[CONFORMED COPY]

                  AMENDMENT NO. 1 TO THIRD AMENDED AND RESTATED
                                CREDIT AGREEMENT
                     WAIVER UNDER THIRD AMENDED AND RESTATED
                                CREDIT AGREEMENT
                      WAIVER UNDER NOTE PURCHASE AGREEMENT



     AMENDMENT  and WAIVER  dated as of October 31, 1997 among  HALLWOOD  ENERGY
PARTNERS,  L.P. ("HEP"), HEP OPERATING PARTNERS,  L.P., EDP OPERATING,  LTD., EM
NOMINEE  PARTNERSHIP  COMPANY,  CONCISE  OIL AND  GAS  PARTNERSHIP,  MAY  ENERGY
PARTNERS OPERATING PARTNERSHIP LTD.  (collectively,  with HEP, the "Borrowers"),
the BANKS  listed on the  signature  pages  hereof  (the  "Banks"),  First Union
National Bank of North Carolina as collateral  agent (the  "Collateral  Agent"),
MORGAN  GUARANTY  TRUST  COMPANY  OF NEW YORK,  as Agent (the  "Agent")  and THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA ("Prudential").

                              W I T N E S S E T H :

     WHEREAS,  the Borrowers,  the Banks, the Collateral Agent and the Agent are
parties to a Third  Amended and  Restated  Credit  Agreement  (as  amended,  the
"Credit Agreement"); and

     WHEREAS,  the  Borrowers  and  Prudential  have entered into an Amended and
Restated  Note  Purchase  Agreement  dated  as of May 7,  1990  (as  amended  by
Amendment Nos. 1 through 10 thereto, the "Note Purchase Agreement");

     NOW, THEREFORE, the parties hereto agree as follows:

     SECTION 1. Definitions;  References.  Unless otherwise specifically defined
herein,  each term used herein  which is defined in the Credit  Agreement or the
Note Purchase  Agreement,  as the case may be (including any Schedule  thereto),
shall have the meaning  assigned to such term in such agreement.  Each reference
to "hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Credit Agreement" or "this Note Purchase  Agreement"
and each other similar  reference  contained in the Credit Agreement or the Note
Purchase  Agreement,  as the case may be,  shall from and after the date  hereof
refer to the Credit  Agreement or the Note Purchase  Agreement,  as the case may
be, as amended hereby.


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     SECTION 2.  Resetting of the  Availability  Limit.  (a) The  definitions of
"Availability Limit" and "HGI" set forth in Section 1.01 of the Credit Agreement
are hereby amended to read in their entirety as follows:

          "Availability Limit" means, on any date, an amount equal to the lesser
     of (i) the aggregate  amount of the Commitments at such date and (ii)(x) at
     any date prior to the Arcadia Date,  $46,000,000  and (y) at any date on or
     after  the  Arcadia  Date,  $52,000,000.  The  Availability  Limit  may  be
     increased only by an amendment in accordance  with Section 8.05,  which the
     Banks may agree to or not agree to in their sole discretion.

          "HGI"  means  HEPGP  Ltd.,  a Colorado  limited  partnership,  and its
     successors.

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

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

     SECTION 3. Amendment to Representation Regarding General Partners. The fist
two  sentences  of Section 3.22 of the Credit  Agreement  are amended to read in
their entirety as follows:  "HGI is the sole general  partner of HEP,  Operating
and HEP Operating. Hallwood G.P. is the sole general partner of MEPO."

     SECTION 4. Temporary  Waiver of the Collateral  Coverage  Requirement.  The
Lenders  hereby waive  compliance by the Borrowers with clause (i) of Section 13
of Schedule B of the Credit  Agreement and the Note  Purchase  Agreement and any
Event of  Default  arising  under the  Credit  Agreement  and the Note  Purchase
Agreement  solely as a result of noncompliance by the Borrowers with such clause
(i) as a result of the  consummation  by the Borrowers of the acquisition of the
properties  described in the "Arcadia Acquisition Bank Case Pricing" engineering
report dated July 1, 1997  substantially on the terms described by the Borrowers
to the Banks  prior to the date  hereof;  provided  that (x) the waiver  granted
pursuant  to this  Section  shall  expire the date which falls 30 days after the
date of consummation of such acquisition and (y) prior to the expiration of such
waiver,  such waiver  shall be effective  only so long as  Petroleum  Properties
representing not less than 75% of the value of Petroleum Properties shall be


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subject to valid  first-priority  Liens in favor of the Lenders  pursuant to the
Collateral Documents.

     SECTION 5. No Other Waivers.  Other than as specifically  provided  herein,
this  Amendment  and Waiver shall not operate as a waiver of any right,  remedy,
power or privilege of the Agent,  the Collateral  Agent, the Banks or Prudential
under the Credit Agreement,  the Note Purchase  Agreement or any other Financing
Document or of any other term or condition thereof.

     SECTION 6. Effectiveness.  This Amendment and Waiver shall become effective
on the  date on  which  the  Agent  shall  have  received  counterparts  of this
Amendment and Waiver duly executed by the  Borrowers,  the Required  Banks,  the
Collateral  Agent,  the Agent and Prudential (or, in the case of any party as to
which an executed counterpart shall not have been received, the Agent shall have
received  telegraphic,  telex or other written  confirmation  from such party of
execution of a counterpart hereof by such party).


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



                                BORROWERS:

                                   HALLWOOD ENERGY PARTNERS, L.P.
                                   HEP OPERATING PARTNERS, L.P.


                                   By:   HEPGP Ltd.
                                         By:   Hallwood G.P., Inc.

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


                                   The General Partner of Hallwood
                                   Energy Partners, L.P. and HEP
                                   Operating Partners, L.P.


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                                   MAY ENERGY PARTNERS OPERATING
                                     PARTNERSHIP LTD.,
                                   EDP OPERATING, LTD.
                                     individually and as a
                                     general partner of
                                     EM NOMINEE PARTNERSHIP COMPANY
                                       and
                                     CONCISE OIL AND GAS PARTNERSHIP
                                   EM NOMINEE PARTNERSHIP COMPANY
                                   CONCISE OIL AND GAS PARTNERSHIP


                                   By:  HALLWOOD G.P., INC.,
                                         formerly known as
                                         QUINOCO ENERGY, INC.

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


                                   The General Partner of May Energy
                                   Partners Operating Partnership Ltd.
                                   and EDP Operating, Ltd. and EM Nominee
                                   Partnership Company and Concise Oil
                                   and Gas Partnership

                                   MORGAN GUARANTY TRUST COMPANY
                                   OF NEW YORK

                                   By:  /s/ John Kowalczuk
                                   Title:   Vice President

                                    FIRST UNION NATIONAL BANK
                                     OF NORTH CAROLINA

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

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                                   NATIONSBANK OF TEXAS, N.A.

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



                                   MORGAN GUARANTY TRUST COMPANY
                                     OF NEW YORK, as Agent


                                   By: /s/ John Kowalczuk
                                   Title:  Vice President



                                   FIRST UNION NATIONAL BANK OF
                                     NORTH CAROLINA, as Collateral Agent


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



                                   THE PRUDENTIAL INSURANCE COMPANY
                                   OF AMERICA

                                   By: /s/  Randall M. Kob
                                   Title:   Vice President



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