within the Region.

Mirasoles Project. HCRC incurred approximately $444,000 related to the Mirasoles
project in Kenedy  County,  Texas during the first  quarter of 1999.  HCRC began
drilling  the  17,000  foot  Frio  Formation  exploration  well in  1998  and is
completing the well,  starting with the lowermost zone and moving uphole.  Eight
potential pay zones are identified in this exploration  well, and the lower most
zone was abandoned for mechanical reasons following  encouraging,  but extremely
preliminary results.  HCRC has a 17.5% working interest in this large structural
prospect defined by 63 square miles of proprietary 3-D seismic data.

Esperanza   Project.   In  the  first  three  months  of  1999,   HCRC  incurred
approximately  $141,000 for costs  associated  with a  non-operated  15,400 foot
directional exploration well which tested the Wilcox formation in LaVaca County,
Texas.  The well was completed in 1998 and HCRC owns a 7.5% working  interest in
the well. Current gross gas production is approximately  9,500 mcf per day. HCRC
began drilling an additional exploration well in the second quarter of 1999, and
development drilling is anticipated in the latter months of 1999.

Boca Chica Project.  During the first quarter of 1999,  HCRC  participated  in a
directionally drilled 10,000 foot exploration well in the Big Hum formation from
the shore to a bottom  hole  location  under the  waters of the Gulf of  Mexico.
Despite  the  well  testing  wet,  the  exploration  results  were  sufficiently
encouraging that working interest owners agreed to shoot 3D seismic in the third
quarter of 1999 to evaluate future  potential.  It is anticipated  that a second
attempt  will be made in the first  quarter  of 2000,  possibly  reentering  the
existing  wellbore or using a shallow water  drilling rig. For its 12.5% working
interest, HCRC spent approximately $226,000.

Other

The remaining  $286,000 of HCRC's first quarter 1999 capital  expenditures  were
devoted  principally to technical  general and  administrative  expenditures and
numerous   other  projects  which  are  completed  or  underway  and  which  are
individually less significant.

Financing

On December 23, 1997, HCRC sold $25,000,000 of 10.32% Senior  Subordinated Notes
("Subordinated Notes") due December 23, 2007 to The Prudential Insurance Company
of America  ("Prudential").  HCRC also sold  Warrants to  Prudential to purchase
98,599 shares of Common Stock at an exercise price of $28.99 per share.  Because
of the grant and  vesting of  options to  purchase  shares of the  Company,  the
number of warrants to purchase  shares of Common  Stock has  increased to 99,361
and the exercise  price has  decreased  to $28.77 per share,  as required by the
terms of the Subordinated Note Agreement.  The Subordinated  Notes bear interest
at the rate of 10.32% per annum on the unpaid balance, payable quarterly. Annual
principal  payments of  $5,000,000  are due on each of December 23, 2003 through
December 23, 2007.


<PAGE>


The proceeds  from the  Subordinated  Notes were  allocated to the  Subordinated
Notes  and  to  the  Warrants  based  upon  the  relative  fair  values  of  the
Subordinated  Notes  without the Warrants and of the Warrants  themselves at the
time of issuance. The allocated value of the Warrants of $1,032,000 was recorded
as  paid-in-capital.  The discount on the Subordinated  Notes is being amortized
over  the  term  of  the  Subordinated   Notes  using  the  interest  method  of
amortization.

During 1997, the Company and its banks amended the Company's Credit Agreement to
extend the term date to May 31,  1999.  Under the Credit  Agreement,  HCRC has a
borrowing  base of  $26,500,000.  The  Company  had  amounts of  $26,500,000  in
borrowings  outstanding  as of March 31, 1999 and  therefore,  had no  available
unused borrowing base.

Borrowings against the credit line bear interest,  at the option of the Company,
at either (i) the banks'  Certificate of Deposit rate plus from 1.375% to1.875%,
(ii) the  Euro-Dollar  rate plus from  1.25% to 1.75% or (iii) the higher of the
prime  rate of  Morgan  Guaranty  Trust  or the sum of  one-half  of 1% plus the
Federal funds rate,  plus .75%. The  applicable  interest rate was 6.9% at March
31,  1999.  Interest  is payable at least  quarterly,  and  quarterly  principal
payments  of  $1,656,000  commence  May 31,  1999.  HCRC  intends  to extend the
maturity  date  of  its  Credit  Agreement  prior  to  the  commencement  of the
amortization  period.  The  credit  facility  is  secured  by a  first  lien  on
approximately 80% in value of the Company's oil and gas properties.

The borrowing base for the Credit  Agreement is redetermined  semiannually,  and
the  next  redetermination  will  occur  in the  second  quarter  of 1999 if the
proposed consolidation  discussed in Note 6 is approved.  HCRC anticipates that,
its  lenders  will reduce the  borrowing  base and that HCRC will be required to
make a principal payment on its debt. Any required principal payment will reduce
the amount available for HCRC's capital budget.

As part of its risk management strategy, HCRC enters into contracts to hedge its
interest rate payments related to a portion of its outstanding  borrowings under
its Credit  Agreement.  HCRC does not use the hedges for trading  purposes,  but
rather to protect  against  the  volatility  of the cash flows  under its Credit
Agreement, which has a floating interest rate. The amounts received or paid upon
settlement of these  transactions are recognized as interest expense at the time
the interest payments are due.

All of the contracts  are interest rate swaps with fixed rates.  As of March 31,
1999, HCRC was a party to four contracts with three different counterparties.

The following table provides a summary of HCRC's financial contracts.

                                        Amount of             Contract
            Period                     Debt Hedged           Floor Rate

Last nine months of 1999               $15,000,000              5.60%
2000                                    15,000,000              5.65%
2001                                    12,000,000              5.23%
2002                                    12,500,000              5.23%
2003                                    12,500,000              5.23%
2004                                     2,000,000              5.23%

Issues Related to the Year 2000

General.  The following  Year 2000  statements  constitute a Year 2000 Readiness
Disclosure  within  the  meaning  of the Year  2000  Information  and  Readiness
Disclosure  Act of 1998.  The Year 2000 problem has arisen because many existing
computer  programs  use only the last two digits to refer to a year.  Therefore,
these  computer  programs do not properly  recognize and process  date-sensitive
information  beyond  1999.  In  general,  there  are two areas  where  Year 2000
problems may exist for the Company:  information  technology  such as computers,
programs and related systems ("IT") and non-information  technology systems such
as embedded technology on a silicon chip ("Non IT").


<PAGE>


The  Plan.  The  Company's  Year 2000 Plan (the  "Plan")  has four  phases:  (i)
assessment,  (ii) inventory,  (iii) remediation,  testing and implementation and
(iv) contingency plans.  Approximately  twelve months ago, the Company began its
phase one assessment of its particular  exposure to problems that might arise as
a result of the new  millennium.  The assessment and inventory  phases have been
substantially  completed and have  identified the Company's IT systems that must
be updated or replaced in order to be Year 2000 compliant.  Remediation, testing
and  implementation  are  scheduled to be  completed  by June 30, 1999,  and the
contingency  plans phase of the Plan is  scheduled  to be completed by September
30, 1999.

However,  the  effects of the Year 2000  problem on IT systems  are  exacerbated
because of the  interdependence  of computer  systems in the United States.  The
Company's  assessment  of the  readiness of third parties whose IT systems might
have an impact on the Company's business has thus far not indicated any material
problems; responses have been received to approximately 66% of the 180 inquiries
made.

With regard to the Company's Non IT systems,  the Company  believes that most of
these  systems  can be  brought  into  compliance  on  schedule.  The  Company's
assessment of third party readiness is not yet completed.  Because the potential
problem  with  Non IT  systems  involves  embedded  chips,  it is  difficult  to
determine with complete accuracy where all such systems are located.  As part of
its Plan,  the Company is making  formal and informal  inquiries of its vendors,
customers  and  transporters  in an effort to determine  the third party systems
that might have embedded technology requiring remediation.

Estimated  Costs.  Although  it is  difficult  to  estimate  the total  costs of
implementing  the Plan  through  January  1,  2000  and  beyond,  the  Company's
preliminary  estimate  is that such costs  will not be  material.  To date,  the
Company has determined  that its IT systems are either  compliant or can be made
compliant for less than $100,000. However, although management believes that its
estimates are reasonable,  there can be no assurance,  for the reasons stated in
the next  paragraph,  that the  actual  cost of  implementing  the Plan will not
differ materially from the estimated costs.

Potential  Risks.  The  failure to correct a material  Year 2000  problem  could
result  in  an  interruption  in,  or a  failure  of,  certain  normal  business
activities or  operations.  This risk exists both as to the Company's IT and Non
IT systems,  as well as to the systems of third  parties.  Such  failures  could
materially and adversely affect the Company's  results of operations,  cash flow
and financial  condition.  Due to the general  uncertainty  inherent in the Year
2000 problem,  resulting in part from the uncertainty of the Year 2000 readiness
of third party  suppliers,  vendors and  transporters,  the Company is unable to
determine at this time whether the  consequences of Year 2000 failures will have
a material impact on the Company's results of operations, cash flow or financial
condition.  Although  the  Company  is  not  currently  able  to  determine  the
consequences of Year 2000 failures,  its current  assessment is that its area of
greatest  potential risk in its third party  relationships is in connection with
the transporting  and marketing of the oil and gas produced by the Company.  The
Company  is  contacting  the  various  purchasers  and  pipelines  with which it
regularly does business to determine their state of readiness for the Year 2000.
Although  the  purchasers  and  pipelines  will  not  guaranty  their  state  of
readiness,  the responses  received to date have indicated no material problems.
The  Company  believes  that  in a  worst  case  scenario,  the  failure  of its
purchasers and transporters to conduct business in a normal fashion could have a
material  adverse  effect on cash flow for a period of six to nine  months.  The
Company's Year 2000 Plan is expected to significantly reduce the Company's level
of  uncertainty  about the  compliance  and  readiness of these  material  third
parties.  The  evaluation  of third  party  readiness  will be  followed  by the
Company's development of contingency plans.

Cautionary  Statement Regarding  Forward-Looking  Statements.  In addition,  the
dates  for  completion  of the  phases  of the Year  2000  Plan are based on the
Company's  best  estimates,  which were derived using  numerous  assumptions  of
future events. Due to the general uncertainty inherent in the Year 2000 problem,
resulting  in  part  from  the   uncertainty  of  the  Year  2000  readiness  of
third-parties and the  interconnection  of computer systems,  the Company cannot
ensure its ability to timely and  cost-effectively  resolve problems  associated
with  the  Year  2000  issue  that  may  affect  its  operations  and  business.
Accordingly,  shareholders  and potential  investors are cautioned  that certain
events or  circumstances  could cause actual results to differ  materially  from
those projected, estimated or predicted.



<PAGE>


Cautionary Statement Regarding Forward-Looking Statements

In the interest of providing the shareholders with certain information regarding
the Company's future plans and operations,  certain statements set forth in this
Form 10-Q relate to management's  future plans and  objectives.  Such statements
are  forward-looking  statements  within  the  meanings  of  Section  27A of the
Securities Act of 1933, as amended,  and Section 21E of the Securities  Exchange
Act of 1934, as amended.  Although any forward-looking  statements  contained in
this Form 10-Q or otherwise expressed by or on behalf of the Company are, to the
knowledge  and in the  judgment of the  officers  and  directors  of the general
partner,  expected  to prove  true and come to pass,  management  is not able to
predict the future with absolute certainty.  Forward-looking  statements involve
known and unknown risks and  uncertainties  which may cause the Company's actual
performance  and financial  results in future periods to differ  materially from
any  projection,  estimate or forecasted  result.  Please refer to the Company's
Annual  Report  on Form  10-K for  additional  statements  concerning  important
factors that could cause actual results to differ  materially from the Company's
expectations.  These  risks  and  uncertainties  include,  among  other  things,
volatility of oil and gas prices,  competition,  risks inherent in the Company's
oil and gas  operations,  the inexact  nature of  interpretation  of seismic and
other geological and geophysical  data,  imprecision of reserve  estimates,  the
Company's  ability to replace  and expand oil and gas  reserves,  and such other
risks and  uncertainties  described from time to time in the Company's  periodic
reports and filings with the  Securities and Exchange  Commission.  Accordingly,
shareholders  and  potential  investors  are  cautioned  that certain  events or
circumstances  could  cause  actual  results  to differ  materially  from  those
projected, estimated or predicted.

Inflation and Changing Prices

Prices

Prices obtained for oil and gas production depend upon numerous factors that are
beyond the control of the Company,  including the extent of domestic and foreign
production,  imports of foreign  oil,  market  demand,  domestic  and  worldwide
economic and political  conditions,  and  government  regulations  and tax laws.
Prices for both oil and gas fluctuated significantly throughout 1998 and through
the first quarter of 1999,  with a distinct  downward  trend in both oil and gas
prices  occurring  in the  calendar  year 1998 and through the first  quarter of
1999. In preparing its 1999 budget, HCRC has estimated that the weighted average
oil price (for barrels not hedged)  will be $11.00 per barrel,  and the weighted
average  price of natural gas (for mcf not hedged) will be $1.70 per mcf for the
year.  The Company  believes  oil and gas prices for the  remainder of 1999 will
exceed the  budgeted  prices.  However,  there can be no  assurance  that HCRC's
forecast is accurate.  If prices decrease below the forecasted levels, it can be
expected  that the results of  operations  and cash flow will be  affected,  and
HCRC's capital budget will decrease.  The following  table presents the weighted
average  prices  received  each  quarter by the  Company  and the effects of the
hedging transactions described below:



<PAGE>



<TABLE>
<CAPTION>

                                              Oil                  Oil                  Gas                  Gas
                                        (excluding the       (including the       (excluding the       (including the
                                          effects of           effects of           effects of           effects of
                                            hedging              hedging              hedging              hedging
                                         transactions)        transactions)        transactions)        transactions)
                                           (per bbl)            (per bbl)            (per mcf)            (per mcf)

<S>                                          <C>                  <C>                   <C>                  <C>  
First quarter 1998                           $14.92               $15.08                $1.98                $1.93
Second quarter 1998                           13.06                13.38                 1.90                 1.89
Third quarter 1998                            12.05                12.44                 1.76                 1.88
Fourth quarter 1998                           10.93                11.54                 1.87                 1.93
First quarter 1999                            11.20                11.34                 1.61                 1.77
</TABLE>

As part of its risk  management  strategy,  HCRC enters into numerous  financial
contracts  to hedge the price of its oil and  natural  gas.  The  purpose of the
hedges is to provide protection against price decreases and to provide a measure
of stability in the volatile  environment  of oil and natural gas spot  pricing.
The amounts paid or received upon  settlement of hedge  contracts are recognized
as increases  or decreases in oil or gas revenue at the time the hedged  volumes
are sold.

The financial  contracts  used by HCRC to hedge the price of its oil and natural
gas  production  are swaps,  collars and  participating  hedges.  Under the swap
contracts,  HCRC  sells its oil and gas  production  at spot  market  prices and
receives or makes payments based on the differential  between the contract price
and a floating price which is based on spot market  indices.  As of May 3, 1999,
HCRC was a party to 25 financial contracts with three different counterparties.

The following table provides a summary of the Company's financial contracts:
<TABLE>
<CAPTION>

                                                       Oil                     Contract
                                           Percent of Direct                Delivered
            Period                         Production Hedged               Floor Price
                                                                            (per bbl)

<S>                                                <C>                       <C>   
Last nine months of 1999                            25%                       $14.74
</TABLE>

Approximately 17% of the oil volumes hedged are subject to participating  hedges
whereby  HCRC will  receive the contract  price if the posted  futures  price is
lower than the contract  price,  and will receive the contract price plus 25% of
the  difference  between the contract  price and the posted futures price if the
posted futures price is greater than the contract price. Additionally 17% of the
volumes hedged are subject to a collar  agreement  whereby HCRC will receive the
contract price if the spot price is lower than the contract price, the cap price
if the spot price is higher than the cap price, and the spot price if that price
is  between  the  contract  price and the cap price.  The cap prices  range from
$16.50 to $18.35 per barrel.



<PAGE>

<TABLE>
<CAPTION>

                                                       Gas                        Contract
                                                Percent of Direct                Delivered
               Period                           Production Hedged               Floor Price
                                                                                 (per mcf)

<S>                                                 <C>                          <C>  
Last nine months of 1999                            49%                          $1.96
2000                                                41%                           1.98
2001                                                46%                           2.06
2002                                                32%                           1.98
</TABLE>

During the second quarter  through May 3, 1999,  the weighted  average oil price
(for  barrels not hedged) was  approximately  $15.20 per barrel and the weighted
average  price of natural gas (for mcf not hedged) was  approximately  $1.70 per
mcf.

Inflation

Inflation  did not have a  material  impact  on the  Company  in 1998 and is not
anticipated to have a material impact on the Company in 1999.

Results of Operations

The  following  tables are  presented to contrast  HCRC's  revenue,  expense and
earnings for discussion purposes.  Significant fluctuations are discussed in the
accompanying narrative.

The "direct owned" column represents HCRC's direct royalty and working interests
in oil and gas  properties.  The "HEP"  column  represents  HCRC's  share of the
results of operations of HEP; HCRC owned  approximately  19% of the  outstanding
limited partner units of HEP during 1998 and 1999.


<PAGE>
<TABLE>
<CAPTION>


                                 TABLE OF HCRC EARNINGS FOR MANAGEMENT DISCUSSION
                                            (In thousands except price)




<PAGE>


                                               For the Quarter Ended March 31, 1999           For the Quarter Ended March 31, 1998
                                                ----------------------------------             ------------------------------------
                                           Direct                                     Direct
                                           Owned         HEP         Total            Owned              HEP             Total

<S>                                       <C>            <C>       <C>               <C>               <C>             <C>  
Gas production (mcf)                         2,322          615       2,937             1,673             567             2,240
Oil production (bbl)                           149           33         182               146              36               182

Average gas price (per mcf)               $   1.75     $   1.85    $   1.77          $   1.88        $   2.05          $   1.93
Average oil price (per bbl)                $ 11.29      $ 11.55     $ 11.34           $ 15.03         $ 15.30           $ 15.08

Gas revenue                                $ 4,070      $ 1,137     $ 5,207           $ 3,151         $ 1,161           $ 4,312
Oil revenue                                  1,682          381       2,063             2,194             551             2,745
Pipeline and other                             657          223         880               183             137               320
Interest income                                  4           21          25                60              25                85
                                         ---------   ----------  ----------         ---------        --------         ---------

         Total revenue                       6,413        1,762       8,175             5,588           1,874             7,462
                                            ------       ------      ------            ------          ------            ------

Production operating expense                 2,402          563       2,965             2,182             581             2,763
General and administrative expense             914          243       1,157               699             210               909
Interest expense                             1,141          154       1,295               699             122               821
Depreciation, depletion and amortization     2,744          693       3,437             1,939             592             2,531
                                            ------      -------      ------            ------         -------            ------

         Total expense                       7,201        1,653       8,854             5,519           1,505             7,024
                                            ------       ------      ------            ------          ------            ------

Income (loss) before income taxes              (788)        109         (679)              69             369               438
                                            -------     -------      -------         --------         -------           -------

Provision for income taxes:
     Current                                    38                       38               123                               123
                                          --------                 --------           -------                           -------

         Net income (loss)                 $   (826)   $    109     $   (717)         $    (54)      $    369          $    315
                                            =======     =======      =======           =======        =======           =======
</TABLE>


<PAGE>


First Quarter of 1999 Compared to the First Quarter of 1998

Gas Revenue

Gas revenue  increased  $895,000  during the first quarter of 1999 compared with
the first  quarter of 1998.  The  increase  is  comprised  of an increase in gas
production from 2,240,000 mcf in 1998 to 2,937,000 mcf in 1999 partially  offset
by a decrease in price from $1.93 per mcf in 1998 to $1.77 per mcf in 1999.  The
increase in  production  is  primarily  due to the  acquisition  of a volumetric
production payment during May 1998.

The effect of the Company's hedging transactions,  as described under "Inflation
and  Changing  Prices,"  during the first  quarter of 1999 was to  increase  the
Company's average gas price from $1.61 to $1.77 per mcf, resulting in a $470,000
increase in revenue.

Oil Revenue

Oil revenue decreased $682,000 during the first quarter of 1999 as compared with
the first  quarter of 1998.  The decrease in revenue is due to a decrease in the
average  oil price from  $15.08 per barrel in 1998 to $11.34 per barrel in 1999.
Production  remained  consistent at 182,000  barrels in 1998 and in 1999 because
normal production declines were offset by increased production from drilling and
recompletion projects.

The effect of HCRC's hedging  transactions during the first quarter of 1999, was
to increase the Company's average oil price from $11.20 per barrel to $11.34 per
barrel, resulting in a $25,000 increase in revenue.

Pipeline and Other

Pipeline and other revenue consists of revenue derived from salt water disposal,
incentive and tax credit  payments from certain coal bed methane wells and other
miscellaneous  items.  Pipeline and other revenue increased  $560,000 during the
first  quarter of 1999  compared with the first quarter of 1998 due to increased
incentive  payment  income  resulting  from HCRC's  acquisition  of a volumetric
production payment during May 1998.

Interest Income

Interest income decreased $60,000 during the first quarter of 1999 compared with
the first quarter of 1998 due to a lower average cash balance during 1999.

Production Operating Expense

Production operating expense increased $202,000 during the first quarter of 1999
compared  with the first  quarter of 1998,  primarily  as a result of  increased
production taxes and operating expenses due to the increase in gas production as
discussed above.

General and Administrative

General  and   administrative   expense   includes  costs  incurred  for  direct
administrative  services  such as legal,  audit and  reserve  reports as well as
allocated internal overhead incurred by HPI, an affiliate of HCRC, which manages
and operates  certain oil and gas  properties  on behalf of the  Company.  These
costs  increased  $248,000 during the first quarter of 1999 as compared with the
first quarter of 1998 primarily due to an increase in salaries expense.

Interest Expense

Interest  expense  increased  $474,000 during the first quarter of 1999 compared
with the first quarter of 1998 due to a higher average  outstanding debt balance
during 1999.


<PAGE>


Depreciation, Depletion and Amortization Expense

Depreciation,  depletion and amortization  expense increased  $906,000 primarily
due to a  higher  depletion  rate in 1999  resulting  from the  increase  in gas
production previously discussed, as well as higher capitalized costs.



<PAGE>


ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

HCRC's  primary  market  risks  relate to changes in  interest  rates and in the
prices  received  from  sales  of oil  and  natural  gas.  HCRC's  primary  risk
management  strategy is to partially mitigate the risk of adverse changes in its
cash flows caused by increases in interest  rates on its variable rate debt, and
decreases in oil and natural gas prices,  by entering into derivative  financial
and commodity instruments,  including swaps, collars and participating commodity
hedges. By hedging only a portion of its market risk exposures,  HCRC is able to
participate in the increased  earnings and cash flows  associated with decreases
in interest  rates and increases in oil and natural gas prices;  however,  it is
exposed to risk on the unhedged  portion of its  variable  rate debt and oil and
natural gas production.

Historically,  HCRC has attempted to hedge the exposure  related to its variable
rate debt and its  forecasted oil and natural gas production in amounts which it
believes  are  prudent  based on the  prices of  available  derivatives  and the
Company's estimated debt levels and deliverable volumes. HCRC attempts to manage
the  exposure  to  adverse  changes  in the fair  value of its  fixed  rate debt
agreements by issuing fixed rate debt only when business  conditions  and market
conditions are favorable.

HCRC does not use or hold derivative  instruments for trading  purposes nor does
it  use  derivative  instruments  with  leveraged  features.  HCRC's  derivative
instruments are designated and effective as hedges against its identified risks,
and do not of themselves  expose HCRC to market risk because any adverse  change
in the cash flows associated with the derivative instrument is accompanied by an
offsetting change in the cash flows of the hedged transaction.

All derivative activity is carried out by personnel who have appropriate skills,
experience and supervision.  The personnel involved in derivative  activity must
follow prescribed  trading limits and parameters that are regularly  reviewed by
the Board of  Directors  and by senior  management.  HCRC uses only  well-known,
conventional  derivative  instruments  and attempts to manage its credit risk by
entering into financial contracts with reputable financial institutions.

Following are disclosures  regarding HCRC's market risk sensitive instruments by
major category.  Investors and other users are cautioned to avoid simplistic use
of these  disclosures.  Users should  realize  that the actual  impact of future
interest rate and commodity  price movements will likely differ from the amounts
disclosed  below due to ongoing  changes in risk exposure  levels and concurrent
adjustments  to hedging  positions.  It is not  possible to  accurately  predict
future movements in interest rates and oil and natural gas prices.

Interest  Rate Risks (non trading) - HCRC uses both fixed and variable rate debt
to partially finance operations and capital expenditures.  As of March 31, 1999,
HCRC's debt consists of $26.5 million in borrowings  under its Credit  Agreement
which bear interest at a variable rate, and $25 million in borrowings  under its
10.32%  Senior  Subordinated  Notes which bear  interest  at a fixed rate.  HCRC
hedges a portion of the risk  associated  with its  variable  rate debt  through
derivative instruments,  which consist of interest rate swaps and collars. Under
the swap  contracts,  HCRC makes  interest  payments on its Credit  Agreement as
scheduled and receives or makes payments based on the  differential  between the
fixed rate of the swap and a floating  rate plus a defined  differential.  These
instruments  reduce HCRC's exposure to increases in interest rates on the hedged
portion of its debt by enabling it to  effectively  pay a fixed rate of interest
or a rate which only  fluctuates  within a  predetermined  ceiling and floor.  A
hypothetical  increase in interest rates of two percentage  points would cause a
loss in income and cash flows of $398,000  during the  remaining  nine months of
1999, assuming that outstanding  borrowings under the Credit Agreement remain at
current levels. This loss in income and cash flows would be offset by a $225,000
increase in income and cash flows  associated  with the  interest  rate swap and
collar agreements that are in effect for the remaining nine months of 1999.

A hypothetical  decrease in interest rates of two percentage  points would cause
an increase in the fair value of $2,282,000 in HCRC's Senior  Subordinated Notes
from their fair value at March 31, 1999.



<PAGE>


Commodity  Price Risk (non  trading)  - HCRC  hedges a portion of the price risk
associated  with the sale of its oil and natural gas production  through the use
of  derivative  commodity  instruments,  which  consist  of swaps,  collars  and
participating  hedges.  These instruments reduce HCRC's exposure to decreases in
oil and natural gas prices on the hedged  portion of its  production by enabling
it to  effectively  receive a fixed  price on its oil and natural gas sales or a
price that only  fluctuates  between a predetermined  floor and ceiling.  HCRC's
participating  hedges also enable HCRC to receive 25% of any  increase in prices
over the fixed prices  specified in the contracts.  As of May 3, 1999,  HCRC had
entered  into  derivative  commodity  hedges  covering an  aggregate  of 135,000
barrels of oil and  12,903,000  mcf of gas that extend  through 2002.  Under the
these  contracts,  HCRC sells its oil and natural gas  production at spot market
prices and  receives or makes  payments  based on the  differential  between the
contract price and a floating price which is based on spot market  indices.  The
amount  received or paid upon settlement of these contracts is recognized as oil
or natural gas revenues at the time the hedged  volumes are sold. A hypothetical
decrease  in oil and  natural  gas prices of 10% from the prices in effect as of
March 31, 1999 would cause a loss in income and cash flows of $2,060,000  during
the remaining nine months of 1999,  assuming that oil and gas production  remain
at levels  consistent  with those during the last nine months of 1998. This loss
in income and cash flows  would be offset by a $792,000  increase  in income and
cash flows associated with the oil and natural gas derivative contracts that are
in effect for the remaining nine months of 1999.



<PAGE>


PART II   -   OTHER INFORMATION


ITEM 1    -   LEGAL PROCEEDINGS

              Reference  is made to Item 8 - Note 14 of Form 10-K for the year
              ended  December  31, 1998 and Note 7 of this Form 10-Q.


ITEM 2    -   CHANGES IN SECURITIES

              None.


ITEM 3    -   DEFAULTS UPON SENIOR SECURITIES

              None.


ITEM 4    -   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

              None.


ITEM 5    -   OTHER INFORMATION

              None.


ITEM 6    -   EXHIBITS AND REPORTS ON FORM 8-K

a)       Exhibit

27       Financial Data Schedule

b)       Reports on Form 8-K

                  None.



<PAGE>


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly  caused  this  report to be signed  on its  behalf by the  undersigned,
thereunto duly authorized.


                                HALLWOOD CONSOLIDATED RESOURCES CORPORATION




Date:  May 11, 1999             By:  /s/Thomas J. Jung
                                     Thomas J. Jung, Vice President
                                       (Chief Financial Officer)