Document:

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                                                                   EXHIBIT 10.20

                            INTERCREDITOR AGREEMENT

     THIS INTERCREDITOR AGREEMENT (the "Agreement") dated as of ___________,
                                        ---------
1999 is entered into among MIDDLE BAY OIL COMPANY, INC. ("Borrower"),  BANK ONE,
                                                          --------
TEXAS, N.A., as agent for any holder of a Note under the Senior Loan Agreement
("Senior Lender") and SHOEINVEST II, LP ("Subordinated Lender").
  -------------                           -------------------

                              W I T N E S S E T H:

     WHEREAS, Borrower, the Lenders under the Senior Loan Agreement (the
"Lenders") and Senior Lender entered into that certain Restated Credit Agreement
 -------
dated of even date herewith (the "Senior Loan Agreement") pursuant to which the
                                  ---------------------
Lenders agreed to provide Borrower with a $250,000,000 revolving credit
facility; and

     WHEREAS, Borrower and Subordinated Lender entered into a Securities
Purchase Agreement dated July 1, 1999 (the "Subordinated Loan Agreement"),
                                            ---------------------------
pursuant to which Borrower issued and Subordinated Lender purchased a certain
$10,700,000 Senior Subordinated Note dated August 27, 1999 (the "Subordinated
                                                                 ------------
Note"); and
----

     WHEREAS, the indebtedness evidenced by the Subordinated Note and all
obligations of Borrower under the Subordinated Loan Agreement are herein called
the "Subordinated Debt;" and
     -----------------

     WHEREAS, to induce the Lenders and the Senior Lender to enter into the
Senior Loan Agreement, the Borrower and the Subordinated Lender have agreed to
enter into this Agreement with the Senior Lender to subordinate the rights of
the Subordinated Lender to the rights of the Lenders and the Senior Lender as
provided herein.

     NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

     1.   Subordination of Subordinated Debt.  The payment of the Subordinated
          -----------------------------------
Debt is expressly subordinated to the prior payment in full in cash of the
Senior Debt to the extent and in the manner set forth in this Agreement.  Except
as provided in Section 3 and Section 4 of this Agreement, the Borrower and
Subordinated Lender hereby postpone and subordinate the Subordinated Debt to all
Senior Debt.  The Borrower and Subordinated Lender agree that so long as the
Senior Loan Agreement is in effect and thereafter until the Senior Debt is paid
in full in cash and, except as provided in Section 3 and Section 4 of this
Agreement, Subordinated Lender will not demand, take or receive from the
Borrower, in cash or property or by set-off or in any other manner, payment of
or on account of, and the Borrower will not pay, the whole or any part of the

INTERCREDITOR AGREEMENT - Page 1
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Subordinated Debt.  As used herein, the term "Senior Debt" shall include any and
                                              -----------
all obligations owed to the Lenders and the Senior Lender by Borrower pursuant
to the Senior Loan Agreement and the Notes issued in connection therewith,
including principal, interest, post-petition interest during any bankruptcy
proceeding (whether or not allowed or allowable by a court), fees, expenses,
obligations on letters of credit, obligations relating to derivatives and any
other amount due or to become due under the Senior Loan Agreement and Notes.
Subordinated Lender expressly acknowledging that such Senior Debt includes
indebtedness between the Borrower and the Lenders or the Senior Lender hereafter
created or arising under the Senior Loan Agreement, and any and all renewals and
extensions of all or any part of such indebtedness and liabilities.

     2.   Security for Subordinated Debt.  The parties agree that the
          -------------------------------
Subordinated Debt shall be unsecured.

     3.   Payment of Credit Interest on Subordinated Debt.  The provisions of
          ------------------------------------------------
Section 1 hereof notwithstanding, the Borrower may pay and Subordinated Lender
may receive the interest  (the "Credit Interest") which is due and payable on
                                ---------------
the Subordinated Debt if (a) the full payment of all amounts then due and
payable on the Senior Debt have been made or duly provided for in accordance
with the Senior Loan Agreement, and (b) a Subordination Event (as defined below)
has not occurred or would not occur as a result of such payment.  Upon the
occurrence of a Subordination Event, all claims of Subordinated Lender to the
Credit Interest shall be subordinated to the prior payment in full of the Senior
Debt, and all further payments of Credit Interest to Subordinated Lender shall
immediately cease.  After the occurrence of a Subordination Event, the payment
of Credit Interest by the Borrower to Subordinated Lender may resume only if the
Subordination Event has been cured to the satisfaction of the Senior Lender or
waived in writing by Senior Lender (which waiver includes an express permission
to pay such Credit Interest). "Subordination Event" means the occurrence of
                               -------------------
either (a) a Default or Event of Default for which Senior Lender has sent
written notice of such Default or Event of Default (other than an Event of
Default specified in Section 14(f) or (g) of the Senior Credit Agreement for
which no such notice need be sent) to Borrower (a "Default Notice") or (b) a
                                                   --------------
Borrowing Base deficiency under the Senior Loan Agreement.  Notwithstanding the
above, if within one hundred eight (180) days after the sending of such Default
Notice by Senior Lender such Default or Event of Default has not become the
subject of (a) judicial proceedings or (b) an acceleration notice by Senior
Lender, then Borrower (unless in such interval the provisions of this Section 3
have come into effect on account of any other Default or Event of Default that
did not exist on the date of any prior Default Notice) shall resume paying, and
Subordinated Lender shall be entitled to receive, Credit Interest until such
time (if any) that such judicial proceedings are instituted, such acceleration
notice is given or a Default Notice (on account of any other Default or Event of
Default) is given and a period of one hundred eighty (180) days shall not have
elapsed since the giving of such Default Notice as contemplated above.

     4.   Prepayment of Principal on the Subordinated Debt.  The provisions of
          -------------------------------------------------
Section 1 hereof notwithstanding, a part or all of the principal balance of the
Subordinated Debt may be paid (the "Note Payment"), (a) if the Senior Debt has
been paid in full in cash and all commitments of the

INTERCREDITOR AGREEMENT - Page 2
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Banks under the Senior Loan Agreement to make advances or lend money have
terminated, or (b) with the prior written consent of the Lenders.

     5.   Restriction on Other Actions.  Prior to the payment in full in cash of
          ----------------------------
the Senior Debt and the termination of all commitments of the Lenders under the
Senior Loan Agreement, Subordinated Lender shall not take any action to declare
the Subordinated Note due or in default, collect or accelerate the Subordinated
Debt or exercise any remedies in respect of the Subordinated Debt set forth in
the Subordinated Loan Agreement or that may otherwise be available to
Subordinated Lender, either at law or in equity, including but not limited to
initiating any plan or proceeding pursuant to any bankruptcy, insolvency, or
receivership proceeding, or seeking an assignment for the benefit of creditors
or the marshalling of the assets and liability of the Borrower.

     6.   Proof of Claim/Power of Attorney.  In the event of any liquidation,
          ---------------------------------
conservatorship, bankruptcy, reorganization, rearrangement, debtor's relief, or
other insolvency proceedings affecting the Borrower, the Subordinated Lender
will at the Senior Lender's request and at Subordinated Lender's expense file
any claims, proofs of claim, or other instruments of similar character necessary
to enforce the obligations of the Borrower in respect of the Subordinated Debt
and will hold in trust for the Senior Lender and pay over to the Senior Lender,
in the form received, to be applied on the Senior Debt, any and all moneys,
dividends, or other assets received in any such proceedings on account of the
Subordinated Debt, unless and until the Senior Debt shall be paid in full.

     7.   Payments Held in Trust.  Except to the extent that Credit Interest is
          -----------------------
permitted to be paid to Subordinated Lender pursuant to the terms of Section 3
hereof or a Note Payment is permitted to be paid to Subordinated Lender pursuant
to the terms of Section 4 hereof, should Subordinated Lender receive any payment
or distribution from the Borrower upon or with respect to the Subordinated Debt,
Subordinated Lender will forthwith deliver the same to the Senior Lender, in
precisely the form received (except for endorsement or assignment of
Subordinated Lender where necessary), for application on the Senior Debt and,
until so delivered, the same shall be held in trust by Subordinated Lender as
the Senior Lender's property.  In the event of the failure of Subordinated
Lender to make any such endorsement or assignment, the Agent is hereby
irrevocably authorized to make the same.

     8.   No Modification of Subordinated Debt.  The Borrower and Subordinated
          -------------------------------------
Lender agree not to renew, extend, modify or amend in any material respect the
Subordinated Debt or any instrument or agreement documenting or securing the
Subordinated Debt without the prior written consent of the Senior Lender.
Notwithstanding the foregoing, Borrower may, without the consent of Senior
Lender, (a) extend the date on which payments are required under the
Subordinated Note, (b) reduce the interest rate applicable to the Subordinated
Note, (c) waive compliance with the terms of the Subordinated Note or loan
documents associated therewith or any default arising from non-compliance or (d)
relax or make less restrictive any covenant in the Subordinated Note or loan
documents associated therewith.  Notwithstanding any provision of this Agreement
to the contrary,

INTERCREDITOR AGREEMENT - Page 3
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(i) Subordinated Lender may convert the Subordinated Note or a portion of such
note into shares of common stock of Borrower at any time in accordance with the
terms of such note, and (ii) the holder of a stock purchase warrant issued
pursuant to the Subordinated Loan Agreement may exercise any such warrant, in
whole or in part, for shares of common stock of Borrower in accordance with the
terms of such warranty (provided such exercise shall not involve the payment of
any cash by Borrower).

     9.   Waivers and Consents.  The Senior Lender, the Lenders and Borrower may
          ---------------------
at any time and from time to time extend, renew or otherwise alter, as the
Senior Lender and Borrower may deem proper, the terms of any or all of the
Senior Debt or of any security therefor or of any agreement providing therefor
or relating to the Senior Debt or to such security, or accelerate the maturity
of any or all of the Senior Debt in accordance with the terms thereof or of any
agreement among the Senior Lender, the Lenders and Borrower, and the Senior
Lender may exchange, sell, surrender, release, fail to resort to or realize upon
or otherwise deal with any or all security for the Senior Debt, or release or
fail to resort to or enforce guaranties or endorsements of, or of the
liabilities of any obligors liable upon, the Senior Debt or release or fail to
set-off any balance of funds of the Borrower with the Senior Lender or under the
Senior Lender's control, and generally deal with the Borrower and all guarantors
and endorsers of, and all obligors liable upon, the Senior Debt, as the Senior
Lender sees fit, all without notice to or consent of Subordinated Lender and
without affecting to any extent any obligation or liability of Subordinated
Lender, or any of the Senior Lenders' or any Lender's rights, hereunder.
Without in any way limiting the foregoing, Subordinated Lender understands and
agrees that the Senior Lender shall have uncontrolled power and discretion,
without notice to Subordinated Lender, to deal in any manner with any
indebtedness, interest, cost and expenses payable by or liability of the
Borrower to the Lenders or the Senior Lender and any security or guaranties
therefor.  Subordinated Lender hereby waives and agrees not to assert against
the Senior Lender or any Lender any rights which a guarantor or surety could
exercise, and nothing in this Agreement shall be deemed to constitute
Subordinated Lender as a guarantor or a surety.  Subordinated Lender further
consents and agrees to any action taken or omitted to be taken with respect to
the Senior Loan Agreement, the Senior Loan Documents, the Senior Debt, and the
security and collateral therefor, whether or not such action or omission
prejudices Subordinated Lender or increases the likelihood that the Subordinated
Debt will not be paid, and whether or not such circumstance might otherwise
constitute a defense available to, or a discharge of, the Borrower or
Subordinated Lender.

     10.  Subrogation.  No payment or distribution to the Senior Lender pursuant
          -----------
to the provisions of this Agreement shall entitle Subordinated Lender to
exercise any rights of subrogation in respect hereof until all of the Senior
Debt shall have been irrevocably and unconditionally paid in full in cash.

     11.  Further Assurances.  The Borrower and Subordinated Lender agree that
          -------------------
any note representing the Subordinated Debt shall be stamped with a statement
referring to the existence of this Agreement.  The Borrower and Subordinated
Lender each will, at its expense and from time to

INTERCREDITOR AGREEMENT - Page 4
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time, promptly execute and deliver all further instruments and documents, and
take all further action that may be necessary or desirable, or that the Senior
Lender may reasonably request, in order to protect any right or interest granted
or purported to be granted hereby or to enable the Senior Lender to exercise and
enforce its rights and remedies hereunder.

     12.  Representations.  Subordinated Lender warrants and represents to the
          ----------------
Senior Lender that (a) it has the power and authority to execute, deliver and
carry out the terms of this Agreement, (b) it has taken all necessary action to
authorize the execution and delivery of this Agreement, (c) this Agreement has
been duly executed and delivered by Subordinated Lender and constitutes the
legal, valid and binding obligation of Subordinated Lender enforceable in
accordance with its terms except to the extent that the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally, and (d) attached
hereto as Exhibit "A" is a true and correct copy of the Subordinated Note.
          -----------

     13.  Costs and Expenses.  Borrower agrees to pay, on demand, to the Senior
          -------------------
Lender all costs and expenses (including court costs and reasonable attorneys'
fees) incurred by any Lenders or the Senior Lender in the enforcement of this
Agreement.

     14.  Binding Effect.  This Agreement shall be immediately binding on the
          ---------------
Senior Lender, Borrower and Subordinated Lender and the successors and assigns
of the Senior Lender, the Lenders, Borrower and Subordinated Lender, and the
covenants of Subordinated Lender and the Borrower in favor of the Senior Lender
and the Lenders contained herein shall extend to, include, and be enforceable
by, any transferee, assignee, or endorsee of the Senior Lender or the Lenders of
any of the Senior Debt.

     15.  Governing Law.  This Agreement shall be governed by, and construed in
          --------------
accordance with, the laws of the State of Texas and is performable in Dallas
County, Texas.

     16.  Counterparts.  This Agreement may be executed in counterparts, each of
          ------------
which shall be deemed to be an original for all purposes.

     17.  Defined Terms.  Unless otherwise defined herein, terms used herein are
          -------------
used as defined in the Senior Loan Agreement.

     18.  THIS INTERCREDITOR AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

INTERCREDITOR AGREEMENT - Page 5
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     EXECUTED as of the date first above written.

                              SUBORDINATED LENDER:
                              -------------------

                              SHOEINVEST II, LP,
                              a New Jersey limited partnership

                              By:_______________________________________________
                              Name:_____________________________________________
                              Title:____________________________________________

                              BORROWER:
                              --------

                              MIDDLE BAY OIL COMPANY, INC.,
                              an Alabama corporation

                              By:_______________________________________________
                              Name:_____________________________________________
                              Title:____________________________________________

                              SENIOR LENDER:
                              -------------

                              BANK ONE, TEXAS, N.A.,
                              a national banking association

                              By:_______________________________________________
                              Name:_____________________________________________
                              Title:____________________________________________

INTERCREDITOR AGREEMENT - Page 6<PAGE>

                                                         EXHIBIT 10.21

                             LETTER AMENDMENT NO. 1
                                       to
           Middle Bay Oil Company, Inc. Securities Purchase Agreement

                                             November 23, 1999

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

Ladies and Gentlemen:

     We refer to the Securities Purchase Agreement dated October 19, 1999 (the
"Agreement") among the undersigned, Middle Bay Oil Company, Inc. (the "Company")
and you. Unless otherwise defined herein, the terms defined in the Agreement
shall be used herein as therein defined.

     The Company is entering into a Restated Credit Agreement dated November 23,
1999 together with its subsidiaries Enex Resources Corporation and Middle Bay
Production Company, Inc., as borrowers, and Bank One, Texas, N.A., as agent and
a lender, and each other lender or agent now or hereafter a party thereto. As a
condition to entering into the new Credit Agreement, Bank One has requested that
certain provisions of the Securities Purchase Agreement be amended. You have
indicated your willingness to so agree. Accordingly, it is hereby agreed by you
and us as follows: The Agreement is, effective the date first above written,
hereby amended as follows:

I.  Amendments to Agreement.

     (a) Section 1.1. Definitions. Section 1.1. of the Agreement is amended (1)
by deleting the definitions of "Compass Senior Credit Agreement," "Compass
Senior Debt" and "Compass Senior Documents"; (2) by amending the definition of
"Permitted Encumbrances" by amending clause (j) thereof in its entirety to read
as follows:

          "(j) Liens arising under or created pursuant to the Senior Debt
Documents;"

(3) by amending the definitions of "Permitted Senior Debt" and "Senior Lenders"
in full to read as follows:

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          "Permitted Senior Debt" means the Senior Debt or other debt or credit
facility of the Company which replaces the Senior Debt."

          "Senior Lenders" means any holder of any Senior Debt."

and (4) by adding thereto the following definitions in alphabetical order:

          "Default Notice" has the meaning set forth in Section 12.1.

          "Reorganization Securities" has the meaning set forth in Section 12.2.

          "Senior Credit Agreement" means that certain Restated Credit Agreement
dated November 23, 1999, by and among Middle Bay Oil Company, Inc., Enex
Resources Corporation and Middle Bay Production Company, Inc., as borrowers, and
Bank One, Texas N.A., as agent and a lender, and each other lender or agent now
or hereafter a party thereto and their successors and assigns, and any
replacements, refinancings, amendments, renewals or extensions thereof, whether
with the existing agent and lenders or other agents and lenders.

          "Senior Debt" means all Debt of the Company or any of its Subsidiaries
outstanding under the Senior Debt Documents, including all renewals, extensions,
increases, refinancings, restatements and replacements thereof.

          "Senior Debt Documents" means the Senior Credit Agreement and all
promissory notes, security agreements, mortgages, deeds of trust, assignments,
guaranties and other documents, instruments and agreements executed and
delivered pursuant to the Senior Credit Agreement evidencing, securing,
guaranteeing or otherwise pertaining to the Senior Debt and all other
obligations arising under the Senior Credit Agreement, as the foregoing may be
amended, renewed, extended, supplemented, increased or otherwise modified from
time to time."

          (b) Section 9.9. Negative Covenants.  Section 9.9. of the Agreement is
amended by amending subsection (b) thereof to delete the phrase "or the Compass
Senior Debt Documents".

          (c) ARTICLE XII SUBORDINATION.  ARTICLE XII of the Agreement is
amended in its entirety to read as follows:

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                                  "ARTICLE XII

                                 SUBORDINATION

     SECTION 12.1.  Subordination of Payment.  The payment of the Debt
                    ------------------------
represented by the Notes is hereby expressly subordinated in right of payment to
the prior payment in full of the Senior Debt; provided, however, so long as no
                                              --------  -------
Event of Default has occurred and is continuing for which (other than an event
specified in Subsections 14(f) or (g) of the Senior Credit Agreement as in
effect on November 23, 1999, or any similar provision in any amended, restated
or replaced Senior Credit Agreement) the Company or the Agent under the Senior
Credit Agreement has (or all Senior Lenders thereunder have) given written
notice of such Event of Default to the Noteholders (a "Default Notice"), the
Company may pay only interest due on the Notes according to their terms.  At any
time following the occurrence and during the continuance of any Event of Default
and provided that the Agent under the Senior Credit Agreement has (or all Senior
Lenders thereunder have) given a Default Notice to the Noteholders, the
Noteholders will not accept or receive, any payments in cash, on or with respect
to the Notes unless and until (a) such Event of Default shall have been cured or
waived or shall have ceased to exist or (b) such time as all Senior Debt shall
have been fully paid and performed and the obligation of the Senior Lenders to
make loans under the Senior Credit Agreement shall have terminated.
Notwithstanding the above, if within 180 days after the giving of such Default
Notice by the Company or the Agent under the Senior Credit Agreement (or all
Senior Lenders thereunder) such Event of Default has not become the subject of
an acceleration notice by the Senior Lenders, then the Company may, at its
option (unless in such interval the provision of this Section 12.1 have again
                                                      ------------
come into effect on account of any other Event of Default that did not exist on
the date of any prior Default Notice), resume making any and all required
payments in respect of the Notes in any manner authorized under the terms
governing the Notes until such time (if any) that , such an acceleration notice
is given or a Default Notice is given and a period of 180 days shall not have
elapsed since the giving of such Default Notice as contemplated above.  (If more
than one Default Notice is given, e.g. by the Company and the Agent, such period
                                  ----
shall run from the giving of the first Default Notice.)  In the event any direct
or indirect payment or distribution in cash, shall be received by the
Noteholders in contravention of the provisions hereof, such payment or
distribution shall be held in trust for, and shall be immediately paid over or
delivered to, the Agent under the Senior Credit Agreement.

     SECTION 12.2.  Notes Subordinated to Prior Payment of Senior Debt on
                    -----------------------------------------------------
Dissolution, Liquidation or Reorganization of the Company.  Upon any
---------------------------------------------------------
distribution of assets of the Company upon any voluntary or involuntary
dissolution, winding up, liquidation or reorganization of the Company (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise):

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          (a) the Senior Lenders shall first be entitled to receive payment in
     full in cash (or to have such payment duly provided for to their
     satisfaction) of the principal thereof and interest due on the Senior Debt
     and other amounts due in connection therewith before the Noteholders are
     entitled to receive any payment on account of the Notes;

          (b) any payment or distribution of assets of the Company of any kind
     or character, whether in cash, property or securities, to which the
     Noteholders would be entitled except for the provisions of this Article
                                                                     -------
     XII, shall be paid by the liquidating trustee or agent or other person
     ---
     making such payment or distribution directly to the Senior Lenders or their
     representative, to the extent necessary to make payment in full of all
     Senior Debt remaining unpaid, after giving effect to any concurrent payment
     or distribution or provision therefor to the Senior Lenders; and

          (c) in the event that, notwithstanding the foregoing, any payment or
     distribution of assets of the Company of any kind or character, whether in
     cash, property or securities, shall be received by the Noteholders on
     account of principal of or interest on the Notes before the Senior Debt is
     paid in full or provision made for its payment, such payment or
     distribution (subject to the further provisions of this Article XII) shall
                                                             -----------
     be paid over to the Senior Lenders or their representative for application
     to the payment of all Senior Debt remaining unpaid or unprovided for until
     all Senior Debt shall have been paid in full, after giving effect to any
     concurrent payment or distribution or provision therefor to the Senior
     Lenders.

     Notwithstanding the forgoing, the Noteholders may retain stock or
obligations which are issued pursuant to reorganization proceedings in respect
of the Notes (such stock or obligations being "Reorganization Securities") if
such Reorganization Securities are subordinate and junior (whether by law or
agreement) at least to the extent provided in this Article XII to the payment of
all Senior Debt and to the payment of any stock or obligations which are issued
in exchange or substitution for any Senior Debt.  The Noteholders may retain any
cash proceeds of the Reorganization Securities subject to compliance with the
subordination provisions thereof.

     SECTION 12.3.  Subordination of Liens.  So long as the Senior Debt remains
                    ----------------------
outstanding or any obligation of the Senior Lenders exists to make loans under
the Senior Credit Agreement, the Noteholders hereby subordinate all Liens, now
existing or hereafter created or arising, securing all or any portion of the
Notes to all Liens, now existing or hereafter created or arising, securing all
or any portion of the Senior Debt, notwithstanding any defect, deficiency, error
or omission which may be contained in any document creating or perfecting any
such Lien securing all or any portion of the Senior Debt.  All Liens, now
existing or hereafter created or

                                       4
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arising, securing all or any portion of the Notes shall at all times remain
subordinate, secondary and inferior to all Liens, now existing or hereafter
created or arising, securing all or any portion of the Senior Debt.

     SECTION 12.4.  Subordination of Remedies.  So long as the Senior Debt
                    -------------------------
remains outstanding or any obligation of the Senior Lenders exists to make loans
under the Senior Credit Agreement, the Noteholders shall not, without the prior
written consent of the Senior Lenders, declare the Notes due or in default
(other than to accelerate the Notes after the maturity of the Senior Debt,
whether by acceleration or otherwise, and take such other actions as reasonably
required to protect the Noteholders's claims upon any bankruptcy, insolvency, or
receivership proceeding with respect to the Company) or foreclose upon or
exercise any power of sale with respect to any security for all or any portion
of the Notes or exercise any other right, power or remedy of the Noteholders
provided for in any document or instrument executed in connection with the Notes
or by law or initiate or join with any other creditor of the Company in
initiating any plan or proceeding pursuant to any bankruptcy, insolvency or
receivership proceedings or seeking an assignment for the benefit of creditors
or the marshalling of the assets and liabilities of the Company.  Upon any
distribution of assets of the Company or the dissolution, winding up,
liquidation or reorganization (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or the
marshalling of the assets and liabilities of the Company or otherwise), any
payment to which the Noteholders would otherwise be entitled with respect to the
Notes shall be held in trust for, and shall be immediately paid over or
delivered to, the Senior Lenders for application to the Senior Debt until all
Senior Debt shall have been paid in full in cash.  Notwithstanding any provision
of this Article XII, (i) the Noteholders may receive payments of interest on the
        -----------
Notes in kind through the Company's election to accrue and add such interest
payment to the principal of the Notes pursuant to the provisions of the Notes;
(ii) the Noteholders may convert the Notes to shares of common stock of the
Company at any time in accordance with the terms of the Notes; (iii) the
Noteholders may exercise any warrants for shares of common stock of the Company
in accordance with the terms of any such warrants and (iv) the Senior Lenders
shall have no rights to the shares of Common Stock obtained by the Noteholders
through conversion of the Notes and exercise of the Warrants.

     SECTION 12.5. Continuing Agreement.  This Agreement shall continue in full
                   --------------------
force and effect and the liabilities and obligations of the Company and the
Noteholders hereunder shall not be affected or impaired by any amendment,
modification or alteration of any Loan Document, except as may be expressly
provided in any such amendment, modification or alteration.  This Agreement
shall continue to be effective or shall be reinstated, as the case may be, if at
any time any payment of any of the Senior Debt is rescinded or must otherwise be
returned by the Senior Lenders upon the insolvency, bankruptcy or reorganization
of the Company or otherwise, all as though such payment had not been made.

     SECTION 12.6. Liability Not Impaired.  The provisions of this  Article XII
                   ----------------------                           -----------
shall

                                       5
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be deemed a continuing offer to all holders of Senior Debt to act in reliance on
such provisions (but no such reliance shall be required to be proven to receive
the benefits hereof) and may be enforced by such holders and no right of any
present or future holder of any Senior Debt to enforce subordination as provided
in this Article XII shall be affected or impaired by (a) the failure of the
        -----------
Agent under the Senior Credit Agreement or the Senior Lenders or any other
Person to exercise diligence or reasonable care in the preservation, protection
or other handling or treatment of all or any part of any Collateral for all or
any portion of the Senior Debt, (b) the failure of any Lien intended to be
granted or created to secure all or any part of the Senior Debt to be properly
perfected or created or the unenforceability of any such Lien for any other
reason, or (c) the subordination of any such Lien to any other Lien.  The Senior
Lenders may at any time and from time to time, without the consent of or notice
to the Noteholders, and without incurring any responsibility to the Noteholders,
and without impairing or releasing or otherwise affecting any of the obligations
or agreements of the Noteholders hereunder, (a) change the manner, place or
terms of payment, or change or extend the time of payment of, renew, or alter
all or any portion of the Senior Debt, (b) exchange, release, surrender, realize
upon or otherwise deal with, in any manner and any order, any Property at any
time subject to any Lien in favor of the Senior Lenders, (c) exercise or refrain
from exercising any rights against the Company or others, and (d) sell,
transfer, assign or grant participations in the Senior Debt or any portion
thereof.

     SECTION 12.7. Waivers.  The Noteholders waive any right to require the
                   -------
Senior Lenders to (a) proceed against the Company or make any effort at the
collection of the Senior Debt from the Company or any other Person liable for
all or any portion of the Senior Debt, (b) proceed against or exhaust any
Collateral securing all or any portion of the Senior Debt, or (c) pursue any
other remedy in the power of the Senior Lenders.

     SECTION 12.8. Knowledge of the Noteholders.  The Noteholders shall not at
                   ----------------------------
any time be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to the Noteholders under the Notes or the
taking of any action under the Notes by the Noteholders unless and until the
Noteholders shall have received written notice thereof from the Agent under the
Senior Credit Agreement or the Company and, prior to the receipt of any such
written notice, shall be entitled in all respects conclusively to assume that no
such facts exist.

     SECTION 12.9.  Obligation of the Company.  Nothing contained in this
                    -------------------------
Article XII shall affect the obligation of the Company to make, or prevent the
-----------
Company from making, payment of the principal of or interest on the Notes,
except as otherwise provided in this Article XII and the Notes.
                                     -----------

     SECTION 12.10. Subrogation.  Upon payment in full of the Senior Debt, the
                    -----------
Noteholders shall be subrogated to the rights of the holders of Senior Debt to
receive payments or

                                       6
<PAGE>

distributions of assets of the Company made on the Senior Debt until the
principal of and interest on the Notes shall be paid in full, and, for the
purposes of such subrogation, no payments to the holders of Senior Debt of any
cash, property, stock or obligations to which the Noteholders would be entitled
(except for the provisions of this Article XII) shall, as between the Company,
                                   -----------
its creditors (other than the holders of Senior Debt) and the Noteholders, be
deemed to be a payment by the Company to or on account of the Senior Debt."

II. Miscellaneous

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

     This letter amendment may be executed in any number of counterparts and by
any combination of the parties hereto in separate counterparts, each of which
counterparts shall be an original and all of which taken together shall
constitute one and the same letter amendment.

     If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning at least a counterpart of this letter
amendment to the Company at its address at 1221 Lamar Street, Suite 1020,
Houston, Texas, 77010, Attention of Floyd Wilson, President.  This letter
amendment shall become effective as of the date first above written when and if
(i) counterparts of this letter amendment shall have been executed by us

                                       7
<PAGE>

and you and (ii) the Other Securities Purchase Agreements have been amended to
the same extent as set forth in this letter amendment.

                                                    Very truly yours,

                                                    MIDDLE BAY OIL COMPANY, INC.

                                                    By:_________________________
                                                        Title:

Agreed as of the date first above written:

THE PRUDENTIAL INSURANCE COMPANY
  OF AMERICA

By:______________________________
   Vice President

                                       8

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