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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, 1997




         [    ] 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 Identification
    incorporation or organization)                         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 _______ .

            20,382,087  shares of the  registrant's  $.01 par value Common Stock
were outstanding at June 30, 1997.



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

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

<PAGE>
                                  

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

 ASSETS                                                               As of                      As of
                                                                  June 30, 1997            December 31, 1996
                                                             ------------------------   ------------------------
 CURRENT ASSETS
<S>                                                                                <C>                         
      Cash and cash equivalents                                           1,353,000                  1,736,000
      Accounts receivable                                                 6,030,000                  6,197,000
      Investment in common stock                                          1,701,000                  1,642,000
      Prepaid and other                                                     552,000                    424,000
                                                             ------------------------   ------------------------
         Total current assets                                             9,636,000                  9,999,000
                                                             ------------------------   ------------------------

 OIL AND GAS PROPERTIES, AS DETERMINED BY THE
 SUCCESSFUL EFFORTS METHOD OF ACCOUNTING
      Oil and gas properties, proved                                     130,410,000                125,283,000
      Oil and gas properties, unproved                                     7,324,000                  7,128,000
      Less: accumulated depreciation, depletion,
         amortization and valuation allowances                           (87,374,000)               (81,871,000)
                                                             ------------------------   ------------------------
         Net oil and gas properties                                       50,360,000                 50,540,000
                                                             ------------------------   ------------------------

 PROPERTY, PLANT AND EQUIPMENT
      Pipelines and equipment                                             13,280,000                 10,534,000
      Less: accumulated depreciation                                        (806,000)                  (327,000)
                                                             ------------------------   ------------------------
         Net property, plant and equipment                                12,474,000                 10,207,000
                                                             ------------------------   ------------------------

 OTHER ASSETS
      Restricted deposits                                                  1,992,000                  2,115,000
      Loan costs, net                                                        127,000                    611,000
      Other                                                                  252,000                    296,000
                                                             ------------------------   ------------------------
         Total other assets                                                2,371,000                  3,022,000
                                                             ------------------------   ------------------------


 TOTAL ASSETS                                                  $          74,841,000      $          73,768,000
                                                             ========================   ========================
</TABLE>

          The accompanying notes are an integral part of this statement

                                        2

<PAGE>



                                  


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

 LIABILITIES AND STOCKHOLDERS' EQUITY                                             As of                        As of
                                                                              June 30, 1997              December 31, 1996
                                                                         ------------------------    -------------------------
 CURRENT LIABILITIES
<S>                                                                                            <C>                           
      Accounts payable                                                                 5,770,000                    6,246,000
      Interest payable                                                                   263,000                      524,000
      Current portion of long-term debt                                                        -                            -
                                                                         ------------------------    -------------------------
         Total current liabilities                                                     6,033,000                    6,770,000
                                                                         ------------------------    -------------------------


 LONG-TERM DEBT                                                                       28,000,000                   49,500,000
                                                                         ------------------------    -------------------------


 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;  20,382,087
         and 14,350,255 shares issued and outstanding, respectively                     204,000                      143,000
      Additional paid-in capital                                                     53,593,000                   31,490,000
      Retained earnings (deficit)                                                   (12,989,000)                 (14,135,000)
                                                                         ------------------------    -------------------------
         Total stockholders' equity                                                   40,808,000                   17,498,000
                                                                         ------------------------    -------------------------






 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                $          74,841,000       $           73,768,000
                                                                         ========================    =========================
</TABLE>

          The accompanying notes are an integral part of this statement

                                        3

<PAGE>



                                                   


<TABLE>
<CAPTION>

                                                    PANACO, INC.
                                         Statements of Income (Operations)
                                         For the Six Months Ended June 30,
                                                    (Unaudited) 
                                                                               1997                    1996
                                                                         ------------------      -------------------
 REVENUES
<S>                                                                         <C>                      <C>           
      Oil and natural gas sales                                             $   14,287,000           $   10,808,000

 COSTS AND EXPENSES
      Lease operating                                                            5,122,000                4,184,000
                                                                                 
      Depletion, depreciation & amortization                                     6,184,000                3,812,000
                                                                                 
      General and administrative                                                   389,000                  382,000
                                                                                   
      Production and ad valorem taxes                                              174,000                  327,000
                                                                                  
      Exploration expenses                                                          67,000                        -

      West Delta fire loss                                                               -                  500,000
                                                                         ------------------      -------------------
         Total                                                                  11,936,000                9,205,000
                                                                         ------------------      -------------------

 NET OPERATING INCOME                                                            2,351,000                1,603,000
                                                                         ------------------      -------------------

 OTHER INCOME (EXPENSE)
      Unrealized gain on investment in common stock                                60,000                        -
      Interest expense, net                                                    (1,265,000)                (902,000)
                                                                         ------------------      -------------------
         Total                                                                 (1,205,000)                (902,000)
                                                                         ------------------      -------------------

 NET INCOME BEFORE INCOME TAXES                                                  1,146,000                 701,000
                                                                                 

 INCOME TAXES                                                                            -                       -
                                                                         ------------------      -------------------

 NET INCOME                                                                $     1,146,000          $       701,000
                                                                         ==================      ===================


 Net income per share                                                      $          0.07          $           0.06
                                                                         ==================      ===================
</TABLE>

          The accompanying notes are an integral part of this statement

                                        4

<PAGE>



                                                   


<TABLE>
<CAPTION>
                                                   PANACO, INC.
                                         Statements of Income (Operations)
                                        For the Three Months Ended June 30,
                                                    (Unaudited)
                                                                                1997                    1996
                                                                         ------------------      -------------------
 REVENUES
<S>                                                                        <C>                      <C>            
      Oil and natural gas sales                                            $     6,220,000          $     3,469,000

 COSTS AND EXPENSES
      Lease operating                                                            2,210,000                1,829,000
                                                                                 
      Depletion, depreciation & amortization                                     3,072,000                1,326,000
                                                                                 
      General and administrative                                                   191,000                  197,000
                                                                                   
      Production and ad valorem taxes                                               89,000                  116,000
                                                                                    
      Exploration expenses                                                               -                        -

      West Delta fire loss                                                               -                  500,000
                                                                         ------------------      -------------------
         Total                                                                   5,562,000                3,968,000                 
                                                                         ------------------      -------------------

 NET OPERATING INCOME (LOSS)                                                       658,000                 (499,000)                
                                                                         ------------------      -------------------

 OTHER INCOME (EXPENSE)
      Interest expense, net                                                      (344,000)                 (450,000)               
                                                                         ------------------      -------------------
         Total                                                                   (344,000)                 (450,000)                
                                                                         ------------------      -------------------

 NET INCOME (LOSS) BEFORE INCOME TAXES                                             314,000                 (949,000)                

 INCOME TAXES                                                                            -                        -
                                                                         ------------------      -------------------

 NET INCOME (LOSS)                                                         $       314,000         $      (949,000)
                                                                         ==================      ===================


 Net income (loss) per share                                               $          0.02         $         (0.08)
                                                                         ==================      ===================
</TABLE>

          The accompanying notes are an integral part of this statement

                                        5

<PAGE>



                                                     


<TABLE>
<CAPTION>
                                                      PANACO, INC.
                                      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>          
 Balances, December 31, 1996                      14,350,255       $    143,000        $ 31,490,000       $(14,135,000)
                                                                        

 Net Income                                                -                  -                   -          1,146,000
                                                          

 Common shares issued - Offering                   6,000,000             60,000          21,954,000                  -
                                                                                                                

 Common shares issued - ESOP
 contribution and stock bonuses                       31,832              1,000             149,000                  -
                                            -----------------   ----------------   -----------------   -----------------

 Balance, June 30, 1997                           20,382,087        $   204,000        $ 53,593,000       $(12,989,000)             
                                            =================   ================   =================   =================
</TABLE>

          The accompanying notes are an integral part of this statement

                                        6

<PAGE>



                                                     

<TABLE>
<CAPTION>
                                                      PANACO, INC.
                                                Statement of Cash Flows
                                               Six Months Ended June 30,
                                                      (Unaudited)
                                                                                      1997                 1996
                                                                                 -----------------    -----------------
 CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                 <C>                 <C>           
      Net income                                                                    $   1,146,000       $      701,000
      Adjustments to reconcile net income to net cash
      provided by operating activities:
         Depletion, depreciation and amortization                                       6,184,000            3,812,000
         Unrealized gain on investment in common stock                                    (60,000)                   -
         Other, net                                                                        16,000                    -
         Changes in operating assets and liabilities:
             Accounts receivable                                                          167,000              473,000
             Prepaid and other                                                            400,000              (41,000)
             Accounts payable                                                            (476,000)           2,365,000
             Interest payable                                                            (261,000)              78,000
                                                                                 -----------------    -----------------
                         Net cash provided by operating activities                      7,116,000            7,388,000
                                                                                 -----------------    -----------------

 CASH FLOWS FROM INVESTING ACTIVITIES
         Sale of oil and gas properties                                                    24,000                    -
         Capital expenditures and acquisitions                                         (8,160,000)          (3,440,000)
         Decrease/(increase) in restricted deposits                                       123,000           (1,735,000)
                                                                                 -----------------    -----------------
                         Net cash used by investing activities                         (8,013,000)          (5,175,000)
                                                                                 -----------------    -----------------

 CASH FLOWS FROM FINANCING ACTIVITIES
         Common stock offering proceeds, net                                           22,014,000                    -
         Long-term debt proceeds                                                        4,500,000                    -
         Repayment of long-term debt                                                  (26,000,000)          (4,000,000)
         Issuance of common stock-exercise of warrants                                          -            1,837,000
                                                                                 -----------------    -----------------
                         Net cash used by financing activities                            514,000           (2,163,000)
                                                                                 -----------------    -----------------

 NET INCREASE (DECREASE) IN CASH                                                         (383,000)              50,000

 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                         1,736,000            1,198,000
                                                                                 -----------------    -----------------

 CASH AND CASH EQUIVALENTS AT JUNE 30                                               $   1,353,000        $   1,248,000
                                                                                 =================    =================
</TABLE>

          The accompanying notes are an integral part of this statement

                                        7

<PAGE>


                                  PANACO, INC.
                     CONDENSED NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1 - BASIS OF PRESENTATION

         In the opinion of  management,  the  accompanying  unaudited  financial
statements  contain all  adjustments  necessary to present  fairly the financial
position as of June 30, 1997 and December 31, 1996 and the results of operations
and changes in  stockholder's  equity and cash flows for the periods  ended June
30, 1997 and 1996. 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").  It is
suggested  that  these  financial  statements  be read in  conjunction  with the
financial  statements  and the notes thereto  included in the  Company's  Annual
Report on Form 10-K/A for the year ended December 31, 1996.

Note 2 - 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.  Exploratory  drilling costs are also 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. 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 the useful lives of
fifteen years.  Other property is also depreciated on the  straight-line  method
over the useful lives, which range from five to seven years.

Note 3 - CASH FLOW INFORMATION

         For purposes of the statement of cash flows, the Company  considers all
highly liquid debt instruments  purchased with original maturities of six months
or less to be cash equivalents.  Cash payments for interest,  net of capitalized
interest,  totaled  $1,526,000 and $744,000 for the first six months of 1997 and
1996, respectively.

Note 4 - 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.

                                        8

<PAGE>

Note 5 - INVESTMENT IN COMMON STOCK

         In  connection  with the sale of the  Bayou  Sorrel  Field to  National
Energy Group,  Inc. in 1996,  the Company  received  477,612  shares of National
Energy Group,  Inc.  common stock.  The Company has  classified  this asset as a
trading  security.  At June 30, 1997 the estimated market value of the stock was
$1,701,000,  with an  unrealized  gain of $60,000  recognized in the first three
months of 1997 to reflect the increase in market  value from  December 31, 1996.
Subsequent to June 30, the shares of National  Energy Group,  Inc.  common stock
have been sold with no significant gain or loss being realized.

Note 6 - NET INCOME PER SHARE

         The net  income per share for the six  months  ended June 30,  1997 and
1996 has been  calculated  based on 18,247,926 and 12,206,886  weighted  average
shares  outstanding,  respectively  and  20,382,087 and 12,345,361 for the three
months  ended June 30,  1997 and 1996,  respectively.  Weighted  average  shares
outstanding are the only shares included in this  calculation.  The Company does
not present a fully  diluted  earnings  per share amount as options and warrants
outstanding  at June 30, 1997 do not dilute per share  amounts by 3% or more and
the shares issuable upon conversion of the 1996 Convertible  Subordinated  Notes
are not considered common stock equivalents and are also anti-dilutive.

         The Financial  Accounting  Standards  Board issued FASB  Statement 128,
"Earnings  Per Share",  in February  1997.  FASB 128 modifies the way  companies
report  earnings  per share  information.  The Company will be required to adopt
FASB 128 for the year  ending  December  31,  1997.  All prior  periods  will be
restated  to conform  with the  statement.  The Company  does not  believe  that
adoption of FASB 128 will  materially  affect earnings per share data previously
reported.

Note 7 - SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING ACTIVITIES

         The  reserves  presented  in the  following  table are  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.


Proved developed and undeveloped reserves            Oil                 Gas
                                                    (Bbls)              (Mcf)

December 31, 1996                                2,239,000           41,446,000
Purchase of minerals-in-place                          -0-                  -0-
Production                                       (188,000)          (4,421,000)
Revisions of previous estimates                        -0-                  -0-
                                         -----------------    -----------------
Estimated reserves at June 30, 1997              2,051,000          37,025,000
                                              ============         ===========

No major  discovery or other favorable or adverse event has caused a significant
change in the estimated proved

                                        9
<PAGE>

reserves  since  June 30,  1997  other  than  the  acquisition  of the  Goldking
Companies,  Inc., see Note 9-Subsequent Events. 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 8 - INCOME TAXES

         The  Company  has not  recorded  an  income  tax  provision  due to net
operating loss  carryforwards  for federal income tax purposes of $16,000,000 at
December 31, 1996 which are available to offset future  federal  taxable  income
through 2011.

Note 9 - SUBSEQUENT EVENTS

         On  July  31,  the  Company   completed  its  acquisition  of  Goldking
Companies,  Inc.,  for a combination  of cash,  notes,  3,238,930  PANACO Common
Shares and the assumption of liabilities.  The acquisition will be accounted for
as a purchase. With the acquisition PANACO obtains over 50 Bcf equivalent of oil
and natural gas reserves,  a sizable and  attractive  portfolio of  exploration,
development  projects and 3-D seismic  data and a seasoned  staff of oil and gas
professionals experienced in Gulf Coast operations.

                                       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 ensure  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  oversupply  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 is read.
Accordingly,  the  energy  market has been  unsettled,  making it  difficult  to
predict future prices.

Liquidity and Capital Resources

         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 was temporarily paid
on the  Company's  revolving  bank  loan  and  will  ultimately  be used for the
development of its properties and for future acquisitions.

         On October 8, 1996 the  Company  amended its Bank  Facility  with First
Union National Bank of North  Carolina (60%) and Banque Paribas (40%).  The loan
is a reducing  revolver  designed to provide up to $40,000,000  depending on the
borrowing  base, as determined  by the lenders.  The borrowing  base on July 31,
1997 was $30,000,000.  At June 30, 1997 the Company had $19,500,000  outstanding
under the loan. The principal  amount of the loan is due July 1, 1999.  However,
at no time may the Company have  outstanding  borrowings under the Bank Facility
in excess of its borrowing base.  Interest on the loan is computed at the bank's
prime rate or at 1 to 1 3/4%  (depending  upon the  percentage  of the  facility
being used) over the  applicable  London  Interbank  Offered  Rate  ("LIBOR") on
Eurodollar  loans.  Eurodollar  loans can be for terms of one, two, three or six
months and interest on such loans is due at the  expiration of the terms of such
loans,  but no less  frequently than every three months.  Management  feels that
this Bank Facility  greatly  facilitates  its ability to make necessary  capital
expenditures  to maintain and improve  production  from its properties and makes
available to the Company additional funds for future acquisitions.

                                       11
<PAGE>

         From time to time the Company  has  borrowed  funds from  institutional
lenders who are represented by Kayne,  Anderson Investment  Management,  Inc. In
each case these loans are due at a stated maturity, require payments of interest
only at 12% per annum, 45 days after the end of each calendar  quarter,  and are
secured by a second mortgage on the Company's offshore oil and gas properties.
The loans were as follows:

         (a) 1993  Subordinated  Notes.  In 1993,  $5,000,000 was borrowed,  due
December 31, 1999, but prepayable at any time. These Notes were prepaid on March
6, 1997 with a portion of the proceeds from the common share offering.

         (b) 1996 Tranche A Convertible  Subordinated Notes. On October 8, 1996,
$8,500,000 was borrowed,  due October 8, 2003, but prepayable any time after May
8, 1998.  After August 28, 1997 the Notes are convertible  into 2,060,606 common
shares  on the  basis of  $4.125  per  share.  The  Company  may  deliver  up to
$2,000,000  in  payment-in-kind   notes  in  satisfaction  of  interest  payment
obligations.

         (c) 1996 Tranche B Bridge Loan Subordinated  Notes. On October 8, 1996,
$8,500,000 was borrowed,  due October 8, 2003,  but  prepayable any time.  These
Notes were prepaid on March 6, 1997 with a portion of the proceeds of the common
share offering.

         The product prices received by the Company,  net of the impact of hedge
transactions  discussed below, averaged $2.47 per Mcf for natural gas and $17.96
per  barrel  for oil for the six  months  ended  June  30,  1997.  Cash  flow is
currently  being used for capital  expenditures,  reduce  liabilities and to pay
general and administrative overhead.  Starting in 1997 the Company's natural gas
hedge transactions are based upon published gas pipeline index prices instead of
the  NYMEX.  This  change has  mitigated  the risk of price  differences  due to
transportation.  In 1997,  14,000  MMBtu per day has been  hedged,  reducing  to
10,000  MMBtu per day in 1998 and 7,000  MMBtu per day in 1999.  The  Company is
hedging  at a swap  price of $1.80 per MMBtu  for 1997  with  varying  levels of
participation  (93% in January to 40% in September ) in settlement  prices above
the $1.80 per MMBtu swap price  level.  In 1997 the  Company has also hedged its
oil prices by selling  the  equivalent  of 720 barrels of oil per day at $20.00,
with a 60% participation in prices above the $20.00 swap price level. Management
has  generally  used  hedge  transactions  to  protect  its cash  flows when the
Company's  levels of long-term  debt have been higher and  refrained  from hedge
transactions when long-term debt has been lower. For accounting purposes,  gains
or losses on swap transactions are recognized in the production month to which a
swap contract relates.

         At June 30, 1997, 84% 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, 1997, payments with
respect to this NPI totaled $190,000.

                                       12
<PAGE>


         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. Each month,  until
November  1997,  $25,000 is deposited  in a bank escrow  account to satisfy such
obligations with respect to a portion of its West Delta properties.  The Company
has entered into an escrow agreement with Amoco  Production  Company under which
the Company will deposit,  for the life of the fields,  in a bank escrow account
ten percent  (10%) of the net cash flow,  as defined in the  agreement,  for 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 $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 addition, the Company has $9,250,000 in surety bonds to secure
its plugging and abandonment operations.

         Through  the six  months  ended  June 30,  1997 the  Company  had spent
$8,093,000 in capital  expenditures,  approximately  $2 million of which was for
the  completion  of oil and gas  pipelines  in the  West  Delta  Fields  and the
remainder was primarily for development of its oil and gas  properties.  Through
June 30,  1996 the Company  had raised  $1,837,000  in equity as a result of the
exercise  of  warrants.  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, from
which it  received  $22,000,000.  The  Company's  proceeds  were  used to prepay
$13,500,000 of its 12% subordinated  debt and the remaining was temporarily paid
on the  Company's  revolving  bank  loan  and  will  ultimately  be used for the
development of its properties and for future acquisitions.


Results of Operations

For the six months ended June 30, 1997 and 1996:

         "Oil and natural gas sales"  increased  32% for the first six months of
1997.  Significant  increases  in both natural gas and oil  production  were the
primary  factor in the  increase  in  revenues.  The  former  Amoco  properties,
acquired in October 1996 coupled with the resumption of production from the West
Delta  fields have  combined to outweigh  the sale of the Bayou  Sorrel Field in
September 1996. The Company's development program on the former Amoco properties
has increased  production  from those fields  steadily since the  acquisition in
October.

         Production.  Natural gas  production  increased 21% to 4,421,000 Mcf in
1997 from 3,666,000 Mcf in 1996. Oil production increased 25% in 1997 to 188,000
barrels,  from 151,000 barrels in 1996. Results for 1997 include production from
the former Amoco  properties,  purchased in October 1996.  Results for 1997 also
include increased production from the West Delta Fields, which were shut-in from
April 24, 1996 until October 1996. They do not include production from the Bayou
Sorrel Field which was sold September 1, 1996. Bayou Sorrel was primarily an oil
field and produced only a small amount of gas in 1996.

         In March, 1997 the federal  production from the West Delta Block 58 was
brought back on-line for the first time since April 1996 with the  completion of
a dual six inch,  eight  mile  pipeline  to the West  Delta  central  processing
facility,  Tank  Battery  #3.  This  pipeline  also  allowed  Tana  Oil  and Gas
Corporation  and Samedan  Corporation  to resume  production  from their  wells,
drilled on farm-outs from the Company,  on which the Company receives overriding
royalty revenue and fees for processing the oil and gas.

                                       13
<PAGE>

         Prices. Natural gas prices, net of the impacts of hedging transactions,
increased  from  $2.21 per Mcf in 1996 to $2.47 in 1997.  The 1997  natural  gas
hedge  program had the effect of  reducing  gas prices by only ($.03) per Mcf in
1997,  compared  to ($.52) per Mcf in 1996.  The 1997 hedge  program  allows the
Company more  participation in increases in market prices for natural gas, while
providing the price  stability of no less than $1.80 per MMBtu in 1997 on 14,000
MMBtu per day in 1997. Oil prices remained relatively flat in 1997 at $17.96 per
barrel, compared to $17.92 per barrel in 1996.

         "Lease operating expenses" increased $938,000,  or 22% in 1997 with the
addition of interests in thirteen offshore blocks acquired in October 1996. As a
percent of revenues,  lease operating expenses decreased to 36% in 1997 from 39%
in 1996.

         "Depletion, depreciation and amortization" increased $2,372,000, or 62%
also in part due to the purchase of the former Amoco properties in October 1996.
The amount per Mcf equivalent also increased from $.86 in 1996 to $1.11 in 1997,
due  to  several  factors.  Downward  engineering  revisions  by  the  Company's
independent petroleum engineers, Ryder Scott Company, in the West Delta and East
Breaks 110 Fields at  year-end  1996 were a  significant  part of the  increase.
Also,  $4,000,000  in capital  expenditures  made  during  1996 to rebuild  Tank
Battery #3, the central processing facility for the West Delta Fields, increased
the depletion cost per Mcf.

         "Production  and ad valorem  taxes"  decreased 62% in 1997 to 1% of oil
and natural gas sales from 3% of oil and natural gas sales in 1996. The decrease
is due to the  Company's  shift to federal  offshore  waters  where there are no
state severance taxes.

         "Exploration expenses" incurred in 1997 resulted from an option paid to
participate in an exploratory well in the High Island Area, offshore Texas which
was  condemned  before the well was  drilled  because  of a dry hole  drilled by
another  company on an  adjacent  block.  There  will be no further  exploration
expenses associated with this prospect.

         "Interest  expense,  net"  increased  40% in 1997  primarily due to the
increased  average  borrowing  levels in 1997 and  partially due to an increased
weighted average interest rate incurred in 1997, partially offset by an increase
in interest capitalized. The average borrowing level increased to $34,000,000 in
1997 from  $20,000,000  in 1996 as a result of the Amoco  acquisition in October
1996.  On March 6,  1997 the  proceeds  from a  common  stock  offering  reduced
subordinated  debt by $13,500,000 and temporarily  reduced bank facility debt by
$8,500,000.  The weighted average  borrowing rate in 1997 increased from 8.6% in
1996 to  9.2%  in  1997.  The  increase  is due to an  increased  percentage  of
borrowing under  subordinated  debt agreements,  bearing interest at 12%, also a
result of the  Amoco  acquisition  in  October  1996.  In  connection  with this
acquisition,  $17,000,000 was borrowed as subordinated debt, $8,500,000 of which
was  prepaid  in  March  1997.  In  the  1996  period,  only  $5,000,000  of the
outstanding debt was borrowed under these subordinated facilities.

         "Gain on  investment  in common  stock" is the change in the  estimated
market value of the Company's 477,612 shares of National Energy Group, Inc.
common stock since year-end 1996.

                                       14
<PAGE>


For the three months ended June 30, 1997 and 1996:

         "Oil  and  natural  gas  sales"  increased  79%  in  1997.  Significant
increases in both natural gas and oil production  were the primary factor in the
increase in  revenues.  The former  Amoco  properties,  acquired in October 1996
coupled  with the  resumption  of  production  from the West Delta  fields  have
combined to outweigh the sale of the Bayou Sorrel Field in September  1996.  The
Company's  development  program on the former  Amoco  properties  has  increased
production from those fields steadily since the acquisition in October.

         Production.  Natural gas  production  increased 74% to 2,246,000 Mcf in
1997 from 1,287,000 Mcf in 1996. Oil production increased 94% in 1997 to 108,000
barrels,  from 56,000 barrels in 1996.  Results for 1997 include production from
the former Amoco  properties,  purchased in October 1996.  Results for 1997 also
include increased production from the West Delta Fields, which were shut-in from
April 24, 1996 until October 1996. They do not include production from the Bayou
Sorrel Field which was sold September 1, 1996. Bayou Sorrel was primarily an oil
field and produced only a small amount of gas in 1996.

         In March, 1997 the federal  production from the West Delta Block 58 was
brought back on-line for the first time since April 1996 with the  completion of
a dual six inch,  eight  mile  pipeline  to the West  Delta  central  processing
facility,  Tank  Battery  #3.  This  pipeline  also  allowed  Tana  Oil  and Gas
Corporation  and Samedan  Corporation  to resume  production  from their  wells,
drilled on farm-outs from the Company,  on which the Company receives overriding
royalty revenue and fees for processing the oil and gas.

         Prices.  Natural gas prices,  net of the impacts of hedging,  increased
from $1.84 per Mcf in 1996 to $1.95 in 1997.  The 1997 natural gas hedge program
had the effect of reducing  gas prices by only ($.06) per Mcf in 1997,  compared
to ($.72)  per Mcf in 1996.  The 1997 hedge  program  allows  the  Company  more
participation in increases in market prices for natural gas, while providing the
price  stability of no less than $1.80 per MMBtu in 1997 on 14,000 MMBtu per day
in 1997.  Oil prices  decreased  in 1997 to $17.03 per  barrel,  from $19.73 per
barrel in 1996.

                                       15
<PAGE>


         "Lease operating expenses" increased $381,000,  or 21% in 1997 with the
addition of interests in thirteen offshore blocks acquired in October 1996. As a
percent of revenues,  lease operating expenses decreased to 36% in 1997 from 53%
in 1996.

         "Depletion,  depreciation and amortization"  increased  $1,746,000,  or
132%,  primarily due to the  substantial  increase in production in 1997 a large
part of which is from the  purchase of the former  Amoco  properties  in October
1996. The amount per Mcf equivalent also increased from $.86 in 1996 to $1.11 in
1997, due to several factors.  Downward  engineering  revisions by the Company's
independent petroleum engineers, Ryder Scott Company, in the West Delta and East
Breaks 110 Fields at  year-end  1996 were a  significant  part of the  increase.
Also,  $4,000,000  in capital  expenditures  made  during  1996 to rebuild  Tank
Battery #3, the central processing facility for the West Delta Fields, increased
the depletion cost per Mcf.

         "Production  and ad valorem  taxes"  decreased 23% in 1997 to 1% of oil
and natural gas sales from 3% of oil and natural gas sales in 1996. The decrease
is due to the Company's shift to federal offshore waters from where there are no
state severance taxes.

         "Interest  expense,  net" decreased 24% in 1997 as a result of interest
capitalized on the Company's unproved  properties  balances in 1997. The Company
follows the practice of capitalizing  the interest on unproved  property amounts
as a part of accounting for its oil and gas  properties.  There were no unproved
oil and gas properties in 1996.  Average  borrowing  levels were  $27,000,000 in
1997 compared with $19,000,000 in 1996. The increase in average borrowing levels
was somewhat offset by a decrease in the weighted  average interest from 8.9% in
1996 to 8.7% in 1997.

PART II
                                OTHER INFORMATION

Item 6.           EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  27                    Financial Data Schedule


                  10.19                 Form of Executive Officer and
                                        Director Indemnification Agreement

         (b)      Reports on Form 8-K

                  January 29, 1997      Sale of the Bayou Sorrel Field

                  August 15, 1997       Purchase of Goldking Companies, 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 15, 1997                     /s/Todd R.Bart
     --------------------                  -------------------------------------
                                           Todd R. Bart, Chief Financial Officer

                                       16
<PAGE>
Exhibit 10.19
                            INDEMNIFICATION AGREEMENT

         THIS  AGREEMENT is made and entered  into this 15th day of July,  1997,
between   Panaco,   Inc.,   a   Delaware   corporation   ("Corporation"),    and
___________________ ________________________________________ ("Indemnitee").

         WITNESSETH:

     WHEREAS,  Indemnitee  is  a  member  of  the  board  of  directors  of  the
Corporation  and as such is performing a valuable  service for the  Corporation;
and

     WHEREAS,  although  Indemnitee has certain rights to indemnification  under
the Bylaws and Certificate of Incorporation of the Corporation,  such Bylaws and
Certificate of  Incorporation  specifically  provide that they are not exclusive
and thereby  contemplate that the Corporation may enter into agreements with its
officers and directors; and

     WHEREAS, the Corporation and Indemnitee desire to enter into this Agreement
to provide to Indemnitee  additional rights to  indemnification in consideration
of Indemnitee's continued service to the Corporation as a director;

         NOW, THEREFORE, in consideration of Indemnitee's continued service as a
director of the Corporation  after the date hereof and for and in  consideration
of the  premises  and  the  covenants  contained  herein,  the  Corporation  and
Indemnitee do hereby promise and agree as follows:

     1.  Indemnification.  The  Corporation  hereby  agrees to hold harmless and
indemnify  Indemnitee to the fullest extent permitted by Section 145, Title 8 of
the Delaware  Code, as in effect on the date of the execution of this  Agreement
and as it may hereafter be amended, or any other statutory provision  permitting
or authorizing such indemnification which is adopted subsequent to the execution
of this Agreement.

     2. Maintenance of Insurance.  So long as Indemnitee shall continue to serve
as a  director  of the  Corporation  (or shall  continue  at the  request of the
Corporation  or on behalf of the  Corporation  to serve as a director,  officer,
employee or agent of any Other  Enterprise) and thereafter so long as Indemnitee
shall be subject to any possible claim or is a party or is threatened to be made
a party to any  threatened,  pending or completed  action,  suit or  proceeding,
whether civil, criminal, administrative, investigative or appellate by reason of
the fact that  Indemnitee is or was a director of the  Corporation (or is or was
serving in any of said other capacities at the request of the Corporation),  the
Corporation shall maintain director liability  insurance.  Such insurance may be
terminated  if,  in the  business  judgment  of the  board of  directors  of the
Corporation  as it may exist from time to time,  both (a) the  premium  cost for
such insurance is

<PAGE>




unreasonable,  and (b) the coverage  provided by such insurance is so limited by
exclusions  that  there  is  insufficient  benefit  provided  by  such  director
liability insurance.

     3. Additional  Indemnification.  Subject only to the provisions in Sections
4, 5, 6 and 7 of this Agreement,  the Corporation  hereby further agrees to hold
harmless and indemnify Indemnitee:

         (a) Against any and all  liabilities  and expenses,  including  without
limitation, judgments, amounts paid in settlement (provided that such settlement
and all amounts  paid in  connection  therewith  are  approved in advance by the
Corporation,  which approval  shall not be  unreasonably  withheld),  attorneys'
fees,  ERISA excise taxes or penalties,  fines and other  expenses  actually and
reasonably incurred by Indemnitee in connection with any threatened,  pending or
completed  action,   suit  or  proceeding   (including  without  limitation  the
investigation,   defense,   settlement  or  appear  of  such  action,   suit  or
proceeding), whether civil, criminal, administrative, investigative or appellate
(including an action by or in the right of the  Corporation) to which Indemnitee
is, was or at any time becomes a party,  or is threatened to be made a party, by
reason of the fact that  Indemnitee is, was or at any time becomes a director of
the  Corporation,  or is or was serving at the request of the  Corporation  as a
director, officer, agent or employee of any Other Enterprise; and

         (b) Otherwise to the fullest extent as may be provided to Indemnitee by
the   Corporation   pursuant  to  the  provisions  of  Article  Twelfth  of  the
Corporation's Certificate of Incorporation,  any relevant by-law, and subsection
(f) of Section 145, Title 8 of the Delaware Code relating to indemnification.

     4. Limitations on Additional  Indemnification  (a) The Corporation will not
hold  Indemnitee  harmless  or  provide  indemnification  pursuant  to Section 3
hereof:

     (1)  except  to the  extent  that the  aggregate  amount  of  losses  to be
indemnified thereunder exceeds the amount of such losses for which Indemnitee is
indemnified   either   pursuant  to  (i)  the   Corporation's   Certificate   of
Incorporation,  Bylaws, vote of stockholders or disinterested directors or other
agreement, (ii) Sections 1 or 2 hereof, (iii) pursuant to any director liability
insurance  purchased and maintained on behalf of Indemnitee by the  Corporation,
or (iv) otherwise than pursuant to this Agreement;

     (2) in respect of remuneration paid to Indemnitee if it shall be determined
by a final judgment or other final  adjudication  that such  remuneration was in
violation of law;


<PAGE>



     (3) on  account  of any suit for an  accounting  of  profits  made from the
purchase or sale by  Indemnitee of  securities  of the  Corporation  pursuant to
Section 16(b) of the Securities  Exchange Act of 1934 and amendments  thereto or
similar provisions of any federal, state or local law;

     (4) on account of Indemnitee's conduct which is finally adjudged by a court
to have been knowingly fraudulent, deliberately dishonest or willful misconduct;
or
     (5) if a final  adjudication  by a court having  jurisdiction in the matter
shall determine that such indemnification is not lawful.

         (b)  Notwithstanding  any other  provisions of this  Agreement,  if the
Indemnitee  is or was  serving as a director  of the  Corporation,  or is or was
serving at the request of the  Corporation as a director,  officer,  employee or
agent  of any  Other  Enterprise,  and has  been  successful  on the  merits  or
otherwise in defense of any action,  suit or proceeding referred to in Section 3
of  this  Agreement  (including  the  dismissal  of any  such  action,  suit  or
proceeding  without  prejudice),  or in defense  of any  claim,  issue or matter
therein, he shall be indemnified  against expenses  (including  attorneys' fees)
actually and reasonably incurred by him in connection therewith to the extent he
has  not  been  fully  indemnified  therefor  otherwise  than  pursuant  to this
Agreement.

     5. Advancement of Expenses.  Expenses (including  attorneys' fees) actually
and reasonably  incurred by an Indemnitee who may be entitled to indemnification
hereunder in defending an action, suit or proceeding,  whether civil,  criminal,
administrative,  investigative or appellate, shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such  Indemnitee to repay such amount if it
shall   ultimately  be  determined  that  the  Indemnitee  is  not  entitled  to
indemnification by the Corporation.  Notwithstanding  the foregoing,  no advance
shall be made by the Corporation if a  determination  is reasonably and promptly
made by (a) the Board of Directors by a majority vote of a quorum  consisting of
directors who were not parties to the action,  suit or proceeding from which the
advancement  is  requested,  or (b) if a quorum  is not  obtainable,  or even if
obtainable,  if a quorum of disinterested  directors so directs,  by independent
legal counsel in a written opinion, or (c) by the stockholders, that, based upon
the  facts  known  to the  Board,  counsel  or  stockholders  at the  time  such
determination  is made, such Indemnitee  acted in bad faith and in a manner that
such  Indemnitee did not believe to be in or not opposed to the best interest of
the  Corporation,  or,  with  respect  to any  criminal  proceeding,  that  such
Indemnitee believed or had reasonable cause to believe his conduct was unlawful.
In no event shall any advance be made in instances where the board, stockholders
or independent legal counsel

<PAGE>




reasonably determines that such Indemnitee deliberately breached his duty to the
Corporation or its stockholders.

     6. Notification and Defense of Claim.  Promptly after receipt by Indemnitee
of notice of the  commencement  of any action,  suit or  proceeding,  Indemnitee
will, if a claim in respect thereof is to be made against the Corporation  under
this Agreement,  notify the  Corporation of the  commencement  thereof;  but the
omission so to notify the  Corporation  will not  relieve it from any  liability
which it may have to  Indemnitee  otherwise  than  under  this  Agreement.  With
respect to any such action,  suit or proceeding as to which Indemnitee  notifies
the Corporation of the commencement thereof:

     (a) The  Corporation  will be  entitled to  participate  therein at its own
expense; 

     (b) Except as otherwise provided below, to the extent that it may wish, the
Corporation jointly with any other indemnifying party similarly notified will be
entitled to assume the defense "hereof, with counsel satisfactory to Indemnitee.
After notice from the Corporation to Indemnitee of its election so to assume the
defense  thereof,  the Corporation  will not be liable to Indemnitee  under this
Agreement for any legal or other expenses subsequently incurred by Indemnitee in
connection with the defense thereof other than reasonable costs of investigation
or as otherwise  provided below.  Indemnitee  shall have the right to employ its
own counsel in such action, suit or proceeding but the fees and expenses of such
counsel  incurred  after notice from the  Corporation  of its  assumption of the
defense thereof shall be at the expense of Indemnitee  unless (i) the employment
of counsel by Indemnitee has been authorized by the Corporation, (ii) Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Corporation and Indemnitee in the conduct of the defense of such action,  or
(iii) the  Corporation  shall not in fact have  employed  counsel  to assume the
defense of such action,  in each of which cases the fees and expenses of counsel
shall  be at the  expense  of the  Corporation.  The  Corporation  shall  not be
entitled to assume the defense of any action,  suit or proceeding  brought by or
on behalf  of the  Corporation  or as to which  Indemnitee  shall  have made the
conclusion provided for in (ii) above; and

     (c) The Corporation shall not be liable to indemnify  Indemnitee under this
Agreement  for any amounts paid in  settlement  of any action or claim  effected
without its prior written consent.  The Corporation  shall not settle any action
or claim  in any  manner  which  would  impose  any  penalty  or  limitation  on
Indemnitee  without  Indemnitee's  written consent.  Neither the Corporation nor
Indemnitee will unreasonably withhold their consent to any proposed settlement.

     7.  Determination  of Right to  Indemnification.  Prior to  indemnifying an
Indemnitee  pursuant  to  this  Agreement,   unless  ordered  by  a  court,  the
Corporation shall

<PAGE>




determine  that such  Indemnitee  is  entitled  thereto  under the terms of this
Agreement.  Any  determination  that a person shall or shall not be  indemnified
under this Agreement  shall be made by the board of directors by a majority vote
of a quorum consisting of directors who were not parties to the action,  suit or
proceeding,  or if such quorum is not  obtainable,  or even if obtainable,  if a
quorum of disinterested  directors so directs, by independent legal counsel in a
written opinion or by the stockholders,  and such  determination  shall be final
and binding  upon the  Corporation;  provided,  however,  that in the event such
determination is adverse to the Indemnitee, such Indemnitee shall have the right
to  maintain  an action  in any  court of  competent  jurisdiction  against  the
Corporation  to  determine  whether or not such  Indemnitee  is entitled to such
indemnification hereunder. If such court action is successful and the Indemnitee
is determined to be entitled to such  indemnification,  such Indemnitee shall be
reimbursed by the  Corporation for all fees and expenses  (including  attorneys'
fees)  actually  and  reasonably  incurred  in  connection  with any such action
(including without limitation the investigation,  defense,  settlement or appeal
of such action).  This Agreement shall be applicable to any claim asserted after
the date  hereof  whether  such claim  arises from acts or  omissions  occurring
before or after the date hereof.

     8. Certain  Definitions.  For  purposes of this  Agreement,  references  to
"Other  Enterprise"  shall include  without  limitation  any other  corporation,
partnership, joint venture, trust or employee benefit plan; references to "fine"
or "fines" shall include any excise taxes assessed on Indemnitee with respect to
any employee benefit plan; references to "defense" shall include  investigations
of any action, suit or proceeding as well as appeals in any threatened,  pending
or completed  action,  suit or  proceeding  and shall also include any defensive
assertion of a cross claim or  counterclaim;  and  references to "serving at the
request of the  Corporation"  shall  include  any  service as a director  of the
Corporation  which imposes duties on, or involves  services by,  Indemnitee with
respect to an employee benefit plan, its participants or  beneficiaries;  and if
Indemnitee  acted in good faith and in a manner he reasonably  believed to be in
the interest of the participants  and  beneficiaries of an employee benefit plan
he shall be deemed to have acted in a manner "not opposed to the best  interests
of the  Corporation" as referred to in this  Agreement.  For the purpose of this
Agreement,  unless the board of directors  of the  Corporation  shall  determine
otherwise, any Indemnitee who shall serve as an officer or director of any Other
Enterprise of which the Corporation, directly or indirectly, is a stockholder or
creditor,  or in  which  the  Corporation  is in any way  interested,  shall  be
presumed  to be  serving  as such  director  or  officer  at the  request of the
Corporation.  In all other  instances  where  any  Indemnitee  shall  serve as a
director,  officer,  employee  or  agent of an  Other  Enterprise,  if it is not
otherwise  established  that such Indemnitee is or was serving as such director,
officer,  employee  or agent at the  request  of the  Corporation,  the board of
directors of the Corporation  shall determine  whether such Indemnitee is or was
serving at the request of the Corporation, and it shall not be

<PAGE>




necessary  to  show  any  actual  or  prior  request  for  such  service,  which
determination  shall be final and binding on the  Corporation and the Indemnitee
seeking indemnification.

     9. Continuation and Enforcement of Indemnification.

         (a) The Corporation  expressly  confirms and agrees that it has entered
into this  Agreement  and assumes  the  obligations  imposed on the  Corporation
hereby  in  order  to  induce  Indemnitee  to  continue  as a  director  of  the
Corporation and  acknowledges  that Indemnitee is relying upon this Agreement in
continuing in such capacity.  The rights to  indemnification  and advancement of
expenses  created by or provided  pursuant to this  Agreement are  bargained-for
conditions of  Indemnitee's  acceptance  and/or  maintenance  of his election or
appointment  as a director of the  Corporation  and such rights  shall  continue
after  Indemnitee has ceased to be a director of the  Corporation or a director,
officer,  employee  or agent of any  Other  enterprise  and  shall  inure to the
benefit of Indemnitee's heirs, executors, administrators and estate.

         (b)   Indemnitee   expressly   confirms   and  agrees   that  under  no
circumstances  shall the language or any of the promises and covenants contained
in this  Agreement  be  construed  or  interpreted  as  creating a  contract  of
employment.

         (c) To the  fullest  extent  permitted  by the  laws  of the  State  of
Delaware,  Indemnitee shall have the right to maintain an action in any court of
competent  jurisdiction  to enforce  and/or  recover  damages  for breech of the
rights to  indemnification  created by or provided pursuant to the terms of this
Agreement. If such court action is successful, Indemnitee shall be reimbursed by
the Corporation for all fees and expenses  (including  attorneys' fees) actually
and  reasonably  incurred  in  connection  with such action  (including  without
limitation the investigation, defense, settlement or appeal of such action).

     10.  Non-Exclusivity.   The  right  to  indemnification  pursuant  to  this
Agreement shall not be deemed  exclusive of any other rights of  indemnification
to which  Indemnitee may be entitled  under any statute,  other  agreement,  the
Certificate of  Incorporation,  Bylaws,  pursuant to a vote of  stockholders  or
disinterested  directors,  insurance policy or otherwise,  both as to actions in
his official  capacity and as to action in another  capacity  while  holding his
directorship,  and shall not limit in any way any right the Corporation may have
to create  additional or independent or  supplementary  obligations to indemnify
Indemnitee.

     11.  Severability.  Each of the  provisions of this Agreement is a separate
and distinct  agreement  independent of the others, and if any provision of this
Agreement  or  the  application  of  any  provision  hereof  to  any  person  or
circumstance is held invalid, illegal or unenforceable by a court for any reason
whatsoever, the remaining provisions
<PAGE>



of this  Agreement  and the  application  of such  provision to other persons or
circumstances shall not be affected thereby.  The parties hereto expressly agree
that any  provision  hereof  held  invalid,  illegal or  unenforceable  shall be
construed and modified by the court finding such provision  invalid,  illegal or
unenforceable  to the extent  necessary so as to render such provision valid and
enforceable  as against  all  persons or  entities  and to provide  the  maximum
possible  protection to the person subject to  indemnification  hereunder within
the bounds of  validity,  legality  and  enforceability.  Without  limiting  the
generality of the foregoing,  if the  Indemnitee is entitled to  indemnification
under this Agreement by the  Corporation for some or a portion of the judgments,
amounts paid in settlement,  attorneys'  fees,  ERISA excise taxes or penalties,
fines or other expenses  actually and  reasonably  incurred by the Indemnitee in
connection with any threatened,  pending or completed action, suit or proceeding
(including without limitation, the investigation,  defense, settlement or appeal
of such action, suit or proceeding),  whether civil,  criminal,  administrative,
investigative  or  appellate,  but not,  however,  for all of the  total  amount
thereof,  the Corporation  shall  nevertheless  indemnify the Indemnitee for the
portion thereof to which such person is entitled.

     12.  Governing  Law.  This  Agreement  shall be governed,  interpreted  and
construed in accordance with the laws of the State of Delaware without regard to
any of its conflict of law rules.

     13. Modification; Survival. This Agreement constitutes the entire agreement
of the  parties  relating  to  the  subject  matter  hereof  and  no  amendment,
modification,  termination or  cancellation of this Agreement shall be effective
unless  in  writing  signed  by both  parties  hereto.  The  provisions  of this
Agreement shall survive the  termination of  Indemnitee's  service as a director
and/or officer of the Corporation with respect to actions,  suits or proceedings
brought or  instituted in respect of any action taken or the failure to take any
action occurring prior to such termination of service.

         IN  WITNESS  WHEREOF,  the  parties  hereto  have  duly  executed  this
Agreement  and  affixed  their  signatures  hereto  as of the date  first  above
written.


                                        ___________________________, Indemnitee


                                        PANACO, INC.


                                       By:
                                     Title: