NBD Bank
                                            
                               611 Woodward Avenue
                            Detroit, Michigan  48226


                                  May 19, 1995



Hallwood Energy Corporation
4582 South Ulster Street Parkway
Suite 1700, Stanford Place III
Denver, Colorado 80237

          Re:  $1,500,000 Credit Authorization  to Make Loans expiring  November
               19, 1995

Ladies and Gentlemen:

          The terms and conditions under which NBD Bank (the "Bank") may, in its
sole and uncontrolled discretion,  make loans to Hallwood Energy  Corporation, a
Texas corporation (the "Company"), are as follows:

           1.  Definitions.  As used herein the following terms shall have the
 following respective meanings:

          "Acceleration Event" means the written demand by the Bank that all
amounts owed under this agreement are  to be repaid in accordance with paragraph
5(e), which demand may be made by the Bank at any time in its sole discretion.

          "Authorization Amount" means $1,500,000 from the date hereof until the
Initial Maturity Date,  which amount shall  thereafter be  reduced on the  first
Business  Day of each March, June, September, and December thereafter, beginning
with the  first such date thereafter  by the amounts  required to be  paid under
paragraph  5(a), and shall  be further reduced  by any payments  received by the
Bank under paragraph 5(d).

          "Business Day" means a day other than a Saturday, Sunday or other day
on which the Bank is not open to the public for carrying on substantially all of
its banking functions.

          "Collateral Value" means, as of any date, an amount equal to the
Current Market Value of the Eligible Securities.

          "Current Market Value" of the Eligible Securities as of any day means
the  closing sale  price  of the  units  or other  securities  on the  preceding
Business Day, as  appearing on  any regularly published  reporting or  quotation
service, multiplied  by the number of  units or securities included  as Eligible
Securities.

          "Dollars" and "$" means the lawful money of the United States of
America. 

          "Eligible Securities" means, as of any date, those Units owned
beneficially and of  record by the Company which constitute  Margin Stock and in
which the Company has granted and pledged a first-priority security interest  to
the Bank pursuant to the  Pledge Agreement, plus such other Margin Stock  as has
been pledged  to the Bank  as security for  the Loans pursuant  to documentation
acceptable to the Bank in its sole discretion.

          "Event of Default" means any of the events or conditions described in
paragraph 12. 

          "Floating Rate" means the per annum rate equal to the sum of (a) two
percent (2%) per  annum plus (b)  the Prime Rate  in effect  from time to  time;
which Floating Rate shall  change simultaneously with  any change in such  Prime
Rate.

          "generally accepted accounting principles" means generally accepted
accounting principles applied on a  basis consistent with that reflected in  the
most recent audited  financial statements of  the Company submitted to  the Bank
prior to the date hereof.

          "HCRC" means Hallwood Consolidated Resources Corporation, a Delaware
corporation.

          "HCRC Credit Agreement" means the Amended and Restated Credit
Agreement dated as of March 31, 1995, among HCRC, Hallwood Consolidated Partners
L.P., the  banks listed therein, First Union National Bank of North Carolina, as
Collateral Agent, and Morgan Guaranty Trust Company of New York, as Agent, as it
may be modified or amended from time to time.

          "HEP" means Hallwood Energy Partners, L.P., a publicly-traded Delaware
limited partnership, the general partner of which is the Company.

          "HEP Credit Agreement" means the Second Amended and Restated Credit
Agreement dated  as of March 31,  1995, among HEP, HEP  Operating Partners L.P.,
EDP  Operating,  Ltd.,  EM Nominee  Partnership  Company,  Concise  Oil and  Gas
Partnership, May Energy  Partners Operating Partnership  Ltd., the banks  listed
therein,  First Union National Bank of North  Carolina, as Collateral Agent, and
Morgan Guaranty Trust  Company of New York, as  Agent, as it may be  modified or
amended from time to time.

          "Hallwood Companies" means, collectively, the Company, HEP, and HCRC.

          "Initial Maturity Date" means the date which is six months after the
date of this agreement.

          "Interest Payment Date" means the first Business Day of each month
occurring after the date hereof, commencing on July 1, 1995.

          "Lien" means any pledge, assignment, hypothecation, mortgage, security
interest,  deposit  arrangement, option,  conditional  sale  or title  retaining
contract, sale  and leaseback transaction, financing  statement filing, lessor's
or lessee's  interest under any lease,  subordination of any claim  or right, or
any other type of  lien, charge, encumbrance, preferential arrangement  or other
claim or right.

          "Loan" means any borrowing pursuant to paragraph 2.

          "Margin Stock" has the same meaning as set forth in Regulation U,     
provided, however, that for  the purpose hereof, options,  puts, calls, and  any
combination thereof shall not qualify as  Eligible Securities or be ascribed any
value in the Collateral Value.

          "Maturity Date" means the date which is six months after the date of
this agreement, initially the date on  which the authorization to make the Loans
expires, as such date may be extended from time to time under paragraph 6.

          "Maximum Loan Value" means the maximum loan value assigned to Margin
Stock from time to time by the Board of Governors of  the Federal Reserve System
under 12 C.F.R.  Part 221.8 or any  successor thereto.  As  of the date of  this
agreement, the maximum loan value of Margin  Stock is fifty percent (50%) of its
current market value.

          "Note" means the promissory note of the Company evidencing the Loans,
in  substantially the form annexed  hereto as Exhibit A,  as amended or modified
from time  to time  and together  with any  promissory note  or notes  issued in
exchange or replacement therefor.
"Overdue Rate" means a rate per annum that is equal to the sum of
three percent (3%) per annum plus the Floating Rate.

          "Permitted Liens" means (i) Liens for taxes not delinquent or for
taxes being contested  in good faith by appropriate proceedings  and as to which
adequate financial reserves have been established on its books and records; (ii)
Liens created  and maintained in the  ordinary course of business  which are not
material in the aggregate, and which would not have a material adverse effect on
the business  or operations of the  Company and which constitute  (A) pledges or
deposits  under  workers'  compensation  laws, unemployment  insurance  laws  or
similar  legislation, (B) good faith  deposits in connection  with bids, tender,
contracts  or leases to which  the Company is  a party for a  purpose other than
borrowing  money or obtaining credit, including rent security deposits and liens
arising  under  operating  agreements  affecting  the  Company's  oil   and  gas
properties, (C) liens imposed by law, such as those of carrier, warehousemen and
mechanics,  if payment  of the obligation  secured thereby  is not  yet due, (D)
Liens securing tax, assessments or other governmental charges  or levies not yet
subject to  penalties for  nonpayment,  and (E)  pledges or  deposits to  secure
public or statutory obligations of the Company; and (iii) other  Liens listed on
Schedule I hereto, but no extensions or renewals thereof.

          "Person" or "person" shall include an individual, a corporation, an
association, a partnership,  a trust or estate, a joint  stock company, an unin-
corporated organization, a joint  venture, a trade  or business (whether or  not
incorporated),  a government (foreign or  domestic) and any  agency or political
subdivision thereof, or any other entity.

          "Pledge Agreement" means the Continuing Pledge Agreement entered into
by  the  Company  for the  benefit  of  the  Bank  pursuant to  this  agreement,
substantially in  the form of Exhibit B hereto, as amended or modified from time
to time. 

          "Prime Rate" means the per annum rate announced by the Bank from time
to time as its "prime rate" (it being acknowledged that such announced  rate may
not necessarily be the lowest rate charged by the Bank to any of its customers),
which Prime Rate shall change  simultaneously with any change in  such announced
rate.

          "Principal Payment Date" means the first Business Day of each March,
June, September, and December.

          "Regulation U" means Regulation U promulgated by the Board of
Governors of the Federal Reserve System (12 C.F.R. Part 221 et seq.), as such
regulation is now in effect and as it may hereafter be amended.

          "SEC" means the United States Securities and Exchange Commission and
any successor agency.

          "SEC 10 Value" means the standardized measure of discounted future net
cash flows from oil and gas reserves under the guidelines set forth by the SEC.

          "Security Documents" means, collectively, the Pledge Agreement and all
other  related  agreements and  documents,  including  financing statements  and
similar  documents, delivered pursuant  to this  agreement or  otherwise entered
into by any person to secure the Loans.

          "Tangible Net Worth" of any person means, as of any date, (a) the
amount of any capital stock,  paid-in capital, and similar equity  accounts plus
(or minus, in the  case of a deficit) the capital  surplus and retained earnings
of the  person and  the amount  of any  foreign currency  translation adjustment
account shown as a capital account of the person, less (b) the net book value of
all items of the following  character which are included  in the assets of  such
person:  (i) goodwill, including without limitation the excess of cost over book
value  of   any  asset,  (ii)  organization  or   experimental  expenses,  (iii)
unamortized debt  discount and expense,  (iv) patents, trademarks,  trade names,
and  copyrights, (v) treasury stock,  (vi) deferred taxes  and deferred charges,
(vii)  franchises,  licenses, and  permits, and  (viii)  other assets  which are
deemed intangible assets under generally accepted accounting principles.

          "Units" means units of limited partner interests in HEP.

          2.   Loans.  The Bank may issue a Loan to the Company only if, at the
time a  Loan is to be made, the aggregate  outstanding principal amount of Loans
made by  the Bank to the  Company hereunder (including the  requested Loan) does
not exceed  the  least of  (a)  the Authorization  Amount  and  (b) 50%  of  the
Collateral Value and (c)  the Maximum Loan Value of the Current  Market Value of
the Eligible  Securities.  All  Loans made  prior to the  Initial Maturity  Date
shall  be used  only to fund  the Company's  repurchase of  common and preferred
stock issued  by the Company, or  to reimburse the Company  for amounts expended
prior  to  the date  of  this  agreement for  the  purpose  of repurchasing  the
Company's stock; all Loans  made on or after the  Initial Maturity Date will  be
used  for working capital purposes.   The Loans shall  be evidenced by the Note,
payable no later than the Maturity Date, with interest payable prior to maturity
(whether  on acceleration or otherwise) no later than each Interest Payment Date
and at maturity (whether on acceleration or otherwise) at the Floating Rate, and
after an Event of Default has occurred on demand at the Overdue Rate.  All Loans
shall be in the minimum amount of $50,000 and in integral multiples thereof.

          3.   Request for Loans.  The Company shall give the Bank a written
request, or a verbal request followed immediately by a written request, for each
requested Loan not later than 1:00 p.m. Detroit time one (1)  Business Day prior
to the date  the Loan is requested to  be made, (a) identifying the  purpose for
which the Loan proceeds  are to be used, and (b) certifying  that there has been
no change  in the value of the  Eligible Securities from that  shown on the most
recent  report  delivered  under  paragraph  9(b),  which  change  would  cause,
immediately following the requested  Loan being made, the  aggregate outstanding
principal amount  of Loans to exceed the limitation stated in paragraph 2.  Each
request for a Loan,  and each acceptance by the Company  of Loan proceeds, shall
be deemed  to constitute a representation  and warranty by the  Company that the
representations and warranties contained in paragraph 10 are true and correct on
and as of the date of such request or acceptance as  if such representations and
warranties  were made  on and  as  of such  date,  and that  the  Company is  in
compliance with the covenants contained in paragraph 10 on and as of such date.

          4.   Increased Costs; Limitations on Requests.  The Company agrees
that in the  event that any applicable law, treaty,  rule or regulation (whether
domestic  or foreign) now or  hereafter in effect  (including without limitation
the Federal  Deposit Insurance Act) and  whether or not presently  applicable to
the  Bank, or any interpretation  or administration thereof  by any governmental
authority or  compliance by the Bank with any guideline, request or directive of
any such authority (whether  or not having the force of  law), shall (i) impose,
modify or deem applicable  any insurance assessment or reserve,  special deposit
or similar requirement against assets  of, deposits with or for the  account of,
or credit extended by the Bank, or (ii) affect the amount of capital required or
expected  to be maintained by  the Bank or its parent  bank holding company, and
such  action results in  increasing the Bank's  costs allocable to  the Loans or
reduces any sums receivable by the Bank thereunder, the Company shall pay to the
Bank, from time to time upon  request of the Bank, additional amounts sufficient
to  compensate the  Bank  for such  increased costs  or  reduced sum  receivable
related thereto.   A detailed statement as to the amount  of such increased cost
or reduced  sum receivable, prepared in good faith  and submitted by the Bank to
the Company, shall be  conclusive and binding  for all purposes absent  manifest
error in computation.

          5.   Mandatory Payments.  In addition to any payments required to be
made under paragraph 2:

               (a)  Scheduled Principal Payments.  On the Principal Payment
Dates, beginning  with the first such  day after the Initial  Maturity Date, the
Company shall pay the Bank an amount equal to the amount  sufficient to amortize
the principal amount of the Loans outstanding on the Initial  Maturity Date with
quarterly payments made over a four-year period.

               (b)  Violation  of  Authorization Amount.    If at  any  time the
principal  amount of  the Loans  exceeds the  Authorization Amount,  the Company
shall immediately  pay to the  Bank an amount not  less than the  amount of such
excess.

               (c)  Violation of Margin Amount.  If at any time the principal
amount of the Loans exceeds 66  2/3% of the Collateral Value, the  Company shall
immediately (i)  pay to the  Bank an amount  sufficient to reduce  the principal
amount  of the  outstanding Loans  to  an amount  not  greater than  50% of  the
Collateral Value, or (ii) provide additional Margin Stock collateral to the Bank
sufficient to increase  the Collateral Value to  an amount such that 50%  of the
Collateral Value is not  less than the principal  amount of the Loans,  or (iii)
perform some combination of making Loan payments and providing additional Margin
Stock collateral such that the  principal amount of the Loan is not greater than
50% of the Collateral Value.

               (d)  Partnership Distributions.  If the Company receives any
dividends or  other distributions in  its capacity  as a holder  of Units  which
exceed twenty cents  ($.20) during any calendar  quarter, (i) the Company  shall
pay such excess to the Bank, to be applied  against the outstanding principal of
the Loans, and (ii)  the Authorization Amount shall be reduced by  the amount of
such excess.

               (e)  Acceleration Event Payments.  In the event the Bank declares
an Acceleration Event, all principal  amounts then outstanding shall be due  and
payable in two equal amounts plus  interest on the next two successive Principal
Payment Dates, and all other amounts due or to be due hereunder shall be due and
payable on the last of such successive Principal Payment Dates.

          6.   Extension of Maturity Date.  The Bank consents to extend the
Maturity  Date as of  the Initial Maturity  Date for one  year.  Thereafter, the
Company may request, by  written notice to the Bank given not  less than 60 days
before the date of the Maturity Date then in effect, to extend the Maturity Date
then in effect for an additional one year.  If the Bank, in its sole discretion,
consents to such request, the Maturity Date then in effect shall be so extended.
The Bank  shall respond to the Company's  request not later than  30 days before
the  Maturity Date then in  effect; the failure  of the Bank to  respond by such
date shall not  be deemed a consent to the extension request.  The Company shall
pay the  Bank an  extension fee  of twenty-five  one-hundredths  of one  percent
(.25%)  of the Authorization Amount initially available during the extended term
on or before  the first Business Day of each  extension, including the extension
effective as  of the Initial Maturity Date.  Failure to extend the Maturity Date
under this  paragraph shall  be  deemed to  be an  Acceleration  Event, and  all
amounts due hereunder shall be repaid in accordance with paragraph 5(e).

          7.   Security.  All indebtedness of the Company to the Bank shall be
secured  by first  priority security  interests in  all Units  now owned  by the
Company,  which security  interests  shall be  granted  pursuant to  the  Pledge
Agreement.

          8.   Conditions of Loans.  Prior to or simultaneously with its initial
Loan hereunder, the  Company shall furnish to  the Bank the following  documents
and payments, each in form and substance satisfactory to the Bank:

               (a)  Certified copies of such corporate documents of the Company,
including  those evidencing  necessary  corporate action  with  respect to  this
agreement, the Note, the Security Documents and the Loans hereunder, as the Bank
shall request.

               (b)  The Note,  duly  executed by  an authorized  officer of  the
Company. 
               (c)  Each Security  Document,  duly  executed  by  an  authorized
officer of  the Company, including  without limitation all  assignments separate
from certificate,  financing statements,  and other  documents requested  by the
Bank to perfect its security interest in the collateral therein described.

               (d)  An  opinion of counsel to the Company, in form and substance
satisfactory to the Bank, with respect to the matters set forth in subparagraphs
(a) through (e) of paragraph 10, and such other matters as the Bank may request.

               (e)  A Federal  Reserve System Form U-1  dated as of the  date of
the initial Loan, with  appropriate insertions duly executed by the  Company, in
form and substance acceptable to the Bank.

               (f)  An arrangement fee of $15,000.

               (g)  Such other documents and agreements requested by the Bank. 

          9.   Reporting  Requirements.   The  Company  will, so  long  as  this
agreement  is in  effect,  furnish or  cause to  be  furnished to  the Bank  the
following financial statements, information  and certificates, each in form  and
substance satisfactory to the Bank, at the times indicated: 

               (a)  Promptly  and in any event within  three calendar days after
becoming aware of  any Event of  Default or any  event or condition  which, with
notice  or lapse  of time,  or both,  would constitute  an Event  of Default,  a
statement  of the Company describing the Event  of Default, event, or condition,
and  the action which the  Company has taken  and proposes to  take with respect
thereto.

               (b)  On  each  Monday,  a  certificate  of  the  Company's  chief
financial officer or authorized  individual (i) describing in detail  the amount
and Current Market Value of all Eligible Securities as of the preceding Business
Day,  (ii)  identifying each  tangible asset  sold after  all sales  of tangible
assets  after the date of this agreement  have exceed $100,000 in the aggregate;
and (iii) identifying all  Liens granted by the Company on or  after the date of
this agreement.

               (c)  As soon as available, and in  any event within 50 days after
the end of each of the first three fiscal quarters of the Company, the Company's
Quarterly Report on Form 10-Q as filed with the SEC, together with a certificate
of the  Company's chief financial officer  stating that no Event  of Default has
occurred and  is continuing  or, if  an  Event of  Default has  occurred and  is
continuing, a statement  setting forth the details thereof and  the action which
the Company has taken and proposes to take with respect thereto. 

               (d)  As soon as available and in any event within 120 days  after
the end of each fiscal year of the Company, the Company's Annual Report  on Form
10-K  as filed with the SEC, together  with a certificate of the Company's chief
financial  officer  stating  that  no  Event of  Default  has  occurred  and  is
continuing  or,  if an  Event  of  Default has  occurred  and  is continuing,  a
statement setting forth the details thereof and the action which the Company has
taken and proposes to take with respect thereto. 

               (e)  As soon as  available and in any event within  50 days after
the  end of  each of  the first three  fiscal quarters  of HEP,  HEP's Quarterly
Report on Form 10-Q as filed with  the SEC, together with a certificate of HEP's
chief  financial officer stating  that no event  of default has  occurred and is
continuing under  the HEP Credit Agreement  or, if such an event  of default has
occurred and is continuing,  a statement setting forth  the details thereof  and
the action which HEP has taken and proposes to take with respect thereto.

               (f)  As soon as available and in any event within 120  days after
the end of each  fiscal year of HEP, HEP's  Annual Report on Form 10-K  as filed
with the  SEC, together  with a  certificate of  HEP's  chief financial  officer
stating that  no event of default has  occurred and is continuing  under the HEP
Credit Agreement or, if such an event of default has occurred and is continuing,
a statement setting forth the details thereof and the action which HEP has taken
and proposes to take with respect thereto. 

               (g)  As soon as  available and in any event within  50 days after
the end of each  of the first  three fiscal quarters  of HCRC, HCRC's  Quarterly
Report on Form 10-Q as filed with the SEC.

               (h)  As soon as  available and in any event within 120 days after
the end of each fiscal year of HCRC, HCRC's  Annual Report on Form 10-K as filed
with the SEC.

               (i)  Within  120 days after  the end of  each fiscal year  of the
Company, an annual reserve report  of the Hallwood Companies, and,  if requested
by  the  Bank,  a  summary update  of  such  report  not  less than  six  months
thereafter.

               (j)  Promptly but in no event more than 3 Business Days after the
Company sells  or otherwise disposes of  any shares of the  equity securities of
The Hallwood Group  Incorporated, a  certificate of the  Company reporting  such
disposition.

               (k)  Promptly but in no event more than 3 Business Days after the
occurrence of any Event of Default under the HEP Credit Agreement or HCRC Credit
Agreement, written notice from the  Company reporting such event and  the action
which HEP or  HCRC, as  the case may  be, has  taken and proposes  to take  with
respect thereto.

               (l)  Promptly, such other information  as the Bank may reasonably
request.

          10.  Representations and Warranties.  The Company represents and
warrants to, and covenants with, the Bank as follows:

               (a)  The Company is a corporation duly organized, existing and in
good standing  under the  laws  of the  State of  Texas, and  HEP  is a  limited
partnership duly  organized, existing  and in  good standing  under the laws  of
Delaware, and each of the above is duly qualified to do business and is  in good
standing in each  additional jurisdiction where such  qualification is necessary
except where the  failure to so qualify would not have a material adverse effect
on the Company's business.

               (b)  The  execution, delivery  and performance of  this agreement
and  each  Security Document  to which  it is  a  party by  the Company  and the
issuance of  the Note by the Company, are within its corporate powers, have been
duly  authorized, and are  not in contravention  of law  or of the  terms of its
Articles of Incorporation or By-laws, or of any undertaking to which the Company
is a party or by which it may be bound.

               (c)  This agreement and the Security Documents are, and  the Note
when issued will be, valid, binding and enforceable in accordance with the terms
thereof,  except as  the enforceability  thereof may  be limited  by bankruptcy,
insolvency,  or similar laws affecting creditor's rights generally and rights of
acceleration, and  as the availability of  equitable remedies may be  limited by
equitable  principles of general applicability.  The Security Documents grant to
the  Bank a perfected and  enforceable lien and security  interest in all of the
collateral described therein, which is not void or voidable, subject to no other
Liens except  security interests and liens granted to the Bank.  The Company has
no other  indebtedness and  is not a  party to any  loan agreement  or financial
lease except  this agreement and the agreements and leases set forth on Schedule
I.  The  Company has no Liens on its assets  except security interests and liens
granted to the Bank under the Security Documents, and Permitted Liens.

               (d)  No consent,  approval or authorization of  or declaration or
filing with any governmental authority on the part of the Company is required in
connection with the execution,  delivery and performance of this  agreement, the
Note or the Security Documents.

               (e)  Except  as  disclosed  in  the Company's  or  HEP's  audited
financial statements  for the fiscal  year ending  December 31, 1994,  copies of
which  have  been provided  to  the  Bank  and  Schedule  I,  no  litigation  or
governmental  proceeding is pending or, to the  knowledge of the officers of the
Company,  threatened against the Company  or HEP which  involves any judgment or
liability which could have a  material adverse effect on the Company's  or HEP's
financial condition or business.

               (f)  All  financial statements  furnished by  the Company  to the
Bank  are complete and accurate in all  material respects and present fairly the
financial condition of  the Company as of  the dates of such statements  and the
results of their operations  for the periods covered thereby, in accordance with
generally accepted accounting principles, and there has been no material adverse
change in the  condition of the Company, financial or  otherwise, since the date
of the latest of such statements.

               (g)  The  Company   is  in  compliance  with   all  laws,  rules,
regulations,  orders  or similar  requirements of  any  federal, state  or local
governmental  authority,  including without  limitation  those  relating to  any
environmental matters, which noncompliance (in the event it was asserted through
appropriate action)  would have  a material adverse  effect on  the business  or
financial condition of the Company.

               (h)  The Company has complied and will comply with all applicable
state and federal laws in repurchasing shares of its common  and preferred stock
with the proceeds of the Loans.

               (i)  The Company will  not make, pay,  declare, or authorize  any
dividend, payment, or other distribution in  respect of its capital stock except
for (i) payment of  dividends on its common stock not  exceeding $3.50 per share
each fiscal year in accordance with the Company's historic practice and (ii) the
repurchases of stock prior to the Initial Maturity Date with the proceeds of the
Loans, provided, however, that the Company will not make, pay, declare, or
authorize  any such dividend, payment, or other distribution upon the occurrence
of any Event of Default set forth in paragraph 12(a) which is not cured within 7
days after its  occurrence, and any  other Event of  Default which is not  cured
within 30 days after its occurrence.

               (j)  The Company will not request or accept any Loan in violation
of Regulation U, will not  use the proceeds of any Loan in a  manner which would
cause  the Loans then outstanding to  be in violation of  Regulation U, and will
not seek to withdraw or substitute collateral if such withdrawal or substitution
would cause the Loan to be in excess of  the Maximum Loan Value of the remaining
collateral.

               (k)  The Company will not  permit or suffer the  consolidated SEC
10 Value of the Company and its subsidiaries to be less  than $10,000,000 at any
time  during the period from the date of this agreement until the Loans are paid
in full.

               (l)  The  Company  will not  permit  or  suffer the  consolidated
Tangible  Net Worth  of  the  Company  and  its subsidiaries  to  be  less  than
$5,000,000 at  any time during the period from  the date of this agreement until
the Loans are paid in full.

          11.  Fees.  The Company shall pay all filing fees and other expenses
incurred  by the  Bank  in connection  with  this agreement,  including  without
limitation  the  reasonable  fees  and  expenses  of  Dickinson,  Wright,  Moon,
Van Dusen & Freeman,  counsel for the  Bank, in connection  with preparation  of
this agreement and the documents required hereunder.
          12.  Events of  Default.  Each of  the  following shall  be deemed  an
Event of Default  under this agreement,  and upon the occurrence  of any of  the
following, the Note and all accrued interest thereon and all other indebtedness,
obligations and liabilities of the Company to the Bank shall  be immediately due
and payable, without notice or demand:

               (a)  Failure   to  make   any  payment   when  due   (whether  on
acceleration or  otherwise) of principal or  interest on the Note,  or any other
amount due  under this  agreement, or  failure to  satisfy  the requirements  of
paragraph 5(c), or failure to satisfy  the requirements of paragraph 9(b) within
three Business Days after written notification to the Company; or

               (b)  any other default  in the performance  or observance of  any
term, covenant  or agreement of the  Company contained in this  agreement or the
Note, which  default is not cured  within 10 days after  written notification to
the Company; or 

               (c)  any default, beyond applicable grace and cure periods, under
the  terms of  any Security  Document, or  any Security  Document shall  for any
reason become unavailable to or unenforceable by the Bank; or 

               (d)  any representation  or warranty made by  the Company herein,
or in  any Security Document, or  any statement or certificate  furnished by the
Company  or HEP hereunder,  proves to have  been untrue in  any material respect
when made or deemed made; or

               (e)  the Company or HEP becomes  insolvent or bankrupt, or  makes
an assignment for the benefit  of creditors or consents to the  appointment of a
trustee  or receiver for itself or for the  greater part of its properties; or a
trustee or receiver is appointed  for the Company or HEP without its consent; or
bankruptcy,  reorganization  or liquidation  proceedings  are  instituted by  or
against the Company or HEP; or

               (f)  any  material  adverse  change  occurs in  the  business  or
financial condition of the Company or HEP.

          13.  Discretionary Loans; Acceleration Events.  Notwithstanding any
provisions of this agreement, it is understood and agreed that the Bank shall at
no  time be obligated  to make any  Loan hereunder, despite  compliance with any
express conditions precedent thereto.  The Bank shall be privileged  at any time
to declare  an  Acceleration  Event, following  which  the Note  and  all  other
indebtedness, obligations and liabilities  of the Company to the  Bank hereunder
shall be payable pursuant to paragraph 5(e), despite the fact that there may not
then exist an Event of Default.

          14.  Interest Limitation.  Notwithstanding any provisions of this
agreement, the Note  or any Security Document, in  no event shall the  amount of
interest paid or agreed to be paid  by the Company exceed an amount computed  at
the highest rate  of interest permissible  under applicable law.   If, from  any
circumstances whatsoever,  fulfillment of any  provision of this  agreement, the
Note or any Security Document,  at the time performance of such  provision shall
be  due, shall involve exceeding the interest rate limitation validly prescribed
by law which a court of competent jurisdiction may deem applicable hereto, then,
ipso  facto,  the obligations  to be  fulfilled shall  be  reduced to  an amount
computed at the highest  rate of interest permissible under applicable  law, and
if for any reason whatsoever the Bank receives as interest an amount which would
be  deemed  unlawful  under   such  applicable  law,  such  interest   shall  be
automatically applied to the payment of principal of the loans outstanding here-
under (whether or not then due and payable) and not for the payment of interest,
or shall be refunded to the Company if such principal and all  other obligations
of the Company to the Bank have been irrevocably paid in full.

          15.  Notices.  All notices, demands, request and consents hereunder
shall be in writing and shall be effective when received, except that any notice
or demand which by any provision of this agreement is required or provided to be
given or served  to or upon the  Company shall be deemed  to have been given  or
served for all  purposes by being sent by  recognized overnight courier service,
addressed  as follows:  c/o Robert S. Pfeiffer, Vice President-Finance, Hallwood
Petroleum, Inc., 4582  S. Ulster  Street Parkway, Suite  1700, Denver,  Colorado
80237, or, if  any other address shall at any time  be designated by the Company
in writing to the Bank, to such other address.

          16.  Miscellaneous.  This agreement embodies the entire agreement and
understanding between the Company and the  Bank and supersedes all prior  agree-
ments and understandings relating to the subject matter hereof, and all existing
credit facilities  of any kind of  the Company with the  Bank, including without
limitation any facility to  make loans or issue letters of  credit, all of which
are hereby terminated.  No amendment, modification or waiver of any provision of
this  agreement nor  any consent  to a  departure  therefrom shall  be effective
unless the same shall  be in writing and signed by the Bank.   No failure of the
Bank  or of the holder of  the Note in exercising any  right, power or privilege
hereunder shall affect  such right, power or privilege, nor  shall any single or
partial exercise thereof preclude  any further exercise thereof or  the exercise
of any other right, power or privilege.  The rights and remedies of the Bank and
those of  the holder  of the Note  under this agreement  are cumulative  and not
exclusive  of any rights  or remedies which  either of them  may otherwise have.
All payments to be  made by the Company  hereunder shall be made in  immediately
available funds to the Bank at its main banking  office in Detroit, Michigan not
later than 1:00 p.m. Detroit time on the date on which such payment shall become
due, and all payments  received after 1:00 p.m. shall be  deemed received on the
following Business Day.   All financial terms used but  not defined herein shall
be interpreted in accordance with generally accepted accounting principles.  All
amounts due  hereunder which are not  paid when due (other  than interest) shall
bear interest at  the Overdue Rate.  The Company indemnifies  and holds the Bank
harmless against  any  loss,  claim, damage  or  liability arising  out  of  the
Company's  repurchase of its securities with the  proceeds of the Loan, and will
reimburse the Bank  for any reasonable legal fees or  other expenses incurred by
the Bank hereunder.

          17.  Waiver of Jury Trial.  The Bank and the Company, after consulting
or  having had the opportunity  to consult with  counsel, knowingly, voluntarily
and intentionally waive any right either of them may  have to a trial by jury in
any  litigation based  upon or  arising  out of  this agreement  or any  related
instrument or agreement or any  of the transactions contemplated by this  agree-
ment or any course of conduct, dealing, statements (whether oral  or written) or
actions of  either of them.   Neither  the Bank  nor the Company  shall seek  to
consolidate, by counterclaim or otherwise, any such action in which a jury trial
has been waived with any other action in which a jury trial cannot be or has not
been  waived.  These provisions shall not be deemed to have been modified in any
respect or  relinquished by either the  Bank or the Company except  by a written
instrument executed by both of them. 

          18.  Governing Law.  This agreement shall be governed by and construed
in accordance with  the laws of  the State of  Michigan applicable to  contracts
made  and to  be performed  entirely within  that state,  without regard  to the
choice of law principles thereof.

          19.  Binding Effect.  All representations, warranties, covenants and
agreements herein  contained shall be binding  upon and inure to  the benefit of
the respective  successors and assigns of  the parties hereto whether  or not so
expressed.

          Should the foregoing be agreeable to you, as it is to us, please indi-
cate your agreement and  acceptance by executing and returning the enclosed copy
of this letter,  whereupon this agreement shall be  effective as of the  date of
this letter.

Very truly yours,

NBD BANK<PAGE>

By:       /s/ W. Scott Bennett 
   _________________________________
  Its:   W. Scott Bennett
           Vice President

Agreed and accepted:

HALLWOOD ENERGY CORPORATION



By:  /s/ Robert S. Pfeiffer 
   _____________________________
  Its: Vice President

Dated: May 19, 1995





                                    EXHIBIT A

                        SECURED AUTHORIZATION CREDIT NOTE
                        ---------------------------------


$1,500,000                                                          May 19, 1995
                                                               Detroit, Michigan


          FOR VALUE  RECEIVED, Hallwood Energy Corporation,  a Texas corporation
(the "Company"),  hereby promises to pay  to the order  of NBD BANK,  a Michigan
banking  corporation (the  "Bank"), at  its principal  banking office  in lawful
money of  the United States of  America and in immediately  available funds, the
principal  sum  of  One  Million,  Five  Hundred  Thousand  and  00/100  Dollars
($1,500,000.00), or such lesser amount  as is recorded on the schedule  attached
hereto,  or in  the books  and records  of the  Bank, on  the Maturity  Date, as
defined in the  Loan Agreement  referred to below;  and to pay  interest on  the
unpaid principal balance hereof from time to time outstanding, in like money and
funds,  for the  period from the  date hereof  until the  Loans evidenced hereby
shall be paid in  full, at the rates per annum and on  the dates provided in the
Loan Agreement referred to below.

          The Bank  is hereby authorized by  the Company to record  on its books
and  records the  date and amount  of each Loan,  the amount of  each payment of
principal thereon  and the other information  required by the Bank,  which books
and  records shall  constitute  prima  facie  evidence  of  the  information  so
recorded, provided, however, that any failure by the Bank to record any such
information shall  not  relieve  the Company  of  its obligation  to  repay  the
outstanding principal amount of the Loans, all accrued interest thereon, and any
amount payable  with respect thereto in  accordance with the terms  of this Note
and the Loan Agreement.

          The  Company  and each  endorser  or  guarantor hereof  waive  demand,
presentment, protest, diligence, notice  of dishonor and any other  formality in
connection with  this Note.  Should  the indebtedness evidenced by  this Note or
any  part thereof be  collected in any proceeding  or be placed  in the hands of
attorneys  for  collection,  the  Company agrees  to  pay,  in  addition  to the
principal,  interest and  other  sums  due  and payable  hereon,  all  costs  of
collecting this Note, including attorneys' fees and expenses.
          This  Note evidences  one  or more  Loans  made  under a  Letter  Loan
Agreement of even date  herewith (as amended,  the "Loan Agreement"), among  the
Company and  the Bank, to which reference is hereby  made for a statement of the
circumstances under which this Note is subject to prepayment and under which its
due date may be accelerated and for a description of the collateral and security
securing this Note.  Capitalized  terms used but not defined in this  Note shall
have the respective meanings assigned to them in the Loan Agreement.


          This Note is  made under, and  shall be governed  by and construed  in
accordance with, the laws of the  State of Michigan applicable to contracts made
and to  be performed entirely  within such  State and without  giving effect  to
choice of law principles of such State.

                                HALLWOOD ENERGY CORPORATION

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



                                    EXHIBIT B

                                CONTINUING PLEDGE AGREEMENT


PLEDGE:   To  induce NBD  Bank (the  "Bank"), of  611 Woodward  Avenue, Detroit,
Michigan 48226, at its option, to make loans,  extend or continue credit or some
other benefit,  including guaranties,  letters of  credit  and foreign  exchange
contracts,  present or future, direct or indirect, and whether several, joint or
joint  and  several  (referred   to  collectively  as  "Liabilities"),   to  the
undersigned and its successors (the Pledgor"), and

(check if applicable)

___   to   __________________________________________________________  and   its
successors                      (Name of Borrower if other than Pledgor)
(the "Borrower"), and  because the  Pledgor has determined  that executing  this
Pledge is in its interest and to its financial benefit, the  Pledgor pledges and
transfers to the Bank, and grants the Bank a continuing security interest in the
property  listed below  under  the heading  "Schedule  of Collateral.:    If the
Collateral  consists of securities, the  grant includes any  stock rights, stock
dividends, liquidating dividends, new securities and other property to which the
pledgor may  become entitled because  it owns the  Collateral.  The  Pledgor has
transferred the  securities to  the Bank.   In  the  event the  transfer is  not
complete,  the Pledgor will complete it within  10 days.  This security interest
shall  secure  all  Liabilities  and  includes  principal,  interest,  expenses,
reasonable attorneys'  fees, and  all other  costs of  collection.  The  Pledgor
agrees to hold the Bank  harmless from any liability  caused by its reliance  on
this Pledge.

SCHEDULE OF COLLATERAL:
     Five Hundred Thirteen Thousand Four Hundred Eighty Seven (513,487) Units of
     Hallwood Energy Partners, L.P.
including substitutions,  replacements, additions and proceeds.   Any securities
or other  property of  the Pledgor  at any  time in  the custody, possession  or
control  of the  Bank's commercial  loan department,  unless the  receipt states
otherwise, shall be governed by this Pledge.

WARRANTIES AND  COVENANTS:  The Pledgor warrants it owns the Collateral free and
clear  of any  liens.   The  Pledgor  will not  attempt  to sell  or  assign the
Collateral or  create  any lien  or claim  against it.   The  Pledgor agrees  to
reimburse the Bank, on demand, for any  amounts paid or advanced by the Bank for
the purpose of  preserving all or  any part of the  Collateral.  The  Bank shall
exercise reasonable care in the custody an preservation of the Collateral to the
extent required by applicable statute.   The Bank shall use its best efforts  to
take any action  the Pledgor may reasonably request in  writing, but the failure
to do so shall not be deemed a failure to exercise reasonable care.

REGISTRATION  RIGHTS:   If  any of  the Collateral  consists  of securities  not
registered under the Securities Act of 1933, and the issuer proposes to register
any of its securities, the  Pledgor will give the Bank notice of that  fact.  In
addition, and at  no cost to the Bank, the Pledgor  will use its best efforts to
induce the  issuer  to register  the  pledged securities  so  that they  may  be
disposed of by public sale or other public disposition.   Upon the completion of
registration,  the Pledgor  will  deliver certificates  without any  restrictive
legend in exchange for the unregistered securities.  The Pledgor indemnifies and
holds the Bank harmless against any loss, claim, damage or liability arising out
of the registration  process, and will reimburse the Bank for any legal or other
expenses incurred by the Bank as a result.

INSTRUCTIONS REGARDING THE COLLATERAL:   The Bank may act upon any  instructions
given by  the Pledgor whether  in writing  or not, with  regard to additions  or
substitutions or sale or other disposition of Collateral and its  proceeds.  The
Pledgor agrees  that any  additions to,  substitutions for  or  proceeds of  the
Collateral that it or the Borrower receives will be held for the  Bank's benefit
and turned over to the Bank.  The Pledgor also gives the Bank permission to have
the Collateral or any part of it transferred to or registered in the Bank's name
or in  the  name of  any other  person,  firm or  corporation, with  or  without
designation of the  capacity of such  nominee, and will  hold the Bank  harmless
from any liability  or responsibility that might result.   In furtherance of the
Bank's rights  under this Pledge, the  Pledgor irrevocably appoints the  Bank as
its attorney-in-fact, with full power of substitution.

CONTINUED RELIANCE:  The Bank may continue to make loans or extend credit to the
Borrower based on  this Pledge until it  receives written notice  of termination
from the Pledgor.  That notice shall be effective at the opening of the Bank for
business on  the day  after receipt  of the  notice.   The termination  will not
affect any of the rights given to the Bank in this Pledge with respect to any of
the Liabilities that  were created, assumed or committed to  prior to the Bank's
receipt  of the notice,  and all subsequent  renewals, extensions, modifications
and  amendments of the Liabilities.   Upon receipt of the  notice, the Bank does
not have  to take any action against the Borrower  or the Collateral in order to
maintain its  rights.   If  the Pledgor  is the  Borrower,  this Pledge  is  not
terminable.

WAIVERS:  The Pledgor waives any right it  may have to receive notice of any  of
the following  matters before  the Bank  enforces any  of its  rights:  (a)  the
Bank's  acceptance of this Pledge, (b)  any credit that the  Bank extends to the
Borrower, (c) the Borrower's default, (d) any demand, or (e) any action that the
Bank  takes  regarding  the  Borrower,  anyone  else,  any  collateral,  or  any
Liability, which  it  might be  entitled  to take  by  law or  under  any  other
agreement.  No modification or  waiver of this Pledge shall be  effective unless
it is in writing and signed by the party against whom it is being enforced.  The
Bank may  waive or delay enforcing any  of its rights without  losing them.  Any
waiver  shall  affect only  the specific  terms and  time  period stated  in the
waiver.   The Bank shall not be obligated to  take any action in connection with
any conversion, call,  redemption, retirement or any other event relating to any
of the Collateral.

REPRESENTATIONS BY PLEDGOR:  If the Pledgor is a corporation, it represents that
it is a corporation duly organized, existing and in good standing under the laws
of  its state  of incorporation,  and that  the execution  and delivery  of this
Pledge and  the  performance  of  the  obligations it  imposes  are  within  its
corporate powers, have been duly authorized by all necessary action of its board
of  directors, and do not contravene the  terms of its articles of incorporation
or by-laws.  If the Pledgor  is a general or limited partnership,  it represents
that  it is duly organized  and existing and that the  execution and delivery of
this Pledge  and the performance of  the obligations it imposes  do not conflict
with any provision of its partnership  agreement and have been authorized by all
necessary action  of its partners.   Each Pledgor represents  that the execution
and delivery of  this Pledge and the performance of  the obligations it imposes,
do not  violate any law and  do not conflict with  any agreement by  which it is
bound,  and that  no consent or  approval of  any governmental  authority or any
third party  is required in  connection with the  execution or delivery  of this
Pledge and the performance of  the obligations it imposes, and that  this Pledge
is  a valid  and binding agreement,  enforceable according  to its  terms.  Each
Pledgor  further represents that all balance sheets, profit and loss statements,
and  other information, if  any, furnished to  the Bank are  accurate and fairly
reflect the financial  condition of the organizations and persons  to which they
apply  on their effective dates, including contingent liabilities of every type,
which financial condition has  not changed materially and adversely  since those
dates.

NOTICES:  Notice  from one  party to another  relating to this  Pledge shall  be
deemed effective if made in writing (including telecommunications) and delivered
to  the recipient's address,  telex number or telecopier  number set forth under
its name by any of  the following means:   (a) hand delivery, (b) registered  or
certified  mail, postage prepaid, (c) Federal Express, Purolator Courier or like
overnight courier service or (d) telecopy, telex or other wire transmission with
request  for  assurance  of  receipt  in   a  manner  typical  with  respect  to
communications of that type.  Notice made in accordance with  this section shall
be deemed delivered on receipt if delivered by hand or wire transmission, on the
third  business  day  after mailing  if  mailed by  first  class,  registered or
certified mail,  or on the  next business day after  mailing or deposit  with an
overnight courier service if delivered by express mail or overnight courier.

MISCELLANEOUS:    The  Pledgor  consents  to  (a)  any  extension, postponement,
renewal,  modification  and  amendment of  any  Liability,  (b)  the release  or
discharge of all  or any part of  any security for  the Liabilities and (c)  the
release or discharge or suspension of any rights and remedies against any person
who may be liable for the  Liabilities.  The Bank does  not have to look to  any
other  right, any other  collateral, or any  other person for  payment before it
exercises its  rights under the Pledge.   The Pledgor's obligations  to the Bank
under this Pledge are not subject to any condition, precedent or subsequent, and
shall not be released or affected by any change  in the composition or structure
of  the Borrower or Pledgor, including a  merger or consolidation with any other
person or entity.   If this Pledge is signed by  more than one person, all shall
be jointly and severally bound.   This Pledge is binding on the Pledgor  and its
heirs,  successors and  assigns, and  is for  the benefit  of  the Bank  and its
successors and assigns.  This Agreement is governed by Michigan law.  The use of
section headings shall not limit the provisions of this Pledge.

WAIVER  OF JURY TRIAL:  The Bank and the Pledgor, after consulting or having had
the   opportunity  to   consult   with  counsel,   knowingly,  voluntarily   and
intentionally waive any right either of them may have  to a trial by jury in any
litigation based upon or arising out of this Pledge or any related instrument or
agreement, or any of the transactions contemplated by this Pledge, or any course
conduct, dealing, statement  (whether oral or written), or actions  of either of
them.    Neither  the  Bank  not  the Pledgor  shall  seek  to  consolidate,  by
counterclaim of otherwise, any such action in which a jury trial has been waived
with any other action  in which a jury trial  cannot be or has not  been waived.
These  provisions shall not be  deemed to have  been modified in  any respect or
relinquished by  either the Bank or  the Pledgor except by  a written instrument
executed by both of them.

Dated:  May 19, 1995            PLEDGOR:  Hallwood Energy Corporation

Address:                        /s/ Robert S. Pfeiffer
4582 S. Ulster Street Parkway
Denver, Colorado   80237        By:  Robert S. Pfeiffer, Vice President

                                   SCHEDULE I
Liens
-----

                                None

Leases
------

                                The Company is  the guarantor of an office lease
of Hallwood Realty Corporation, an affiliate of The Hallwood Group Incorporated,
in  Dallas, Texas,  with  a lease  payment  of approximately  $170,000 per  year
through May 31, 1999.

Litigation
----------

                                Edward E. Bailey, Sally Bailey,  Brian J. Adolph
and Marc G. Charland vs. Hallwood Petroleum, Inc., Hallwood Petroleum Indonesia,
Inc.,  Hallwood  Energy  Corporation and  Hallwood  Energy  Companies,  filed in
District Court, City and County of Denver, Colorado on April 7, 1995