LETTER AMENDMENT NO. 1


                                October 15, 1999



The Prudential Insurance Company
  of America
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200E
Dallas, Texas 75201

Ladies and Gentlemen:

                  We refer to the Amended  and  Restated  Subordinated  Note and
Warrant Purchase  Agreement dated as of June 8, 1999 (the "Agreement") among the
undersigned,   Hallwood  Energy  Corporation,  Hallwood  Consolidated  Resources
Corporation and you. Unless otherwise defined herein, the terms defined in the
Agreement shall be used herein as therein defined.

                  Paragraph 6B(6) of the Agreement requires that Indebtedness of
Subsidiaries  of the  Parent  not exceed  the  greater  of  $1,000,000  or 2% of
Consolidated  Net Worth of the  Parent.  As of June 30,  1999,  Indebtedness  of
Subsidiaries  of the Parent,  other than the Company,  computed after marking to
market Hedging Transactions was $2,991,000.  We request that you amend paragraph
6B(6) of the  Agreement  to allow for the  exclusion of  $10,000,000  of hedging
exposure for the period  beginning  June 30, 1999 and ending June 30, 2000.  You
have indicated your willingness to so agree. Accordingly, it is hereby agreed by
you and us as follows:

                  The  Agreement  is,  effective  the date first above  written,
hereby amended as follows:

                  (a)  Paragraph  6B(6).  Paragraph  6B(6) of the  Agreement  is
amended in full to read as follows:

                           "6B(6).   Priority  Debt.   Permit   Indebtedness  of
                  Subsidiaries  of the Parent,  other than the Company and other
                  than Indebtedness that constitutes  Senior Debt, plus (without
                  duplication) Indebtedness secured by Liens permitted by clause
                  (v) of paragraph 6B(2) to exceed,  at any time, the greater of
                  $1,000,000 or 2% of Consolidated Net Worth of the Parent.  For
                  the purposes of this paragraph 6B(6),  from the period of June
                  30, 1999 to June 30, 2000, "Indebtedness" of Subsidiaries will
                  not  include  up to  $10,000,000  of Hedging  Transactions  of
                  Subsidiaries."



<PAGE>


                  On and after the effective date of this Letter Amendment, each
reference in the Agreement to "this Agreement",  "hereunder", "hereof", or words
of like import  referring to the  Agreement,  and each reference in the Notes to
"the Agreement",  "thereunder",  "thereof", or words of like import referring to
the Agreement, shall mean the Agreement as amended by this Letter Amendment. The
Agreement,  as amended by this Letter Amendment,  is and shall continue to be in
full force and effect and is hereby in all respects ratified and confirmed.  The
execution, delivery and effectiveness of this Letter Amendment shall not, except
as expressly provided herein,  operate as a waiver of any right, power or remedy
under the Agreement nor constitute a waiver of any provision of the Agreement.

                  This  Letter  Amendment  may  be  executed  in any  number  of
counterparts   and  by  any  combination  of  the  parties  hereto  in  separate
counterparts,  each of which  counterparts shall be an original and all of which
taken  together  shall  constitute  one  and  the  same  Letter  Amendment.  The
effectiveness  of this Letter  Amendment is conditioned upon the accuracy of the
factual  matters  described  above and the  execution  of the  Consent  attached
hereto.

                  If you  agree  to the  terms  and  provisions  hereof,  please
evidence your  agreement by executing  and  returning at least a counterpart  of
this Letter  Amendment to Hallwood  Energy  Corporation,  4610 S. Ulster Street,
Suite 200, Denver, CO 80237, Attention: Legal Department.  This Letter Amendment
shall  become  effective  as of  the  date  first  above  written  when  and  if
counterparts of this Letter Amendment shall have been executed by us and you.

                                   Very truly yours,

                                    HALLWOOD ENERGY CORPORATION

                                    By:______________________________
                                         Title:

                                    HALLWOOD CONSOLIDATED RESOURCES CORPORATION

                                    By:______________________________
                                         Title:

Agreed as of the date first above written:

THE PRUDENTIAL INSURANCE COMPANY
  OF AMERICA

By:______________________________
     Vice President



<PAGE>


                                                        -2-

Q:\TPD\DEALS\HALLWOOD CRC 99M\LETTER AMENDMENT NO 1.DOC

                                     CONSENT

                  Hallwood Consolidated Partners, L.P., is a Guarantor under the
Senior Subordinated Guaranty Agreement dated as of December 23, 1997 and each of
the other  undersigned  entities are  Guarantors  under the Senior  Subordinated
Guaranty  Agreement  dated as of June 8, 1999 (each being a "Guaranty") in favor
of The Prudential  Insurance Company of America  ("Prudential")  with respect to
the obligations of Hallwood  Consolidated  Resources Corporation (the "Company")
under that certain Amended and Restated  Subordinated  Note and Warrant Purchase
Agreement dated as of June 8, 1999 (the "Agreement"). Prudential and the Company
are entering into Letter  Amendment No. 1 to the  Agreement  (the  "Amendment").
Each of the  undersigned  hereby  consents  to the  Amendment  and  each  hereby
confirms  and agrees  that its  Guaranty  is, and shall  continue to be, in full
force and effect and is hereby  confirmed  and ratified in all  respects  except
that, upon the effectiveness of, and on and after the date of this consent,  all
references in the Guaranty of the undersigned to the "Agreement,"  "thereunder,"
"thereof,"  or words of like import  referring to the  Agreement  shall mean the
Agreement  as amended by the  Amendment,  as the same may be further  amended or
modified from time to time.

Dated as of October 15, 1999

HALLWOOD CONSOLIDATED                          MAY ENERGY PARTNERS OPERATING
   PARTNERS, L.P.                                 PARTNERSHIP, LTD.
      By:  Hallwood Consolidated Resources           By:  HEC Acquisition Corp.
              Corporation
      Its: General Partner                           Its:  General Partner

By:__________________________________          By:______________________________
      Title:                                         Title:

HALLWOOD ENERGY PARTNERS, L.P.                 CONCISE OIL & GAS PARTNERSHIP
      By:  HEC Acquisition Corp.                     By:  HEC Acquisition Corp
      Its: General Partner

By:__________________________________          By:______________________________
      Title:                                         Title:

LA PLATA ASSOCIATES, LLC                       EM NOMINEE PARTNERSHIP COMPANY
      By:  Hallwood Petroleum, Inc.                  By:  HEC Acquisition Corp.
      Its: Manager                                   Its: General Partner

By:__________________________________          By:______________________________
      Title:                                         Title:

HALLWOOD LA PLATA, LLC
      By:  Hallwood Petroleum, Inc.
      Its: Manager

By:__________________________________
      Title: