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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 September 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
           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 _______ .



     23,711,017  shares of the  registrant's  $.01 par value  Common  Stock were
outstanding at September 30, 1997.



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

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

<PAGE>

<TABLE>
<CAPTION>


                          PANACO, Inc. and Subsidiaries
                      Consolidated Condensed Balance Sheets
                                   (Unaudited)



 ASSETS                                                As of                      As of
                                                   September 30, 1997         December 31, 1996
                                                ------------------------   ------------------------
 CURRENT ASSETS
<S>                                                                   <C>
      Cash and cash equivalents                        $      1,329,000                  1,736,000

      Accounts receivable                                     7,891,000                  6,197,000

      Investment in common stock                                 62,000                  1,642,000

      Prepaid and other                                         507,000                    424,000
                                                ------------------------   ------------------------
         Total current assets                                 9,789,000                  9,999,000
                                                ------------------------   ------------------------

 OIL AND GAS PROPERTIES, AS DETERMINED BY THE
 SUCCESSFUL EFFORTS METHOD OF ACCOUNTING
      Oil and gas properties, proved                        180,979,000                125,283,000

      Oil and gas properties, unproved                       13,487,000                  7,128,000

      Less: accumulated depreciation, depletion,
         amortization and valuation allowances              (91,373,000)               (81,871,000)
                                                ------------------------   ------------------------
         Net oil and gas properties                         103,093,000                 50,540,000
                                                ------------------------   ------------------------

 PROPERTY, PLANT AND EQUIPMENT
      Pipelines and equipment                              14,617,000                   10,534,000

      Less: accumulated depreciation                       (1,101,000)                    (327,000)
                                                ------------------------   ------------------------
         Net property, plant and equipment                   13,516,000                 10,207,000
                                                ------------------------   ------------------------

 OTHER ASSETS
      Restricted deposits                                    2,050,000                  2,115,000

     Loan costs, net                                            87,000                    611,000

      Other                                                    779,000                    296,000
                                                ------------------------   ------------------------
         Total other assets                                  2,916,000                  3,022,000
                                                ------------------------   ------------------------

 TOTAL ASSETS                                      $       129,314,000      $          73,768,000
                                                ========================   ========================

</TABLE>

        The accompanying notes are an intergral part of this statement.









<PAGE>

<TABLE>
<CAPTION>


                          PANACO, Inc. and Subsudiaries
                      Consolidated Condensed Balance Sheets
                                   (Unaudited)



 LIABILITIES AND STOCKHOLDERS' EQUITY                                             As of                        As of
                                                                            September 30, 1997           December 31, 1996
                                                                         ------------------------    -------------------------
 CURRENT LIABILITIES
<S>                                                                        <C>                                              <C>
      Accounts payable                                                     $          15,935,000       $            6,246,000

      Interest payable                                                                   651,000                      524,000

      Current portion of long-term debt                                                1,158,000                            -
                                                                         ------------------------    -------------------------
         Total current liabilities                                                    17,744,000                    6,770,000
                                                                         ------------------------    -------------------------

 LONG-TERM DEBT                                                                       56,002,000                   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;  23,711,017
         and 14,350,255 shares issued and outstanding, respectively                      237,000                      143,000

     Additional paid-in capital                                                       68,135,000                   31,490,000

     Retained earnings(deficit)                                                      (12,804,000)                 (14,135,000)
                                                                         ------------------------    -------------------------
         Total stockholders' equity                                                   55,568,000                   17,498,000
                                                                         ------------------------    -------------------------




 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $        129,314,000       $           73,768,000
                                                                         ========================    =========================



        The accompanying notes are an intergral part of this statement.


</TABLE>







<PAGE>

<TABLE>
<CAPTION>


                          PANACO, Inc. and Subsidiaries
                 Consolidated Statements of Income (Operations)
                     For the Nine Months Ended September 30,
                                   (Unaudited)



                                                        1997                     1996
                                                 -------------------      -------------------
 REVENUES
<S>                                                  <C>                      <C>
      Oil and natural gas sales                      $   23,434,000           $   13,257,000

 COSTS AND EXPENSES
      Lease operating                                     8,010,000                6,045,000
      Depletion, depreciation & amortization             10,568,000                4,981,000
      General and administrative                            999,000                  573,000
      Production and ad valorem taxes                       329,000                  429,000
      Exploration expenses                                   67,000                        -
      West Delta fire loss                                        -                  500,000
                                                 -------------------      -------------------
         Total                                           19,973,000               12,528,000
                                                 -------------------      -------------------

 NET OPERATING INCOME                                     3,461,000                  729,000
                                                 -------------------      -------------------

 OTHER INCOME (EXPENSE)
      Gain on sale of common stock                          75,000                        -
      Interest expense, net                             (2,205,000)              (1,347,000)
                                                 -------------------      -------------------
         Total                                          (2,130,000)              (1,347,000)
                                                 -------------------      -------------------

 NET INCOME BEFORE INCOME TAXES                           1,331,000                (618,000)

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

 NET INCOME                                         $     1,331,000         $      (618,000)
                                                 ===================      ===================


 Net income per share                               $          0.07        $          (0.05)
                                                 ===================      ===================





        The accompanying notes are an intergral part of this statement.


</TABLE>

<PAGE>

<TABLE>
<CAPTION>


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



                                                           1997                     1996
                                                    -------------------      -------------------
 REVENUES
<S>                                                    <C>                      <C>
      Oil and natural gas sales                        $     9,146,000          $     2,449,000

 COSTS AND EXPENSES
      Lease operating                                        2,888,000                1,865,000
      Depletion, depreciation & amortization                 4,384,000                1,165,000
      General and administrative                               610,000                  191,000
      Production and ad valorem taxes                          155,000                  102,000
      Exploration expenses                                           -                        -
                                                    -------------------      -------------------
         Total                                               8,037,000                3,323,000
                                                    -------------------      -------------------

 NET OPERATING INCOME (LOSS)                                 1,109,000                (874,000)
                                                    -------------------      -------------------

 OTHER INCOME (EXPENSE)
      Gain on sale of common stock                             16,000                        -
      Interest expense, net                                  (940,000)                (445,000)
                                                    -------------------      -------------------
         Total                                               (924,000)                (445,000)
                                                    -------------------      -------------------

 NET INCOME (LOSS) BEFORE INCOME TAXES                         185,000              (1,319,000)

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

 NET INCOME (LOSS)                                     $       185,000          $   (1,319,000)
                                                    ===================      ===================


 Net income (loss) per share                           $             -          $        (0.11)






        The accompanying notes are an intergral part of this statement.


</TABLE>


<PAGE>

<TABLE>
<CAPTION>


                                       PANACO, Inc. and Subsidiaries
                          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>
 Balances, December 31, 1996                 14,350,255   $      143,000       $ 31,490,000     $(14,135,000)

 Net Income                                           -                -                 -         1,331,000

 Common shares issued - Offering              6,000,000           60,000         21,937,000                -

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

 Common shares issued - Warrants                 90,000            1,000            180,000
 exercised

 Common shares issued - Goldking              3,238,930           32,000         14,379,000
 acquisition
                                         ---------------  ---------------   ---------------   ---------------

 Balance, September 30, 1997                 23,711,017    $     237,000       $ 68,135,000     $(12,804,000)
                                         ===============  ===============   ===============   ===============






        The accompanying notes are an intergral part of this statement.



</TABLE>


























<PAGE>

<TABLE>
<CAPTION>


                          PANACO, Inc. and Subsidiaries
                      Consolidated Statement of Cash Flows
                         Nine Months Ended September 30,
                                   (Unaudited)

                                                                                     1997                1996
                                                                               ----------------    ----------------
 CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                              <C>                <C>
      Net income                                                                 $   1,331,000      $    (118,000)
      Adjustments  to  reconcile  net income to net cash  provided by  operating
      activities:
         Depletion, depreciation and amortization                                   10,568,000           4,981,000
         Other, net                                                                    (28,000)                  -
         Changes in operating assets and liabilities:
             Accounts receivable                                                       733,000             (49,000)
             Prepaid and other                                                        (960,000)            105,000
             Accounts payable                                                        4,536,000           4,231,000
             Interest payable                                                          (72,000)             79,000
             West Delta fire loss                                                            -            (500,000)
                                                                               ----------------    ----------------
                         Net cash provided by operating activities                  16,108,000           8,729,000
                                                                               ----------------    ----------------

 CASH FLOWS FROM INVESTING ACTIVITIES
         Sale of oil and gas properties                                                 24,000         11,158,000
         Accounts receivable - sale of Bayou Sorrel                                          -        (11,152,000)
         Capital expenditures and acquisitions                                    (27,518,000)        (11,856,000)
         Sale of investment in common stock                                          1,717,000                  -
         Decrease/(increase) in restricted deposits                                     65,000         (1,886,000)
                                                                               ----------------    ----------------
                         Net cash used by investing activities                    (25,712,000)        (13,736,000)
                                                                               ----------------    ----------------

 CASH FLOWS FROM FINANCING ACTIVITIES
         Common stock offering proceeds, net                                        21,997,000                  -
         Long-term debt proceeds                                                    15,800,000          7,500,000
         Repayment of long-term debt                                               (28,600,000)        (4,753,000)
         Issuance of common stock - exercise of warrants                                     -          1,837,000
         Additional loan costs                                                               -             (9,000)
                                                                               ----------------    ----------------
                         Net cash used by financing activities                       9,197,000          4,575,000
                                                                               ----------------    ----------------

 NET INCREASE (DECREASE) IN CASH                                                      (407,000)          (432,000)

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

 CASH AND CASH EQUIVALENTS AT SEPTEMBER 30                                       $   1,329,000      $     766,000
                                                                               ================    ================


        The accompanying notes are an intergral part of this statement.
</TABLE>
<PAGE>


                          PANACO, Inc. and Subsidiaries
              CONDENSED NOTES TO CONSOLIDATED 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  September  30,  1997 and  December  31, 1996 and the results of
operations  and changes in  stockholder's  equity and cash flows for the periods
ended  September  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 - ACQUISITIONS

     On July  31,  1997  the  Company  acquired  The  Goldking  Companies,  Inc.
("Goldking Acquisition"). The Company entered into the Restated Merger Agreement
with The Union Companies, Inc. ("Union"),  Leonard C. Tallerine, Jr. and Mark C.
Licata,  (together the "Shareholders").  Prior to the merger, Messrs.  Tallerine
and Licata owned all of the capital stock of Union.  Union was a holding company
which  owned  directly  or  indirectly  all of the  capital  stock  of  Goldking
Companies,  Inc.,  Goldking  Oil and Gas  Corp.,  Goldking  Trinity  Bay  Corp.,
Goldking Production  Company,  Hill Transportation Co., Inc., and Umbrella Point
Gathering,  L.L.C. These companies were merged into a newly formed subsidiary of
PANACO, Goldking Acquisition Corp. ("Goldking").  Goldking will be operated as a
wholly owned subsidiary of PANACO.

     The purchase  price for the  transaction  consisted of  $7,500,000 in cash,
$6,000,000 in notes and 3,154,930  PANACO  common  shares.  Of the cash portion,
$6,500,000  was  advanced on the  Company's  revolving  bank loan.  Goldking had
$13,000,000  in net  liabilities as of July 31, 1997. A finder's fee was paid to
First  Union  Capital  Markets  Corp.  with 84,000  PANACO  common  shares.  The
transaction was accounted for as a purchase, with the value of the common shares
issued recorded at $4.45 per share.

     The consolidated  results of operations for the nine months ended September
30, 1997  include the results of Goldking  from August 1 through  September  30.
These  results also include the results from the former Amoco  properties  after
their  acquisition  in October  1996 and do not include the results of the Bayou
Sorrel Field which was sold September 1, 1996. The following pro forma financial
information  presents the results as if all of these  transactions  had occurred
January 1, 1996.

                                     Nine months ended      Nine months ended
                                     September 30, 1997     September 30, 1996

       Oil and natural gas sales          $27,531,000            $27,672,000
       Net income (loss) before            (1,092,000)            (1,151,000)
         extraordinary items
       Net income (loss)                   (1,092,000)            (1,151,000)
       Net income (loss) per share      $        (.05)                 $(.07)

<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.  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 4 - 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  $1,787,000  and $1,180,000 for the first nine months of 1997
and 1996, respectively.

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 - INVESTMENTS 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  classified  this  asset as a trading
security.  Over the period of July 25 to August 5 the Company  sold all of these
shares for $1,717,000.

     With the Goldking  Acquisition the Company acquired certain  investments in
preferred stock which were sold in October and November with no gains or losses.

Note 7 - NET INCOME PER SHARE

     The net income per share for the nine months ended  September  30, 1997 and
1996 has been  calculated  based on 19,735,016 and 12,253,382  weighted  average
shares  outstanding,  respectively  and  22,660,702 and 12,345,361 for the three
months ended September 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 September 30, 1997 do not dilute per share amounts by 3% or more
and the  shares  issuable  upon  conversion  of the 1996  Tranche A  Convertible
Subordinated   Notes  are  not  considered  common  stock  equivalents  and  are
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.
<PAGE>

Note 8 - 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.

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

December 31, 1996                              2,239,000           41,446,000
Purchase of minerals-in-place                  2,324,000           23,751,000
Production                                      (336,000)          (7,446,000)
Estimated reserves at September 30, 1997       4,227,000           57,751,000

No major  discovery or other favorable or adverse event has caused a significant
change in the estimated  proved  reserves since  September 30, 1997. 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 9 - INCOME TAXES

     The Company has not recorded an income tax  provision  due to net operating
loss  carryforwards  for federal  income tax purposes of $20,400,000 at December
31, 1996 which are available to offset future  federal  taxable  income  through
2011.

Note 10 - SUBSEQUENT EVENTS

     On October 9, 1997 the Company  completed an offering of $100,000,000 of 10
5/8% Senior  Subordinated  Notes due 2004 (the "Offering").  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 will be used primarily
for the  development  of its oil and gas  properties.  The  following  pro forma
financial information presents the effects of the Offering as if it had occurred
on September 30, 1997.

                               September 30, 1997
                                                   Actual           Pro Forma
Cash and cash equivalents                       $1,329,000       $ 42,119,000

Total debt, including current maturities        57,160,000        101,700,000

Stockholders' equity:
         Preferred shares, $.01 par value,
         5,000,000 shares authorized (none
         issued or outstanding)                          -                 -
         Common shares, $.01 par value,
         40,000,000 shares authorized
         (23,711,017 issued and outstanding)       237,000            237,000
         Additional paid in capital             68,135,000         68,135,000
         Retained earnings (deficit)           (12,805,000)       (12,805,000)
                                               ------------       ------------
                  Total stockholders' equity    55,567,000         55,567,000

                  Total capitalization        $112,727,000       $157,267,000

<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.

     On July 31, 1997 the Company acquired Goldking for $27,500,000,  consisting
of cash,  notes payable to the former  shareholders  of Goldking,  PANACO common
shares plus the  assumption  of net debt and  liabilities  of  $13,000,000.  The
assets  acquired  included  approximately  37.7  Bcfe of  Proved  Reserves.  The
acquisition was accounted for as a purchase and the common shares were valued at
$4.45 per share.

Liquidity and Capital Resources

     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 will be used primarily for the development of its oil and gas
properties.

     On October 9, 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 have available  letters of
credit.  The initial  borrowing  base is  $40,000,000,  subject to a  $4,000,000
reduction on April 1, 1998 unless redetermined on an evaluation of the Company's
oil and  natural gas  assets.  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 properties.

     On October 8, 1996 the Company  amended its Bank  Facility with First Union
National Bank (60%) and Banque Paribas (40%).  The loan was 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  September  30,  1997  was
$29,200,000. At September 30, 1997 the Company had $28,200,000 outstanding under
the loan. The principal amount of the loan was due July 1, 1999.  However, at no
time could the Company have had outstanding  borrowings  under the Bank Facility
in excess of its borrowing base. Interest on the loan was 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 could be for terms of one, two, three or six
months and interest on such loans was due at the expiration of the terms of such
loans, but no less frequently than every three months.
<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 were due at a stated maturity,  require payments of interest only at
12% per annum, 45 days after the end of each calendar quarter,  and were 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.  These Notes were prepaid on March 6, 1997 with a
          portion of the  proceeds  from the  common  share  offering  described
          above.

     (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.  These
          Notes were  prepaid on October 9 with a portion of the proceeds of the
          Senior Note offering  described above. The lenders were given warrants
          to acquire  2,060,606 common shares at $4.125 per share,  which expire
          December 31, 1998,  to replace the  conversion  feature of the prepaid
          notes.

     (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 described above.

     At September 30, 1997, 90% 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 nine months ended September 30, 1997, payments with
respect to this NPI totaled $245,000.

     The  product  prices  received by the  Company,  net of the impact of hedge
transactions  discussed below, averaged $2.33 per Mcf for natural gas and $18.02
per barrel for oil for the nine months ended  September  30, 1997.  Cash flow is
currently being used for capital expenditures,  to reduce liabilities and to pay
general and  administrative  overhead.  For 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 on 720 barrels of oil per day at $20.00,  with a 40% 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.  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. 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
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 $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 nine  months  ended  September  30,  1997 the Company had made
$27,518,000  in cash  capital  expenditures,  $7,500,000  of  which  was for the
Goldking  Acquisition,  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.
<PAGE>

Results of Operations

For the nine months ended September 30, 1997 and 1996:

     Production.  Natural gas production  increased 62% to 7,446,000 Mcf in 1997
from  4,590,000  Mcf in 1996.  Oil  production  increased 66% in 1997 to 336,000
barrels,  from 203,000 barrels in 1996. Results for 1997 include production from
the  former  Amoco  properties,  purchased  in October  1996 and the  properties
acquired in the Goldking  Acquisition  on July 31,  1997.  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 the April  1996 fire 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, gas and water.

     Prices.  Natural  gas prices,  net of the impacts of hedging  transactions,
increased  from  $2.07 per Mcf in 1996 to $2.33 in 1997.  The 1997  natural  gas
hedge  program  had the effect of  reducing  gas prices by only ($.07) per Mcf ,
compared to ($.58) 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 on 14,000 MMBtu per day in
1997. Oil prices decreased slightly in 1997 to $18.02 per barrel from $18.43 per
barrel in 1996.

     "Oil and  natural  gas sales"  increased  77% for the first nine  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 and the Goldking  Acquisition on July 31, 1997, 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 since the acquisition in October 1996.

     "Lease operating  expenses" increased  $1,960,000,  or 32% in 1997 with the
addition of interests in thirteen  offshore  blocks acquired in October 1996 and
the  properties  acquired  from  Goldking.  As a percent of oil and  natural gas
sales, lease operating expenses decreased to 34% in 1997 from 46% in 1996. On an
Mcf equivalent  ("Mcfe") basis,  lease operating expenses also decreased to $.85
in 1997 from $1.04 in 1996.

     "Depletion,  depreciation and amortization"  increased $5,587,000,  or 112%
primarily due to the increase in 1997 production as discussed  above. The amount
per Mcfe  also  increased  from  $.86 in 1996 to $1.12 in 1997,  due to  several
factors. Downward engineering revisions of the West Delta Fields and East Breaks
110 Field at year-end 1996 were a significant contributor to 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  after the fire,
increased the depletion cost per Mcfe.

     "General and administrative  expenses" increased $426,000 in 1997 primarily
due to Goldking  Acquisition on July 31, 1997.  However,  as a percentage of oil
and natural gas sales and on an Mcfe basis, these expenses remained flat at 4.3%
of oil and natural gas sales and $.10 per Mcfe.

     "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  primary producing fields being located in federal offshore
waters where there are no state severance taxes. The properties  acquired in the
Goldking Acquisition are all currently subject to severance taxes,  however, the
production  from  these  properties  is  included  in the  Company's  results of
operations only from August 1 to September 30, 1997.

     "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.

     "Gain on sale of  common  stock"  resulted  from the sale of the  Company's
477,612 shares of National Energy Group,  Inc.  common stock.  These shares were
received in November 1996 in connection with the sale of the Bayou Sorrel Field.

     "Interest  expense,  net"  increased  64%  in  1997  primarily  due  to the
increased  average  borrowing  levels  in  1997.  The  average  borrowing  level
increased to  $40,000,000  in 1997 from  $21,000,000  in 1996 as a result of the
Amoco  acquisition  in  October  1996  and the  debt  incurred  and  assumed  in
connection with the Goldking  Acquisition on July 31, 1997. 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.
<PAGE>

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

     Production.  Natural gas production increased 227% to 3,025,000 Mcf in 1997
from  924,000  Mcf in 1996.  Oil  production  increased  179% in 1997 to 148,000
barrels,  from 53,000 barrels in 1996.  Results for 1997 include production from
the  former  Amoco  properties,  purchased  in October  1996 and the  properties
acquired in the Goldking  Acquisition  on July 31,  1997.  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 the April  1996 fire 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, gas and water.

     Prices.  Natural gas prices, net of the impacts of hedging,  increased from
$1.55 per Mcf in 1996 to $2.14 in 1997.  The 1997 natural gas hedge  program had
the effect of reducing gas prices by only ($.11) per Mcf, compared to ($.78) 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 on 14,000 MMBtu per day in 1997.  Oil prices  decreased in
1997 to $18.09 per barrel, from $19.23 per barrel in 1996.

     "Oil and natural gas sales" increased 273% 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 and the
Goldking Acquisition on July 31, 1997, 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  since  the
acquisition in October 1996.

     "Lease operating  expenses" increased  $1,023,000,  or 55% in 1997 with the
addition of interests in thirteen  offshore  blocks acquired in October 1996 and
the  Goldking  Acquisition  on July 31, 1997.  As a percent of  revenues,  lease
operating  expenses decreased to 32% in 1997 from 76% in 1996. On an Mcfe basis,
these expenses decreased to $.74 in 1997 from $1.50 in 1996.

     "Depletion,  depreciation and amortization"  increased $3,215,000 primarily
due to the  substantial  increase in 1997  production  as discussed  above.  The
amount  per Mcfe  also  increased  from  $.96 in 1996 to  $1.12 in 1997,  due to
several  factors.  Downward  engineering  revisions of the West Delta Fields and
East Breaks 110 Field at year-end  1996 were a  significant  contributor  to 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 after
the fire, increased the depletion cost per Mcf.

     "General and administrative  expenses" increased $419,000 in 1997 primarily
due to Goldking  Acquisition on July 31, 1997.  However,  as a percentage of oil
and natural gas sales these expenses decreased to 7% in 1997 from 8% in 1996. On
an Mcfe basis, these expenses remained flat at $.15.

     "Production  and ad valorem  taxes"  increased 52% in 1997 primarily due to
the properties acquired in the Goldking Acquisition. These taxes decreased to 1%
of oil and natural  gas sales from 4% of oil and natural gas sales in 1996.  The
decrease as a  percentage  of oil and natural gas sales is due to the  Company's
primary  producing  properties  being located in federal  offshore  waters where
there are no state  severance  taxes.  The  properties  acquired in the Goldking
Acquisition  are  all  currently  subject  to  severance  taxes,   however,  the
production  from  these  properties  is  included  in the  Company's  results of
operations only from August 1 to September 30, 1997.

     "Gain on sale of  common  stock"  resulted  from the sale of the  Company's
477,612 shares of National Energy Group,  Inc.  common stock.  These shares were
received in November 1996 in connection with the sale of the Bayou Sorrel Field.

     "Interest  expense,  net" increased  $495,000 1997 as a result of increased
borrowing  levels,  primarily  as a  result  of debt  incurred  and  assumed  in
connection with the Goldking Acquisition.
<PAGE>

                                    PART II
                                OTHER INFORMATION

Item 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          On October 7, 1997 the Company held its annual meeting of shareholders
     in Kansas City,  Missouri.  With 85.9% of the  shareholders  voting,  Larry
     Wright,  Mark  Barrett and Harold  First were elected to serve on the Board
     for the next three years.

          The  choice of Arthur  Andersen  LLP as  independent  accountants  was
     approved by the shareholders.

Item 5.           OTHER EVENTS

          In connection  with his  retirement  Bob F. Mallory  resigned from his
     positions as an officer and director  effective  October 31, 1997.  Todd R.
     Bart was elected a director  by the Board at its  meeting on  November  13,
     1997.

Item 6.           EXHIBITS AND REPORTS ON FORM 8-K

          (a) Exhibits

              27     Financial Data Schedule

          (b) Reports on Form 8-K

              January 29, 1997 Sale of the Bayou Sorrel Field

              August 15, 1997  Purchase of Goldking Companies, Inc.

              October 7, 1997 Amended 8-K, purchase of Goldking Companies, Inc.

              October 10, 1997 Amended 8-K, 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: November 17, 1997              /s/  Todd R. Bart
                                          Todd R. Bart, Chief Financial Officer