May 5, 1998



Mr. Thomas J. Jung
7644 S. Madison Circle
Littleton, Colorado  80112


         Re:      Class A Unit Option

Dear Mr. Jung:

     As we  discussed,  in  connection  with your recent  employment by Hallwood
Petroleum,  Inc.,  Hallwood Energy  Partners,  L.P. (the  "Partnership")  hereby
grants you, effective as of the date of this letter, an option (the "Option") to
acquire Twenty Five Thousand Five Hundred (25,500) Class A Units ("Units") of
the Partnership.

     Although your Option has not been granted pursuant to a previously existing
option plan,  your Option will be subject to terms and  conditions  identical to
those in the  Partnership's  1995 Unit Option Plan (the "Option Plan"),  and the
associated  1995 Unit Option Plan Loan  Program  (the "Loan  Program").  We have
enclosed  copies of the Option Plan and the Loan Program for your  reference and
review.  The  following  is a  description  of the Option.  Terms not  otherwise
defined in this  letter  have the same  meanings  ascribed to them in the Option
Plan. You are referred to as the Optionee in the following description.

          1. Option Price. The Option price is $6 5/8 for each Unit.

          2. Date of Grant.  The  Option is granted as of May 5, 1998 (the "Date
     of Grant").

          3. Exercise of Option.  The Option shall be exercisable in whole or in
     part in accordance with the provisions of the Option Plan as follows:

               (i) Schedule of Rights to Exercise.

                    (a) 8500 Units upon the Date of Grant.

                    (b) 8500 Units after May 5, 1999.

                    (c) 8500 Units after May 5, 2000.

     or on such earlier date as the Option may vest in  accordance  with Section
     7(d) of the  Option  Plan,  but  subject  always to the limits set forth in
     Section 7(e) of the Option Plan.

               (ii) Method of  Exercise.  The Option shall be  exercisable  by a
          written notice delivered to the Partnership that shall:

                    (a) state the election to exercise the Option and the number
               of Units in respect of which it is being exercised; and

                    (b) be signed by the person or persons  entitled to exercise
               the Option and, if the Option is being exercised by any person or
               persons  other  than  the  Optionee,  be  accompanied  by  proof,
               satisfactory to the  Partnership,  of the right of such person or
               persons to exercise the Option.

               (iii) Payment. The exercise price of any Units purchased shall be
          paid solely in cash, by certified or cashier's  check, by money order,
          with Units (provided that at the time of exercise the Committee in its
          sole  discretion does not prohibit the exercise of Options through the
          delivery of Units owned by the Optionee for at least six months) or by
          a combination of the above;  provided,  however, that the Committee in
          its sole  discretion  may accept a  personal  check in full or partial
          payment of any  Units.  If the  exercise  price is paid in whole or in
          part with  Units,  the value of the Units  surrendered  shall be their
          Fair  Market  Value on the date  received  by the  Company.  Any Units
          delivered in  satisfaction  of all or a portion of the exercise  price
          shall be  appropriately  endorsed for transfer and  assignment  to the
          Partnership.

               (iv)   Withholding.   The   Optionee   shall  make   arrangements
          satisfactory  to the  Company  for  the  withholding  of  any  amounts
          necessary for  withholding in accordance  with  applicable  Federal or
          state income tax laws.

               (v)  Issuance  of Units.  No person  shall be, or have any of the
          rights or privileges of, a Unitholder of the Partnership  with respect
          to any of the Units subject to an Option unless and until certificates
          representing  such Units shall have been issued and  delivered to such
          person. As a condition of any issuance of a certificate for Units, the
          Committee may obtain such  agreements or  undertakings,  if any, as it
          may  deem  necessary  or  advisable  to  assure  compliance  with  any
          provision of the Plan, the agreement  evidencing the Option or any law
          or regulation including, but not limited to, the following:

                    (a) A representation,  warranty or agreement by the Optionee
               to the Partnership at the time any Option is exercised that he is
               acquiring  the Units to be issued to him for  investment  and not
               with a view to, or for sale in connection  with, the distribution
               of any such Units; and

                    (b) A  representation,  warranty or agreement to be bound by
               any legends that are, in the opinion of the Committee,  necessary
               or  appropriate  to comply with the  provisions of any securities
               laws deemed by the  Committee to be applicable to the issuance of
               the Units and are endorsed upon the Unit certificates.

               (vi)  Surrender of Option.  Upon  exercise of Option in part,  if
          requested by the  Partnership,  the Optionee  shall deliver Option and
          any other  written  agreements  executed  by the  Partnership  and the
          Optionee with respect to Option to the  Partnership  who shall endorse
          or cause to be endorsed thereon a notation of such exercise and return
          all agreements to the Optionee.

     4. Transferability of Option. In the Optionee's discretion,  The Option may
be transferred by the Optionee by gift or by  contribution  to (a) any member of
Optionee's  immediate  family;  (b) any entity of which  Optionee  or members of
Optionee's  family are the sole equity owners or beneficiaries  or, if there are
discretionary beneficiaries,  among the class of discretionary beneficiaries; or
(c) any combination of the foregoing.

     5. Term of Option.  The Option may not be exercised after the expiration of
ten (10)  years  from the Date of Grant of the  Option and is subject to earlier
termination  as provided in Section 8 of the Plan.  The Option may be  exercised
during such term only in accordance with the Plan and the terms of the Option.

     6.  Administration.  The  Option  shall be  administered  by the  Committee
provided for and described in Section 13 of the Plan.

     If this letter agreement correctly sets forth your understanding  regarding
the  Options,  please  acknowledge  and accept the award by signing in the space
provided below.


                                     Sincerely,

                                     HALLWOOD ENERGY PARTNERS, L.P.
                                     By: HEPGP, Ltd., General Partner
                                     By: Hallwood GP, Inc., General Partner


                                  /s/Russell P. Meduna
                                     Russell P. Meduna
                                     President

<PAGE>



     I acknowledge  receipt of the letter dated May 5, 1998  regarding the award
of a Class A Unit Option,  a copy of the Option Plan and the Loan  Program,  and
represent that I am familiar with the terms and provisions  thereof,  and hereby
accept the Option  subject to all the terms and  provisions of this letter,  the
Option  Plan and the  Loan  Program.  I  hereby  agree  to  accept  as  binding,
conclusive  and final all  decisions or  interpretations  of the  Committee  (as
defined in the Option Plan) upon any questions arising under my Option.




     Date                                           Thomas J. Jung

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