UNITED STATES


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

                             Amended March 19, 1997
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, 1996

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

                          Commission File Number 1-8921


                         HALLWOOD ENERGY PARTNERS, L. P.
             (Exact name of registrant as specified in its charter)




        DELAWARE                               84-0987088
 (State or other jurisdiction of             (I.R.S. Employer
 incorporation ofr organization)          Identification Number)

 4582 SOUTH ULSTER STREET
 PARKWAY, SUITE 1700
 DENVER, COLORADO                                  80237
 (Address of principal                           (Zip Code)
 executive offices)

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

The registrant is a limited partnership and issues Units (representing ownership
of limited partner interests).
<TABLE>
<CAPTION>
Number of Units outstanding as of May 10, 1996

                          <S>             <C>
                          Class A         9,977,254
                          Class B           143,773
                          Class C           664,063
</TABLE>
<TABLE>
<CAPTION>
                         HALLWOOD ENERGY PARTNERS, L. P.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                           (In thousands except Units)

                                      March 31,     December 31,
                                        1996            1995

 <S>                                   <C>            <C>
 CURRENT ASSETS
 Cash and cash equivalents            $  8,061       $  4,977
 Accounts receivable:
 Oil and gas sales                       7,557          6,767
 Trade                                   3,140          2,860

 Due from affiliates                     1,552          2,808
 Prepaid expenses and other
   current assets                          924          1,091
                                        -------        -------
 Total                                  21,234         18,503
                                        -------        -------

 PROPERTY, PLANT AND EQUIPMENT, at
 cost
 Oil and gas properties (full cost
 method):
 Proved mineral interests              601,623        601,323
 Unproved mineral interests -
   domestic                                792            684
 Furniture, fixtures and other           3,126          3,090
                                        -------        -------
 Total                                 605,541        605,097

 Less accumulated depreciation,
 depletion, amortization and
 property impairment                  (514,089)      (510,171)
                                      ---------      ---------
 Total                                  91,452         94,926
                                        -------        -------

 OTHER ASSETS
 Investment in common stock of
   HCRC                                 11,867         11,491
 Deferred expenses and other
   assets                                  265            232
                                        -------        -------
 Total                                  12,132         11,723
                                        -------        -------

 TOTAL ASSETS                         $124,818       $125,152
                                      =========      ========
</TABLE>
<TABLE>
<CAPTION>


                         HALLWOOD ENERGY PARTNERS, L. P.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                           (In thousands except Units)
                                   (Continued)


                                     March 31,     December 31,
                                       1996            1995


 <S>                                    <C>           <C>
 CURRENT LIABILITIES
 Accounts payable and accrued
 liabilities                           $ 16,286      $ 17,344
 Net working capital deficit of
 affiliates                                 140         5,061
 Current portion of contract
 settlement                                               374
 Current portion of long-term debt                         87
                                        -------       -------
 Total                                   16,426        22,866
                                        -------       -------

 NONCURRENT LIABILITIES
 Long-term debt                          37,557        37,557
 Contract settlement                      2,389         2,397
 Long-term liabilities of
 affiliate                                4,655
 Deferred liability                       1,730         1,718
                                        -------       -------
 Total                                   46,331        41,672
                                        -------       -------
 Total Liabilities                       62,757        64,538
                                        -------       -------

 MINORITY INTEREST IN SUBSIDIARIES        3,577         3,042
                                        -------       -------

 PARTNERS' CAPITAL Class A Units - 9,977,254 Units issued, 9,114,123 outstanding
 in 1996 and 9,193,159 outstanding
 in 1995                                 55,930        59,614
 Class B Subordinated Units -
 143,773 Units outstanding                1,090         1,062
 Class C Units - 664,063
 outstanding in 1996 and
 -0- outstanding in 1995                  5,146
 General Partner                          3,016         2,981
 Treasury Units - 863,131 Units in
 1996 and 784,095 Units in 1995          (6,698)       (6,085)
                                         -------       -------
 Partners' Capital - Net                 58,484        57,572
                                        -------       -------

 TOTAL LIABILITIES AND PARTNERS'
 CAPITAL                               $124,818      $125,152
                                        =======       =======
</TABLE>
<TABLE>
<CAPTION>



                         HALLWOOD ENERGY PARTNERS, L. P.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                           (In thousands except Units)


                              For the Three Months
                                 Ended March 31,
                                    1996 1995

 <S>                                   <C>            <C>
 REVENUES:
 Oil revenue                          $  5,085       $  3,943
 Gas revenue                             7,808          5,560
 Pipeline, facilities and other            735            520
 Interest                                   73             86
                                        -------        -------
                                        13,701         10,109
                                        -------        -------

 EXPENSES:
 Production operating                    3,030          2,687
 Facilities operating                      275            223
 General and administrative              1,168          1,491
 Depreciation, depletion and
 amortization                            3,862          3,972
 Impairment of oil and gas
 properties                                             4,051
 Interest                                1,122            993
                                        -------        -------
                                         9,457         13,417
                                        -------        -------
 OTHER INCOME (EXPENSES):
 Equity in income (loss) of HCRC           376           (847)
 Minority interest in net income
 of subsidiaries                          (867)          (287)
 Litigation settlement                                   (110)
                                        -------        -------
                                          (491)        (1,244)
                                        -------        -------

 NET INCOME (LOSS)                       3,753         (4,552)

 CLASS C UNIT DISTRIBUTIONS
 ($.25 PER UNIT)                           166
                                        -------         -------

 NET INCOME (LOSS) FOR GENERAL
 PARTNER, CLASS A AND CLASS B
 LIMITED PARTNERS                     $  3,587       $ (4,552)
                                        =======        =======

 ALLOCATION OF NET INCOME (LOSS):
 General partner                      $    687       $    201
                                        =======        =======
 Class A and Class B Limited
 partners                             $  2,900       $ (4,753)
                                        =======        =======
 Per Class A Unit and Class B Unit    $    .31       $   (.55)
                                        =======        =======
 Weighted average Class A Units
 and Class B Units outstanding           9,271          8,644
                                        =======        =======
</TABLE>
<TABLE>
<CAPTION>
                         HALLWOOD ENERGY PARTNERS, L. P.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In thousands)

                                                    For the Three Months
                                                       Ended March 31,
                                                   1996           1995

      <S>                                        <C>            <C>
      OPERATING ACTIVITIES:
      Net income (loss)                         $  3,753       $ (4,552)
      Adjustments to reconcile net income
      (loss) to net cash flow provided by
      operating activities:
      Depreciation, depletion, amortization
      and impairment                               3,862          8,023
      Depreciation charged to affiliates              56             51
      Amortization of deferred loan costs
      and other assets                                33             50
      Noncash interest expense                        54             82
      Equity in (earnings) loss of HCRC             (376)           847
      Minority interest in net income of
      subsidiaries                                   867            287
      Undistributed earnings of affiliates          (456)           (66)
      Recoupment of take-or-pay liability           (176)           (40)
                                                  -------        -------

      Cash provided by operations before
      working capital changes                      7,617          4,682

      Changes in operating assets and
      liabilities provided (used) cash net
      of noncash activity:
      Oil and gas sales receivable                  (790)         1,149
      Trade receivable                              (280)          (738)
      Due from affiliates                           (527)         1,647
      Prepaid expenses and other current
      assets                                         167             (3)
      Accounts payable and accrued
      liabilities                                    730           (767)
      Due to affiliates                                           1,003
                                                  -------        -------
      Net cash provided by operating               6,917          6,973
      activities                                  -------        -------

      INVESTING ACTIVITIES:
      Additions to property, plant and
      equipment                                     (313)          (573)
      Exploration and development costs
      incurred                                    (1,785)        (3,460)
      Proceeds from sales of property, plant
      and equipment                                1,293            181
      Other investing activities                     (67)
                                                  -------       -------
      Net cash used in investing activities         (872)        (3,852)
                                                  -------        -------

      FINANCING ACTIVITIES:
      Payments of long-term debt                     (87)        (3,022)
      Proceeds from long-term debt                               10,000
      Distributions paid                          (2,216)        (2,448)
      Distributions paid by consolidated
      subsidiaries to minority shareholders         (332)          (315)
      Payments of contract settlement               (305)          (333)
      Syndication costs and capital
      contributions                                  (12)           (23)
      Other financing activities                      (9)           (59)
                                                  -------       -------
      Net cash provided by (used in)
      financing activities                        (2,961)         3,800
                                                  -------        -------

      NET INCREASE IN CASH AND CASH
      EQUIVALENTS                                  3,084          6,921
      CASH AND CASH EQUIVALENTS:

      BEGINNING OF PERIOD                          4,977          2,409
                                                  -------        -------

      END OF PERIOD                             $  8,061       $  9,330
                                                  =======       =======
</TABLE>


                         HALLWOOD ENERGY PARTNERS, L. P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1 - GENERAL

Hallwood Energy  Partners,  L. P. ("HEP") is a publicly traded Delaware  limited
partnership 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 principal  objectives of HEP are to maintain and to
expand its  reserve  base and to provide  cash  distributions  to holders of its
units representing limited partner interests  ("Units").  The general partner of
HEP is Hallwood Energy Corporation ("HEC") which has been engaged in oil and gas
exploration and development since its incorporation in 1968.

The  activities of  HEP are  conducted  through HEP  Operating  Partners, L.  P.
("HEPO") and EDP Operating, Ltd. ("EDPO").  HEP is the sole limited  partner and
HEC  is the  sole general  partner of HEPO.   Hallwood  G. P.,  Inc. ("HGPI"), a
wholly-owned subsidiary of HEC, is the sole general partner, and HEP is the sole
limited  partner of  EDPO.   Solely  for purposes  of simplicity  herein, unless
otherwise indicated, all  references to  HEP in connection  with the  ownership,
exploration,  development or production of  oil and gas  properties include HEPO
and EDPO.

The interim financial data are unaudited; however, in the opinion of the general
partner,  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  footnotes included in HEP's December
31, 1995 Annual Report on Form 10-K.

ACCOUNTING POLICIES

CONSOLIDATION

HEP fully consolidates  majority owned entities and reflects a minority interest
in the consolidated  financial statements.  HEP accounts for its interest in 50%
or less  owned  affiliated  oil  and  gas  partnerships  and  limited  liability
companies  using the  proportionate  consolidation  method of accounting.  HEP's
investment in approximately  44% of the common stock of its affiliate,  Hallwood
Consolidated  Resources  Corporation ("HCRC"), is accounted for under the equity
method.

The  accompanying  financial  statements  include  the  activities  of HEP,  its
subsidiaries  Hallwood  Petroleum,  Inc.  ("HPI") and Hallwood Oil and Gas, Inc.
("Hallwood  Oil") and majority owned  affiliates,  the May Limited  Partnerships
1983-1, 1983-2, 1983-3, 1984-1, 1984-2, 1984-3 ("Mays").

TREASURY STOCK

HEP owns  approximately 44% and 40% of the outstanding  common stock of HCRC, at
March  31,  1996  and  December  31,  1995,   respectively;   while  HCRC  owned
approximately 19% and 9% of HEP's Units at March 31, 1996 and December 31, 1995,
respectively;  consequently,  HEP had an  interest in 863,131 and 784,095 of its
own Units at March 31, 1996 and December 31, 1995, respectively. These Units are
treated as treasury units in the accompanying financial statements.

RECLASSIFICATIONS

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


NOTE 2 - DEBT

During the first quarter of 1995, HEP and its lenders amended and restated HEP's
Amended and Restated Credit  Agreement  ("Credit  Agreement") to extend the term
date of its line of credit to May 31, 1997.  Under the Credit  Agreement  and an
Amended  and  Restated  Note  Purchase  Agreement  ("Note  Purchase  Agreement")
(collectively  referred to as the "Credit  Facilities") HEP has a borrowing base
of  $45,000,000.  HEP has amounts  outstanding  at March 31, 1996 of $24,700,000
under the Credit  Agreement and $12,857,000  under the Note Purchase  Agreement.
Effective April 1, 1996, HEP paid off its  proportionate  share of the bank debt
of Hallwood Spraberry Drilling Company,  L.L.C.  ("HSD"). The ownership of HSD's
properties  was  transferred  directly to HEP,  HCRC and HEC. HEP  mortgaged its
share of the HSD properties to its lenders and borrowed an additional $5,000,000
under its Credit  Agreement to fund the repayment of the debt.  HEP's  borrowing
base is further  reduced by an  outstanding  contract  settlement  obligation of
$2,389,000;  therefore,  its unused  borrowing  base totaled  $54,000 at May 10,
1996.

Borrowings under the Note Purchase  Agreement bear interest at an annual rate of
11.85%,  which is payable  quarterly.  Annual  principal  payments of $4,286,000
began April 30,  1992,  and the debt is required to be paid in full on April 30,
1998.  HEP funded the payment due in April 1996  through  additional  borrowings
under the Credit Agreement; thus, no portion of HEP's Note Purchase Agreement is
classified as current as of March 31, 1996.

Borrowings  against  the  Credit  Agreement  bear  interest  at the lower of the
Certificate of Deposit rate plus 1.875%, prime plus 1/2% or the Euro-Dollar rate
plus 1.75% (7.06% at March 31, 1996). Interest is payable monthly, and quarterly
principal  payments of  $2,124,000,  as adjusted for the  additional  borrowings
during April 1996, commence May 31, 1997.

The borrowing base for the Credit  Facilities is  redetermined  semiannually  in
March and September of each year.  The Credit  Facilities are secured by a first
lien  on   approximately   80%  in  value  of  HEP's  oil  and  gas  properties.
Additionally,  aggregate  distributions  paid by HEP in any 12 month  period are
limited to 50% of cash flow from  operations  before working capital changes and
distributions received from affiliates.

HEP entered into contracts to hedge its interest rate payments on $10,000,000 of
its debt for 1996 and 1997 and  $5,000,000 for 1998. HEP does not use the hedges
for  trading  purposes,  but rather for the  purpose of  providing  a measure of
predictability for a portion of HEP's interest payments under its debt agreement
which has a floating interest rate. In general, it is HEP's goal to hedge 50% of
the  principal  amount  of its debt for each year of the  remaining  term of the
debt.  HEP has entered into two hedges,  one of which is an interest rate collar
pursuant to which it pays a floor rate of 7.55% and a ceiling rate of 9.85%, and
the  other is an  interest  rate swap with a fixed  rate of 7.49%.  The  amounts
received  or paid  upon  settlement  of these  transactions  are  recognized  as
interest expense at the time the interest payments are due.


NOTE 3 - STATEMENT OF CASH FLOWS

Cash paid for interest during the three months ended March 31, 1996 and 1995 was
$842,000 and $825,000, respectively.

NOTE 4 - SUBSEQUENT EVENT

Effective April 1, 1996, HEP paid off its  proportionate  share of the bank debt
of HSD. The ownership of HSD's properties was transferred  directly to HEP, HCRC
and HEC.  HEP  mortgaged  its share of the HSD  properties  to its  lenders  and
borrowed  an  additional  $5,000,000  under  its  Credit  Agreement  to fund the
repayment of the debt.




ITEM 2 - MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL   CONDITION  AND
         RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW

HEP generated $6,917,000 of cash flow from operating activities during the first
three months of 1996.

The other primary cash inflow was:

  .   $1,293,000 in proceeds from the sale of property

Cash was used primarily for:

  .   Additions to property and development costs incurred of $2,098,000

  .   Distributions to Unitholders of $2,216,000

  .   Payments of contract settlement of $305,000

When combined with  miscellaneous  other cash  activity  during the period,  the
result was an increase of $3,084,000  in HEP's cash from  $4,977,000 at December
31, 1995 to $8,061,000 at March 31, 1996.

DEVELOPMENT PROJECTS AND ACQUISITIONS

Through March 31, 1996, HEP has incurred  approximately  $2,098,000 directly and
$189,000  indirectly  through  its  investment  in Hallwood  Spraberry  Drilling
Company,  L.L.C.  ("HSD") for  exploration,  development and  acquisition  costs
toward the 1996 capital  budget of  $11,500,000.  The direct  expenditures  were
comprised of approximately  $1,785,000 for domestic  exploration and development
expenditures and approximately  $313,000 for property acquisitions and land. The
indirect  expenditures  were  comprised  of drilling  costs.  A  description  of
significant exploration and development projects to date in 1996 follows.

HEP has  incurred  approximately  $189,000  in the first  quarter,  net to HEP's
interest, for four recompletions and one drilled well in the Rocker "b" Ranch in
Reagan County,  Texas.  This activity has increased HEP's share of production by
90 equivalent  barrels of oil per day.  Effective  April 1, 1996, HEP repaid its
share of HSD's third party loan through additional borrowings on its bank credit
agreement and assumed direct ownership of its share of HSD's  properties.  There
are still 10  undrilled  locations  which were  recorded  as proved  reserves at
December  31, 1995 which HEP plans to drill at some date in the  future.  During
the first  quarter,  HEP also acquired  interests in five  additional  producing
leases on the Rocker "b" Ranch for a total of $93,000.  HEP plans to  recomplete
at least seven wells from this acquisition by year end. The results of the first
two recompletions, which are in progress, appear favorable.

HEP has had continued success in the West Texas Kermit area in 1996, drilling or
participating  in the drilling of six successful  wells in the first quarter for
approximately  $400,000.  These new wells are capable of producing approximately
800  gross  equivalent  barrels  of oil per day but  are  currently  limited  to
approximately 350 gross equivalent  barrels of oil per day due to limitations on
production imposed by state laws and regulations.  HEP's interest in these wells
averages  35%.  HEP is  committed  to  drilling at least seven more wells in the
second quarter and has plans for several more  recompletions  in the second half
of 1996.


HEP also continues to participate  in a nonoperated  development  program in the
Southeastern  New Mexico area which began in late 1994, with two more successful
wells  being  drilled  for a net  cost of  approximately  $69,000.  HEP has a 5%
interest  in these wells which are  currently  producing  at a gross rate of 750
equivalent barrels of oil per day. HEP is committed to further  participation in
this  program  and  currently  plans to drill  at least  one well in the  second
quarter.  HEP has also  performed  three  successful  recompletions  on wells it
operates in the Catclaw Draw area for a cost of approximately $90,000.

Under a farmout  agreement  completed in 1995, HEP is  participating  in several
multiple  lateral,  horizontal  wells in the  Giddings  Austin Chalk play in Lee
County, Texas. Two successful wells have been drilled thus far, and a third well
is currently  being  drilled.  HEP's  interests in the area range from 3% to 4%,
with gross average initial production rates of 750 barrels of oil per day on the
first two wells. HEP's cost for both wells was approximately $20,000.

HEP has also  participated in the drilling of two nonoperated  wells in Williams
County,  North Dakota in the latter part of 1995 and the first  quarter of 1996,
one of which was dry and the other only marginally successful,  for a total cost
of approximately  $200,000. HEP also drilled an exploratory dry hole in Richland
County,  Montana at a cost of $120,000. HEP is evaluating an Interlake Formation
development well drilled in April.

In the San Juan Basin of New Mexico, HEP successfully  recompleted a well in the
first quarter of 1996 for approximately $90,000. Current production on this well
is  approximately  1,200 mcf of gas per day which equals the initial  production
rates  experienced  when the  well was  drilled  in  1990.  Rates  prior to this
workover were  approximately 400 mcf of gas per day. HEP owns  approximately 55%
of this well.

HEP acquired three  dimensional (3-D) seismic data in several different areas in
the  latter  part of 1995 and early  1996.  Expenditures  thus far in 1996 total
approximately  $300,000 and HEP plans to expend at least another $200,000 in the
second  quarter of 1996.  Drilling of resulting  prospects  will commence in the
second quarter of 1996.

HEP  is  also  actively   evaluating   acquisitions  in  strategic  areas.  Such
acquisitions  would be  financed  using  the  capital  budget,  supplemented  by
external financing when appropriate.

PROPERTY SALES

During the first quarter of 1996, HEP received approximately  $1,300,000 for the
sale of its  interests in the Hoople  Field in Crosby  County,  Texas.  HEP also
received  another  $88,000 in early  April for the sale of various  nonstrategic
properties at auction.  HEP continues to evaluate  unsolicited offers on various
properties it owns.

DISTRIBUTIONS

HEP  declared  a $.13 per Class A Unit and a $.25 per Class C Unit  distribution
payable on May 15, 1996 to Unitholders of record on March 31, 1996.

Distributions  on the Class B Units are suspended if the Class A Units receive a
distribution  of less than $.20 per Class A Unit per  calendar  quarter.  In any
quarter for which distributions of $.20 or more per unit are made on the Class A
Units, the Class B Units are entitled to be paid, in whole or in part, suspended
distributions.

FINANCING

During the first quarter of 1995, HEP and its lenders amended and restated HEP's
Amended  and  Restated  Credit  Agreement  ("Credit  Agreement")  to extend  the
maturity date of its line of credit to May 31, 1997.  Under the Credit Agreement
and an Amended and Restated Note Purchase Agreement ("Note Purchase  Agreement")
(collectively  referred to as the "Credit  Facilities") HEP has a borrowing base
of  $45,000,000.  HEP has amounts  outstanding  at March 31, 1996 of $24,700,000
under the Credit  Agreement and $12,857,000  under the Note Purchase  Agreement.
Effective April 1, 1996, HEP paid off its proportional share of the bank debt of
Hallwood  Spraberry  Drilling Company,  L.L.C.  ("HSD").  The ownership of HSD's
properties  was  transferred  directly to HEP,  HCRC and HEC. HEP  mortgaged its
share of the HSD properties to its lenders and borrowed an additional $5,000,000
under its Credit  Agreement to fund the repayment of the debt.  HEP's  borrowing
base is further  reduced by an  outstanding  contract  settlement  obligation of
$2,389,000;  therefore,  its unused  borrowing  base totaled  $54,000 at May 10,
1996.

Borrowings under the Note Purchase  Agreement bear interest at an annual rate of
11.85%,  which is payable  quarterly.  Annual  principal  payments of $4,286,000
began April 30,  1992,  and the debt is required to be paid in full on April 30,
1998.  HEP funded the payment due in April 1996  through  additional  borrowings
under the Credit Agreement; thus, no portion of HEP's Note Purchase Agreement is
classified as current as of March 31, 1996.

Borrowings  against  the  Credit  Agreement  bear  interest  at the lower of the
Certificate of Deposit rate plus 1.875%, prime plus 1/2% or the Euro-Dollar rate
plus 1.75% (7.06% at March 31, 1996). Interest is payable monthly, and quarterly
principal  payments of  $2,124,000,  as adjusted for the  additional  borrowings
during April 1996, commence May 31, 1997.

The borrowing base for the Credit  Facilities is  redetermined  semiannually  in
March and September of each year.  The Credit  Facilities are secured by a first
lien  on   approximately   80%  in  value  of  HEP's  oil  and  gas  properties.
Additionally,  aggregate  distributions  paid by HEP in any 12 month  period are
limited to 50% of cash flow from  operations  before working capital changes and
distributions received from affiliates.

HEP entered into contracts to hedge its interest rate payments on $10,000,000 of
its debt for 1996 and 1997 and  $5,000,000 for 1998. HEP does not use the hedges
for  trading  purposes,  but rather for the  purpose of  providing  a measure of
predictability for a portion of HEP's interest payments under its debt agreement
which has a floating interest rate. In general, it is HEP's goal to hedge 50% of
the  principal  amount  of its debt for each year of the  remaining  term of the
debt.  HEP has entered into two hedges,  one of which is an interest rate collar
pursuant to which it pays a floor rate of 7.55% and a ceiling rate of 9.85%, and
the  other is an  interest  rate swap with a fixed  rate of 7.49%.  The  amounts
received  or paid  upon  settlement  of these  transactions  are  recognized  as
interest expense at the time the interest payments are due.

INFLATION AND CHANGING PRICES

PRICES

Prices obtained for oil and gas production depend upon numerous factors that are
beyond  the  control  of HEP,  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 1995 and 1996.
The following table presents the average prices received each quarter by HEP and
the effects of the hedging transactions discussed below.
<TABLE>
<CAPTION>
                                  Oil                 Oil
                            (excluding the      (including the
                              effects of          effects of
                                hedging             hedging
                             transactions)       transactions)
                                 (bbl)               (bbl)

 <S>                              <C>                 <C>
 First quarter - 1995             $16.79              $17.22
 Second quarter - 1995             18.00               18.14
 Third quarter - 1995              16.15               16.63
 Fourth quarter - 1995             17.13               17.57
 First quarter - 1996              18.05               17.97
</TABLE>
<TABLE>
<CAPTION>
                                  Gas                 Gas
                            (excluding the      (including the
                              effects of          effects of
                                hedging             hedging
                             transactions)       transactions)
                                 (mcf)               (mcf)

 <S>                              <C>                 <C>
 First quarter - 1995              $1.51               $1.81
 Second quarter - 1995              1.39                1.64
 Third quarter - 1995               1.54                1.84
 Fourth quarter - 1995              1.87                1.99
 First quarter - 1996               2.41                2.30

</TABLE>
HEP 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 drops and to provide a measure of stability in the volatile environment of
oil and natural gas spot pricing. The revenue associated with these contracts is
recognized as oil or gas revenue at the time the hedged volumes are sold.

The following table provides a summary of HEP's outstanding financial contracts:
<TABLE>
<CAPTION>
                                        Oil
                                         Percent of         Contract
                   Period                Production        Floor Price
                                           Hedged           (per bbl)

        <S>                                  <C>             <C>
        Last nine months of 1996             21%             $15.08
        1997                                 18%             $14.87
        1998                                 15%             $14.83
        1999                                  3%             $15.38
</TABLE>
Between  16% and 100% of the oil  volumes  hedged in each year are  subject to a
participating  hedge  whereby HEP will receive the contract  price if the posted
futures  price is lower than the contract  price,  and will receive the contract
price plus between 25% and 75% of the difference  between the contract price and
the  posted  futures  price if the  posted  futures  price is  greater  than the
contract  price.  Between  75% and 100% of the  volumes  hedged in each year are
subject to a collar agreement whereby HEP 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 $18.85.
<TABLE>
<CAPTION>
                                        Gas
                                         Percent of         Contract
                   Period                Production        Floor Price
                                           Hedged           (per bbl)

        <S>                                  <C>              <C>
        Last nine months of 1996             47%              $2.01
        1997                                 39%              $2.06
        1998                                 41%              $2.10
        1999                                 17%              $2.01
        2000                                 20%              $2.01
</TABLE>
Between  0% and 50% of the gas  volumes  hedged  in each year are  subject  to a
collar  agreement  whereby HEP 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 $2.65 to $2.93.

During the second quarter through April 20, 1996, the oil price (for barrels not
hedged)  averaged  between  $20.00 and $23.00 per barrel.  The weighted  average
price of natural gas (for mcf not hedged) was between $1.15 and $3.00 per mcf.

INFLATION

Inflation did not have a material  impact on HEP in 1995 and is not  anticipated
to have a material impact in 1996.

RESULTS OF OPERATIONS

The  following  tables are  presented  to contrast  HEP's  revenue,  expense and
earnings for discussion purposes.  Significant fluctuations are discussed in the
accompanying  narrative.  The "direct  owned"  column  represents  HEP's  direct
royalty and  working  interests  in oil and gas  properties.  The "Mays"  column
represents the results of operations of six May Limited  Partnerships  which are
consolidated  with HEP. In 1996, HEP owned  interests which ranged from 54.5% to
68.3% of the Mays, and in 1995, HEP's ownership in the Mays ranged from 54.1% to
<TABLE>
<CAPTION>



                 TABLE OF HEP EARNINGS FOR MANAGEMENT DISCUSSION
                           (In thousands except price)
                 FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995


                                        For the Quarter Ended March 31, 1996
                                        Direct
                                        Owned           Mays          Total


 <S>                                      <C>            <C>            <C>
 Oil production (bbl)                      251             32            283
 Gas production (mcf)                    2,884            510          3,394

 Average oil price                     $17.82         $19.16         $17.97
 Average gas price                     $ 2.08         $ 3.54         $ 2.30

 Oil revenue                           $ 4,472        $   613        $ 5,085
 Gas revenue                             6,002          1,806          7,808
 Pipeline, facilities and other
 revenue                                   735                           735
 Interest income                            59             14             73
                                         ------         ------         ------

 Total revenue                          11,268          2,433         13,701
                                         ------         ------         ------

 Production operating expense            2,848            182          3,030
 Facilities operating expense              275                           275
 General and administrative
 expense                                 1,055            113          1,168
 Depreciation, depletion, and
 amortization                            3,330            532          3,862
 Impairment of oil and gas
 properties
 Interest expense                        1,122                         1,122
 Litigation settlement expense
 Equity in (earnings) loss of HCRC        (376)                         (376)
 Minority interest                                        867            867
                                        -------        -------         ------


 Total expense                           8,254          1,694          9,948
                                         ------         ------         ------

 Net income (loss)                     $ 3,014        $   739        $ 3,753
                                         ======         ======         ======
</TABLE>
<TABLE>
<CAPTION>
                                     For the Quarter Ended March 31, 1995
                                      Direct
                                      Owned          Mays           Total

   <S>                                 <C>            <C>            <C>
   Oil production (bbl)                  209             20            229
   Gas production (mcf)                2,726            346          3,072

   Average oil price                 $17.14         $18.05         $17.22
   Average gas price                 $ 1.82         $ 1.74         $ 1.81

   Oil revenue                       $ 3,582        $   361        $ 3,943
   Gas revenue                         4,958            602          5,560
   Pipeline, facilities and
   other revenue                         520                           520
   Interest income                        70             16             86
                                     ------         ------         ------

   Total revenue                       9,130            979         10,109
                                     ------         ------         ------

   Production operating expense        2,552            135          2,687
   Facilities operating expense          223                           223
   General and administrative
   expense                             1,380            111          1,491
   Depreciation, depletion, and
   amortization                        3,862            110          3,972
   Impairment of oil and gas
   properties                          4,051                         4,051
   Interest expense                      993                           993
   Litigation settlement
   expense                               110                           110
   Equity in (earnings) loss of
   HCRC                                  847                           847
   Minority interest                                    287            287
                                    -------         ------        -------

   Total expense                      14,018            643         14,661
                                     ------         ------         ------

   Net income (loss)                 $(4,888)       $   336        $(4,552)
                                     ======         ======         ======
</TABLE>

FIRST QUARTER 1996 COMPARED TO FIRST QUARTER 1995

OIL REVENUE

Oil revenue increased by $1,142,000 during the first quarter of 1996 as compared
with the first quarter of 1995. The increase is the result of an increase in the
average  oil price  from  $17.22 per barrel in 1995 to $17.97 per barrel in 1996
combined  with an increase in oil  production  from  229,000  barrels in 1995 to
283,000  barrels in 1996.  The  increase in oil  production  is due to increased
production from  exploratory  and  developmental  drilling  projects in Montana,
Wyoming and West Texas partially offset by normal production declines.

The effect of HEP's hedging  transactions,  as described  under  "Inflation  and
Changing Prices," was to decrease HEP's average oil price from $18.05 per barrel
to  $17.97  per  barrel,  representing  a  reduction  in  revenue  from  hedging
transactions of $23,000.

GAS REVENUE

Gas revenue increased by $2,248,000 during the first quarter of 1996 as compared
with the first  quarter of 1995.  The  increase  is the result of an increase in
production from 3,072,000 mcf in 1995 to 3,394,000 mcf in 1996,  combined with a
27%  increase in price from $1.81 per mcf in 1995 to $2.30 per mcf in 1996.  The
increase in  production  is due to increased  production  from  exploratory  and
developmental  drilling  projects  in  Montana,  Wyoming and West Texas which is
partially offset by normal production declines.

The effect of HEP's hedging transactions was to decrease HEP's average gas price
from  $2.41 per mcf to $2.30  per mcf,  representing  a  $373,000  reduction  in
revenue from hedging transactions.

PIPELINE, FACILITIES AND OTHER

Pipeline,  facilities and other revenue consists  primarily of facilities income
from two gathering  systems  located in New Mexico,  revenues  derived from salt
water  disposal,  and  incentive  payments  related to certain wells in San Juan
County.  Pipeline,  facilities and other income increased by $215,000 during the
first quarter of 1996 as compared with the first quarter of 1995, primarily as a
result of a pay-out adjustment on one of HEP's properties during 1995.


INTEREST INCOME

The decrease in interest  income of $13,000  during the first quarter of 1996 as
compared  with the first  quarter of 1995  resulted  from a lower  average  cash
balance during the first quarter of 1996 as compared with the same period during
1995.

PRODUCTION OPERATING EXPENSE

Production operating expense increased $343,000 during the first quarter of 1996
as compared with the first quarter of 1995, primarily as a result of an increase
in production  taxes and  operating  costs  associated  with the 15% increase in
production as described above.

FACILITIES OPERATING EXPENSE

Facilities  operating expense  represents the costs of operating and maintaining
two gathering  systems located in New Mexico.  Costs increased by $52,000 during
1996 as compared  with 1995 due to the  connection  of  additional  wells to the
gathering systems.




GENERAL AND ADMINISTRATIVE EXPENSE

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 the operating company on behalf of HEP.
These expenses  decreased  $323,000 during the first quarter of 1996 as compared
with the first  quarter  of 1995.  The  decrease  is  primarily  the result of a
reduction in internal allocated overhead.

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE

Depreciation,  depletion and amortization  expense decreased $110,000 during the
first quarter of 1996 as compared  with the first quarter of 1995.  The decrease
is  primarily  the result of lower  capitalized  costs in 1996 as compared  with
1995, due to the property impairments recorded during 1995.

IMPAIRMENT OF OIL AND GAS PROPERTIES

Impairment  of  oil  and  gas  properties  represents  the  write-off  of  HEP's
Indonesian operations.

INTEREST EXPENSE

Interest expense increased $129,000 during the first quarter of 1996 as compared
with the first quarter of 1995,  primarily as the result of a higher outstanding
debt balance during 1996.

EQUITY IN INCOME (LOSS) OF HCRC

Equity in income (loss) of HCRC increased $1,223,000 during the first quarter of
1996 as compared with the first  quarter of 1995.  The increase is primarily due
to HCRC's  impairment  expense  resulting  from the write-off of its  Indonesian
operations during 1995.

MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES

Minority  interest  in  net  income  of  subsidiaries   represents  unaffiliated
partners'  interest in the net income of the May  Partnerships.  The increase of
$580,000  is due to an  increase  in the  net  income  of the  May  Partnerships
resulting from increased  production on their properties,  as well as higher oil
and gas prices during 1996.

LITIGATION SETTLEMENT EXPENSE

Litigation  settlement  expense  during  1995  consists  primarily  of  expenses
incurred to settle various individually immaterial claims against HEP.

PART II  - OTHER INFORMATION


ITEM 1   - LEGAL PROCEEDINGS

              Reference is made to Item 8 - Notes 13 and 14 of Form 10-K for the
              year ended December 31, 1995.


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

              None.



SIGNATURE

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


                            HALLWOOD ENERGY PARTNERS, L. P.
                            BY:   HALLWOOD ENERGY CORPORATION
                                  GENERAL PARTNER




 Date: March 19, 1997        By:  /s/Robert S. Pfeiffer
                                  Robert S. Pfeiffer,
                                  Vice President
                            (Chief Financial Officer)