1


                                            Hallwood Energy Corporation




To:  Brokers, Banks and Other Nominees

Ladies and Gentlemen:

         Enclosed is a copy of materials  relating to an Offer being made by The
Hallwood Group  Incorporated to Shareholders of Hallwood Energy Corporation (the
"Company").  Hallwood Group has commenced a tender offer to purchase any and all
outstanding  shares of the Company's common stock at a price of $19.50 per Share
in cash. We refer you to the enclosed  materials for the terms and conditions of
the Offer.  You may obtain  additional  copies of all  materials  by  contacting
Hallwood  Petroleum,  Inc., the  Depositary for the Offer,  at: P.O. Box 378111,
4582 South Ulster Street Parkway,  Suite 1700,  Denver,  Colorado  80237,  phone
(800) 882-9225.

         Since you are the  holder of  record,  in order to  participate  in the
Offer on behalf of your  clients,  you  should  complete,  execute  and mail the
Letter of  Transmittal  (containing  the  Certificate  of Broker,  Bank or other
Nominee)  that is enclosed with this letter to Hallwood  Petroleum,  Inc. at the
address above, together with the Share certificate(s)  tendered. You should mail
the  certificate(s) as soon as practicable after you receive  authorization from
your clients,  together with a Broker Letter of Transmittal  for the Offer.  All
documents  must be  received  on or  before  November  22,  1996,  which  is the
expiration date for the Offer, unless it is extended.

                              The CUSIP Number is:

                                   40636M 208

         The  Depositary  agrees to reimburse you for the  customary  reasonable
expenses of solicitation of your clients.  Your reimbursement  request should be
submitted through Hallwood Petroleum, Inc., attn:
Monica Dozier.  We appreciate your cooperation in this matter.

                                   Very truly yours,

                                   HALLWOOD PETROLEUM, INC.
                                   Depositary for Hallwood Energy Corporation



Enclosures:
         Letter to the Shareholders with Questions and Answers Section
         Client Letter to Beneficial Owners
         Broker Letter of Transmittal for the Offer
         Offer to Purchase
         14D-9
         Hallwood  Energy  Corporation  1995 10-K,  June 30, 1996 10-Q and Proxy
         Statement dated March 31, 1996