<PAGE>

                                  [LETTERHEAD]


                      IN THE UNITED STATES BANKRUPTCY COURT
                       FOR THE SOUTHERN DISTRICT OF TEXAS
                                 LAREDO DIVISION

IN RE:                          )
                                )
MICHAEL PETROLEUM               )
CORPORATION,                    )     CASE NO. 99-50569-11
MICHAEL PETROLEUM               )
ALPHA CORPORATION,              )     CASE NO. 99-50570-11
MICHAEL HOLDINGS, INC.,         )     CASE NO. 99-50571-11
                                )
         DEBTORS                )     Jointly Administered under No.99-50569

                  --------------------------------------------

    DEBTORS' FIRST MODIFICATION UNDER 11 U.S.C. SECTION 1127(a) OF DEBTORS'
         SECOND AMENDED JOINT PLAN OF REORGANIZATION DATED JUNE 12, 2000

--------------------------------------------------------------------------------

THIS FIRST MODIFICATION HAS BEEN PREPARED PURSUANT TO 11 U.S.C. SECTION
1127(a) BY MICHAEL PETROLEUM CORPORATION ("MPC"), MICHAEL PETROLEUM ALPHA
CORPORATION ("MPA"), AND MICHAEL HOLDINGS, INC. ("MHI") (TOGETHER, THE
"DEBTORS" AND EACH INDIVIDUALLY A "DEBTOR") AS DEBTORS AND
DEBTORS-IN-POSSESSION, AND DESCRIBES CERTAIN PRECONFIRMATION IMMATERIAL
MODIFICATIONS TO THE DEBTORS' SECOND AMENDED JOINT PLAN OF REORGANIZATION
DATED JUNE 12, 2000 (THE "PLAN"). ANY TERM USED IN THIS FIRST MODIFICATION
THAT IS NOT DEFINED HEREIN HAS THE MEANING ASCRIBED TO THAT TERM IN THE PLAN.

        1. This First Modification is filed by the Debtors in order to (a)
specifically provide for treatment, within Class 3, of four previously,
inadvertently omitted secured creditors (with the treatment of these four
secured creditors being "unimpaired" as contemplated in section 1124 of the
Bankruptcy Code);


DEBTORS' FIRST MODIFICATION UNDER 11 U.S.C. SECTION 1127(a) OF DEBTORS' SECOND
AMENDED JOINT PLAN OF REORGANIZATION DATED JUNE 12, 2000                  Page 1
<PAGE>

(b) clarify any possible ambiguity with regard to the unimpaired treatment of
the Class 3 Claims of the Mineral Contractors and Mineral Subcontractors and
with regard to the impaired treatment of Class 6C under the Plan; and (c)
make certain immaterial technical corrections to Section 1.27 and Section
7.02(h) of the Plan.

         2. The Debtors began solicitation of the Plan on June 19, 2000
pursuant to the Order (i) Approving Disclosure Statement; (ii) Setting Date
for Confirmation Hearing and Fixing Deadlines for Voting on and Objecting to
the Plan; and (iii) Establishing and Approving Procedures Relating to the
Solicitation of Acceptances and Rejections of the Plan (the "Disclosure
Statement Order") entered June 15, 2000.

        3. Pursuant to the Disclosure Statement Order, Class 3 (among others)
is unimpaired. Therefore, none of the Holders of Claims in such Class is
entitled to vote on the Debtors' Plan. Class 6C is impaired, but Holders of
Claims and Interests will receive a distribution of Reorganized MPC Common
Stock under the Plan which WILL NOT impact the recovery of Unsecured
Creditors as this stock comes solely out of EnCap's ownership interest in
Reorganized MPC.

         4. The Plan is set for confirmation on July 27, 2000 at 9:30 a.m.
The last day for Holders of Claim or Interests that are entitled to vote on
the Plan to submit Ballots is July 21, 2000.

         5. Under the Plan, Class 3 was described as follows in Section 3.03
of the Plan:

         CLASS 3 - ALLOWED SECURED CLAIMS OF MINERAL CONTRACTORS AND MINERAL
         SUBCONTRACTORS. Class 3 consists of the Allowed Secured Claims of
         Mineral Contractors and Mineral Subcontractors against MPC. Class 3
         is not impaired.

         6. The treatment of Holders of Claims in Class 3 under the Plan was set
forth in in Section 4.03,

which provided as follows:

         CLASS 3 - ALLOWED SECURED CLAIMS OF MINERAL CONTRACTORS AND MINERAL
         SUBCONTRACTORS. Each Mineral Contractor and Mineral Subcontractor with
         a valid and properly perfected pre-


DEBTORS' FIRST MODIFICATION UNDER 11 U.S.C. SECTION 1127(a) OF DEBTORS' SECOND
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         petition lien on any Assets of the Debtors shall be paid in full in
         Cash the Allowed Amount of its Secured Claim in full satisfaction and
         discharge of its lien on the Effective Date (or as soon thereafter as
         is practicable). The Allowed Amount of such Mineral Contractor or
         Mineral Subcontractor's Secured Claim shall be determined by the value
         of the Assets of the Debtors to which such lien attaches. To the extent
         the amount of any Mineral Contractor or Mineral Subcontractor's Claim
         exceeds the value of the Assets to which such lien attaches, such
         Mineral Contractor or Mineral Subcontractor will have a Class 4 or
         Class 5 Claim, as applicable or elected, for the amount of the
         deficiency. Any Mineral Contractor or Mineral Subcontractor that does
         not hold a valid and properly perfected pre-petition lien on any Assets
         of the Debtors will be treated as a Class 4 or 5 Creditor, as
         applicable or elected.

        7. The treatment of Holders of Claims and Interests in Class 6 under the
Plan was set forth in in Section 4.06 as follows:

         CLASS 6 - ALLOWED INTERESTS AND ALLOWED CLAIMS, IF ANY, RELATING
         THERETO. The MPC, MPA and MHI Common Stock shall be canceled,
         extinguished, and of no further force and effect as of the Effective
         Date (or as soon thereafter as is practicable). The Holders of Allowed
         Interests and Claims in Classes 6A and 6B will not receive any
         distribution on account of their Allowed Interests or Claims. If
         Classes 4 and 5 vote to accept the Plan, the Holders of Allowed
         Interests and Claims in Class 6C will receive 4.386% of the shares of
         Reorganized MPC Common Stock which are issued on the Effective Date.
         The shares of Reorganized MPC Common Stock to be distributed to the
         Class 6C Interest Holders will only come from that portion of the
         Private Equity Issue which would otherwise be distributed to MPAC, and
         NOT from that portion of the Private Equity Issue to be distributed to
         any Electing Class 4 Creditor. If Classes 4 and/or 5 vote to reject the
         Plan, the Holders of Allowed Interests and Claims in Class 6C will not
         receive any distribution.

        8. Section 1127(a) of the Bankruptcy Code provides that a "proponent
of a plan may modify such plan at any time before confirmation, but may not
modify such plan so that the plan as modified fails to meet the requirements
of section 1122 and 1123" of the Bankruptcy Code. Section 1127(a) further
provides that "[a]fter the proponent of a plan files a modification of such
plan with the court, the plan as modified becomes the plan."

         9. Additionally, Fed. R. Bankr. P. 3019 provides that, in a chapter
11 case, after a plan has been accepted and before its confirmation, the
proponent of a plan may file a modification of the plan, if the court finds,
after notice and hearing, that the proposed modification does not adversely
change the treatment of the claim of any creditor who has not accepted the
modification in writing.


DEBTORS' FIRST MODIFICATION UNDER 11 U.S.C. SECTION 1127(a) OF DEBTORS' SECOND
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         10. INADVERTENTLY OMITTED SECURED CREDITORS. Since the filing of the
Plan, the Debtors have determined that the Debtors have a few secured creditors,
other than Christiana Bank, who are not Mineral Contractors or Mineral
Subcontractors and therefore, are not included in Class 3 as currently defined.
These secured creditors are:

<TABLE>
<CAPTION>

SECURED CREDITOR                                                      COLLATERAL                 AMOUNT OWED
---------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                       <C>
Frost National Bank ("Frost")                                           truck                       $4,703
General Motors Acceptance Corp. ("GMAC")                                suburban                 $5,281.41
Primus Automotive d/b/a Jaguar Credit Corp. ("Primus")                  auto                    $18,417.73
Lanier Worldwide ("Lanier")                                             copier                      $5,367

</TABLE>

Frost, GMAC, Primus and Lanier will be referred to herein as the "Other
Secured Creditors." The Debtors were not in default to the Other Secured
Creditors prior to the Petition Date, and have continued to pay them in the
ordinary course in accordance with the terms of the contracts between the
Debtors and the Other Secured Creditors during the chapter 11 Case. After
confirmation, Reorganized MPC intends to continue to pay the Other Secured
Creditors in the ordinary course in accordance with the terms of their
contracts.

       11. The Other Secured Creditors have received notice of the Debtors'
Case. Although the Other Secured Creditors are not impaired under the
Debtors' Plan, it is technically necessary to create a separate Class for
each of the Other Secured Creditors so that their treatment under the Plan
can be disclosed and they can be so informed. Therefore, pursuant to Section
1127(a) of the Bankruptcy Code, the following sections of the Plan are hereby
modified as follows (changes are highlighted in gray):

         3. 03    CLASS 3 - ALLOWED CLAIMS OF CREDITORS WITH SECURED CLAIMS.

                  (a)      CLASS 3A: ALLOWED SECURED CLAIMS OF MINERAL
                           CONTRACTORS AND MINERAL SUBCONTRACTORS. Class 3A
                           consists of the Allowed Secured Claims of Mineral
                           Contractors and Mineral Subcontractors against MPC.
                           Class 3A is not impaired.

                  (b)      CLASSES 3B(1)-(4): ALLOWED SECURED CLAIMS OF OTHER
                           SECURED CREDITORS. Classes 3B(1)-(4) consist of the
                           Allowed Claim of the identified Creditor with a
                           Secured Claim, other than Christiania, Mineral
                           Contractors and Mineral Subcontractors. Classes
                           3B(1)-


DEBTORS' FIRST MODIFICATION UNDER 11 U.S.C. SECTION 1127(a) OF DEBTORS' SECOND
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                           (4) are not impaired. Each Other Secured Creditor
                           shall be deemed to be in its own Class as follows:

                                    Class 3B(1): Frost
                                    Class 3B(2): GMAC
                                    Class 3B(3): Primus
                                    Class 3B(4): Lanier


         4.03     CLASS 3 - ALLOWED CLAIMS OF CREDITORS WITH SECURED CLAIMS.

                  (a)      CLASS 3A: ALLOWED SECURED CLAIMS OF MINERAL
                           CONTRACTORS AND MINERAL SUBCONTRACTORS. Each Mineral
                           Contractor and Mineral Subcontractor with a valid and
                           properly perfected lien on any Assets of the Debtors
                           for labor or services provided pre-petition in
                           connection with Mineral Activities shall be paid in
                           full in Cash the Allowed Amount of its Secured Claim
                           in full satisfaction and discharge of its lien on the
                           Effective Date (or as soon thereafter as is
                           practicable). The Allowed Amount of such Mineral
                           Contractor or Mineral Subcontractor=s Secured Claim
                           shall be determined by the value of the Assets of the
                           Debtors to which such lien attaches. To the extent
                           the amount of any Mineral Contractor or Mineral
                           Subcontractor=s Claim exceeds the value of the Assets
                           to which such lien attaches, such Mineral Contractor
                           or Mineral Subcontractor will have a Class 4 or Class
                           5 Claim, as applicable or elected, for the amount of
                           the deficiency. Any Mineral Contractor or Mineral
                           Subcontractor that does not hold a valid and properly
                           perfected lien on any Assets of the Debtors for labor
                           or services provided pre-petition in connection with
                           Mineral Activities will be treated as a Class 4 or 5
                           Creditor, as applicable or elected.


                  (b)      CLASSES 3B(1)-(4): ALLOWED SECURED CLAIMS OF OTHER
                           SECURED CREDITORS. Any Holder of an Allowed Secured
                           Claim in Classes 3B(1)-(4) will continue to receive
                           payments in the ordinary course under and in
                           accordance with the terms of the applicable contract
                           or agreement between the Debtors and the Holder of
                           the Allowed Secured Claim in such Class. The Plan
                           leaves unaltered the legal, equitable and contractual
                           rights to which the Holder of each Secured Claim in
                           Classes 3B(1)-(4) is entitled. To the extent the
                           contract or agreement between the Holder of a Secured
                           Claim in Classes 3B(1)- (4) and the Debtors could be
                           considered a lease or executory contract, such lease
                           or executory contract is hereby deemed assumed by
                           Reorganized MPC. The lien of any Holder of an Allowed
                           Secured Claim in Classes 3B(1)-(4) will be retained
                           until such time as the Allowed Secured Claim is paid
                           in full.


DEBTORS' FIRST MODIFICATION UNDER 11 U.S.C. SECTION 1127(a) OF DEBTORS' SECOND
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         12. CLARIFICATION WITH REGARD TO CLAIMS OF CLASS 3A MINERAL
CONTRACTORS AND SUBCONTRACTORS. Note that, in addition, to creating separate
sub-Classes (Classes 3B(1)-(4)) for each of the previously omitted Other
Secured Creditors so that their treatment under the Plan can be disclosed and
they can be so informed, this First Modification also makes slight changes to
Section 4.03 of the Plan to clarify any ambiguity with regard to the Claims
of Mineral Contractors and Mineral Subcontractors (now in Class 3A, formerly
Class 3). The treatment of creditors in Class 3A (former Class 3) is
unchanged. The change made in Section 4.03 does not change any treatment of
the liens of Mineral Contractors and Mineral Subcontractors, but merely
clarifies, in recognition of applicable Texas law, that a lien for services
and materials provided PRE-PETITION could have been perfected POST-PETITION.

         13. CLARIFICATION WITH REGARD TO CLASS 6C INTERESTS. Additionally,
in order to correct any possible ambiguity in the treatment of Holders of
Claims and Interests in Class 6C set forth in Section 4.06, and to take into
account the changes made in the Plan by the Supplemental Disclosure Statement
approved by the Court by order entered on June 30, 2000, Section 4.06 is
modified as follows:

                  CLASS 6 - ALLOWED INTERESTS AND ALLOWED CLAIMS, IF ANY,
                  RELATING THERETO. The MPC, MPA and MHI Common Stock shall be
                  canceled, extinguished, and of no further force and effect as
                  of the Effective Date (or as soon thereafter as is
                  practicable). The Holders of Allowed Interests and Claims in
                  Classes 6A and 6B will not receive any distribution on account
                  of their Allowed Interests or Claims. Holders of Allowed
                  Interests and Claims in Class 6C will receive 4.386% of the
                  shares of Reorganized MPC Common Stock which are issued on the
                  Effective Date, except that no Holder of any options or
                  warrants with the right to acquire MHI Common Stock shall
                  share in this Class 6C distribution, simply by virtue of the
                  Holder's mere ownership of such options and warrants, unless
                  such Holder has exercised its options or warrants, in
                  accordance with their respective contractual terms, prior to
                  the Effective Date.d the shares of Reorganized MPC Common
                  Stock to be distributed to the Class 6C Interest Holders will
                  only come from that portion of the Private Equity Issue which
                  would otherwise be distributed to MPAC, and NOT from that
                  portion of the Private Equity Issue to be
                  distributed to any Electing Class 4 Creditor.


DEBTORS' FIRST MODIFICATION UNDER 11 U.S.C. SECTION 1127(a) OF DEBTORS' SECOND
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         14. The change made in Section 4.06 does not alter the existing
rights of the Holders of any Claims and Interests in Class 6C with
unexercised stock options and warrants.

         15. IMMATERIAL, TECHNICAL CORRECTIONS. Finally, two immaterial
technical corrections are needed with regard to one defined term in the Plan
and one "condition to Effective Date." Section 1.27 of the Plan sets forth a
definition for the "Credit Facility" that will be entered into by the
Reorganized MPC as of the Effective Date. Among other things, Section 1.27
specifies the "New Lenders" on such facility. Section 1.27 needs to be
modified because (a) one of the New Lenders was inadvertently omitted; (b)
another one of the New Lenders has changed its name; and (c) the full name of
one of the New Lenders was not utilized. Accordingly, Section 1.27 of the
Plan shall be modified as follows:

         1.27 CREDIT FACILITY means the $55 million Senior Secured Reducing
Revolver Credit Facility to be entered into by Reorganized MPC with BNP
Paribas, Bank One, Texas, N.A., Union Bank of California and Bank of Scotland
(collectively, the "New Lenders") on the Effective Date.

         16. Also, Section 4.02(h) needs to be modified since it provides
that it is a "Condition to the Effective Date" that the "Closing shall occur
before July 31, 2000." This date is no longer achievable since, among other
reasons, the Confirmation Hearing is scheduled for July 27, 2000.
Accordingly, Section 4.02(h) shall be modified as follows:

                  4.02(h)   The Closing shall have occurred.

         This technical change to Section 4.02(h) is not material since: (a)
this Condition that the Closing occur before July 31, 2000 was also waivable
(see Section 4.03); and (b) the Closing will still occur within fifteen days
of the Confirmation Date pursuant to Section 1.35 of the Plan.

         17. The Plan modifications set forth above comply with the
requirements of Sections 1122 and 1123 of the Bankruptcy Code. The
classification of Holders of Secured Claims who are Mineral Contractors and
Mineral Subcontractors in Class 3A and other Holders of Other Secured Claims
in Classes 3B(1)-(4) satisfies the "substantially similar" requirement of
Section 1122. Additionally, the Plan modifications set

DEBTORS' FIRST MODIFICATION UNDER 11 U.S.C. SECTION 1127(a) OF DEBTORS' SECOND
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forth above satisfy the requirements of Section 1123 of the Bankruptcy Code
by providing treatment of an unintentionally omitted class of creditors (now
Classes 3B(1)-(4)) and specifying that such Classes are unimpaired.

         18. The modification to Class 6C does not alter the treatment of
Class 6C, but merely corrects a possible ambiguity and conforms Section 4.06
with the Supplemental Disclosure Statement, the definition of "Interest" set
forth in Section 1.44 of the Plan, the definition of MHI Common Stock set
forth in Section 1.53 of the Plan, and the definition of Holders of Claims
and Interests in Class 6C set forth in Section 3.06 of the Plan.

       19. Furthermore, the Plan modifications set forth above comply with
Fed. R. Bankr. P. 3019 in that the proposed modification does not adversely
change the treatment of the claim of any creditor who has not accepted the
modification in writing, such written acceptance being unnecessary in that
such class is unimpaired. The treatment of creditors in Class 3A (former
Class 3) is unchanged. The change made in Section 4.03 does not change any
treatment of the liens of Mineral Contractors and Mineral Subcontractors, but
merely clarifies, in recognition of applicable Texas law, that a lien for
services and materials provided pre- petition could have been perfected
post-petition. The change made in Section 4.06 does not alter the existing
rights of the Holders of any Claims and Interests in Class 6C with
unexercised stock options and warrants.

       20. The Plan modifications set forth above are immaterial and do not
change in any way the amount, timing or certainty of any of the consideration or
value that is going to the creditors in such classes as modified.


DEBTORS' FIRST MODIFICATION UNDER 11 U.S.C. SECTION 1127(a) OF DEBTORS' SECOND
AMENDED JOINT PLAN OF REORGANIZATION DATED JUNE 12, 2000                  Page 8
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         RESPECTFULLY SUBMITTED THIS 18TH DAY OF JULY, 2000.

                                            MICHAEL PETROLEUM ALPHA CORPORATION
                                            MICHAEL PETROLEUM CORPORATION
                                            MICHAEL HOLDINGS, INC.


                                            By:      /s/ Glenn D. Hart
                                                     ---------------------------
                                                     Glenn D. Hart
                                                     Chief Executive Officer


















DEBTORS' FIRST MODIFICATION UNDER 11 U.S.C. SECTION 1127(a) OF DEBTORS' SECOND
AMENDED JOINT PLAN OF REORGANIZATION DATED JUNE 12, 2000                  Page 9
<PAGE>

                             CERTIFICATE OF SERVICE

         I, Stacey Jernigan, hereby certify that on the 20th day of July,
2000, I caused a copy of the Debtors' First Modification Under 11 U.S.C.
Section 1127(a) of Debtors' Second Amended Joint Plan of Reorganization Dated
June 12, 2000 to be served on the individuals listed on the attached service
lists via First Class U.S. Mail, postage prepaid, which service lists
collectively include: (a) the Master Service List in this case; (b) the list
of Class 3A Secured Mineral Contractors and Subcontractors and their known
counsel; (c) the list of Class 3B(1)-(4) "Other Secured Creditors"; and (d)
the holders of Class 6C Interests and Claims.


                                                    /s/ Stacey Jernigan
                                                    ----------------------------
                                                    Stacey Jernigan, Esq.
                                                    Texas State Bar No. 10652200
                                                    Haynes and Boone, LLP














DEBTORS' FIRST MODIFICATION UNDER 11 U.S.C. SECTION 1127(a) OF DEBTORS' SECOND
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