REGISTRATION RIGHTS AGREEMENT



                  REGISTRATION  RIGHTS  AGREEMENT,  dated  as of June  8,  1999,
between HALLWOOD ENERGY CORPORATION, a Delaware corporation (the "Company"), and
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (the "Purchaser").


         1. Background. The Company, Hallwood Consolidated Resources Corporation
("HCRC") and the Purchaser  have entered into that certain  Amended and Restated
Subordinated  Note and Warrant  Purchase  Agreement (the "Purchase  Agreement"),
dated as of the date  hereof,  pursuant to which the  Company has agreed,  among
other  things,  to issue  and sell  its  Common  Stock  Purchase  Warrants  (the
"Warrants"),  evidencing  rights to  purchase  an  aggregate  of 309,278  shares
(subject to adjustment as provided  therein) of the Company's  common stock, par
value $0.01 per share (the "Common Stock"), in exchange for, among other things,
the  delivery by the  Purchaser,  for  cancellation,  of common  stock  purchase
warrants  evidencing  rights of the  Purchaser to purchase  shares of the common
stock, par value $0.01 per share, of HCRC. This agreement shall become effective
upon the issuance of the Warrants.

         2.       Registration under Securities Act, etc.

                  2.1      Registration on Request.

                  (a) Request by Holders of Warrants or Registrable  Securities.
At any time  after  the date  hereof  any  holder  or  holders  of  Warrants  or
Registrable  Securities  may  request in  writing  that the  Company  effect the
registration  under  the  Securities  Act  of  all  or  part  of  such  holders'
Registrable  Securities.  Such  request  shall  specify  the number of shares of
Registrable  Securities  proposed  to be sold by such  holder or holders and the
intended method of disposition  thereof.  Promptly after receiving such request,
the Company will give written notice of such requested registration to all other
holders of Warrants or Registrable Securities and thereupon the Company will use
its best efforts to effect the registration under the Securities Act of:

                           (i)the Registrable Securities which the Company has
         been so requested to register by such holders, and

                           (ii)  all  other  Registrable  Securities  which  the
         Company  has been  requested  to  register  by such  other  holders  of
         Warrants or  Registrable  Securities  by written  request  given to the
         Company  within 30 days after the giving of such written  notice by the
         Company   (which   request  shall  specify  the  number  of  shares  of
         Registrable Securities proposed to be



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         sold by such holder or holders and the intended  method of  disposition
         of such Registrable Securities),  all to the extent necessary to permit
         the  disposition  (in accordance  with the intended  methods thereof as
         aforesaid) of the Registrable Securities so to be registered.

                  (b)  Registration  of Other  Securities.  Whenever the Company
shall effect a registration  pursuant to this Section 2.1 in connection  with an
underwritten  offering  by one or more  holders of  Registrable  Securities,  no
securities  other  than  Registrable  Securities  shall be  included  among  the
securities covered by such registration  unless (a) the managing  underwriter of
such  offering  shall have advised each holder of  Registrable  Securities to be
covered by such registration  (and each holder of Warrants  therefor) in writing
that the  inclusion of such other  securities  would not  adversely  affect such
offering or (b) the holders of all Registrable  Securities to be covered by such
registration (and the holders of all Warrants  therefor) shall have consented in
writing to the inclusion of such other securities.

                  (c)  Registration  Statement  Form.  Registrations  under this
Section 2.1 shall be on such appropriate registration form of the Commission (i)
as shall be selected by the Company and as shall be reasonably acceptable to the
Requisite  Holders and (ii) as shall permit the disposition of such  Registrable
Securities  in  accordance  with the intended  method or methods of  disposition
specified in their request for such registration.  The Company agrees to include
in any such registration  statement all information which holders of Registrable
Securities being  registered (or holders of Warrants  therefor) shall reasonably
request.

                  (d) Expenses.  The Company will pay all Registration  Expenses
in connection with any  registration  requested  pursuant to this Section 2.1 if
such  registration has been requested in relation to at least 66 2/3% (by number
of shares) of Registrable Securities;  provided, however, that the Company shall
in all events and at all times be responsible for the fees and  disbursements of
counsel for the Requisite  Holders in connection  with the rendering of opinions
requested by the Company or any  underwriter.  The  Registration  Expenses  (and
underwriting discounts and commissions and transfer taxes, if any) in connection
with each other registration requested under this Section 2.1 shall be allocated
on a pro rata basis among all Persons on whose behalf  securities of the Company
are  included  in such  registration,  in  accordance  with  the  amount  of the
securities then being registered on behalf of each such Person.

                  (e) Effective Registration Statement. A registration requested
pursuant  to this  Section  2.1 shall not be  deemed to have been  effected  (i)
unless a registration statement with respect thereto has become effective,  (ii)
if after it has become effective,  such effectiveness has been suspended for one
or more periods that equal or exceed ten (10)  Business Days in the aggregate by
the issuance of any stop order,  injunction or other order or requirement of the
Commission or other governmental agency or court for any reason, or (iii) if the
conditions  to closing  specified  in the  purchase  agreement  or  underwriting
agreement entered into in connection with such registration are not satisfied.




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                  (f)  Selection of  Underwriters.  If a requested  registration
pursuant to this Section 2.1 involves an underwritten  offering, the underwriter
or underwriters thereof shall be selected by the Company and shall be reasonably
satisfactory to the Requisite Holders.

                  (g)  Priority  in  Requested  Registrations.  If  a  requested
registration pursuant to this Section 2.1 involves an underwritten offering, and
the managing  underwriter  shall  advise the Company in writing  (with a copy to
each holder of Warrants or Registrable Securities requesting registration) that,
in its  opinion,  the number of  securities  requested  to be  included  in such
registration  exceeds  the number  which can be sold in such  offering  within a
price range  acceptable  to the Requisite  Holders,  the Company will include in
such  registration  to the extent of the number  which the Company is so advised
can be sold in such offering Registrable  Securities requested to be included in
such  registration,  pro rata among the holders of  Registrable  Securities  (or
Warrants  therefor)  requesting such registration on the basis of the percentage
of  such  Registrable  Securities  held  by or  issuable  to  such  holders.  In
connection with any  registration as to which the provisions of this subdivision
(g) apply, no securities other than  Registrable  Securities shall be covered by
such registrations.

                  The  holders of Warrants or  Registrable  Securities  shall be
entitled to no more than two  requested  registrations  pursuant to this Section
2.1.

                  2.2      Incidental Registration.

                  (a) Right to Include Registrable Securities. If the Company at
any time proposes to register any of its  securities  under the  Securities  Act
(other than by a  registration  on Form S-4 or S-8 or any  successor  or similar
form and other than  pursuant to Section  2.1),  whether or not for sale for its
own account, it will each such time give prompt written notice to all holders of
Warrants  or  Registrable  Securities  of its  intention  to do so  and of  such
holders'  rights under this Section  2.2.  Upon the written  request of any such
holder made within 30 days after the receipt of any such notice  (which  request
shall  specify  the  Registrable  Securities  intended to be disposed of by such
holder and the intended method of disposition thereof), the Company will use its
best  efforts  to  effect  the  registration  under  the  Securities  Act of all
Registrable  Securities  which the Company has been so  requested to register by
the holders  thereof,  provided that if, at any time after giving written notice
of its intention to register any  securities  and prior to the effective date of
the  registration  statement  filed in connection  with such  registration,  the
Company shall determine for any reason not to register or to delay  registration
of such  securities,  the Company may, at its election,  give written  notice of
such  determination  to each holder of Warrants or Registrable  Securities  and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration  (but not from its obligation to pay the  Registration  Expenses in
connection therewith),  without prejudice,  however, to the rights of any holder
or holders of Warrants or  Registrable  Securities  entitled to do so to request
that such registration be effected as a registration under Section 2.1, and (ii)
in the case of a determination to delay registering, shall be permitted to delay
registering  any  Registrable  Securities,  for the same  period as the delay in
registering such other securities.  No registration  effected under this Section
2.2 shall be deemed to



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have been  effected  pursuant to Section 2.1 or shall relieve the Company of its
obligation  to effect any  registration  upon  request  under  Section  2.1. The
Company will pay all Registration  Expenses in connection with each registration
of Registrable Securities requested pursuant to this Section 2.2.

                  (b)   Priority   in   Incidental   Registrations.   If  (i)  a
registration  pursuant to this Section 2.2 involves an underwritten  offering of
the securities so being  registered,  whether or not for sale for the account of
the Company, to be distributed (on a firm commitment basis) by or through one or
more underwriters of recognized  standing under  underwriting  terms appropriate
for such a transaction,  and (ii) the managing  underwriter of such underwritten
offering  shall  inform by letter the  Company  and the  holders of  Warrants or
Registrable  Securities  requesting  such  registration  of its belief  that the
number of securities  requested to be included in such registration  exceeds the
number  which can be sold in (or  during  the time of) such  offering,  then the
Company may include  all  securities  proposed by the Company to be sold for its
own account and may  decrease  the number of  Registrable  Securities  and other
securities of the Company so proposed to be sold and so requested to be included
in such  registration  (pro rata among the  holders  thereof on the basis of the
number of such Registrable  Securities and other securities held by such holders
and  requested  to be included  therein) to the extent  necessary  to reduce the
number of securities to be included in the registration to the level recommended
by the managing underwriter.

                  2.3  Registration  Procedures.  If and whenever the Company is
required to use its best efforts to effect the  registration  of any Registrable
Securities  under the  Securities  Act as provided in Sections  2.1 and 2.2, the
Company will as expeditiously as possible:

                  (i)  prepare  and (as soon  thereafter  as  possible or in any
         event no later than 90 days after the end of the  period  within  which
         requests for  registration  may be given to the Company)  file with the
         Commission  the  requisite   registration   statement  to  effect  such
         registration  and  thereafter  use  its  best  efforts  to  cause  such
         registration  statement to become effective,  provided that the Company
         may  discontinue  any  registration  of its  securities  which  are not
         Registrable  Securities  (and,  under the  circumstances  specified  in
         Section 2.2(a), its securities which are Registrable Securities) at any
         time prior to the effective date of the registration statement relating
         thereto;

                  (ii) prepare and file with the Commission  such amendments and
         supplements to such  registration  statement and the prospectus used in
         connection  therewith  as may be  necessary  to keep such  registration
         statement effective and to comply with the provisions of the Securities
         Act with respect to the  disposition of all securities  covered by such
         registration  statement  until such time as all of such securities have
         been disposed of in accordance with the intended methods of disposition
         by the  seller  or  sellers  thereof  set  forth  in such  registration
         statement  (which  period  shall not  exceed 270 days from the date the
         registration  statement is declared  effective unless the effectiveness
         thereof is suspended for any reason);

                  (iii) furnish to each seller of Registrable Securities covered
         by such registration  statement such number of conformed copies of such
         registration statement and of each such



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         amendment and supplement thereto (in each case including all exhibits),
         such number of copies of the prospectus  contained in such registration
         statement  (including  each  preliminary  prospectus  and  any  summary
         prospectus)  and any other  prospectus  filed  under Rule 424 under the
         Securities Act, in conformity  with the  requirements of the Securities
         Act, and such other documents, as such seller may reasonably request;

                  (iv)  use  its  best   efforts  to  register  or  qualify  all
         Registrable  Securities  covered by such  registration  statement under
         such other  securities or blue sky laws of such  jurisdictions  as each
         seller thereof shall reasonably  request,  to keep such registration or
         qualification  in  effect  for so long as such  registration  statement
         remains in effect,  and take any other action  which may be  reasonably
         necessary  or  advisable  to  enable  such  seller  to  consummate  the
         disposition in such jurisdictions of the Registrable Securities covered
         by the  registration  statement,  except that the Company shall not for
         any such  purpose be required to qualify  generally to do business as a
         foreign  corporation in any  jurisdiction  wherein it would not but for
         the  requirements  of  this  subdivision  (iv)  be  obligated  to be so
         qualified,  to subject  itself to  taxation in any  jurisdiction  or to
         consent to general service of process in any such jurisdiction where it
         is not then so subject;

                  (v) use its best efforts to cause all  Registrable  Securities
         covered  by  such  registration  statement  to be  registered  with  or
         approved by such other  governmental  agencies or authorities as may be
         necessary  to enable the seller or sellers  thereof to  consummate  the
         disposition of such Registrable Securities;

                  (vi) furnish to each seller of Registrable Securities and each
         Requesting  Holder a signed  counterpart,  addressed to such seller and
         such Requesting Holder (and underwriters, if any) of:

                  (x) an opinion of counsel for the Company, dated the effective
                  date of such registration statement (and, if such registration
                  includes an underwritten  public  offering,  dated the date of
                  the  closing  under the  underwriting  agreement),  reasonably
                  satisfactory  in form and  substance  to such  seller and such
                  Requesting Holder, and

                  (y) a  "comfort"  letter,  dated  the  effective  date of such
                  registration  statement (and, if such registration includes an
                  underwritten  public  offering,  dated the date of the closing
                  under the underwriting  agreement),  signed by the independent
                  public accountants who have certified the Company's  financial
                  statements included in such registration statement,

         covering   substantially   the  same   matters  with  respect  to  such
         registration  statement (and the prospectus  included  therein) and, in
         the case of the accountants'  letter, with respect to events subsequent
         to the date of such financial statements, as are customarily covered in
         opinions of issuer's counsel and in accountants'  letters  delivered to
         the underwriters in underwritten public offerings of securities and, in
         the case of the accountants' letter, such other financial



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         matters,  and,  in the case of the  legal  opinion,  such  other  legal
         matters,  as  such  seller  or such  Requesting  Holder,  if  any,  may
         reasonably request;

                  (vii) notify each seller of Registrable  Securities covered by
         such  registration  statement and each Requesting  Holder,  at any time
         when a prospectus  relating  thereto is required to be delivered  under
         the Securities  Act, upon discovery  that, or upon the happening of any
         event  as  a  result  of  which,   the  prospectus   included  in  such
         registration statement, as then in effect, includes an untrue statement
         of a material  fact or omits to state any material  fact required to be
         stated  therein  or  necessary  to  make  the  statements  therein  not
         misleading  in the light of the  circumstances  under  which  they were
         made,  and at the  request  of any such  seller  or  Requesting  Holder
         promptly  prepare  and furnish to such  seller or  Requesting  Holder a
         reasonable  number of copies of a supplement to or an amendment of such
         prospectus as may be necessary so that, as thereafter  delivered to the
         purchasers of Registrable Securities, such prospectus shall not include
         an untrue statement of a material fact or omit to state a material fact
         required  to be stated  therein  or  necessary  to make the  statements
         therein not  misleading in the light of the  circumstances  under which
         they were made;

                  (viii)  otherwise  use its best  efforts  to  comply  with all
         applicable rules and regulations of the Commission,  and make available
         to its security holders, as soon as reasonably practicable, an earnings
         statement  covering the period of at least twelve months,  but not more
         than  eighteen  months,  beginning  with the end of the fiscal  quarter
         after the effective date of such registration statement, which earnings
         statement  shall  satisfy  the  provisions  of  Section  11(a)  of  the
         Securities  Act,  and will  furnish  to each such  seller at least five
         business  days prior to the filing  thereof a copy of any  amendment or
         supplement to such  registration  statement or prospectus and shall not
         file  any  thereof  to which  any such  seller  shall  have  reasonably
         objected on the grounds  that such  amendment  or  supplement  does not
         comply in all material respects with the requirements of the Securities
         Act or of the rules or regulations thereunder;

                  (ix) provide and cause to be  maintained a transfer  agent and
         registrar for all Registrable  Securities  covered by such registration
         statement  from and after a date not later than the  effective  date of
         such registration statement;

                  (x) use its best efforts to cause all  Registrable  Securities
         covered by such  registration  statement to be listed on any securities
         exchange on which any of the Registrable  Securities are then listed or
         to be quoted by the Nasdaq National Market (or any successor thereto or
         any comparable  system) on which any of the Registrable  Securities are
         then quoted; and

                  (xi) enter into such agreements and take such other actions as
         the Requisite Holders shall reasonably  request in order to expedite or
         facilitate the disposition of such Registrable Securities.




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The Company may require each seller of  Registrable  Securities  as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.

         Each holder of  Registrable  Securities  agrees by  acquisition of such
Registrable  Securities  that upon receipt of any notice from the Company of the
happening of any event of the kind  described in the  subdivision  (vii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition of
Registrable  Securities pursuant to the registration  statement relating to such
Registrable  Securities  until  such  holder's  receipt  of  the  copies  of the
supplemented or amended  prospectus  contemplated  by subdivision  (vii) of this
Section 2.3 or until it is advised in writing (the "Advice") by the Company that
the use of the  prospectus  may be resumed,  and, if so directed by the Company,
such holders will deliver to the Company (at the Company's  expense) all copies,
other than  permanent  file  copies  then in such  holders'  possession,  of the
prospectus  covering such Registrable  Securities current at the time of receipt
of such notice.  In the event the Company  shall give any such notice to suspend
the offering and disposition of the Registrable Securities  (including,  without
limitation,  pursuant to the next paragraph hereof),  the time periods regarding
the  maintenance of the applicable  registration  statement shall be extended by
the number of days during the period from and  including  the date of the giving
of such notice  pursuant to subdivision  (vii) of this Section 2.3 and including
the date when such holders shall have received the copies of the supplemented or
amended prospectus  contemplated by subdivision (vii) of this Section 2.3 or the
Advice.

         Notwithstanding the foregoing,  (a) the Company may delay the filing of
any  registration  statement,  any  amendment  thereof or any  supplement to the
related prospectus, and may withhold efforts to cause any registration statement
to become effective, and (b) in the case of an effective registration statement,
upon the written  request of the Company the holders of  Registrable  Securities
participating  in such  registration  shall  refrain  from  selling  any  shares
pursuant to such registration  statement,  if (i) the Company determines in good
faith that such  registration  or sale would (A)  materially  interfere  with or
adversely  affect in any material  respect the  negotiation or completion of any
material  transaction that is being  contemplated by the Company at the time the
right to delay is  exercised  or a request  is made or (B)  involve  initial  or
continuing disclosure obligations not otherwise required by law or the rules and
regulations of the Commission,  which  disclosure  would have a material adverse
effect on the Company or (ii) in the written opinion of a nationally  recognized
investment  bank,  that the  Company  is unable to  consummate  an  underwritten
offering due to then currently  prevailing market conditions;  provided however,
that the  duration  of any such delay or period in which  shares of  Registrable
Securities may not be sold pursuant to an effective registration statement shall
not exceed a period of 90 days.

         2.4      Underwritten Offerings.

                  (a)  Requested  Underwritten  Offerings.  If  requested by the
underwriters for any underwritten offering of Registrable Securities pursuant to
a  registration  requested  under  Section  2.1,  the Company will enter into an
underwriting agreement with such underwriters for such offering,  such agreement
to be  reasonably  satisfactory  in  substance  and form to each  holder of such
Registrable



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Securities  (or  Warrants  therefor)  and the  underwriters  and to contain such
representations  and  warranties  by the  Company  and such  other  terms as are
generally customary in agreements of this type,  including,  without limitation,
indemnities to the effect and to the extent provided in Section 2.7. The holders
of  Registrable  Securities  to be  distributed  by such  underwriters  shall be
parties to such  underwriting  agreement and may, at their option,  require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters  shall also
be made to and for the benefit of such  holders of  Registrable  Securities  and
that  any or all  of  the  conditions  precedent  to  the  obligations  of  such
underwriters  under such underwriting  agreement be conditions  precedent to the
obligations  of such  holders  of  Registrable  Securities.  Any such  holder of
Registrable  Securities  shall not be  required to make any  representations  or
warranties  to or  agreements  with the Company or the  underwriters  other than
representations,  warranties or agreements  regarding such holder, such holder's
Registrable Securities and such holder's intended method of distribution and any
other representation required by law.

                  (b) Incidental  Underwritten  Offerings. If the Company at any
time  proposes to register any of its  securities  under the  Securities  Act as
contemplated  by Section 2.2 and such  securities  are to be  distributed  by or
through one or more  underwriters,  the Company will, if requested by any holder
of Warrants or Registrable  Securities as provided in Section 2.2 and subject to
the provisions of Section 2.2(b),  arrange for such  underwriters to include all
the  Registrable  Securities  to be offered  and sold by such  holder  among the
securities to be  distributed by such  underwriters.  The holders of Registrable
Securities  to be  distributed  by such  underwriters  shall be  parties  to the
underwriting  agreement  between the Company and such  underwriters  and may, at
their option,  require that any or all of the representations and warranties by,
and the other  agreements  on the part of, the Company to and for the benefit of
such  underwriters  shall also be made to and for the benefit of such holders of
Registrable  Securities and that any or all of the  conditions  precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
holder  of   Registrable   Securities   shall  not  be   required  to  make  any
representations  or  warranties  to  or  agreements  with  the  Company  or  the
underwriters other than representations, warranties or agreements regarding such
holder, such holder's  Registrable  Securities and such holder's intended method
of distribution and any other representation required by law.

                  2.5 Preparation;  Reasonable Investigation. In connection with
the preparation and filing of each  registration  statement under the Securities
Act pursuant to this Agreement, the Company will give the holders of Registrable
Securities  registered  under such  registration  statement  (or the  holders of
Warrants therefor), their underwriters, if any, and their respective counsel and
accountants,   the  opportunity  to  participate  in  the  preparation  of  such
registration  statement,  each  prospectus  included  therein  or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such  opportunities  to discuss
the  business  of the  Company  with its  officers  and the  independent  public
accountants  who have certified its financial  statements as shall be necessary,
in the opinion of such holders' and such underwriters'  respective  counsel,  to
conduct a reasonable  investigation  within the meaning of the  Securities  Act;
provided,  however,  that such holder shall, if requested by the Company,  cause
its



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counsel and accountants to execute confidentiality  agreements in customary form
and such holder shall,  consistent  with its customary  practices,  use its best
efforts to keep  confidential  any records,  information  or documents  that are
designated by the Company in writing as confidential,  except that such records,
information  and  documents may be disclosed by such holder to (i) such holder's
directors,  officers,  employees, agents and professional consultants,  (ii) any
other holder of any Registrable Security,  (iii) any Person to which such holder
offers to sell Registrable  Securities or any part thereof, (iv) any Person from
which such holder offers to purchase any other security of the Company,  (v) any
federal or state regulatory authority having jurisdiction over such holder, (vi)
the National Association of Insurance Commissioners or any similar organization,
or (vii) any other Person to which such delivery or disclosure  may be necessary
or  appropriate  (a) in  compliance  with any  law,  rule,  regulation  or order
applicable  to such  holder,  (b) in  response  to any  subpoena  or other legal
process or other investigative  demand, or (c) in connection with any litigation
to which such holder is a party; provided,  further that such holder shall cause
the  agents  and  professional  consultants  referred  to in clause  (i) and the
Persons  referred  to in clauses  (iii) and (iv) to enter  into  confidentiality
agreements  which shall  contain  provisions  substantially  identical  to those
applicable to such holders under this Section 2.5.

                  2.6 Rights of  Requesting  Holders.  The Company will not file
any registration  statement under the Securities Act, unless it shall first have
given to all  holders of  Warrants or  Registrable  Securities  at least 30 days
prior  written  notice  thereof and, if so requested by the  Requisite  Holders,
shall have consulted with such holders concerning the selection of underwriters,
counsel  and  independent  accountants  for the Company  for such  offering  and
registration. If such holders shall so request within 30 days after such notice,
each of them shall be a "Requesting  Holder" hereunder and shall have the rights
of a Requesting Holder provided in this section 2.6 and in sections 2.3, 2.5 and
2.7. The Company further covenants that a Requesting Holder shall have the right
(a) to participate in the  preparation  of any such  registration  or comparable
statement  and to require the  insertion  therein of material  furnished  to the
Company in  writing,  which in such  Requesting  Holder's  judgment,  reasonable
exercised,  should be  included,  and (b) at the  Company's  expense,  to retain
counsel and/or  independent  public accountants to assist such Requesting Holder
in such participation. In addition, if any such registration statement refers to
any  Requesting  Holder by name or otherwise as the holder of any  securities of
the Company, then such Requesting Holder shall have the right to require (a) the
insertion  therein  of  language,  in form and  substance  satisfactory  to such
Requesting  Holder,  to the effect that the holding by such Requesting Holder of
such securities does not necessarily make such Requesting  Holder a "controlling
person" of the Company within the meaning of the Securities Act and is not to be
construed  as a  recommendation  by such  Requesting  Holder  of the  investment
quality of the Company's debt or equity securities covered thereby and that such
holding  does not imply that such  Requesting  Holder will assist in meeting any
future  financial  requirements  of the  Company,  or (b) in the event that such
reference to such Requesting  Holder by name or otherwise is not required by the
Securities Act or any rules and regulations promulgated thereunder, the deletion
of the reference to such Requesting Holder.




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                  2.7      Indemnification.

                  (a)  Indemnification  by the Company.  The Company  will,  and
hereby does, in the case of any registration statement filed pursuant to Section
2.1 or 2.2 indemnify and hold harmless the seller of any Registrable  Securities
covered by such registration  statement,  its directors and officers, each other
Person  who  participates  as an  underwriter  in the  offering  or sale of such
securities  and each other Person,  if any, who controls such seller or any such
underwriter  within the  meaning of the  Securities  Act,  against  any  losses,
claims,  damages or liabilities,  joint or several,  to which such seller or any
such director or officer or underwriter or controlling person may become subject
under the Securities Act or otherwise,  insofar as such losses,  claims, damages
or liabilities (or actions or proceedings,  whether commenced or threatened,  in
respect  thereof) arise out of or are based upon any untrue statement or alleged
untrue  statement of any material fact contained in any  registration  statement
under which such  Registrable  Securities were  registered  under the Securities
Act,  any  preliminary  prospectus,   final  prospectus  or  summary  prospectus
contained therein,  or any amendment or supplement  thereto,  or any omission or
alleged  omission to state therein a material fact required to be stated therein
or  necessary  to make the  statements  therein  not  misleading,  or any  other
noncompliance or alleged noncompliance with the Securities Act or the applicable
underwriting agreement, and the Company will reimburse such seller and each such
director, officer, underwriter and controlling person for any legal or any other
expenses  reasonably  incurred  by  them in  connection  with  investigating  or
defending any such loss, claim, liability,  action or proceeding;  provided that
the  Company  shall not be liable in any such case to the  extent  that any such
loss, claim,  damage,  liability (or action or proceeding in respect thereof) or
expense  arises out of or is based upon an untrue  statement  or alleged  untrue
statement or omission or alleged omission made in such  registration  statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or  supplement  in reliance  upon and in  conformity  with  written  information
furnished  to the Company  through an  instrument  duly  executed by such seller
specifically stating that it is for use in the preparation thereof and, provided
further that the Company shall not be liable to any Person who  participates  as
an underwriter,  in the offering or sale of Registrable  Securities or any other
Person,  if any,  who  controls  such  underwriter  within  the  meaning  of the
Securities  Act,  in any such  case to the  extent  that any such  loss,  claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus,  as
the same may be then supplemented or amended,  to the Person asserting an untrue
statement  or alleged  untrue  statement  or omission or alleged  omission at or
prior to the written confirmation of the sale of Registrable  Securities to such
Person if such  statement  or omission was  corrected in such final  prospectus.
Such  indemnity  shall  remain  in  full  force  and  effect  regardless  of any
investigation made by or on behalf of such seller or any such director, officer,
underwriter  or  controlling  person  and shall  survive  the  transfer  of such
Registrable Securities by such seller.

                  (b)  Indemnification by the Sellers.  The Company may require,
as a condition to  including  any  Registrable  Securities  in any  registration
statement filed pursuant to Section 2.3, that the Company shall have received an
undertaking  satisfactory to it from the prospective  seller of such Registrable
Securities,  to indemnify  and hold harmless (in the same manner and to the same
extent as set forth in  subdivision  (a) of this Section 2.7) the Company,  each
director of the Company, each



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officer of the Company and each other  Person,  if any, who controls the Company
within the meaning of the  Securities  Act,  with  respect to any  statement  or
alleged  statement  in or omission or alleged  omission  from such  registration
statement,  any preliminary  prospectus,  final prospectus or summary prospectus
contained therein,  or any amendment or supplement thereto, if such statement or
alleged  statement or omission or alleged omission was made in reliance upon and
in  conformity  with written  information  furnished  to the Company  through an
instrument duly executed by such seller specifically  stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus,  summary prospectus,  amendment or supplement.  Such indemnity shall
remain in full force and effect,  regardless of any investigation  made by or on
behalf of the Company or any such director,  officer or  controlling  Person and
shall survive the transfer of such securities by such seller.

                  (c)  Notices  of Claims,  etc.  Promptly  after  receipt by an
indemnified  party of notice of the  commencement  of any  action or  proceeding
involving a claim referred to in the preceding subdivisions of this Section 2.7,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying  party, give written notice to the latter of the commencement of
such action,  provided that the failure of any indemnified  party to give notice
as provided herein shall not relieve the  indemnifying  party of its obligations
under the preceding  subdivisions of this Section 2.7, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought  against an  indemnified  party,  unless in such
indemnified  party's  reasonable  judgment a conflict of interest  between  such
indemnified  and  indemnifying  parties may exist in respect of such claim,  the
indemnifying party shall be entitled to participate in and to assume the defense
thereof,  jointly with any other  indemnifying  party similarly  notified to the
extent  that  it  may  wish,  with  counsel  reasonably   satisfactory  to  such
indemnified  party,  and  after  notice  from  the  indemnifying  party  to such
indemnified  party  of its  election  so to  assume  the  defense  thereof,  the
indemnifying  party shall not be liable to such indemnified  party for any legal
or other  expenses  subsequently  incurred by the latter in connection  with the
defense thereof other than reasonable  costs of  investigation.  No indemnifying
party shall,  without the consent of the indemnified party,  consent to entry of
any  judgment  or enter  into  any  settlement  which  does  not  include  as an
unconditional  term  thereof  the giving by the  claimant or  plaintiff  to such
indemnified  party of a release  from all  liability in respect to such claim or
litigation.

                  (d) Other  Indemnification.  Indemnification  similar  to that
specified in the preceding  subdivisions  of this Section 2.7 (with  appropriate
modifications)  shall be given by the  Company  and each  seller of  Registrable
Securities with respect to any required  registration or other  qualification of
securities  under any  Federal or state law or  regulation  of any  governmental
authority other than the Securities Act.

                  (e) Indemnification  Payments. The indemnification required by
this Section 2.7 shall be made by periodic payments of the amount thereof during
the course of the  investigation  or defense as and when bills are  received  or
expense, loss, damage or liability is incurred.

                  2.8      Adjustments Affecting Registrable Securities.  The
Company will not effect or permit to occur any combination or subdivision of
shares which would adversely affect the ability



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of the holders of  Registrable  Securities or Warrants  therefor to include such
Registrable  Securities in any  registration  of its securities  contemplated by
this Section 2 or the  marketability  of such  Registrable  Securities under any
such registration.

         3. Definitions.  As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:

                  Commission:  The Securities and Exchange Commission or any
         other Federal agency at the time administering the Securities Act.

                  Common Stock:  As defined in Section 1.

                  Company:  As defined in the introductory paragraph of this
         Agreement.

                  Exchange  Act: The  Securities  Exchange  Act of 1934,  or any
         similar  Federal  statute,   and  the  rules  and  regulations  of  the
         Commission thereunder,  all as the same shall be in effect at the time.
         Reference to a  particular  section of the  Securities  Exchange Act of
         1934 shall include a reference to the  comparable  section,  if any, of
         any such similar Federal statute.

                  Person:  A  corporation,  an  association,  a  partnership,  a
         business,  a joint venture, a limited liability company, an individual,
         a  governmental  or  political  subdivision  thereof or a  governmental
         agency.

                  Purchase Agreement:   As defined in Section 1.

                  Purchaser:   As defined in the introductory paragraph of this
         Agreement.

                  Registrable Securities:  (a) Any shares of Common Stock issued
         or issuable upon exercise of any of the Warrants and (b) any securities
         issued or  issuable  with  respect to any such  Common  Stock by way of
         stock  dividend or stock split or in connection  with a combination  of
         shares, recapitalization, merger, consolidation or other reorganization
         or otherwise. As to any particular Registrable Securities,  once issued
         such  securities  shall cease to be Registrable  Securities  when (a) a
         registration  statement  with  respect  to the sale of such  securities
         shall  have  become   effective  under  the  Securities  Act  and  such
         securities  shall  have  been  disposed  of  in  accordance  with  such
         registration statement,  (b) they shall have been sold pursuant to Rule
         144 (or any successor  provision)  under the  Securities  Act, (c) they
         shall have been otherwise  transferred,  new  certificates for them not
         bearing a legend restricting further transfer shall have been delivered
         by the Company  and  subsequent  disposition  of them shall not require
         registration or  qualification  of them under the Securities Act or any
         similar  state law then in force,  or (d) they shall have  ceased to be
         outstanding.

                  Registration Expenses:  All expenses incident to the Company's
         performance of or compliance with Section 2, including, without
         limitation, all registration, filing and National



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<PAGE>



         Association  of  Securities  Dealers  fees,  all fees and  expenses  of
         complying  with  securities  or blue sky  laws,  all  word  processing,
         duplicating and printing expenses, messenger and delivery expenses, the
         fees  and   disbursements  of  counsel  for  the  Company  and  of  its
         independent public  accountants,  including the expenses of any special
         audits  or "cold  comfort"  letters  required  by or  incident  to such
         performance and compliance,  the fees and disbursements incurred by the
         holders of  Registrable  Securities to be registered and the holders of
         Warrants therefor  (including the fees and disbursements of any counsel
         and accountants retained by the Requisite Holders),  premiums and other
         costs of policies of insurance against  liabilities  arising out of the
         public offering of the Registrable  Securities being registered and any
         fees and  disbursements of underwriters  customarily paid by issuers or
         sellers  of  securities,   but  excluding  underwriting  discounts  and
         commissions  and transfer  taxes,  if any,  provided  that, in any case
         where  Registration  Expenses are not to be borne by the Company,  such
         expenses  shall not include  salaries of Company  personnel  or general
         overhead  expenses of the  Company,  auditing  fees,  premiums or other
         expenses  relating to liability  insurance  required by underwriters of
         the  Company  or  other  expenses  for  the  preparation  of  financial
         statements  or other  data  normally  prepared  by the  Company  in the
         ordinary  course  of its  business  or which  the  Company  would  have
         incurred in any event.

                  Requesting Holder:  As defined in Section 2.6.

                  Requisite  Holders:   With  respect  to  any  registration  of
         Registrable Securities by the Company pursuant to Section 2, any holder
         or  holders  of 66  2/3%  (by  number  of  shares)  of the  Registrable
         Securities  to be so  registered  or of Warrants  for such  Registrable
         Securities.

                  Securities  Act: The  Securities  Act of 1933,  or any similar
         Federal  statute,  and the  rules  and  regulations  of the  Commission
         thereunder,  all  as of the  same  shall  be in  effect  at  the  time.
         References to a particular  section of the Securities Act of 1933 shall
         include a  reference  to the  comparable  section,  if any, of any such
         similar Federal Statute.

         4. Rule 144: If the Company shall have filed a  registration  statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement  pursuant to the  requirements of the Securities Act, the Company will
file the  reports  required to be filed by it under the  Securities  Act and the
Exchange Act and the rules and regulations adopted by the Commission  thereunder
(or, if the Company is not required to file such reports, will, upon the request
of any holder of Warrants or  Registrable  Securities,  make publicly  available
other  information)  and will take such further action as any holder of Warrants
or Registrable  Securities may reasonably  request,  all to the extent  required
from time to time to enable such holder to sell Registrable  Securities  without
registration  under the  Securities  Act within the limitation of the exemptions
provided by (a) Rule 144 under the  Securities  Act, as such Rule may be amended
from time to time or (b) any similar rule or regulation hereafter adopted by the
Commission.   Upon  the  request  of  any  holder  of  Warrants  or  Registrable
Securities,  the Company will  deliver to such holder a written  statement as to
whether it has complied with such requirements.




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<PAGE>



         5.  Amendments  and  Waivers.  This  Agreement  may be amended  and the
Company may take any action herein  prohibited or omit to perform any act herein
required to be  performed  by it, only if the Company  shall have  obtained  the
written consent to such  amendment,  action or omission to act, of the Requisite
Holders.  Each holder of any Warrants or  Registrable  Securities at the time or
thereafter  outstanding shall be bound by any consent authorized by this Section
5, whether or not such Registrable Securities shall have been marked to indicate
such consent.

         6. Nominees for Beneficial  Owners.  In the event that any  Registrable
Securities  are  held  by a  nominee  for  the  beneficial  owner  thereof,  the
beneficial owner thereof may, at its election,  be treated as the holder of such
Warrants or  Registrable  Securities for purposes of any request or other action
by any holder or holders of Warrants or Registrable  Securities pursuant to this
Agreement or any determination of any number or percentage of shares of Warrants
or  Registrable  Securities  held  by any  holder  or  holders  of  Warrants  or
Registrable Securities  contemplated by this Agreement.  If the beneficial owner
of any Warrants or  Registrable  Securities  so elects,  the Company may require
assurances reasonably satisfactory to it of such owner's beneficial ownership of
such Warrants or Registrable Securities.

         7. Notices. All communications  provided for hereunder shall be sent by
first-class  mail  and (a) if  addressed  to a party  other  than  the  Company,
addressed to such party in the manner set forth in the Purchase Agreement, or at
such other address as such party shall have furnished to the Company in writing,
or (b) if  addressed to the Company,  at 4610 South  Ulster  Street,  Suite 200,
Denver, Colorado 80237 Attention: Legal Department, or at such other address, or
to the attention of such other  officer,  as the Company shall have furnished to
each holder of  Warrants  or  Registrable  Securities  at the time  outstanding;
provided,  however,  that any such communication to the Company may also, at the
option of any of the parties  hereunder,  be either  delivered to the Company at
its address set forth above or to any officer of the Company.

         8.  Assignment.  This Agreement  shall be binding upon and inure to the
benefit  of and be  enforceable  by the  parties  hereto  and  their  respective
successors and assigns.  In addition,  and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties  hereto  other than the Company  shall also be for the benefit of
and  enforceable  by any  subsequent  holder  of  any  Warrants  or  Registrable
Securities,  subject  to  the  provisions  respecting  the  minimum  numbers  or
percentages of shares of Warrants or Registrable Securities required in order to
be entitled to certain rights, or take certain actions contained herein.

         9.  Descriptive  Headings.  The  descriptive  headings  of the  several
sections and  subdivisions of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.

         10. Specific  Performance.  The parties hereto recognize and agree that
money damages may be  insufficient  to compensate the holders of any Warrants or
Registrable  Securities  for  breaches by the  Company of the terms  hereof and,
consequently,  that the equitable  remedy of specific  performance  of the terms
hereof will be available in the event of any such breach.



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<PAGE>


         11.  Governing Law. This  Agreement  shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York.

         12. Counterparts.  This Agreement may be executed simultaneously in any
number of counterparts,  each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.




      [Remainder of Page Intentionally Left Blank; Signature Page Follows]



                  IN WITNESS WHEREOF,  the parties have caused this Agreement to
be executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.

                                    HALLWOOD ENERGY CORPORATION


                                   By: /s/ Cathleen M. Osborn
                                   Name:   Cathleen M. Osborn
                                   Title:      Vice President


                                   THE PRUDENTIAL INSURANCE COMPANY
                                   OF AMERICA


                                    By: /s/ Ric Abel
                                    Name:   Ric Abel
                                    Title:     Vice President






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