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, 1998

    [  ]          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 12, 1998                     3,007,852













                                                   Page 1 of 17
PART I.    FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

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


                                                                      March 31,                December 31,
                                                                        1998                       1997

CURRENT ASSETS
<S>                                                                  <C>                        <C>      
    Cash and cash equivalents                                        $   1,978                  $   4,492
    Accrued oil and gas revenue                                          3,313                      4,266
    Due from affiliates                                                  3,797                      2,418
    Prepaid and other assets                                             1,309                        844
    Current assets of affiliates                                         3,132                      3,854
                                                                     ---------                  ---------
             Total current assets                                       13,529                     15,874
                                                                      --------                   --------

PROPERTY, PLANT AND EQUIPMENT, at cost
    Oil and gas properties (full cost method)
        Proved oil and gas properties                                  294,224                    294,922
        Unproved mineral interests - domestic                            2,426                      2,250
                                                                     ---------                  ---------
             Total                                                     296,650                    297,172

    Less - accumulated depreciation,
      depletion, amortization and impairment                          (223,672)                  (221,141)
                                                                       -------                    -------
             Net property, plant and equipment                          72,978                     76,031
                                                                      --------                   --------

OTHER ASSETS
     Deferred tax asset                                                    450                        450
     Noncurrent assets of affiliate                                         10                         16
                                                                    ----------                 ----------
             Total other assets                                            460                        466
                                                                     ---------                  ---------

TOTAL ASSETS                                                         $  86,967                  $  92,371
                                                                      ========                   ========


















<FN>

                                         (Continued on the following page)
</FN>
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

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


                                                                                  March 31,         December 31,
                                                                                     1998               1997

CURRENT LIABILITIES
<S>                                                                                <C>               <C>      
    Accounts payable and accrued liabilities                                       $   1,956         $   3,087
    Current portion of contract settlement obligation                                                    1,039
    Current liabilities of affiliates                                                  5,932             6,881
                                                                                    --------          --------
         Total current liabilities                                                     7,888            11,007
                                                                                    --------           -------

NONCURRENT LIABILITIES
    Long-term debt                                                                    23,989            25,000
    Long-term obligations of affiliates                                                4,852             7,589
    Deferred liability                                                                    82                89
                                                                                  ----------        ----------
         Total noncurrent liabilities                                                 28,923            32,678
                                                                                     -------           -------

         Total liabilities                                                            36,811            43,685
                                                                                     -------           -------

COMMITMENTS AND CONTINGENCIES (NOTE 6)

STOCKHOLDERS' EQUITY
    Common stock par value $.01; 10,000,000 shares
       authorized; 3,007,852 shares issued in 1998 and
       2,986,812 shares issued in 1997                                                    30                30
    Additional paid-in-capital                                                        81,256            80,111
    Accumulated deficit                                                              (27,266)          (27,581)
    Treasury stock - 258,395 shares in 1998 and 259,278 shares in 1997                (3,864)           (3,874)
                                                                                    --------          --------
         Stockholders' equity - Net                                                   50,156            48,686
                                                                                     -------           -------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                      $ 86,967          $ 92,371
                                                                                     =======           =======



















<FN>

               The accompanying notes are an integral part of the
                             financial statements.
</FN>
</TABLE>


<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,
                                                                              1998                      1997

REVENUES:
<S>                                                                        <C>                         <C>     
    Gas revenue                                                            $  4,312                    $  4,774
    Oil revenue                                                               2,745                       3,914
    Pipeline and other                                                          320                         407
    Interest income                                                              85                          40
                                                                          ---------                   ---------
                                                                              7,462                       9,135
                                                                            -------                     -------

EXPENSES:
   Production operating                                                       2,763                       2,515
   General and administrative                                                   909                         901
   Interest                                                                     821                         596
   Depreciation, depletion and amortization                                   2,531                       2,067
                                                                            -------                     -------
                                                                              7,024                       6,079
                                                                            -------                     -------

INCOME BEFORE INCOME TAXES                                                      438                       3,056
                                                                            -------                     -------

PROVISION FOR INCOME TAXES:
   Current                                                                      123                          91
                                                                            -------                   ---------

NET INCOME                                                                 $    315                    $  2,965
                                                                            =======                     =======

NET INCOME PER SHARE - BASIC                                             $      .11                   $    1.09
                                                                          =========                    ========

NET INCOME PER SHARE - DILUTED                                           $      .11                   $    1.05
                                                                          =========                    ========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
                                                                              2,740                       2,718
                                                                            =======                     =======

















<FN>

               The accompanying notes are an integral part of the
                             financial statements.
</FN>
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

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


                                                                           For the Three Months Ended
                                                                                   March 31,
                                                                         1998                      1997

OPERATING ACTIVITIES:
<S>                                                                    <C>                       <C>     
    Net income                                                         $    315                  $  2,965
    Adjustments to reconcile net income
      to net cash provided by operating activities:
        Depreciation, depletion and amortization                          2,531                     2,067
        Amortization of deferred loan costs and warrants                     50
        Noncash interest expense                                              6                        21
        Undistributed earnings of affiliates                               (698)                   (1,407)
        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                                           953                     1,147
        Due from affiliates                                              (1,057)                     (409)
        Prepaid and other assets                                           (494)                     (139)
        Accounts payable and accrued liabilities                         (1,131)                     (772)
                                                                        -------                  --------
                Net cash provided by operating activities                   468                     3,466
                                                                        -------                   -------

INVESTING ACTIVITIES:
    Additions to oil and gas properties                                    (115)                     (162)
    Exploration and development costs incurred                           (2,221)                   (1,197)
    Distributions received from affiliates                                  286                       286
    Other                                                                                              (4)
                                                                    -----------                ----------
                Net cash used in investing activities                    (2,050)                   (1,077)
                                                                        -------                   -------

FINANCING ACTIVITIES:
    Exercise of stock options                                               113
    Payments on contract settlement obligation                           (1,045)
                Net cash used in financing activities                      (932)
                                                                       --------

NET INCREASE (DECREASE) IN CASH AND CASH
   EQUIVALENTS                                                           (2,514)                     2,389

CASH AND CASH EQUIVALENTS:

BEGINNING OF PERIOD                                                       4,492                        628
                                                                        -------                    -------

END OF PERIOD                                                          $  1,978                   $  3,017
                                                                        =======                    =======






<FN>

               The accompanying notes are an integral part of the
                             financial statements.
</FN>
</TABLE>


<PAGE>


                   HALLWOOD CONSOLIDATED RESOURCES CORPORATION
                          NOTES TO 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 December 31, 1997 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, 1998 and December 31, 1997, 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 and 259,278
of its own shares at March 31, 1998 and December 31, 1997,  respectively.  These
shares are treated as treasury stock in the accompanying financial statements.

Computation of Net Income Per Share

During February 1997, the Financial  Accounting Standards Board issued Statement
of Financial  Accounting Standards No. 128 Earnings per Share ("SFAS 128"). SFAS
128 establishes standards for computing and presenting earnings per share (EPS),
and supersedes APB Opinion No. 15 and its related  interpretations.  It replaces
the presentation of primary EPS with a presentation of basic EPS, which excludes
dilution,  and  requires  dual  presentation  of basic and  diluted  EPS for all
entities with complex capital  structures.  Diluted EPS is computed similarly to
fully  diluted EPS pursuant to Opinion No. 15. SFAS 128 is effective for periods
ending  after  December  15,  1997,  including  interim  periods,  and  requires
restatement  of all prior  period  EPS data  presented.  HCRC  adopted  SFAS 128
effective  December  31,  1997,  and has  restated  all  prior  period  EPS data
presented to give retroactive effect to the new accounting standard.


<PAGE>


Basic  income per share is  computed  by  dividing  net  income by the  weighted
average number of common shares outstanding  during the periods.  Diluted income
per share  includes the  potential  dilution  that could occur upon  exercise of
outstanding  options to acquire  common  stock,  and the effects of the warrants
described in Note 3, 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).  All share and per share
information has been restated to reflect the three-for-one stock split described
in Note 5.

The following  table  reconciles  the number of shares  outstanding  used in the
calculation  of basic and diluted income per share.  The warrants,  described in
Note 3, have been ignored in the computation of diluted net income because their
inclusion would be anti-dilutive.
<TABLE>
<CAPTION>

                                                                        Income          Shares         Per Share
                                                                           (In thousands except per Share)

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

For the Quarter Ended March 31, 1997
   Net income per share - basic                                      $  2,965            2,718             $1.09
                                                                                                            ====
   Effect of Options                                                                       116
                                                                 -------------          ------
     Net Income per share - diluted                                  $  2,965            2,834             $1.05
                                                                      =======            =====              ====
</TABLE>

Recently Issued Accounting Pronouncements

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 130 "Reporting  Comprehensive  Income" ("SAFS
130"). SAFS 130 established 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,
1998 and 1997. Therefore,  total comprehensive income was the same as net income
for those periods.

Reclassifications

Certain  reclassifications have been made to the prior 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 a financial  institution.  HCRC
also sold Warrants to the lender to purchase 98,599 shares of Common Stock at an
exercise price of $28.99 per share. 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 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  maturity  date to May 31, 1999 and to reduce its  borrowing  base to
$10,000,000.  As of March 31, 1998,  the Company had no  borrowings  against the
credit line.  HCRC's unused borrowing base totaled  $10,000,000 at May 12, 1998.
When the acquisition of the volumetric production payment described in Note 7 is
consummated, HCRC's borrowing base will increase to $22,000,000.

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%.  Interest is payable at least  quarterly.  The
credit facility is secured by a first lien on approximately  80% in value of the
Company's oil and gas properties.


NOTE 4    -   STATEMENTS OF CASH FLOWS

Cash paid for interest during the three months ended March 31, 1998 and 1997 was
$645,000 and $402,000, respectively.


NOTE 5    -   STOCK SPLIT

During July 1997, the stockholders of HCRC approved an increase in the number of
authorized  shares of its  Common  Stock  from  2,000,000  shares to  10,000,000
shares.  HCRC also  declared a  three-for-one  split of its  outstanding  Common
Stock.  The stock  split was  effected  by  issuing,  as a stock  dividend,  two
additional shares of Common Stock for each share outstanding. The stock dividend
was paid on August 11 to  shareholders  of record on August 4. All share and per
share information has been restated to reflect the three-for-one stock split.


NOTE 6    -   LEGAL PROCEEDINGS

On December 3, 1997,  Arcadia  Exploration  and Production  Company  ("Arcadia")
filed a Demand for Arbitration 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 herein as "Hallwood"), claiming that Hallwood breached
a Purchase and Sale Agreement  dated August 25, 1997,  between  Arcadia and HCRC
and HEP.  Arcadia's  Demand for  Arbitration  seeks specific  performance of the
agreement  which  Arcadia  claims  requires  Hallwood  to  purchase  oil and gas
properties from Arcadia for approximately  $27 million.  HCRC and HEP terminated
the agreement  because of environmental  and title problems with the properties.
Additionally, Arcadia seeks incidental and special damages, prejudgment interest
and  attorneys'  fees and costs.  Hallwood  filed its  Answering  Statement  and
Counterclaim   asserting  that  it  properly  terminated  and/or  rescinded  the
Agreement and seeking refund of Hallwood's  earnest money  deposit,  prejudgment
interest,  attorneys' fees and costs.  HCRC's  management  intends to vigorously
defend the claims  asserted  by Arcadia  and  intends to  vigorously  pursue the
counterclaim  against  Arcadia.  This matter is currently set for hearing before
the arbitrators in May 1998.

On April 23,  1992,  a lawsuit  was filed in the  Chancery  Court for New Castle
County,  Delaware,  styled Tappe v. Hallwood Consolidated Resources Corporation,
Hallwood  Consolidated  Partners,  L. P.,  Hallwood Oil and Gas, Inc.,  Hallwood
Energy  Partners,  L. P., and Hallwood  Petroleum,  Inc.  (C. A. No 12536).  The
lawsuit seeks to rescind the conversion of Hallwood Consolidated Partners,  L.P.
("HCP") into the Company  ("Conversion")  and to recover  damages in unspecified
amounts.  The plaintiff also seeks class  certification  to represent  similarly
situated HCP  unitholders.  In general,  the suit  alleges  that the  defendants
breached  fiduciary duties to HCP unitholders by, among other things,  proposing
allocation  of common  stock in the  Conversion  on a basis  that the  plaintiff
alleges is unfair,  failing to require  that the  allocation  be  approved by an
independent  third party,  causing the costs of proposing  the  Conversion to be
borne  indirectly  by the  partners  of HCP  whether or not the  Conversion  was
completed,   and   failing  to   disclose   certain   matters  in  the   Consent
Statement/Prospectus  soliciting  consents  to the  Conversion.  The  defendants
believe that they fully  considered  and disclosed all material  information  in
connection with the Conversion, and they believe that the suit is without merit.
HCRC plans to  vigorously  defend this case,  but  because of its early  stages,
cannot  predict  the outcome of this  matter or any  possible  effect an adverse
outcome might have.

The Company is involved in other legal  proceedings and claims which have arisen
in the ordinary  course of its  business and have not been finally  adjudicated.
The Company believes that its liability, if any, as a result of such proceedings
and claims will not materially affect its financial condition or operations.


NOTE  -   7   SUBSEQUENT EVENT

On May 8, 1998,  HCRC signed an agreement  to purchase a  volumetric  production
payment in 34 coal bed methane wells located in La Plata County,  Colorado. HCRC
plans to fund its $17,257,000 share of the acquisition price from operating cash
flow and borrowings under its Credit Agreement.  The production  payment will be
owned by a limited  liability  company  owned  equally by HCRC and its affiliate
HEP. The  acquisition  is scheduled to close at the end of May.  HCRC's  lenders
have agreed to increase  HCRC's  borrowing  base under its Credit  Agreement  to
$22,000,000 when the acquisition is consummated.


ITEM 2    -   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS

Liquidity and Capital Resources

Cash Flow

The Company generated $468,000 of cash flow from operating activities during the
first  three  months of 1998.  The other  primary  cash  inflow was  $286,000 in
distributions received from affiliates. Cash was primarily used for additions to
property and exploration and development costs of $2,336,000 and for payments on
contract  settlement  obligation of $1,045,000  for the three months ended March
31, 1998, resulting in a $2,514,000 decrease in cash from $4,492,000 at December
31, 1997 to $1,978,000 at March 31, 1998.

Exploration and Development Projects

Through March 31, 1998, HCRC incurred  $2,336,000 in direct  property  additions
and exploration and development costs. The costs were comprised of approximately
$2,221,000  for  domestic   exploration   and   development   expenditures   and
approximately  $115,000 for property  acquisitions.  HCRC  anticipates an active
capital  expenditure  program during the remainder of 1998.  HCRC's 1998 capital
budget has been set at  $21,426,000  and will  include  projects in more than 35
areas, including 164 potential development,  exploration and seismic projects. A
description of significant  exploration and development projects to date in 1998
follows.

Greater Permian Region

During the first quarter of 1998, HCRC expended approximately  $1,385,000 of its
capital budget in the Greater  Permian Region located in Texas and Southeast New
Mexico.  HCRC spent  approximately  $220,000 drilling nine development wells and
four  exploration  wells, and acquiring  undeveloped  acreage and geological and
geophysical data. Seven (54%) of the wells drilled were successful. A discussion
of several of the larger projects within the Region follows.

HCRC spent  approximately  $50,000  successfully  recompleting four wells in the
Carlsbad/Catclaw Draw areas in Lea, Eddy and Chaves Counties, New Mexico.

In 1997, HCRC acquired 74 square miles of proprietary 3-D seismic data in Jones,
Taylor and Nolan Counties, Texas, in a project area which originated in 1995. In
1997, HCRC drilled 10 exploration wells, seven of which were successful.  During
the first  quarter of 1998,  HCRC  continued  work in the area by  drilling  two
exploration  wells,  one of which is successful.  Seven  additional  exploration
projects  are in progress.  HCRC  incurred  costs in this area of  approximately
$595,000 in 1998.

In 1997, HCRC purchased an interest in proprietary 3-D seismic data and selected
acreage  within an 85 square  mile area.  During  first  quarter  of 1998,  HCRC
attempted  completion  on one  exploration  well began in 1997 and  drilled  one
additional  development  well. Both wells were  unsuccessful.  HCRC is currently
participating  in  the  drilling  of  one  exploration  well  and  has  incurred
approximately $285,000 in this area in 1998.

HCRC has  delayed  drilling  16 West Texas  Spraberry  and  Clearfork  formation
development  wells to permit HCRC to further  evaluate the effects of both lower
oil prices and declining drilling costs.

Other  projects  begun in 1997 in the  Greater  Permian  Region  have  cost HCRC
approximately $380,000 during 1998.

Rocky Mountain Region

HCRC expended approximately $495,000 of its capital budget in the Rocky Mountain
Region  located in Colorado,  Montana,  North  Dakota,  Northwest New Mexico and
Wyoming.  During  first  quarter  of 1998,  HCRC  spent  approximately  $315,000
recompleting  two  development  wells  and one  exploration  well.  One well was
successful. A discussion of the larger projects within the Region follows.

HCRC incurred approximately $100,000 on one unsuccessful recompletion attempt in
San Juan County, New Mexico.

In the Lone Tree area of Montana, HCRC drilled one unsuccessful exploration well
for a cost of approximately $205,000.

Development  drilling is anticipated  to begin on HCRC's  Piceance Basin Douglas
Arch  properties  in the  second  quarter  of 1998.  Three of the 16  identified
locations will be drilled in the first segment of this project.

HCRC plans to drill  three  development  wells in Toole  County,  Montana in the
third quarter. HCRC has a 50% working interest in this project.

Other  projects  begun in 1997 in the  Rocky  Mountain  Region  have  cost  HCRC
approximately $120,000 during 1998.

On May 8, 1998,  HCRC signed an agreement  to purchase a  volumetric  production
payment in 34 coal bed methane wells located in La Plata County,  Colorado. HCRC
plans to fund its $17,257,000 share of the acquisition price from operating cash
flow and borrowings under its Credit Agreement.  The production  payment will be
owned by a limited  liability  company  owned  equally by HCRC and its affiliate
HEP. The  acquisition  is scheduled to close at the end of May.  HCRC's  lenders
have agreed to increase  HCRC's  borrowing  base under its Credit  Agreement  to
$22,000,000 when the acquisition is consummated.

Mid-Continent Region

HCRC expended  approximately $285,000 of its capital budget in the Mid-Continent
Region located in Oklahoma and Kansas.

HCRC is  participating  in an exploration  prospect in Carter County,  Oklahoma.
This  project  is a 19,000  feet  deep  multi-formation  structural  test and is
currently in the  completion  phase.  The drilling costs during first quarter of
1998 were approximately $125,000.

Approximately  $35,000 was  incurred in 1998 by HCRC for the  completion  of one
successful exploration well in the Andarko Basin area.

Other

The  remaining  $171,000  of  HCRC's  1998  capital  expenditures  were  devoted
principally  to  drilling  one  unsuccessful  exploration  well in Yolo  County,
California and to other  miscellaneous  projects.  HCRC is also participating in
two nonoperated 3-D projects underway in nearby Solano and Colusa Counties.

Drilling  is  expected  to begin in the third  quarter on two  recently  defined
operated exploration projects. HCRC has a 32.5% working interest in a project to
evaluate the Buda, Woodbine and Dexter formations,  and a 17.5% working interest
in a project to test the Frio formation.

Financing

On December 23, 1997, HCRC sold $25,000,000 of 10.32% Senior  Subordinated Notes
("Subordinated  Notes") due December 23, 2007 to a financial  institution.  HCRC
also sold Warrants to the lender to purchase 98,599 shares of Common Stock at an
exercise price of $28.99 per share. 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  maturity  date to May 31, 1999 and to reduce its  borrowing  base to
$10,000,000.  As of March 31, 1998,  the Company has no  borrowings  against the
credit line.  HCRC's unused borrowing base totaled  $10,000,000 at May 12, 1998.
When the  acquisition of the volumetric  production  payment  described above is
consummated, HCRC's borrowing base will increase to $22,000,000.

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%.  Interest is payable at least  quarterly.  The
credit facility is secured by a first lien on approximately  80% in value of the
Company's oil and gas properties.

Cautionary Statement Regarding Forward Looking Statements

In the interest of providing the Company's  stockholders and potential investors
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  meaning 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  Company,  expected to prove true and to 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.
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,  stockholders and potential
investors are cautioned that certain events or circumstances  could cause actual
results to differ materially from those projected, estimated or predicted.


<PAGE>


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 1997 and through
the first quarter of 1998. The following  table sets forth the weighted  average
price  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>                  <C>  
First quarter 1997                         $23.56               $20.49                 $2.64                $2.41
Second quarter 1997                         17.85                17.88                  1.91                 1.87
Third quarter 1997                          18.20                18.31                  2.09                 1.96
Fourth quarter 1997                         18.60                18.60                  2.72                 2.38
First quarter 1998                          14.92                15.08                  1.98                 1.93
</TABLE>

The Company has entered 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 these  contracts are recognized as oil or gas revenue at the
time the hedged volumes are sold.

The following  table provides a summary of the Company's  outstanding  financial
contracts:

<TABLE>
<CAPTION>
                                                      Oil
                                               Percent of Direct                Contract
              Period                           Production Hedged               Floor Price
                                                                                (per bbl)

<S>                                                     <C>                      <C>   
Last nine months of 1998                                14%                      $14.57
1999                                                     5%                       15.38
</TABLE>


Between  30% and 100% of the oil  volumes  hedged in each year are  subject to a
participating  hedge 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.
All of the volumes hedged in each year 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 $17.00 to $18.85 per barrel.
<TABLE>
<CAPTION>

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

<S>                                                     <C>                       <C>  
Last nine months of 1998                                31%                       $1.91
1999                                                    18%                        1.67
2000                                                     9%                        1.86
2001                                                     5%                        1.53
</TABLE>


Between  0% and 37% of the gas  volumes  hedged  in each year 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 price is $2.93 per mcf.

During the second quarter through April 25, 1998, the weighted average oil price
(for  barrels not hedged) was  approximately  $14.25 per barrel and the weighted
average  price of natural gas (for mcf not hedged) was  approximately  $2.05 per
mcf.

Inflation

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

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 1997 and 1998.


<PAGE>
<TABLE>
<CAPTION>


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



                                        For the Quarter Ended March 31, 1998         For the Quarter Ended March 31, 1997
                                        ------------------------------------         ------------------------------------
                                         Direct                                   Direct
                                         Owned         HEP      Total             Owned             HEP              Total

<S>                                       <C>           <C>      <C>              <C>                <C>            <C>  
Gas production (mcf)                       1,673         567      2,240            1,470              509            1,979
Oil production (bbl)                         146          36        182              153               38              191

Average gas price (per mcf)              $  1.88     $  2.05    $  1.93          $  2.40          $  2.44          $  2.41
Average oil price (per bbl)               $15.03      $15.30     $15.08           $20.46           $20.63           $20.49

Gas revenue                              $ 3,151     $ 1,161    $ 4,312          $ 3,531          $ 1,243          $ 4,774
Oil revenue                                2,194         551      2,745            3,130              784            3,914
Pipeline and other                           183         137        320              267              140              407
Interest income                               60          25         85               18               22               40
                                          ------      ------    -------          -------          -------          -------

         Total revenue                     5,588       1,874      7,462            6,946            2,189            9,135
                                          ------      ------     ------           ------           ------           ------

Production operating expense               2,182         581      2,763            1,977              538            2,515
General and administrative expense           699         210        909              679              222              901
Interest expense                             699         122        821              446              150              596
Depreciation, depletion and amortization   1,939         592      2,531            1,579              488            2,067
                                          ------      ------     ------           ------          -------           ------

         Total expense                     5,519       1,505      7,024            4,681            1,398            6,079
                                          ------      ------     ------           ------           ------           ------

Income before Income Taxes                    69         369        438            2,265              791            3,056
                                         -------      ------     ------           ------          -------           ------

Provision for Income Taxes:
     Current                                 123                    123               91                                91
                                          ------                 ------          -------                           -------

         Net income (loss)                $   (54)   $   369    $   315          $ 2,174         $    791          $ 2,965
                                           ======     ======     ======           ======          =======           ======
</TABLE>



<PAGE>


First Quarter of 1998 Compared to first Quarter of 1997

Gas Revenue

Gas revenue decreased $462,000 during the first quarter of 1998 as compared with
the first quarter of 1997. The decrease is comprised of a decrease in price from
$2.41 per mcf in 1997 to $1.93 per mcf in 1998  partially  offset by an increase
in gas  production  from  1,979,000  mcf in 1997 to 2,240,000  mcf in 1998.  The
increase in production is primarily due to workover procedures  performed during
the second  quarter of 1997.  The effect of the Company's  hedging  transactions
during the first quarter of 1998 was to decrease the Company's average gas price
from $1.98 to $1.93 per mcf, resulting in a $112,000 decrease in revenue.

Oil Revenue

Oil revenue  decreased  $1,169,000  during the first quarter of 1998 as compared
with the first  quarter of 1997.  The  decrease  in revenue  is  comprised  of a
decrease in oil production  from 191,000  barrels in 1997 to 182,000  barrels in
1998 and a decrease  in the  average oil price from $20.49 per barrel in 1997 to
$15.08 per barrel in 1998. The decrease in production is primarily due to normal
production  declines.  The effect of HCRC's hedging  transactions,  as described
under "Inflation and Changing  Prices," during the first quarter of 1998, was to
increase  the  Company's  average oil price from $14.92 per barrel to $15.08 per
barrel, resulting in a $29,000 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  decreased  $87,000 during the
first  quarter  of 1998 as  compared  with  the  first  quarter  of 1997  due to
fluctuations in numerous  miscellaneous  items,  none of which are  individually
significant.

Interest Income

Interest income  increased  $45,000 during the first quarter of 1998 as compared
with the first quarter of 1997 due to a higher average cash balance during 1998.

Production Operating Expense

Production operating expense increased $248,000 during the first quarter of 1998
as compared with the first  quarter of 1997,  primarily as a result of increased
maintenance  activity and increased  production taxes due to the increase in gas
production as discussed above.

Interest Expense

Interest expense increased $225,000 during the first quarter of 1998 as compared
with the first quarter of 1997 due to a higher outstanding debt during 1998.

Depreciation, Depletion and Amortization Expense

Depreciation,  depletion and amortization  expense increased  $464,000 primarily
due to a  higher  depletion  rate in 1998  resulting  from the  increase  in gas
production previously discussed.


<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, 1997 and Note 6 of this Form 10-Q.

ITEM 2    -   CHANGES IN SECURITIES

              None.


ITEM 3    -   DEFAULTS UPON SENIOR SECURITIES

              None.


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

              On May 5, 1998, HCRC held its Annual Meeting of  Shareholders
              at which Anthony J. Gumbiner, William L. Guzzetti, Brian M. Troup,
              John R. Isaac,  Jr., Jerry A. Lubliner,  Bill M. Van Meter and
              Hamilton P.  Schrauff  were elected  directors.  Following is the
              number of votes cast for and votes  withheld for each of the
              directors:

           Name                    Votes For           Votes Withheld

Anthony J. Gumbiner                2,888,498                 27,628
William L. Guzzetti                2,887,926                 28,200
Brian M. Troup                     2,888,516                 27,610
John R. Isaac, Jr.                 2,887,841                 28,285
Jerry A. Lubliner                  2,888,134                 27,992
Bill M. Van Meter                  2,888,134                 27,992
Hamilton P. Schrauff               2,888,205                 27,921

                  There were no abstentions or broker non-votes.


ITEM 5    -   OTHER INFORMATION

              None.


ITEM 6    -   EXHIBITS AND 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  12, 1998                 By:   /s/Thomas J. Jung
      -----------------                 -----------------------------------
                                          Thomas J. Jung, Vice President
                                            (Chief Financial Officer)