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                                  UNITED STATES
                        SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549
                                    -------------

                                    FORM 10-Q

       (Mark One)

          [ X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934

                     For the quarterly period ended June 30, 1998


        [    ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934


                         Commission File Number 0-26662



                                  PANACO, Inc.
             (Exact name of registrant as specified in its charter)


                      Delaware                          43 - 1593374
    (State or other jurisdiction of                 (I.R.S. Employer
      incorporation or organization)                Identification Number)

1050 West Blue Ridge Boulevard, PANACO Building,
       Kansas City, Missouri                                64145-1216
 (Address of principal executive offices)                    (Zip Code)

      Registrant's telephone number, including area code: (816) 942 - 6300




            Indicate  by check mark  whether  the  registrant  (1) has filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes ___X___ No _______ .



        23,963,563  shares of the registrant's  $.01 par value Common Stock were
outstanding at August 14, 1998.



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<PAGE>

PART I.                             ITEM 1.
                             FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                  PANACO, Inc.
                      Consolidated Condensed Balance Sheets
                                   (Unaudited)


                                     ASSETS
                                                           As of            As of
                                                      June 30, 1998    December 31, 1997
 CURRENT ASSETS                                      ---------------    ----------------
<S>                                                    <C>               <C>         
      Cash and cash equivalents                        $ 4,557,000       $ 36,909,000
      Accounts receivable                                9,616,000          9,735,000
      Prepaid and other                                    810,000            626,000
                                                     --------------      -------------
          Total current assets                          14,983,000         47,270,000
                                                     --------------      -------------
 OIL AND GAS PROPERTIES, AS DETERMINED BY THE
  SUCCESSFUL EFFORTS METHOD OF ACCOUNTING
      Oil and gas properties, proved                   237,721,000        198,840,000
      Oil and gas properties, unproved                  10,750,000         12,947,000
      Less: accumulated depletion, depreciation,
          and amortization                            (114,711,000)       (99,239,000)
                                                     --------------      -------------   
          Net oil and gas properties                   133,760,000        112,548,000
                                                     --------------      -------------
 PROPERTY, PLANT AND EQUIPMENT
      Pipelines and equipment                           26,451,000         14,875,000
      Less: accumulated depreciation                    (2,230,000)        (1,416,000)
                                                     --------------       ------------
          Net property, plant and equipment             24,221,000         13,459,000
                                                     --------------       ------------
 OTHER ASSETS
      Deferred debt costs, net                           3,535,000          3,813,000
      Restricted deposits and other                      3,223,000          2,539,000 
                                                      -------------      -------------
         Total other assets                              6,758,000          6,352,000
                                                      -------------      -------------

                                                      ==============     =============         
 TOTAL ASSETS                                         $ 179,722,000      $179,629,000
                                                      ==============     =============          
</TABLE>



         The accompanying notes are an integral part of this statement.

                                       2

<PAGE>


<TABLE>
<CAPTION>
                                      
                                  PANACO, Inc.
                      Consolidated Condensed Balance Sheets
                                   (Unaudited)
                                     

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                   As of                     As of
                                               June 30, 1998           December 31, 1997
                                               -------------           -----------------    
<S>                                            <C>                         <C>         
  CURRENT LIABILITIES   
       Accounts payable                         $ 20,031,000                $ 17,225,000
       Interest payable                            2,649,000                   2,416,000
       Current portion of long-term debt                 -                           -
                                               -------------           -----------------     
          Total current liabilities               22,680,000                  19,641,000
                                               -------------           -----------------  
   LONG-TERM DEBT                                108,249,000                 101,700,000
                                                                                        
   DEFERRED INCOME TAXES                                   -                   3,100,000
                                                                                              
   COMMITMENTS AND CONTINGENCIES                          -                         -
                                                                                          
   STOCKHOLDERS' EQUITY                                                                                                            
     Preferred Shares, $.01 par value,
          5,000,000 shares authorized; no
         shares issued and outstanding                     -                         -
     Common Shares, $.01 par value,
         40,000,000 shares authorized;
         23,963,563 and 23,913,531 shares
         issued and outstanding, respectively        240,000                     239,000
     Additional paid-in capital                   69,249,000                  69,041,000
     Retained earnings (deficit)                 (20,696,000)                (14,092,000)
                                                ------------               -------------
         Total stockholders' equity               48,793,000                  55,188,000
                                                ------------               -------------
 

   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $ 179,722,000               $ 179,629,000
                                               =============               =============                                            

</TABLE>

         The accompanying notes are an integral part of this statement.

                                       3


<PAGE>

<TABLE>
<CAPTION>

                                  PANACO, Inc.
                 Consolidated Statements of Income (Operations)
                        For the Six Months Ended June 30,
                                   (Unaudited)



                                                            1998                  1997
                                                        -------------        -------------
 REVENUES
<S>                                                     <C>                   <C>         
     Oil and natural gas sales                          $ 24,773,000          $ 14,287,000

 COSTS AND EXPENSES
     Lease operating expense                               8,195,000             5,122,000
     Depletion, depreciation & amortization               16,450,000             6,184,000
     General and administrative expense                    1,021,000               389,000
     Production and ad valorem taxes                         396,000               174,000
     Exploratory dry hole expense                          3,937,000                67,000
     Geological and geophysical expense                      482,000                     -
                                                        ------------           -----------   
         Total                                            30,481,000            11,936,000
                                                        ------------           -----------   
 OPERATING INCOME (LOSS)                                  (5,708,000)            2,351,000
                                                        ------------           -----------   
 OTHER INCOME (EXPENSE)
     Unrealized gain on investment in common stock                 -                60,000
     Interest income                                         751,000                74,000
     Interest expense                                     (5,137,000)           (1,339,000)
                                                         -----------           -----------     
         TOTAL                                            (4,386,000)           (1,205,000) 
                                                         -----------           -----------           
 INCOME (LOSS) BEFORE INCOME TAXES                       (10,094,000)            1,146,000

 INCOME TAX (BENEFIT)                                     (3,498,000)                    -
                                                         -----------           -----------     
 NET INCOME (LOSS)                                      $ (6,596,000)          $ 1,146,000
                                                        ============           ===========


 Net income (loss) per share                                 $ (0.28)               $ 0.07
                                                        ============           ===========

 Basic Shares Outstanding                                 23,961,390            18,247,926
                                                        ============           ===========
 Diluted Shares Outstanding                               23,961,390            18,247,926
                                                        ============           ===========

</TABLE>



         The accompanying notes are an integral part of this statement.

                                       4


<PAGE>
<TABLE>
<CAPTION>

                                  PANACO, Inc.
                 Consolidated Statements of Income (Operations)
                       For the Three Months Ended June 30,
                                   (Unaudited)



                                                          1998                   1997
                                                      ------------           -----------
 REVENUES
<S>     <C>    <C>    <C>    <C>    <C>    <C>
     Oil and natural gas sales                        $ 13,578,000           $ 6,220,000

 COSTS AND EXPENSES
     Lease operating expense                             4,359,000             2,210,000
     Depletion, depreciation & amortization              9,475,000             3,072,000
     General and administrative expense                    505,000               191,000
     Production and ad valorem taxes                       196,000                89,000
     Exploratory dry hole expense                        2,924,000                     -
     Geological and geophysical expense                    231,000                     -
                                                      ------------           -----------
             TOTAL                                      17,690,000             5,562,000
                                                      ------------           -----------
  
 OPERATING INCOME (LOSS)                                (4,112,000)              658,000
                                                      ------------           -----------    
 OTHER INCOME (EXPENSE)
     Unrealized gain on investment in common stock               -                     -
     Interest income                                       327,000                32,000
     Interest expense                                   (2,624,000)             (376,000)
                                                      ------------           -----------                         
            TOTAL                                       (2,297,000)             (344,000)
                                                      ------------           -----------            
 INCOME (LOSS) BEFORE INCOME TAXES                      (6,409,000)              314,000

 INCOME TAX (BENEFIT)                                   (2,225,000)                    -
                                                      ------------           -----------                               
 NET INCOME (LOSS)                                    $ (4,184,000)            $ 314,000
                                                      ============           ===========


 Net income (loss) per share                               $ (0.18)               $ 0.02
                                                      ============           ===========

 Basic Shares Outstanding                               23,972,215            20,382,087
                                                      ============           ===========
 Diluted Shares Outstanding                             23,972,215            20,382,087
                                                      ============           ===========
</TABLE>




         The accompanying notes are an integral part of this statement.

                                      5



<PAGE>
<TABLE>
<CAPTION>

                                  PANACO, Inc.
            Consolidated Statement of Changes in Stockholders' Equity
                                   (Unaudited)


                                                                           Amount ($)
                                                  ------------------------------------------------------ 
                                     Number of                            Additional        Retained
                                      Common             Common            Paid-in          Earnings
                                      Shares             Stock             Capital          (Deficit)
                                 ----------------   ----------------   ---------------   ---------------
<S>                <C> <C>           <C>            <C>               <C>                <C>          
Balances, December 31, 1997          23,913,531      $    239,000       $ 69,041,000       $(14,100,000)

 Net Loss                                      -               -                 -           (6,596,000)

 Common shares issued - director
 stock bonuses, ESOP                      50,032             1,000           208,000                  -

                                 ----------------   ----------------   --------------    ---------------
 Balances, June 30, 1998              23,963,563          $ 240,000     $ 69,249,000       $(20,696,000)
                                 ================   ================   ==============    ===============

</TABLE>




         The accompanying notes are an integral part of this statement.

                                       6

<PAGE>


<TABLE>
<CAPTION>


                                  PANACO, Inc.
                      Consolidated Statement of Cash Flows
                        For the Six Months Ended June 30,
                                   (Unaudited)

                                                                      1998               1997
                                                                 ------------        -----------  
<S>  
  CASH FLOWS FROM OPERATING ACTIVITIES                            <C>                 <C>        
     Net income (loss)                                           $ (6,596,000)       $ 1,146,000
     Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
         Depletion, depreciation and amortization                  16,450,000          6,184,000
         Exploratory dry hole expense                               3,937,000             67,000
         Deferred income tax benefit                               (3,498,000)                 -
         Unrealized gain on investment in common stock                      -            (60,000)
         Other, net                                                   713,000             16,000
         Changes in operating assets and liabilities:
            Accounts receivable                                       119,000            167,000
            Prepaid and other                                        (712,000)           400,000
            Accounts payable                                        2,806,000           (476,000)
            Interest payable                                          233,000           (261,000)
                                                                 ------------        -----------
                Net cash provided by operating activities          13,452,000          7,183,000 
                                                                 ------------        -----------

     CASH FLOWS FROM INVESTING ACTIVITIES
         Sale of oil and gas properties                                23,000             24,000
         Capital expenditures and acquisitions                    (52,220,000)        (8,227,000)
         Decrease/(increase) in restricted deposits                  (156,000)           123,000
                                                                 ------------        ----------- 
                       Net cash used by investing activities      (52,353,000)        (8,080,000)
                                                                 ------------        -----------     

     CASH FLOWS FROM FINANCING ACTIVITIES
         Proceeds from common stock offering, net                           -         22,014,000
         Long term debt proceeds                                   24,549,000          4,500,000
         Repayment of long-term debt                              (18,000,000)       (26,000,000)
                                                                 ------------        -----------      
                       Net cash used by financing activities        6,549,000            514,000
                                                                 ------------        -----------                 
 NET INCREASE (DECREASE) IN CASH                                  (32,352,000)          (383,000)

 CASH AT BEGINNING OF YEAR                                         36,909,000          1,736,000
                                                                 ------------        -----------                  
 CASH AT JUNE 30                                                  $ 4,557,000        $ 1,353,000
                                                                 ============        ===========
</TABLE>


         The accompanying notes are an integral part of this statement.

                                       7

<PAGE>


                                  PANACO, Inc.
              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1 - BASIS OF PRESENTATION

         In the opinion of management,  the accompanying  unaudited consolidated
financial  statements  contain all  adjustments  necessary to present fairly the
financial  position as of June 30, 1998 and December 31, 1997 and the results of
operations  and cash flows for the periods  ended June 30,  1998 and 1997.  Most
adjustments made to the financial statements are of a normal,  recurring nature.
Although  the Company  believes  that the  disclosures  are adequate to make the
information   presented  not  misleading,   certain   information  and  footnote
disclosures,  including  significant  accounting policies,  normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles have been condensed or omitted  pursuant to the rules and regulations
of  the  Securities  and  Exchange  Commission  (the  "SEC").  A  more  complete
description of the accounting  policies followed by the Company are set forth in
Note 1 to the  Company's  financial  statements  in Form 10-K for the year ended
December 31, 1997. These financial statements should be read in conjunction with
the financial statements and notes included in the Form 10-K.

Note 2 - ACQUISITIONS

         On May 14, 1998 the Company entered into a definitive agreement with BP
Exploration and Oil, Inc.  ("BP") to acquire BP's 100% working  interest in East
Breaks Blocks 165 and 209 and 75% working interest in High Island Block 587. The
acquisition  was accounted  for using the purchase  method and closed on May 26,
1998. PANACO became the operator of all three blocks effective June 1, 1998. The
Company  acquired  the  properties  for $19.5  million in cash.  Included in the
acquisition  is the  production  platform,  located in 863 feet of water in East
Breaks Block 165. The Company also acquired  31.72 miles of 12"  pipeline,  with
capacity  of over  20,000  barrels  of oil per day,  which  ties the  production
platform to the High Island Pipeline System, the major oil transportation system
in the area.  It also  acquired  9.3 miles of 12 3/4"  pipeline,  which ties the
production   platform  to  the  High  Island  Offshore  System,  the  major  gas
transportation  system in the area.  The  allocation  of the  purchase  price is
preliminary,  however,  management  does not expect that any change in the final
allocation  of the  purchase  price  and  the  resulting  effect  on  depletion,
depreciation and amortization will be material.

         The following pro forma statement of income  (operations) data is based
on the historical  financial  information of PANACO, Inc., The BP Properties and
the Goldking  Companies,  Inc.,  acquired by PANACO on July 31,  1997.  This pro
forma  data may not be  indicative  of the  results  that  actually  would  have
occurred if these  transactions had occurred on the dates indicated or which may
be obtained in the future. The pro forma financial information should be read in
conjunction  with the historical  financial  statements of PANACO,  Inc. and the
historical  statements  of  revenues  and direct  operating  expenses  of the BP
Properties  and  historical  statements of income  (operations)  of the Goldking
Companies.

                                      Six months ended      Six months ended
                                        June 30, 1998         June 30, 1997
                                      ----------------      ----------------
       Oil and natural gas sales           $29,801,000           $29,106,000
       Net income (loss) before
         extraordinary items                (4,279,000)            4,171,000
       Net income (loss)                    (5,961,000)            4,171,000
       Net income (loss) per share               $(.25)                $0.21



                                        8

<PAGE>

Note 3 - OIL AND GAS PROPERTIES AND PIPELINES AND EQUIPMENT

       The Company utilizes the successful  efforts method of accounting for its
oil and gas properties.  Under the successful efforts method,  lease acquisition
costs are capitalized.  Non-drilling  exploratory costs including geological and
geophysical costs and delay rentals are expensed. Exploratory drilling costs are
capitalized pending determination of proved reserves. If proved reserves are not
discovered,  the  exploratory  costs are  expensed.  All  development  costs are
capitalized.  Interest  on  unproved  properties  is  capitalized  based  on the
carrying amount of the properties.  Provision for  depreciation and depletion is
determined  on a  field-by-field  basis  using  the  unit-of-production  method.
Estimated future  abandonment  costs are recorded by charges to depreciation and
depletion  expense over the lives of the proved reserves of the properties.  The
carrying amounts of proven and unproved properties are reviewed  periodically on
a  property-by-property  basis,  based on future net cash flows determined by an
independent  engineering firm, with an impairment reserve provided if conditions
warrant.

       Pipelines  and  equipment  are  carried  at  cost.  Oil and  natural  gas
pipelines  are  depreciated  on the  straight-line  method over their  estimated
useful lives, primarily fifteen years. Other property is also depreciated on the
straight-line method over their useful lives, ranging from three to seven years.

Note 4 - CASH FLOW INFORMATION

         For purposes of the statement of cash flows, the Company  considers all
cash investments  purchased with original  maturities of three months or less to
be  cash  equivalents.   Cash  payments  for  interest  totaled  $5,203,000  and
$1,526,000 during the first six months of 1998 and 1997,  respectively.  No cash
payments for income taxes were made during the first six months of 1998 or 1997.

Note 5 - RESTRICTED DEPOSITS

         The  Company is party to  various  escrow  and trust  agreements  which
provide for monthly  deposits into escrow and trust  accounts to satisfy  future
plugging and  abandonment  obligations.  The terms of the agreements  vary as to
deposit  amounts,  based  upon  fixed  monthly  amounts  or  percentages  of the
properties'  net income.  With respect to plugging and  abandonment  operations,
funds are partially or completely  released upon the presentation by the Company
to the escrow agent or trustee of evidence  that the  operation  was or is being
conducted in compliance with applicable laws and regulations.  These amounts are
included on the financial statements as Restricted Deposits.

Note 6 - SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES

         The reserve  information  presented in the following table was prepared
by the Company  based upon reports of  independent  petroleum  engineers and are
estimates only and should not be construed as being exact amounts.  All reserves
presented  are proved  reserves that are defined as estimated  quantities  which
geological and engineering  data  demonstrate  with  reasonable  certainty to be
recoverable in future years from known  reservoirs  under existing  economic and
operating conditions.






                                        9


<PAGE>



Proved developed and undeveloped reserves          Oil                Gas
                                                 (Bbls)              (Mcf)
                                               ---------           ----------  
December 31, 1997                              4,506,000           73,632,000
Acquisitions and other                         3,713,000           30,431,000
Production                                      (322,000)          (9,326,000)
                                               ---------           ----------  
Estimated reserves at June 30, 1998            7,897,000           94,737,000
                                               =========           ========== 

No major  discovery or other favorable or adverse event has caused a significant
change in the estimated  proved  reserves  since June 30, 1998. The Company does
not  have  proved  reserves  applicable  to  long-term  supply  agreements  with
governments  or  authorities.  All  proved  reserves  are  located in the United
States.

Note 7 - INCOME TAXES

         The Company had net operating loss carryforwards for federal income tax
purposes of  approximately  $40,000,000 at December 31, 1997 which are available
to  offset  future  federal  taxable  income  through  2012.  The  timing of the
Company's future utilization of net operating loss carry forwards may be limited
on an annual basis due to its issuance of common shares in a public offering and
in the acquisition of Goldking.  In connection with the Goldking acquisition the
Company  recorded a $3.1 million  deferred tax liability based upon the complete
utilization  of the  Company's  deferred tax asset  valuation  allowance and the
requirement  for  additional   deferred  tax  liabilities   resulting  from  the
acquisition. The Company recorded an income tax benefit for the first six months
of 1998 which  eliminated this deferred tax liability and created a deferred tax
asset.









                                       10


<PAGE>



PART I Item 2.
                           MANAGEMENT'S DISCUSSION AND
                         ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

Forward-looking Statements

         Forward-looking  statements  in this Form 10-Q,  future  filings by the
Company  with the  Securities  and  Exchange  Commission,  the  Company's  press
releases and oral statements by authorized  officers of the Company are intended
to be subject to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that all forward-looking  statements
involve  risks and  uncertainty,  including  without  limitation,  the risk of a
significant  natural  disaster,  the inability of the Company to insure  against
certain  risks,  the adequacy of its loss  reserves,  fluctuations  in commodity
prices,  the  inherent  limitations  in the  inability  to estimate  oil and gas
reserves, changing government regulations, as well as general market conditions,
competition and pricing.  The Company believes that  forward-looking  statements
made by it are based upon reasonable expectations. However, no assurances can be
given that actual  results will not differ  materially  from those  contained in
such forward-looking statements. The words "estimate",  "anticipate",  "expect",
"predict",   "believe"  and  similar   expressions   are  intended  to  identify
forward-looking statements.

General

         The oil and gas  industry has  experienced  significant  volatility  in
recent  years  because  of the  fluctuatory  relationship  of the supply of most
fossil fuels relative to the demand for such products and other uncertainties in
the world energy markets.  These industry  conditions  should be considered when
this analysis of the Company's operations is read.

Liquidity and Capital Resources

         On May 14, 1998 the Company entered into a definitive agreement with BP
Exploration and Oil, Inc.  ("BP") to acquire BP's 100% working  interest in East
Breaks Blocks 165 and 209 and 75% working interest in High Island Block 587. The
acquisition  was accounted  for using the purchase  method and closed on May 26,
1998. PANACO became the operator of all three blocks effective June 1, 1998. The
Company  acquired  the  properties  for $19.5  million in cash.  Included in the
acquisition  is the  production  platform,  located in 863 feet of water in East
Breaks Block 165. The Company also acquired  31.72 miles of 12"  pipeline,  with
capacity  of over  20,000  barrels  of oil per day,  which  ties the  production
platform to the High Island Pipeline System, the major oil transportation system
in the area.  It also  acquired  9.3 miles of 12 3/4"  pipeline,  which ties the
production   platform  to  the  High  Island  Offshore  System,  the  major  gas
transportation system in the area.

         On October 9, 1997 the Company completed an offering of $100,000,000 10
5/8% Senior Subordinated Notes due 2004. Interest is payable April 1 and October
1 of each year.  The net  proceeds of  $96,250,000  were used to repay or prepay
substantially  all of its  outstanding  debt in the amount of  $55,460,000.  The
remaining  proceeds were used primarily for the  development  and acquisition of
oil and gas properties.


                                       11


<PAGE>

         On October 22, 1997 the Company replaced its existing Bank Facility and
entered into a new, five year  $75,000,000  revolving  credit facility (the "New
Credit Facility") with First Union National Bank, as  administrative  agent, and
Banque  Paribas.  The purpose of the New Credit Facility is to provide funds for
working  capital  support and general  corporate  purposes and to have available
letters of credit.  The  borrowing  base on June 30, 1998 was  $40,000,000.  The
Company  may elect to pay  interest  on the New  Credit  Facility  at either the
Bank's prime rate or at the London  Interbank  Offered Rate on Eurodollar  loans
("LIBOR")  plus 1 to 1.75%,  depending upon the percentage of utilization of the
borrowing  base.  Eurodollar  loans can be for terms of one,  two,  three or six
months and interest is due at the expiration of the terms of such loans,  but no
less frequently than three months.

         On March 5, 1997 the Company  completed an offering of 8,403,305 common
shares at $4.00 per  share,  $3.728  net of the  underwriter's  commission.  The
offering  consisted of 6,000,000 shares sold by the Company and 2,403,305 shares
sold by shareholders,  primarily Amoco Production Company (2,000,000 shares) and
lenders advised by Kayne, Anderson Investment Management, Inc. (373,305 shares).
The Company's net proceeds of $22,000,000  from the offering were used to prepay
$13,500,000  of  its  12%  subordinated   debt  and  the  remaining  funds  were
temporarily  paid on the Company's  revolving bank loan and ultimately  used for
the development of its properties.

         At June 30, 1998, 88% of the Company's total assets were represented by
oil and  gas  properties  and  pipelines  and  equipment,  net of  depreciation,
depletion and amortization.

         In 1991 certain  lenders  received a net profits  interest (NPI) in the
West Delta properties.  During the six months ended June 30, 1998, cash payments
with respect to this NPI totaled $206,000.

         The product  prices  received by the Company,  including  the impact of
hedge transactions  discussed below,  averaged $2.11 per Mcf for natural gas and
$15.71 per barrel for oil for the six months ended June 30, 1998.

         For 1998 the Company's  natural gas hedge  transactions  are based upon
published  gas  pipeline  index  prices.  The  Company has natural gas hedged in
quantities ranging from 10,000 to 50,000 MMbtu per day in each month in 1998 for
a total of 11,980,000  MMbtu, at pipeline prices averaging  approximately  $2.05
per MMbtu, for a NYMEX equivalent of  approximately  $2.20 per MMbtu.  Including
hedge  transactions  that  Goldking  had in place,  the Company has hedged 7,356
MMbtu per day in 1999, all at an average  pipeline index swap price of $1.89 per
MMbtu.  The  Company  has  hedged  218 MMbtu for each day in 2000 at an  average
pipeline  index swap price of $1.87.  The Company has also hedged its oil prices
by hedging  1,268  Bbls of oil for each day in 1998 at an average  swap price of
$19.06 per Bbl, with a 40% participation  above $19.28 on 500 of the 1,268 Bbls.
The Company has hedged 223 Bbls of oil for each day in 1999 at an average  price
of $17.27 per Bbl and 232 Bbls of oil for each day in 2000 at an  average  price
of $17.28 per Bbl. For accounting purposes, gains or losses on swap transactions
are recognized in the production month to which a hedge contract relates.

         Pursuant  to  existing  agreements  the  Company is required to deposit
funds  in  bank  trust  and  escrow   accounts  to  provide  a  reserve  against
satisfaction of its eventual responsibility to plug and abandon wells and remove
structures  when certain  fields no longer  produce oil and gas. The Company has
entered into an escrow agreement with Amoco  Production  Company under which the
Company  deposits,  for the life of the  fields,  in a bank  escrow  account ten
percent (10%) of the net cash flow, as defined in the agreement,  from the Amoco
properties.  The Company has  established  the "PANACO  East Breaks 110 Platform
Trust" in favor of the Minerals Management Service of the U.S. Department of the
Interior.  This trust required an initial  funding of $846,720 in December 1996,
and remaining deposits of


                                       12
<PAGE>

$244,320  due at the end of each  quarter in 1999 and $144,000 due at the end of
each  quarter  in 2000  for a total of  $2,400,000.  In  connection  with the BP
acquisition,  the Company deposited $1,000,000 into an escrow account on July 1,
1998.  On the first day of each  quarter  thereafter,  the Company  will deposit
$250,000 into the escrow account until the balance in the escrow account reaches
$6,500,000.  In addition,  the Company has  $9,250,000 in surety bonds to secure
its plugging and abandonment operations.

         Capital  expenditures of $52.2 million for the first six months of 1998
represent an increase of $44 million over 1997.  These  expenditures,  funded by
operating  cash flows and  proceeds  from the Senior  Note  offering,  consisted
primarily  of drilling  and  development  activities  on its oil and natural gas
properties and the acquisition of oil and natural gas  properties.  Of the $52.2
million in capital  expenditures,  38% was invested in the  properties  acquired
from BP, 25% was  invested in the High Island 309 Field,  6% was invested in the
West  Cameron 144 Field,  5% was invested in the  Umbrella  Point Field,  3% was
invested in the East Breaks 160 Field with the  remaining  capital  expenditures
being incurred primarily on development of its smaller onshore properties and on
exploratory projects.

Results of Operations

For the six months ended June 30, 1998 and 1997:

         "Oil and natural gas sales" increased 73% for the six months ended June
30, 1998  despite a 13% decrease in oil prices and a 15% decrease in natural gas
prices.  Significant  increases in natural gas and oil production  brought about
the increase in oil and natural gas sales.

         Production.  Natural gas production increased 111%, to 9,326,000 Mcf in
1998, from 4,421,000 Mcf in 1997. The Company's  developmental  drilling program
in  1997  and  1998  was the  primary  factor  in the  increased  production.  A
successful  developmental  well  completed in January 1998 in the Umbrella Point
Field accounted for an increase of 985,000 Mcf in 1998. Successful developmental
drilling  in the High  Island 309 and 310 Fields  accounted  for an  increase in
production  of  3,014,000  Mcf,  while a successful  developmental  well and the
acquisition  of a  co-owner's  working  interest  in the West  Cameron 144 Field
accounted for an increase of 440,000 Mcf.  Production for 1998 also includes one
month from the East Breaks 165 Field, acquired May 26, 1998 from BP.

         Oil production  increased 71% in 1998 to 322,000 barrels,  from 188,000
barrels in 1997.  The primary  factors in the increased oil  production  are the
acquisition  of the  East  Breaks  165  Field  in May  1998  and the  successful
developmental well completed the Umbrella Point Field.

         Prices.  Average  natural  gas  prices,  net of the  impacts of hedging
transactions,  decreased  15% in 1998,  from  $2.47  per Mcf in 1997 to $2.11 in
1998.  The 1998  natural  gas hedge  program  had the effect of  decreasing  the
natural  gas price  realized by $0.02 per Mcf in 1998 and $0.04 per Mcf in 1997.
The Company has natural gas hedged in  quantities  ranging from 10,000 to 50,000
MMbtu per day in each month in 1998 for a total of 11,980,000 MMbtu, at pipeline
prices  averaging  approximately  $2.05 per  MMbtu,  for a NYMEX  equivalent  of
approximately $2.20 per MMbtu.

         Average  oil  prices,  net  of the  impacts  of  hedging  transactions,
decreased  13%, to $15.71 per barrel,  from $17.96 per barrel in 1997.  The 1998
oil hedge  program had the effect of  increasing  the net oil price  realized by
$2.49 per barrel. The Company has hedged its oil prices on 1,268 Bbls of oil for
each  day in 1998 at an  average  swap  price  of  $19.06  per  Bbl,  with a 40%
participation above $19.28 on 500 of the 1,268 Bbls.


                                       13

<PAGE>

         "Lease  operating  expense"  decreased  to 33% of oil and  natural  gas
sales, from 36% in 1997.  Moreover,  on an Mcf equivalent  ("Mcfe") basis, lease
operating expenses decreased from $0.92 in 1997 to $0.73 in 1998.

         "Depletion,   depreciation  and  amortization"   increased  $10,265,000
primarily due to the increase in 1998 production as discussed  above. The amount
per Mcfe also increased from $1.11 in 1997 to $1.46 in 1998.

         "General and administrative  expense" increased $632,000 in 1998 due to
acquisitions  made by the  Company in July 1997,  April 1998 and May 1998.  As a
percentage  of oil and natural gas sales and on an Mcfe  basis,  these  expenses
also  increased to 4% of oil and natural gas sales from 3% in 1997, and to $0.09
per Mcfe from $0.07 per Mcfe in 1997.

         "Production and ad valorem taxes" increased  $222,000 in 1998, to 2% of
oil and natural gas sales,  from 1% in 1997.  The increase is due to  production
from properties subject to state taxes which were acquired in July 1997.

         "Exploratory  dry  hole  expense"  increased   $3,937,000  due  to  the
Company's  increased  exploratory  activities  in 1998. Of the sixteen wells the
Company has drilled or participated in during the first six months of 1998, four
of the exploratory wells were not commercially productive.  One of the wells was
spudded  and  completed  during the first  quarter of 1998,  and the other three
reached total depth during the second quarter.  The wells were operated by third
parties and the Company  owned  interests  ranging  from 10 to 20%.  The Company
believes that its  continued  participation  in a modest  amount of  exploratory
activities is an important factor in increasing shareholder value.

         "Geological  and  geophysical  expense"  during 1998  resulted from the
Company's non-drilling exploratory activities.

         "Interest income" increased  $677,000 in 1998 primarily due to interest
income earned on the excess  proceeds  from the  Company's  Senior Note offering
completed in October 1997.

         "Interest  expense"  increased  $3,798,000  in  1998  primarily  due to
increased  borrowing  levels.  The increase in borrowing is due to the Company's
Senior Note offering completed in October 1997. The increase in borrowing levels
is somewhat  offset by a reduced  interest  rate on a majority of the  Company's
long term debt. In connection  with the offering,  the Company prepaid or repaid
long term debt, a significant amount of which had rates in excess of the 10 5/8%
rate on the Notes.  This included  amounts borrowed in connection with the Amoco
acquisition  in October  1996 and debt assumed in  connection  with the Goldking
acquisition in July 1997.

Results of Operations

For the three months ended June 30, 1998 and 1997:

         "Oil and natural gas sales"  increased  118% for the second  quarter of
1998  despite a 10%  decrease in oil  prices.  Natural gas prices for the second
quarter of 1998  increased 6% over 1997. A  significant  increase in natural gas
and an increase in oil production  brought about the increase in oil and natural
gas sales.


                                       14
<PAGE>

         Production.  Natural gas production increased 126%, to 5,068,000 Mcf in
1998, from 2,246,000 Mcf in 1997. The Company's  developmental  drilling program
in  1997  and  1998  was the  primary  factor  in the  increased  production.  A
successful  developmental  well  completed in January 1998 in the Umbrella Point
Field accounted for an increase of 882,000 Mcf in 1998. Successful developmental
drilling  in the High  Island 309 and 310 Fields  accounted  for an  increase in
production  of  1,496,000  Mcf,  while a successful  developmental  well and the
acquisition  of a  co-owner's  working  interest  in the West  Cameron 144 Field
accounted for an increase of 268,000 Mcf.  Production for 1998 also includes one
month from the East Breaks 165 Field, acquired May 26, 1998 from BP.

         Oil production  increased 91% in 1998 to 206,000 barrels,  from 108,000
barrels in 1997.  The primary  factors in the increased oil  production  are the
acquisition  of the  East  Breaks  165  Field  in May  1998  and the  successful
developmental well completed the Umbrella Point Field.

         Prices.  Average  natural  gas  prices,  net of the  impacts of hedging
transactions,  increased  6%,  from $1.95 per Mcf in 1997 to $2.06 in 1998.  The
1998  natural  gas hedge  program had the effect of  decreasing  the natural gas
price  realized  by $.06 per Mcf in 1998 and 1997.  The  Company has natural gas
hedged in  quantities  ranging from 10,000 to 50,000 MMbtu per day in each month
in  1998  for  a  total  of  11,980,000  MMbtu,  at  pipeline  prices  averaging
approximately $2.05 per MMbtu, for a NYMEX equivalent of approximately $2.20 per
MMbtu.

         Average  oil  prices,  net  of the  impacts  of  hedging  transactions,
decreased 10% in 1998 to $15.32 per barrel,  from $17.03 per barrel in 1997. The
1998 oil hedge program had the effect of increasing  the net oil price  realized
by $2.30 per barrel.  The Company has hedged its oil prices on 1,268 Bbls of oil
for each day in 1998 at an  average  swap  price of $19.06  per Bbl,  with a 40%
participation above $19.28 on 500 of the 1,268 Bbls.

         "Lease  operating  expense"  decreased  to 32% of oil and  natural  gas
sales, from 36% in 1997.  Moreover,  on an Mcfe basis,  lease operating expenses
decreased from $0.76 in 1997 to $0.69 in 1998.

         "Depletion,   depreciation  and  amortization"   increased   $6,404,000
primarily due to the increase in 1998 production as discussed  above. The amount
per Mcfe also increased from $1.06 in 1997 to $1.50 in 1998.

         "General and administrative  expense" increased $313,000 in 1998 due to
acquisitions  made by the  Company in July 1997,  April 1998 and May 1998.  As a
percentage  of oil and natural gas sales and on an Mcfe  basis,  these  expenses
also  increased  to 4% of oil and natural gas sales from 3% in 1997 and to $0.08
per Mcfe from $0.07 per Mcfe in 1997.

         "Production and ad valorem taxes" increased $107,000 in 1998.  However,
as a  percentage  of oil and  natural  gas  sales  and on an Mcfe  basis,  these
remained flat at 1%, and $0.03 per Mcfe, respectively.

         "Exploratory  dry  hole  expense"  increased   $2,924,000  due  to  the
Company's  increased  exploratory  activities in 1998.  Three of the exploratory
wells the Company  participated  during the second quarter were not commercially
productive.  The wells were  operated by third  parties  and the  Company  owned
interests  ranging  from 10 to 20%.  The  Company  believes  that its  continued
participation  in a modest  amount of  exploratory  activities  is an  important
factor in increasing shareholder value.

         "Geological  and  geophysical  expense"  during 1998  resulted from the
Company's non-drilling exploratory activities.


                                       15
<PAGE>

         "Interest income" increased  $295,000 in 1998 primarily due to interest
income earned on the excess  proceeds  from the  Company's  Senior Note offering
completed in October 1997.

         "Interest  expense"  increased  $2,248,000  in  1998  primarily  due to
increased  borrowing  levels.  The increase in borrowing is due to the Company's
Senior Note offering completed in October 1997. The increase in borrowing levels
is somewhat  offset by a reduced  interest  rate on a majority of the  Company's
long term debt. In connection  with the offering,  the Company prepaid or repaid
long term debt, a significant amount of which had rates in excess of the 10 5/8%
rate on the Notes.  This included  amounts borrowed in connection with the Amoco
acquisition  in October  1996 and debt assumed in  connection  with the Goldking
acquisition in July 1997.

Year 2000

         The  Company  is  currently   reviewing  its   information   technology
infrastructure in order to evaluate  necessary  modifications for the year 2000.
The  Company  does  not  expect  that  the  cost  to  modify  and  replace  this
infrastructure,  if necessary, in order for it to be Year 2000 compliant will be
material to its results of operations.  The Company has not yet fully  evaluated
the status of  third-party  systems  and the  effect,  if any, on the Company if
third-party  systems are not Year 2000  compliant.  At this time, the Company is
uncertain as to the impact that the year 2000 issue will have on its information
technology  infrastructure and as to how the Company may be indirectly  affected
by the impact that the year 2000 will have on  companies  with which it conducts
business.



                                       16


<PAGE>



PART II
                                OTHER INFORMATION

Item 5.  OTHER EVENTS

         On August 11, 1998,  H. James  Maxwell  resigned  from his positions as
         Chairman of the board, Chief Executive Officer and a director. Larry M.
         Wright,  President,  was  elected to the  positions  of Chairman of the
         board and Chief Executive Officer.


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

               27  Financial Data Schedule

         (b) Reports on Form 8-K

              June 16, 1998   Change in registrant's certifying accountant
              June 16, 1998   Acquisition of properties from BP Exploration
                              & Oil, Inc.
              
              August 13, 1998 Amended 8-K, acquisition of properties from BP
                              Exploration & Oil, Inc.



                                   SIGNATURES

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                  PANACO, Inc.

Date:   August 14, 1998                    /s/  Todd R.Bart      
      -------------------------            -------------------------------------
                                           Todd R. Bart, Chief Financial Officer
                                       17