EXHIBIT B

                 [FORM OF PARENT COMMON STOCK PURCHASE WARRANT]



         THIS WARRANT AND ANY SHARES  ACQUIRED UPON THE EXERCISE OF THIS WARRANT
         HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
         OR UNDER  STATE  SECURITIES  LAWS,  AND MAY NOT BE  TRANSFERRED  IN THE
         ABSENCE OF SUCH  REGISTRATION OR AN EXEMPTION  THEREFROM UNDER SUCH ACT
         OR SUCH LAWS.


                                            HALLWOOD ENERGY CORPORATION


                                           Common Stock Purchase Warrant


PPN 40636X1138                                               New York, New York
No. RW-1                                                           June 8, 1999


                  HALLWOOD  ENERGY  CORPORATION  (the  "Company"),   a  Delaware
corporation,  for value received, hereby certifies that THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA or its  registered  assigns is entitled to purchase  from the
Company 309,278 duly authorized,  validly issued,  fully paid and  nonassessable
shares of the Company's  common stock,  par value $0.01 per share (the "Original
Common Stock"),  at an initial exercise price per share determined in the manner
provided  in section  1A, at any time or from time to time after the date hereof
and  prior to 5:00  p.m.,  New  York  City  time,  on  December  23,  2009  (the
"Expiration  Date"),  all subject to the terms,  conditions and  adjustments set
forth below in this Warrant.

                  This Warrant (the "Warrant", such term to include all Warrants
issued in  substitution  therefor)  has been issued (i) pursuant to that certain
Amended and Restated  Subordinated Note and Warrant Purchase  Agreement dated as
of  June  8,  1999  (the  "Purchase  Agreement")  among  the  Company,  Hallwood
Consolidated Resources Corporation ("HCRC") and The Prudential Insurance Company
of America  (the  "Purchaser")  and (ii) in  connection  with the merger of HCRC
Acquisition  Corp.  with  and  into  HCRC  and as  part of the  overall  plan of
reorganization  (within the meaning of Section 368 of the Internal  Revenue Code
of 1986,  as amended,  and the Treasury  Regulations  thereunder)  of HCRC.  The
applicable  provisions of the Purchase  Agreement are incorporated by reference,
and a conformed  copy  thereof  will be  furnished  to the holder  hereof by the
Company upon written request. Certain capitalized terms used in this Warrant are
defined in section 13.

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         1.       Exercise of Warrant.

                  1A.  Manner of Exercise.  This Warrant may be exercised by the
holder  hereof,  in whole or in part,  for the  purchase of the Common  Stock or
Other Securities  which such holder is then entitled to purchase,  during normal
business  hours on any Business Day after the date hereof to and  including  the
Expiration  Date by surrender of this Warrant,  with the form of subscription at
the end hereof (or a reasonable facsimile thereof) duly executed by such holder,
to the  Company  at its  principal  office  (or,  if such  exercise  shall be in
connection  with an  underwritten  public offering of shares of Common Stock (or
Other  Securities)  subject  to this  Warrant,  at the  location  at  which  the
underwriters  shall have  agreed to accept  delivery  thereof),  accompanied  by
payment,  in cash or by certified or official bank check payable to the order of
the Company,  in the amount  obtained by multiplying (a) the number of shares of
Original  Common  Stock  (without  giving  effect  to  any  adjustment  therein)
designated in such form of  subscription  by (b) the Initial  Exercise Price (as
hereinafter defined). The number of duly authorized,  validly issued, fully paid
and nonassessable  shares of Common Stock which the holder of this Warrant shall
be  entitled  to  receive  upon each  exercise  hereof  shall be  determined  by
multiplying  the number of shares of Common Stock which would otherwise (but for
the  provisions of section 2) be issuable upon such  exercise,  as designated by
the holder  hereof  pursuant to this  section 1A, by a fraction of which (a) the
numerator is the Initial  Exercise Price and (b) the denominator is the Exercise
Price in  effect  on the  date of such  exercise.  The  "Exercise  Price"  shall
initially be the last sale price of shares of Common Stock,  regular way, on the
date hereof or, if there  shall be no such last sale price,  the last sale price
of shares of Common Stock,  regular way, on the next Business Day after the date
hereof on which there shall be such a last sale price, in each case as published
by  the  National  Quotation  Bureau,  Incorporated  or  any  similar  successor
organization,   and  in  either  case  as  reported  by  Prudential   Securities
Incorporated  (the  "Initial  Exercise  Price"),   and  shall  be  adjusted  and
readjusted  from time to time as provided  in section 2 and, as so adjusted  and
readjusted,  shall remain in effect until a further  adjustment or  readjustment
thereof is required by section 2. Promptly  following the  determination  of the
Initial Exercise Price, the Company and the Purchaser shall execute an agreement
in the form of Exhibit A attached hereto,  and made an integral part hereof, for
the purpose of documenting the Initial Exercise Price.

                  1B. When  Exercise  Effective.  Each  exercise of this Warrant
shall be deemed to have been effected and the Exercise Price shall be determined
immediately  prior to the close of  business on the  Business  Day on which this
Warrant  shall have been  surrendered  to the Company as provided in section 1A,
and at such time the person or persons in whose name or names any certificate or
certificates for shares of Common Stock (or Other  Securities) shall be issuable
upon such  exercise as provided in section 1C shall be deemed to have become the
holder or holders of record thereof.

                  1C. Delivery of Stock  Certificates,  etc.  Promptly after the
exercise of this Warrant, in whole or in part, and in any event within three (3)
Business Days  thereafter  (unless such exercise shall be in connection  with an
underwritten  public  offering of shares of Common  Stock (or Other  Securities)
subject to this Warrant,  in which event  concurrently with such exercise),  the
Company at

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its expense  will cause to be issued in the name of and  delivered to the holder
hereof or, subject to section 8, as such holder may direct,

                           (a) a certificate or  certificates  for the number of
         duly authorized, validly issued, fully paid and nonassessable shares of
         Common  Stock (or  Other  Securities)  to which  such  holder  shall be
         entitled upon such exercise, and

                           (b) in case  such  exercise  is in part  only,  a new
         Warrant or Warrants of like tenor, specifying the aggregate on the face
         or faces  thereof  the  number of shares of Common  Stock  equal to the
         number of such shares  specified on the face of this Warrant  minus the
         number of such shares  designated  by the holder upon such  exercise as
         provided in section 1A.

                  1D. Company to Reaffirm Obligations.  The Company will, at the
time of or at any time after each exercise of this Warrant,  upon the request of
the holder hereof or of any shares of Common Stock (or Other Securities)  issued
upon such exercise,  acknowledge in writing its continuing  obligation to afford
to such  holder all rights to which such  holder  shall  continue to be entitled
after such exercise in accordance with the terms of this Warrant,  provided that
if any such holder shall fail to make any such  request,  the failure  shall not
affect the  continuing  obligation  of the Company to afford such rights to such
holder.

                  1E.  Fractional  Shares.  No fractional shares shall be issued
upon  exercise of this Warrant and no payment or  adjustment  shall be made upon
any exercise on account of any cash dividends (except as provided in section 2B)
on the  Common  Stock or Other  Securities  issued  upon such  exercise.  If any
fractional  interest in a share of Common Stock would, except for the provisions
of the first  sentence of this section 1E, be  deliverable  upon the exercise of
this Warrant,  the Company shall,  in lieu of delivering  the  fractional  share
therefor,  pay to the holder  exercising this Warrant an amount in cash equal to
the Market Price of such fractional interest.

                  1F. Cashless  Exercise.  As an alternative to exercise of this
Warrant by payment in cash (or by certified or official bank check), as provided
above in section  1A,  the  holder of this  Warrant  may  exercise  its right to
purchase some or all of the shares of Common Stock pursuant to this Warrant,  on
a net basis without the exchange of any funds (a "Cashless Exercise"), such that
the holder hereof receives that number of shares of Common Stock  subscribed for
pursuant to this Warrant less that number of shares of Common  Stock,  valued at
Market Price, at the time of exercise equal to the aggregate Exercise Price that
would  otherwise have been paid by the holder of this Warrant for such shares of
Common Stock.

         2.  Protection   Against   Dilution  or  Other  Impairment  of  Rights;
Adjustment of Exercise Price.

                  2A. Issuance of Additional Shares of Common Stock. In case the
Company,  at any time or from time to time after the date hereof  (the  "Initial
Date"),  shall  issue or sell  Additional  Shares  of  Common  Stock  (including
Additional Shares of Common Stock deemed to be issued

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pursuant to section 2C or 2D) without  consideration or for a consideration  per
share (determined  pursuant to section 2E) less than the greater of the Exercise
Price  or the  Market  Price  in  effect,  in  each  case,  on the  date  of and
immediately prior to such issue or sale, then, and in each such case, subject to
section 2H, the Exercise Price shall be reduced, concurrently with such issue or
sale,  to a price  (calculated  to the  nearest  .001 of a cent)  determined  by
multiplying such Exercise Price by a fraction,

                  (a) the  numerator of which shall be the sum of (i) the number
         of shares of Common Stock  outstanding  immediately prior to such issue
         or sale and (ii) the  number  of  shares  of  Common  Stock  which  the
         aggregate consideration received by the Company for the total number of
         such Additional Shares of Common Stock so issued or sold would purchase
         at the greater of such Market Price or such Exercise Price, and

                  (b) the  denominator of which shall be the number of shares of
         Common Stock outstanding immediately after such issue or sale,

provided  that, for the purposes of this section 2A, (x)  immediately  after any
Additional  Shares of Common  Stock are deemed to have been  issued  pursuant to
section 2C or 2D, such Additional Shares shall be deemed to be outstanding,  and
(y) treasury shares shall not be deemed to be outstanding.

                  2B.  Extraordinary  Dividends and  Distributions.  In case the
Company at any time or from time to time after the date  hereof  shall  declare,
order,  pay  or  make a  dividend  or  other  distribution  (including,  without
limitation, any distribution of other or additional stock or other securities or
property  or  Options  by  way  of  dividend  or   spin-off,   reclassification,
recapitalization  or  similar  corporate  rearrangement  and any  redemption  or
acquisition of any such stock or Options on the Common Stock),  other than (a) a
dividend  payable in Additional  Shares of Common Stock or in Options for Common
Stock or (b) a regular periodic  dividend payable in cash then, and in each such
case,  the Company shall pay over to the holder of this Warrant,  on the date on
which  such  dividend  or other  distribution  is paid to the  holders of Common
Stock,  the  securities and other  property  (including  cash) which such holder
would have received if such holder had exercised this Warrant  immediately prior
to the record date fixed in connection with such dividend or other distribution.

                  2C. Treatment of Options and Convertible  Securities.  In case
the  Company,  at any time or from  time to time  after the date  hereof,  shall
issue,  sell, grant or assume,  or shall fix a record date for the determination
of  holders of any class of  securities  entitled  to  receive,  any  Options or
Convertible  Securities,  whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable,  then, and
in each such case, the maximum  number of Additional  Shares of Common Stock (as
set forth in the instrument  relating thereto,  without regard to any provisions
contained therein for a subsequent  adjustment of such number) issuable upon the
exercise of such Options or, in the case of  Convertible  Securities and Options
therefor,   issuable  upon  the  conversion  or  exchange  of  such  Convertible
Securities  (or the  exercise of such  Options for  Convertible  Securities  and
subsequent conversion or exchange of the Convertible  Securities issued),  shall
be deemed to be Additional  Shares of Common Stock issued as of the time of such
issue, sale,

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grant or assumption or, in case such a record date shall have been fixed,  as of
the close of business on such record date, provided, that such Additional Shares
of Common Stock shall not be deemed to have been issued unless the consideration
per share (determined  pursuant to section 2E) of such shares would be less than
the greater of the Exercise  Price or the Market Price in effect,  in each case,
on the date of and immediately prior to such issue, sale, grant or assumption or
immediately prior to the close of business on such record date or, if the Common
Stock trades on an ex-dividend  basis, on the date prior to the  commencement of
ex-dividend trading, as the case may be, and provided, further, that in any such
case in which Additional Shares of Common Stock are deemed to be issued,

                  (a) if an adjustment of the Exercise  Price shall be made upon
         the fixing of a record  date as  referred  to in the first  sentence of
         this section 2C, no further  adjustment of the Exercise  Price shall be
         made as a result  of the  subsequent  issue or sale of any  Options  or
         Convertible  Securities  for the  purpose of which such record date was
         set;

                  (b) no further  adjustment of the Exercise Price shall be made
         upon the subsequent issue or sale of Additional  Shares of Common Stock
         or  Convertible  Securities  upon the  exercise of such  Options or the
         conversion or exchange of such Convertible Securities;

                  (c) if such Options or  Convertible  Securities by their terms
         provide,  with the passage of time or otherwise,  for any change in the
         consideration  payable  to the  Company,  or  change  in the  number of
         Additional  Shares  of  Common  Stock  issuable,   upon  the  exercise,
         conversion or exchange  thereof (by change of rate or  otherwise),  the
         Exercise  Price  computed  upon  the  original  issue,  sale,  grant or
         assumption  thereof  (or upon the  occurrence  of the record  date with
         respect thereto), and any subsequent adjustments based thereon,  shall,
         upon any such change becoming effective,  be recomputed to reflect such
         change insofar as it affects such Options,  or the rights of conversion
         or exchange under such Convertible Securities, which are outstanding at
         such time;

                  (d) upon the  expiration  of any such Options or of the rights
         of conversion or exchange under any such  Convertible  Securities which
         shall not have been  exercised  (or upon  purchase  by the  Company and
         cancellation  or  retirement  of any such Options  which shall not have
         been  exercised  or of any such  Convertible  Securities  the rights of
         conversion or exchange under which shall not have been exercised),  the
         Exercise  Price  computed  upon  the  original  issue,  sale,  grant or
         assumption  thereof  (or upon the  occurrence  of the record  date with
         respect thereto), and any subsequent adjustments based thereon,  shall,
         upon such expiration (or such  cancellation or retirement,  as the case
         may be), be recomputed as if:

                           (i) in the case of Options for Common Stock or in the
                  case of Convertible Securities,  the only Additional Shares of
                  Common  Stock  issued or sold (or deemed  issued or sold) were
                  the Additional Shares of Common Stock, if any, actually issued
                  or sold upon the exercise of such Options or the conversion or
                  exchange of such Convertible  Securities and the consideration
                  received   therefor  was  (x)  an  amount  equal  to  (A)  the
                  consideration  actually received by the Company for the issue,
                  sale,

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                  grant  or  assumption  of all  such  Options,  whether  or not
                  exercised, plus (B) the consideration actually received by the
                  Company upon such exercise,  minus (C) the consideration  paid
                  by the Company for any purchase of such Options which were not
                  exercised,  or (y) an  amount  equal to (A) the  consideration
                  actually received by the Company for the issue, sale, grant or
                  assumption  of all  such  Convertible  Securities  which  were
                  actually  converted  or  exchanged,  plus  (B) the  additional
                  consideration,  if any,  actually received by the Company upon
                  such conversion or exchange,  minus (C) the excess, if any, of
                  the consideration paid by the Company for any purchase of such
                  Convertible  Securities,  the rights of conversion or exchange
                  under which were not  exercised,  over an amount that would be
                  equal  to the  Fair  Value of the  Convertible  Securities  so
                  purchased if such Convertible  Securities were not convertible
                  into or  exchangeable  for Additional  Shares of Common Stock,
                  and

                           (ii)  in  the  case  of   Options   for   Convertible
                  Securities,  only the Convertible Securities, if any, actually
                  issued or sold upon the  exercise of such  Options were issued
                  at the time of the issue,  sale,  grant or  assumption of such
                  Options, and the consideration received by the Company for the
                  Additional  Shares  of Common  Stock  deemed to have then been
                  issued was an amount equal to (x) the  consideration  actually
                  received  by  the  Company  for  the  issue,  sale,  grant  or
                  assumption of all such Options, whether or not exercised, plus
                  (y) the  consideration  deemed  to have been  received  by the
                  Company (pursuant to section 2E) upon the issue or sale of the
                  Convertible Securities with respect to which such Options were
                  actually  exercised,  minus (z) the consideration  paid by the
                  Company  for any  purchase  of such  Options  which  were  not
                  exercised; and

                  (e) no  recomputation  pursuant to subsection (c) or (d) above
         shall have the effect of increasing  the Exercise  Price then in effect
         by an  amount  in  excess  of  the  amount  of the  adjustment  thereof
         originally made in respect of the issue,  sale,  grant or assumption of
         such Options or Convertible Securities.

                  2D. Treatment of Stock Dividends,  Stock Splits,  Etc. In case
the  Company,  at any time or from  time to time  after the date  hereof,  shall
declare or pay any dividend or other  distribution on any class of securities of
the Company  payable in shares of Common Stock, or shall effect a subdivision of
the outstanding shares of Common Stock into a greater number of shares of Common
Stock (by  reclassification or otherwise than by payment of a dividend in Common
Stock), then, and in each such case,  Additional Shares of Common Stock shall be
deemed  to have  been  issued  (a) in the  case of any  such  dividend  or other
distribution, immediately after the close of business on the record date for the
determination  of holders of any class of  securities  entitled to receive  such
dividend or other distribution,  or (b) in the case of any such subdivision,  at
the close of  business on the day  immediately  prior to the day upon which such
corporate action becomes effective.


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                  2E.      Computation of Consideration.  For the purposes of
         this Warrant:

                  (a) The  consideration for the issue or sale of any Additional
         Shares of Common Stock or for the issue,  sale,  grant or assumption of
         any Options or Convertible  Securities,  irrespective of the accounting
         treatment of such consideration,

                           (i) insofar as it consists of cash, shall be computed
                  as the amount of cash received by the Company,  and insofar as
                  it consists of securities or other property, shall be computed
                  as of the date immediately  preceding such issue,  sale, grant
                  or assumption as the Fair Value of such  consideration (or, if
                  such  consideration  is  received  for  the  issue  or sale of
                  Additional Shares of Common Stock and the Market Price thereof
                  is less than the Fair Value of such  consideration,  then such
                  consideration  shall be computed  as the Market  Price of such
                  Additional  Shares of  Common  Stock),  in each  case  without
                  deducting  any expenses  paid or incurred by the Company,  any
                  commissions or  compensation  paid or concessions or discounts
                  allowed to underwriters,  dealers or other performing  similar
                  services and any accrued  interest or dividends in  connection
                  with such issue or sale, and

                           (ii) in case  Additional  Shares of Common  Stock are
                  issued  or sold  or  Options  or  Convertible  Securities  are
                  issued,  sold, granted or assumed together with other stock or
                  securities or other assets of the Company for a  consideration
                  which  covers   both,   shall  be  the   proportion   of  such
                  consideration so received,  computed as provided in clause (i)
                  above,  allocable to such Additional Shares of Common Stock or
                  Options or Convertible Securities,  as the case may be, all as
                  determined  in good  faith by the  Board of  Directors  of the
                  Company.

                  (b)  All  Additional  Shares  of  Common  Stock,   Options  or
         Convertible  Securities  issued in  payment  of any  dividend  or other
         distribution  on any class of stock of the Company  and all  Additional
         Shares  of  Common  Stock  issued  to  effect  a  subdivision   of  the
         outstanding  shares of Common Stock into a greater  number of shares of
         Common Stock (by  reclassification  or  otherwise  than by payment of a
         dividend in Common  Stock) shall be deemed to have been issued  without
         consideration.

                  (c)  Additional  Shares  of Common  Stock  deemed to have been
         issued for  consideration  pursuant to section 2C,  relating to Options
         and Convertible  Securities,  shall be deemed to have been issued for a
         consideration per share determined by dividing

                           (i) the total amount, if any, received and receivable
                  by the Company as consideration for the issue,  sale, grant or
                  assumption  of  the  Options  or  Convertible   Securities  in
                  question,  plus the  minimum  aggregate  amount of  additional
                  consideration  (as  set  forth  in  the  instruments  relating
                  thereto, without regard to any provision contained therein for
                  a subsequent adjustment of such consideration)  payable to the
                  Company  upon  the  exercise  in full of such  Options  or the
                  conversion or exchange of

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                  such  Convertible  Securities  or, in the case of Options  for
                  Convertible  Securities,  the  exercise  of such  Options  for
                  Convertible  Securities and the conversion or exchange of such
                  Convertible   Securities,   in  each   case   computing   such
                  consideration as provided in the foregoing subsection (a), by

                           (ii) the maximum number of shares of Common Stock (as
                  set forth in the instruments relating thereto,  without regard
                  to any provision contained therein for a subsequent adjustment
                  of such number)  issuable upon the exercise of such Options or
                  the conversion or exchange of such Convertible Securities.

                  2F. Adjustments for Combinations, Etc. In case the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Exercise Price in
effect   immediately   prior  to  such  combination  or   consolidation   shall,
concurrently  with the  effectiveness of such combination or  consolidation,  be
proportionately increased.

                  2G.  Dilution in Case of Other  Securities.  In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in section 2I) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a  consideration
such as to dilute, in accordance with the standards  established in this section
2, the exercise rights granted by this Warrant, then, and in each such case, the
computations do not apply,  adjustments and  readjustments  provided for in this
Warrant with  respect to the Exercise  Price shall be made as nearly as possible
in the  manner  so  provided  and  applied  to  determine  the  amount  of Other
Securities from time to time receivable upon the exercise of this Warrant, so as
to protect the holder of this Warrant against the effect of such dilution.

                  2H. Minimum Adjustment of Exercise Price. If the amount of any
adjustment  of the  Exercise  Price  required  hereunder  would be less than one
percent of the Exercise Price in effect at the time such adjustment is otherwise
so required to be made, such amount shall be carried forward and adjustment with
respect thereto made at the time of and together with any subsequent  adjustment
which,  together  with such  amount  and any other  amount or amounts so carried
forward,  shall aggregate at least one percent of such Exercise Price; provided,
that upon the exercise of this Warrant,  all adjustments carried forward and not
theretofore  made up to and including the date of such exercise shall be made to
the nearest .001 of a cent.

                  2I.  Changes in Common Stock.  In case at any time the Company
shall be a party to any transaction  (including,  without limitation,  a merger,
consolidation,  sale  of all or  substantially  all  of  the  Company's  assets,
liquidation  or  recapitalization  of the Common Stock) in which the  previously
outstanding  Common  Stock  shall be changed  into or  exchanged  for  different
securities  of the  Company  or  common  stock or other  securities  of  another
corporation or interests in a noncorporate  entity or other property  (including
cash) or any combination of any of the foregoing

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or in which the Common  Stock  ceases to be a publicly  traded  security  either
listed on the New York Stock  Exchange or the American  Stock Exchange or quoted
by the Nasdaq  National  Market or any successor  thereto or  comparable  system
(each such transaction being herein called the "Transaction",  the date on which
the  Transaction  is first  announced  to the  public  being  herein  called the
"Announcement  Date",  the date of consummation of the Transaction  being herein
called the "Consummation  Date", the Company (in the case of a  recapitalization
of the Common Stock or any other such  transaction in which the Company  retains
substantially  all of its assets and  survives as a  corporation)  or such other
corporation  or entity (in each other case) being herein  called the  "Acquiring
Company",  and the common stock (or equivalent equity interest) of the Acquiring
Company being herein called the "Acquirer's Common Stock"), then, as a condition
of the consummation of the Transaction,  lawful and adequate provisions (in form
satisfactory  to the Required  Holders) shall be made so that the holder of this
Warrant, upon the exercise thereof at any time on or after the Consummation Date
(but  subject,  in the case of an  election  pursuant to  subsection  (b) or (c)
below, to the time limitation hereinafter provided for such election):

                  (a) shall be  entitled  to  receive,  and this  Warrant  shall
         thereafter  represent the right to receive, in lieu of the Common Stock
         issuable upon such exercise prior to the Consummation  Date,  shares of
         the Acquirer's Common Stock at an Exercise Price per share equal to the
         lesser of (i) the  Exercise  Price in effect  immediately  prior to the
         Consummation  Date  multiplied  by a fraction the numerator of which is
         the Market Price per share of the Acquirer's Common Stock determined as
         of the  Consummation  Date and the  denominator  of which is the Market
         Price per share of the Common Stock  determined as of the  Consummation
         Date, or (ii) the Market Price per share of the Acquirer's Common Stock
         determined  as of the  Consummation  Date  (subject  in  each  case  to
         adjustments from and after the Consummation  Date as nearly  equivalent
         as possible to the adjustments provided for in this Warrant), or at the
         election of the holder of this Warrant  pursuant to notice given to the
         Company within six months after the Consummation Date; or

                  (b) shall be  entitled  to  receive,  and this  Warrant  shall
         thereafter  represent  the right to  receive,  in lieu of each share of
         Common Stock  issuable  upon such  exercise  prior to the  Consummation
         Date,  either  (i) the  greatest  amount of cash,  securities  or other
         property  given to any  shareholder in  consideration  for any share of
         Common  Stock  at any  time  during  the  period  from  and  after  the
         Announcement  Date  to  and  including  the  Consummation  Date  by the
         Acquiring Company,  the Company or any Affiliate of either thereof,  or
         (ii) an amount in cash equal to the product obtained by multiplying (x)
         the number of shares of the Acquirer's  Common Stock  purchasable  upon
         the  exercise  or  conversion  of such  Warrant  as shall  result  from
         adjustments   thereto  that  would  have  been  required   pursuant  to
         subsection  (a)  above  times  (y) the  Market  Price per share for the
         Acquirer's  Common  Stock,  determined  as of the day within the period
         from and after the Announcement  Date to and including the Consummation
         Date for which the amount  determined as provided in the  definition of
         Market Price shall have been the greatest; or,


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<PAGE>



                  (c) shall be entitled  to  receive,  within 30 days after such
         election,  in full  satisfaction  of the exercise rights afforded under
         this Warrant to the holder thereof,  an amount equal to the fair market
         value  of  such  exercise   rights  as  determined  by  an  independent
         investment banker (with an established  national reputation as a valuer
         of  equity  securities)  selected  by the  Required  Holders  with  the
         approval of the Company,  such fair market value to be determined  with
         regard to all  material  relevant  factors  but  without  regard to any
         negative effects on such value of the Transaction.

The Company  agrees to obtain,  and deliver to each holder of Warrants a copy of
the determination of an independent  investment banker (selected by the Required
Holders with the approval of the Company)  necessary to permit  elections  under
subsection  (c)  above  within  15  days  after  the  Consummation  Date  of any
Transaction to which subsection (c) is applicable.

Notwithstanding anything contained herein to the contrary, the Company shall not
effect any Transaction unless prior to the consummation thereof each corporation
or  entity  (other  than the  Company)  which may be  required  to  deliver  any
securities  or other  property upon the exercise of Warrants  shall  assume,  by
written  instrument  delivered to each holder of  Warrants,  the  obligation  to
deliver  to such  holder  such  securities  or other  property  as to which,  in
accordance with the foregoing provisions,  such holder may be entitled, and such
corporation or entity shall have similarly  delivered to each holder of Warrants
an opinion of  counsel  for such  corporation  or entity,  satisfactory  to each
holder of Warrants, which opinion shall state that all the outstanding Warrants,
shall  thereafter  continue  in full force and  effect and shall be  enforceable
against  such  corporation  or entity in  accordance  with the terms  hereof and
thereof,  together  with such  other  matters  as such  holders  may  reasonably
request.

                  2J.  Certain  Issuances  Excepted.   Anything  herein  to  the
contrary  notwithstanding,  the  Company  shall  not be  required  to  make  any
adjustment of the Exercise Price in the case of (i) the issuance of the Warrants
and the  issuance  of shares of  Common  Stock  issuable  upon  exercise  of the
Warrants  or (ii) the grant of Options  that may be  granted  to  non-management
employees  of the  Company or any of its  Affiliates  pursuant  to the 1999 Long
-Term Incentive Plan.

                  2K.  Notice of  Adjustment.  Upon the  occurrence of any event
requiring an  adjustment of the Exercise  Price,  then and in each such case the
Company  shall  promptly  deliver  to the holder of this  Warrant  an  Officer's
Certificate  stating the Exercise Price  resulting from such  adjustment and the
increase or decrease,  if any, in the number of shares of Common Stock  issuable
upon the exercise of this Warrant, setting forth in reasonable detail the method
of calculation  and the facts upon which such  calculation  is based.  Within 90
days after each fiscal year in which any such adjustment shall have occurred, or
within 30 days after any request  therefor by the holder of this Warrant stating
that such holder  contemplates  the exercise of such  Warrant,  the Company will
obtain and  deliver to the holder of this  Warrant  the  opinion of its  regular
independent  auditors  or another  firm of  independent  public  accountants  of
recognized national standing selected by the Company's Board of Directors, which
opinion shall confirm the  statements in the most recent  Officer's  Certificate
delivered under this section 2K.

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                  2L.      Other Notices.  In case at any time:

                  (a) the Company  shall  declare to the holders of Common Stock
         any  dividend  other  than a  regular  periodic  cash  dividend  or any
         periodic  cash  dividend in excess of 115% of the cash dividend for the
         comparable fiscal period in the immediately preceding fiscal year;

                  (b) the Company  shall declare or pay any dividend upon Common
         Stock  payable  in  stock  or  make  any  special   dividend  or  other
         distribution  (other than  regular  cash  dividends)  to the holders of
         Common Stock;

                  (c) the Company shall offer for  subscription  pro rata to the
         holders of Common Stock any additional  shares of stock of any class or
         other rights;

                  (d)   there   shall   be  any   capital   reorganization,   or
         reclassification  of the capital stock of the Company, or consolidation
         or merger of the Company with, or sale of all or  substantially  all of
         its assets to, another corporation or other entity;

                  (e)   there shall be a voluntary or involuntary dissolution,
         liquidation or winding-up of the Company;

                  (f) there  shall be made any  tender  offer for any  shares of
         capital stock of the Company; or

                  (g)      there shall be any other Transaction;

then, in any one or more of such cases,  the Company shall give to the holder of
this Warrant (i) at least 15 days prior to any event  referred to in  subsection
(a) or (b) above,  at least 30 days prior to any event referred to in subsection
(c),  (d) or (e) above,  and  within  five days  after it has  knowledge  of any
pending tender offer or other  Transaction,  written notice of the date on which
the  books  of the  Company  shall  close or a  record  shall be taken  for such
dividend,  distribution or subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification,  consolidation, merger,
sale, dissolution,  liquidation,  winding-up or Transaction or the date by which
shareholders  must tender shares in any tender offer and (ii) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation,  winding-up or tender offer or Transaction known to the Company, at
least 30 days  prior  written  notice  of the date  (or,  if not then  known,  a
reasonable approximation thereof by the Company) when the same shall take place.
Such notice in accordance with the foregoing  clause (i) shall also specify,  in
the case of any such dividend,  distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto,  and such notice in
accordance with the foregoing  clause (ii) shall also specify the date (if known
to the  Company)  on which the  holders of Common  Stock  shall be  entitled  to
exchange their Common Stock for securities or other  property  deliverable  upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation,  winding-up,  tender offer or Transaction, as the case may be. Such
notice  shall  also  state that the  action in  question  or the record  date is
subject to the effectiveness

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<PAGE>



of a registration  statement  under the Securities Act or to a favorable vote of
security holders, if either is required.

                  2M. Certain  Events.  If any event occurs as to which,  in the
good  faith  judgment  of the  Board of  Directors  of the  Company,  the  other
provisions of this Warrant are not strictly applicable or if strictly applicable
would not fairly  protect the exercise  rights of the holders of the Warrants in
accordance with the essential intent and principles of such provisions, then the
Board of Directors of the Company shall appoint its regular independent auditors
or  another  firm of  independent  public  accountants  of  recognized  national
standing which shall give their opinion upon the adjustment,  if any, on a basis
consistent  with such essential  intent and  principles,  necessary to preserve,
without  dilution,  the rights of the holders of the  Warrants.  Upon receipt of
such  opinion,  the Board of Directors of the Company shall  forthwith  make the
adjustments described therein;  provided, that no such adjustment shall have the
effect of increasing the Exercise Price as otherwise determined pursuant to this
Warrant.  The Company may make such reductions in the Exercise Price as it deems
advisable,  including any reductions  necessary to ensure that any event treated
for Federal income tax purposes as a  distribution  of stock or stock rights not
be taxable to recipients.

                  2N.  Prohibition of Certain Actions.  The Company will not, by
amendment of its  certificate of  incorporation  or through any  reorganization,
transfer  of  assets,  consolidation,  merger,  dissolution,  issue  or  sale of
securities or any other voluntary action,  avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed  hereunder by the
Company,  but will at all times in good faith  assist in the carrying out of all
the  provisions  of this  Warrant  and in the  taking of all such  action as may
reasonably  be  requested  by the holder of this Warrant in order to protect the
exercise  privilege  of the holder of this  Warrant  against  dilution  or other
impairment,  consistent  with the tenor and  purpose  of this  Warrant.  Without
limiting the generality of the foregoing,  the Company (a) will not increase the
par value of any shares of Common  Stock  receivable  upon the  exercise of this
Warrant above the Exercise  Price then in effect,  (b) will take all such action
as may be  necessary  or  appropriate  in order that the Company may validly and
legally  issue  fully  paid and  nonassessable  shares of Common  Stock upon the
exercise of all Warrants  from time to time  outstanding,  (c) will not take any
action which results in any adjustment of the Exercise Price if the total number
of shares of Common Stock or Other Securities issuable after the action upon the
exercise  of all of the  Warrants  would  exceed  the total  number of shares of
Common Stock or Other Securities then authorized by the Company's certificate of
incorporation  and available for the purpose of issue upon such conversion,  and
(d) will not issue any  capital  stock of any class  which has the right to more
than one vote per share or any capital  stock of any class which is preferred as
to dividends or as to the  distribution  of assets upon voluntary or involuntary
dissolution, liquidation or winding-up, unless the rights of the holders thereof
shall be limited  to a fixed sum or  percentage  (or  floating  rate  related to
market  yields)  of par value or stated  value in respect  of  participation  in
dividends and a fixed sum or percentage of par value or stated value in any such
distribution of assets.

         3. Stock to be Reserved. The Company will at all times reserve and keep
available out of the  authorized  Common Stock,  solely for the purpose of issue
upon the exercise of the Warrants

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<PAGE>



as herein  provided,  such  number of  shares of Common  Stock as shall  then be
issuable  upon the  exercise of all  outstanding  Warrants  and the Company will
maintain at all times all other rights and privileges sufficient to enable it to
fulfill all its obligations hereunder.  The Company covenants that all shares of
Common  Stock  which  shall  be  so  issuable  shall,  upon  issuance,  be  duly
authorized,  validly issued, fully paid and nonassessable,  free from preemptive
or similar  rights on the part of the holders of any shares of capital  stock or
securities  of the Company or any other Person,  and free from all taxes,  liens
and charges with respect to the issue  thereof (not  including  any income taxes
payable by the holders of Warrants being exercised in respect of gains thereon),
and the  Exercise  Price will be  credited  to the  capital  and  surplus of the
Company.  The Company  will take all such action as may be  necessary  to assure
that such  shares of Common  Stock  may be so issued  without  violation  of any
applicable law or regulation,  or of any applicable requirements of the National
Association of Securities Dealers,  Inc. and of any domestic securities exchange
upon which the Common Stock may be listed.

         4. Registration of Common Stock. If any shares of Common Stock required
to be reserved  for purposes of the  exercise of Warrants  require  registration
with or approval of any  governmental  authority  under any Federal or State law
(other  than the  Securities  Act,  registration  under which is governed by the
Registration  Rights  Agreement),  before  such  shares  may be issued  upon the
exercise  thereof,  the Company  will,  at its expense and as  expeditiously  as
possible,  use its best  efforts to cause such shares to be duly  registered  or
approved,  as the case may be. Shares of Common Stock  issuable upon exercise of
the Warrants  shall be  registered by the Company  under the  Securities  Act or
similar statute then in force if required by the  Registration  Rights Agreement
and subject to the conditions stated in such agreement.  At any such time as the
Common  Stock is listed on any  national  securities  exchange  or quoted by the
Nasdaq National Market or any successor  thereto or any comparable  system,  the
Company  will,  at its  expense,  obtain  promptly and maintain the approval for
listing on each such exchange or quoting by the Nasdaq  National  Market or such
successor thereto or comparable  system,  upon official notice of issuance,  the
shares of Common Stock issuable upon exercise of the then  outstanding  Warrants
and maintain the listing or quoting of such shares after their  issuance so long
as the Common  Stock is so listed or quoted;  and the Company will also cause to
be so listed or quoted,  will register  under the Exchange Act and will maintain
such listing or quoting of, any Other  Securities  that at any time are issuable
upon  exercise of the  Warrants,  if and at the time that any  securities of the
same class shall be listed on such national securities exchange by the Company.

         5. Issue Tax. The issuance of  certificates  for shares of Common Stock
upon exercise of this Warrant shall be made without charge to the holders hereof
for any issuance tax in respect thereto.

         6.  Closing of Books.  The Company  will at no time close its  transfer
books against the transfer of any Warrant or of any share of Common Stock issued
or issuable upon the exercise of any Warrant in any manner which interferes with
the timely exercise of such Warrant.


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<PAGE>



         7. No Rights or  Liabilities  as  Stockholders.  This Warrant shall not
entitle the holder thereof to any of the rights of a stockholder of the Company,
except as expressly  contemplated  herein. No provision of this Warrant,  in the
absence of the actual exercise of such Warrant and receipt by the holder thereof
of Common Stock issuable upon such conversion,  shall give rise to any liability
on the  part of such  holder  as a  stockholder  of the  Company,  whether  such
liability shall be asserted by the Company or by creditors of the Company.

         8. Restrictive  Legends.  Except as otherwise permitted by this section
8, each  Warrant  originally  issued  and each  Warrant  issued  upon  direct or
indirect  transfer or in substitution for any Warrant pursuant to this section 8
shall be stamped  or  otherwise  imprinted  with a legend in  substantially  the
following form:

         "This Warrant and any shares acquired upon the exercise of this Warrant
         have not been registered  under the Securities Act of 1933, as amended,
         or under  state  securities  laws,  and may not be  transferred  in the
         absence of such  registration or an exemption  therefrom under such Act
         or such laws."

Except as otherwise permitted by this section 8, (a) each certificate for Common
Stock (or Other  Securities)  issued upon the exercise of any  Warrant,  and (b)
each certificate  issued upon the direct or indirect transfer of any such Common
Stock (or Other  Securities)  shall be stamped  or  otherwise  imprinted  with a
legend in substantially the following form:

         "The shares  represented by this  certificate  have not been registered
         under the Securities Act of 1933, as amended, or under state securities
         laws, and may not be transferred in the absence of such registration or
         an exemption therefrom under such Act or such laws."

The holder of any  Restricted  Securities  shall be entitled to receive from the
Company,  without  expense,  new  securities  of  like  tenor  not  bearing  the
applicable  legend set forth above in this section 8 when such securities  shall
have been (a) effectively registered under the Securities Act and disposed of in
accordance with the registration  statement covering such Restricted Securities,
(b) sold pursuant to Rule 144 or any comparable  rule under the Securities  Act,
(c)  transferred to a limited  number of  institutional  holders,  each of which
shall  have  represented  in  writing  that  it  is  acquiring  such  Restricted
Securities for investment and not with a view to the disposition thereof, or (d)
when,  in the opinion of counsel  (which may include  in-house  counsel) for the
holder thereof  experienced in Securities Act matters,  such restrictions are no
longer required in order to insure compliance with the Securities Act.

         9.  Availability of  Information.  The Company will cooperate with each
holder of any  Restricted  Securities in supplying  such  information  as may be
necessary for such holder to complete and file any  information  reporting forms
presently  or  hereafter  required  by  the  Commission  as a  condition  to the
availability  of an  exemption  from  the  Securities  Act for  the  sale of any
Restricted Securities.  The Company will furnish to each holder of any Warrants,
promptly upon their becoming

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<PAGE>



available,  copies  of all  financial  statements,  reports,  notices  and proxy
statements sent or made available  generally by the Company to its stockholders,
and copies of all regular and periodic reports and all  registration  statements
and prospectuses  filed by the Company with any securities  exchange or with the
Commission.

         10.  Information  Required  By Rule 144A.  The Company  will,  upon the
request of the holder of this  Warrant,  provide such holder,  and any qualified
institutional  buyer  designated  by  such  holder,  such  financial  and  other
information as such holder may reasonably  determine to be necessary in order to
permit  compliance  with the  information  requirements  of Rule 144A  under the
Securities Act in connection  with the resale of Warrants,  except at such times
as the Company is subject to the reporting  requirements  of Section 13 or 15(d)
of the Exchange  Act.  For the purpose of this  section 10, the term  "qualified
institutional  buyer"  shall have the meaning  specified  in Rule 144A under the
Securities Act.

         11. Registration Rights Agreement;  Participation Rights Agreement. The
holder of this Warrant and the holders of any securities issued or issuable upon
the exercise hereof are each entitled to the benefits of the Registration Rights
Agreement and the Participation Rights Agreement.

         12.      Ownership, Transfer and Substitution of Warrants.

                  12A.  Ownership of Warrants.  Except as otherwise  required by
law, the Company may treat the Person in whose name any Warrant is registered on
the register kept at the principal  office of the Company as the true and lawful
owner and holder  thereof for all  purposes,  notwithstanding  any notice to the
contrary except that, if and when any Warrant is properly assigned in blank, the
Company, in its discretion, may (but shall not be obligated to) treat the bearer
thereof  as the owner of such  Warrant  for all  purposes,  notwithstanding  any
notice to the  Company to the  contrary.  Subject  to  section 8, a Warrant,  if
properly  assigned,  may be exercised by a new holder without first having a new
Warrant issued.

                  12B. Transfer and Exchange of Warrants.  Upon the surrender of
any Warrant,  properly endorsed, for registration of transfer or for exchange at
the principal office of the Company, the Company at its expense will (subject to
compliance  with  section 8, if  applicable)  execute and deliver to or upon the
order of the holder thereof a new Warrant or Warrants of like tenor, in the name
of such holder or as such holder (upon payment by such holder of any  applicable
transfer  taxes)  may  direct,  calling  in the  aggregate  on the face or faces
thereof for the number of shares of Original Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.

                  12C.  Replacement  of  Warrants.   Upon  receipt  of  evidence
reasonably  satisfactory  to the  Company  of the loss,  theft,  destruction  or
mutilation  of any  Warrant  and,  in  the  case  of any  such  loss,  theft  or
destruction  of any Warrant  held by a Person  other than the  Purchaser  or any
institutional investor reasonably  satisfactory to the Company, upon delivery of
its  unsecured  indemnity  reasonably  satisfactory  to the  Company in form and
amount or, in the case of any such

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<PAGE>



mutilation,  upon  surrender of such Warrant for  cancellation  at the principal
office of the Company,  the Company at its expense will execute and deliver,  in
lieu thereof, a new Warrant of like tenor.

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

                  "Additional  Shares of Common  Stock"  shall  mean all  shares
(including  treasury  shares) of Common  Stock  issued or sold (or,  pursuant to
section 2C or 2D) deemed to be issued)  by the  Company  after the date  hereof,
whether or not  subsequently  reacquired  or retired by the Company,  other than
shares of Common  Stock  issued  upon the  exercise  or partial  exercise of the
Warrants.

                  "Acquiring Company" shall have the meaning specified in
Section 2I.

                  "Acquirer's Common Stock" shall have the meaning specified in
Section 2I.

                  "Affiliate" shall have the meaning specified in the Purchase
Agreement.

                  "Announcement Date" shall have the meaning specified in
Section 2I.

                  "Business  Day" shall mean any day on which banks are open for
business in New York City (other than a Saturday, a Sunday or a legal holiday in
the States of New York or New Jersey),  provided,  that any  reference to "days"
(unless Business Days are specified) shall mean calendar days.

                  "Cashless Exercise" shall have the meaning specified in
section 1F.

                  "Commission" shall mean the Securities and Exchange Commission
or any successor federal agency having similar powers.

                  "Common Stock" shall mean the Original Common Stock, any stock
into  which  such  stock  shall  have been  converted  or  changed  or any stock
resulting  from any  reclassification  of such stock and all other  stock of any
class or classes  (however  designated) of the Company the holders of which have
the right,  without limitation as to amount,  either to all or to a share of the
balance of current  dividends  and  liquidating  dividends  after the payment of
dividends and distributions on any shares entitled to preference.

                  "Company" shall mean Hallwood Energy Corporation, a Delaware
corporation.

                  "Consummation Date" shall have the meaning specified in
section 2I.


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<PAGE>



                  "Convertible   Securities"   shall  mean  any   evidences   of
indebtedness,  shares of stock  (other  than Common  Stock) or other  securities
directly or indirectly convertible into or exchangeable for Additional Shares of
Common Stock.

                  "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

                  "Exercise Price" shall have the meaning specified in
section 1A.

                  "Fair  Value"  shall mean with  respect to any  securities  or
other  property,  the fair value thereof as of a date which is within 15 days of
the date as of which the determination is to be made (a) determined by agreement
between  the  Company and the  Required  Holders,  or (b) if the Company and the
Required Holders fail to agree,  determined jointly by an independent investment
banking firm retained by the Company and by an  independent  investment  banking
firm  retained  by  the  Required  Holders,  either  of  which  firms  may be an
independent investment banking firm regularly retained by the Company, or (c) if
the  Company or the  Required  Holders  shall  fail so to retain an  independent
investment banking firm within ten Business Days of the retention of such a firm
by the Required Holders or the Company, as the case may be, determined solely by
the firm so retained, or (d) if the firms so retained by the Company and by such
holders shall be unable to reach a joint  determination  within 15 Business Days
of the retention of the last firm so retained, determined by another independent
investment  banking firm which is not a regular  investment  banking firm of the
Company chosen by the first two such firms.

                  "Initial Date" shall have the meaning specified in section 2A.

                  "Initial Exercise Price" shall have the meaning specified in
section 1A.

                  "Market  Price" shall mean on any date specified  herein,  (a)
with respect to Common Stock or to common stock (or equivalent equity interests)
of an Acquiring Person or its Parent, the amount per share equal to (i) the last
sale price of shares of Common  Stock,  regular way, or of shares of such common
stock (or  equivalent  equity  interests) on such date or, if no such sale takes
place on such date,  the average of the closing bid and asked prices  thereof on
such  date,  in each  case as  officially  reported  on the  principal  national
securities exchange on which the same are then listed or admitted to trading, or
(ii) if no  shares  of  Common  Stock or no  shares  of such  common  stock  (or
equivalent equity interests), as the case may be, are then listed or admitted to
trading on any national  securities  exchange,  the last sale price of shares of
Common  Stock,  regular  way, or of shares of such common  stock (or  equivalent
equity  interests) on such date, in each case or, if no such sale takes place on
such date,  the average of the reported  closing bid and asked prices thereof on
such date as quoted in the  Nasdaq  National  Market  or, if no shares of Common
Stock or no shares of such common stock (or equivalent equity interest),  as the
case may be, are then quoted in the Nasdaq National Market,  as published by the
National Quotation Bureau,  Incorporated or any similar successor  organization,
and in either case as reported by any member firm of the New York Stock Exchange
selected by the  Company,  or (iii) if no shares of Common Stock or no shares of
such common stock (or equivalent equity interests), as the case may be, are then
listed or admitted to

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<PAGE>



trading  on any  national  securities  exchange  or quoted or  published  in the
over-the-counter  market, the higher of (x) the book value thereof as determined
by any firm of independent public accountants of recognized standing selected by
the Board of Directors  of the  Company,  as of the last day of any month ending
within 60 days preceding the date as of which the determination is to be made or
(y) the Fair Value thereof;  and (b) with respect to any other  securities,  the
Fair Value thereof.

                  "1999 Long-Term  Incentive Plan" shall mean the 1999 Long-Term
Incentive  Plan of the  Company  pursuant to which  Options for up to  1,200,000
shares of Common Stock and 180,000 shares of preferred stock may be issued.

                  "Officer's Certificate" shall mean a certificate signed in the
name  of the  Company  by its  President,  one of  its  Vice  Presidents  or its
Treasurer.

                  "Options" shall mean rights,  options or warrants to subscribe
for,  purchase or otherwise  acquire either Additional Shares of Common Stock or
Convertible Securities.

                  "Original  Common  Stock" shall have the meaning  specified in
the opening paragraphs of this Warrant.

                  "Other  Securities"  shall mean any stock  (other  than Common
Stock) and any other securities of the Company or any other Person (corporate or
otherwise)  which the  holders of the  Warrants at any time shall be entitled to
receive, or shall have received,  upon the exercise of the Warrants,  in lieu of
or in addition to Common Stock,  or which at any time shall be issuable or shall
have been  issued in exchange  for or in  replacement  of Common  Stock or Other
Securities pursuant to section 2I or otherwise.

                  "Participation  Rights  Agreement"  shall  mean  that  certain
Participation  Rights  Agreement  dated of even date  herewith  by and among the
Purchaser,  the Company and certain  holders of the Company's  Common Stock that
are parties thereto.

                  "Person" shall mean and include an individual,  a partnership,
an association,  a joint venture,  a corporation,  a trust, a limited  liability
company,  an  unincorporated  organization and a government or any department or
agency thereof.

                  "Purchase  Agreement" shall have the meaning  specified in the
opening paragraphs of this Warrant.

                  "Purchaser" shall have the meaning specified in the opening
paragraphs of this Warrant.

                  "Registration  Rights  Agreement"  shall mean the Registration
Rights  Agreement dated of even date herewith by and between the Company and the
Purchaser.


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<PAGE>



                  "Required  Holders" shall mean the holders of at least 66 2/3%
of all the  Warrants  at the time  outstanding,  determined  on the basis of the
number of shares of Common  Stock  then  purchasable  upon the  exercise  of all
Warrants then outstanding.

                  "Restricted  Securities"  shall mean (a) any Warrants  bearing
the applicable  legend set forth in section 8 and (b) any shares of Common Stock
(or Other  Securities)  which have been issued upon the exercise of Warrants and
which are  evidenced by a certificate  or  certificates  bearing the  applicable
legend set forth in such section, and (c) unless the context otherwise requires,
any shares of Common Stock (or Other  Securities) which are at the time issuable
upon the exercise of Warrants and which, when so issued,  will be evidenced by a
certificate  or  certificates  bearing the  applicable  legend set forth in such
section.

                  "Securities Act" shall mean the Securities Act of 1933, as
amended.

                  "Transaction" shall have the meaning specified in section 2I.

                  "Warrant" shall have the meaning specified in the opening
paragraphs of this Warrant.

         14.  Remedies.  The Company  stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened  default by the
Company  in the  performance  of or  compliance  with  any of the  terms of this
Warrant  are not and  will not be  adequate  and  that,  to the  fullest  extent
permitted by law,  such terms may be  specifically  enforced by a decree for the
specific  performance  of any  agreement  contained  herein or by an  injunction
against a violation of any of the terms hereof or otherwise.

         15. Notices.  All notices and other  communications  under this Warrant
shall be in  writing  and shall be sent (a) by  registered  or  certified  mail,
return receipt requested,  (b) by telecopy if the sender on the same day sends a
conforming copy of such notice by a recognized  overnight  delivery service,  or
(c) by a recognized  overnight delivery service,  addressed (i) if to any holder
of any Warrant or any holder of any Common Stock (or Other  Securities),  at the
registered  address of such holder as set forth in the applicable  register kept
at the  principal  office  of the  Company,  or (ii) if to the  Company,  to the
attention of the Legal  Department  at its principal  office,  provided that the
exercise of any Warrant shall be effected in the manner provided in section 1.


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<PAGE>



         16.  Miscellaneous.  This  Warrant  and any term hereof may be changed,
waived,  discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.  The  agreements of the Company  contained in this Warrant other than
those  applicable  solely to the Warrants and the holders thereof shall inure to
the  benefit of and be  enforceable  by any holder or holders at the time of any
Common Stock (or Other Securities) issued upon the exercise of Warrants, whether
so expressed or not.  This Warrant shall be construed and enforced in accordance
with and governed by the laws of the State of New York. The section  headings in
this Warrant are for  purposes of  convenience  only and shall not  constitute a
part hereof.

                                     HALLWOOD ENERGY CORPORATION



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

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<PAGE>



                              FORM OF SUBSCRIPTION
                 (To be executed only upon exercise of Warrant)


To HALLWOOD ENERGY CORPORATION

                  The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder,  _____1 shares
of Common Stock of HALLWOOD ENERGY  CORPORATION,  [and herewith makes payment of
$_______________  therefor]2 [in a Cashless  Exercise  pursuant to Section 1F of
the within  Warrant]3,  and requests  that the  certificates  for such shares be
issued in the name of, and delivered to _________________________  whose address
is _________________________.


Dated:




                                 (Signature must conform in all respects to
                                name of holder as specified on the face of this
                                Warrant)




                                 (Street Address)


                 (City)                     (State)                  (Zip Code)

1        Insert here the number of shares called for on the face of this Warrant
         (or, in the case of a partial exercise, the portion thereof as to which
         this Warrant is being  exercised),  in either case  without  making any
         adjustment  for  additional  Common  Stock or any other  stock or other
         securities  or  property  or cash  which,  pursuant  to the  adjustment
         provisions of this Warrant, may be delivered upon exercise. In the case
         of a partial  exercise,  a new Warrant or  Warrants  will be issued and
         delivered, representing the unexercised portion of this Warrant, to the
         holder surrendering the same.
2 Use in  connection  with an  exercise  involving  a  delivery  of funds to the
Company. 3 Use in connection with a Cashless Exercise.

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                                                       -21-

<PAGE>



                               FORM OF ASSIGNMENT
                 (To be executed only upon transfer of Warrant)


         For value  received,  the undersigned  registered  holder of the within
Warrant hereby sells, assigns and transfers unto  _________________________  the
right represented by such Warrant to purchase  _________________________1 shares
of Common Stock of HALLWOOD ENERGY  CORPORATION,  to which such Warrant relates,
and  appoints  _________________________  Attorney to make such  transfer on the
books of HALLWOOD  ENERGY  CORPORATION,  maintained for such purpose,  with full
power of substitution in the premises.

Dated:




                                   (Signature must conform in all respects to
                                 name of holder as specified on the face of this
                                 Warrant)
                                          (Street Address)




                (City)                     (State)                  (Zip Code)

Signed in the presence of:



--------
1        Insert here the number of shares called for on the face of this Warrant
         (or, in the case of a partial exercise, the portion thereof as to which
         this Warrant is being  exercised),  in either case  without  making any
         adjustment  for  additional  Common  Stock or any other  stock or other
         securities  or  property  or cash  which,  pursuant  to the  adjustment
         provisions of this Warrant, may be delivered upon exercise. In the case
         of a partial  exercise,  a new Warrant or  Warrants  will be issued and
         delivered, representing the unexercised portion of this Warrant, to the
         holder surrendering the same.

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<PAGE>


                                    EXHIBIT A

                   AGREEMENT REGARDING INITIAL EXERCISE PRICE


         Reference is hereby made to that certain Common Stock Purchase  Warrant
dated June ____, 1999 (the "Warrant"),  relating to the right to purchase shares
of the common stock, $0.01 par value, of Hallwood Energy Corporation, a Delaware
corporation (the "Company"),  and issued to The Prudential  Insurance Company of
America ("Prudential"). Pursuant to the provisions of section 1A of the Warrant,
the Company and Prudential  agree that the Initial Exercise Price (as defined in
the  Warrant)  has  been  determined  as  provided  in  such  section  1A and is
$__________.


June __, 1999


                                      HALLWOOD ENERGY CORPORATION



                                      By:
                                      Name:_______________________________
                                      Title:__________________________


                                      THE PRUDENTIAL INSURANCE COMPANY OF
                                      AMERICA

                                      By:
                                      Vice President


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<PAGE>