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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 March 31, 1999




[ ] 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                        
(State or other jurisdiction of incorporation   (I.R.S. Employer Identification
                or organization)                             Number)

     1100 Louisiana Street, Suite 5100
                 Houston, Texas                              77002
     (Address of principal executive offices)              (Zip Code)
          
          Registrant's telephone number, including area code: (713) 970-3100




     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 _______ .


     23,985,927 shares of the registrant's $.01 par value Common Stock were
outstanding on March 31, 1999.

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<PAGE>


PART 1.                              ITEM 1

                             FINANCIAL INFORMATION
                                  PANACO, Inc.
                      Consolidated Condensed Balance Sheets
                                   (Unaudited)


                                     ASSETS
                                    <TABLE>
<CAPTION>

                                                           As of                     As of
                                                       March 31, 1999           December 31, 1998

                                                       --------------           -----------------
<S>                                                         <C>                        <C>

CURRENT ASSETS

      Cash and cash equivalents                        $   7,780,000              $   3,452,000
      Accounts receivable                                  8,336,000                  8,332,000
      Accounts receivable-employee                             4,000                     18,000
      Prepaid and other                                      102,000                    268,000
                                                       -------------              -------------
          Total current assets                            16,222,000                 12,070,000

OIL AND GAS PROPERTIES, AS DETERMINED BY THE
SUCCESSFUL EFFORTS METHOD OF ACCOUNTING

      Oil and gas properties, proved                     247,499,000                238,377,000
      Oil and gas properties, unproved                    15,331,000                 15,128,000
      Less accumulated depletion, depreciation,
         and amortization                               (158,600,000)              (152,782,000)
                                                       -------------              -------------
         Net oil and gas properties                      104,230,000                100,723,000
                                                       -------------              -------------

PIPELINES AND EQUIPMENT

      Pipelines and equipment                             26,286,000                 26,252,000
      Less accumulated depreciation                       (4,077,000)                (3,415,000)
                                                       -------------              -------------
         Net pipelines and equipment                      22,209,000                 22,837,000

OTHER ASSETS

      Deferred debt costs, net                             3,213,000                  3,359,000
      Employee note receivable                               300,000                    300,000
      Restricted deposits and other                        4,332,000                  4,083,000
                                                       -------------              -------------
         Total other assets                                7,845,000                  7,742,000


TOTAL ASSETS                                           $ 150,506,000              $ 143,372,000
                                                       =============              =============
</TABLE>


         The accompanying notes are an integral part of this statement.


                                      -2-

<PAGE>

                                  PANACO, Inc.
                      Consolidated Condensed Balance Sheets
                                   (Unaudited)


                      LIABILITIES AND STOCKHOLDERS' EQUITY

 <TABLE>
<CAPTION>


                                                            As of                   As of
                                                        March 31, 1999          December 31, 1998
                                                        --------------          -----------------
CURRENT LIABILITIES
<S>                                                         <C>                        <C>

     Accounts payable                                  $   17,340,000             $  16,976,000
     Interest payable                                       5,390,000                 2,745,000
     Revolving credit facility                             23,000,000                13,500,000
                                                       --------------             -------------
        Total current liabilities                          45,730,000                33,221,000


LONG-TERM DEBT                                            102,249,000               102,249,000


DEFERRED INCOME TAXES                                               -                         -


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;
        23,985,927 and 23,704,955 shares
        issued and outstanding, respectively                   243,000                  240,000
     Additional paid-in capital                             69,444,000               69,197,000
     Treasury stock, held at cost                             (592,000)                (592,000)
     Retained deficit                                      (66,568,000)             (60,943,000)
                                                        --------------            -------------
        Total stockholders' equity                           2,527,000                7,902,000
                                                        --------------            -------------


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              $  150,506,000            $ 143,372,000
                                                        ==============            =============

COMMITMENTS AND CONTINGENCIES                                        -                        -
</TABLE>


         The accompanying notes are an integral part of this statement.


                                      -3-
<PAGE>


                                  PANACO, Inc.
                 Consolidated Statements of Income (Operations)
                      For the Three Months Ended March 31,
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                1999                    1998
                                                         ---------------          ---------------
<S>                                                            <C>                        <C>

REVENUES

     Oil and natural gas sales                          $   9,171,000            $   11,195,000

COSTS AND EXPENSES

     Lease operating expense                                4,120,000                 3,836,000  
     Depletion, depreciation & amortization                 6,630,000                 6,974,000
     General and administrative expense                       794,000                   516,000
     Production and ad valorem taxes                          154,000                   200,000
     Exploratory dry hole expense                                   -                 1,013,000
     Geological and geophysical expense                       387,000                   252,000
                                                         ------------             -------------
       Total                                               12,085,000                12,791,000
                                                         ------------             -------------
OPERATING LOSS                                             (2,914,000)               (1,596,000)
                                                         ------------             -------------
OTHER INCOME (EXPENSE)
     Interest income                                           12,000                   424,000
     Interest expense                                      (2,723,000)               (2,514,000)
                                                         ------------             -------------
        Total                                              (2,711,000)               (2,090,000)
                                                         ------------             -------------

LOSS BEFORE INCOME TAXES                                   (5,625,000)               (3,686,000)

INCOME TAX BENEFIT                                                  -                (1,273,000)
                                                         ------------             -------------
NET LOSS                                                $  (5,625,000)           $   (2,413,000)
                                                         ============             =============
Net loss per share                                      $       (0.24)           $        (0.10)
                                                         ============             =============
Basic Shares Outstanding                                   23,801,734                23,970,962
                                                         ============             =============
Diluted Shares Outstanding                                 23,801,734                23,970,962
                                                         ============             =============
</TABLE>


         The accompanying notes are an integral part of this statement.


                                      -4-

<PAGE>


                                  PANACO, Inc.
                      Consolidated Statement of Cash Flows
                      For the Three Months Ended March 31,
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                1999                   1998
                                                           --------------         --------------
<S>                                                              <C>                  <C>

CASH FLOWS FROM OPERATING ACTIVITIES

     Net loss                                              $  (5,625,000)         $  (2,413,000)
     Adjustments to reconcile net loss to net cash
     provided by operating activities:
        Depletion, depreciation and amortization               6,630,000              6,974,000
        Exploratory dry hole expense                                   -              1,013,000
        Deferred income tax benefit                                    -             (1,273,000)
        Changes in operating assets and liabilities:
           Accounts receivable                                     8,000             (1,166,000)
           Prepaid and other                                     164,000               (108,000)
           Accounts payable                                      364,000              6,320,000
           Interest payable                                    2,645,000             (2,416,000)
                                                            ------------          -------------
                 Net cash provided by operating activities     4,186,000              6,931,000
                                                            ------------          -------------

CASH FLOWS FROM INVESTING ACTIVITIES

     Sale of oil and gas properties                                    -                      -
     Capital expenditures and acquisitions                    (9,359,000)           (17,870,000)
     Decrease/(increase) in restricted deposits                 (249,000)              (564,000)
                                                            ------------          -------------
                  Net cash used by investing activities       (9,608,000)           (18,434,000)
                                                            ------------          -------------

 CASH FLOWS FROM FINANCING ACTIVITIES

     Issuance of common shares                                   250,000                      -
     Short-term borrowings                                     9,500,000              2,500,000
     Repayment of long-term debt                                       -                      -
                                                            ------------           ------------
                   Net cash provided by financing activities   9,750,000              2,500,000
                                                            ------------           ------------

NET INCREASE (DECREASE) IN CASH                                4,328,000             (9,003,000)

CASH AT BEGINNING OF YEAR                                      3,452,000             36,909,000
                                                            ------------           ------------

CASH AT MARCH 31                                           $   7,780,000          $  27,906,000
                                                            ============           ============
</TABLE>


         The accompanying notes are an integral part of this statement.


                                      -5-

<PAGE>

                                  PANACO, Inc.
            Consolidated Statement of Changes in Stockholders' Equity
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                                        Amount ($)
                                                           -------------------------------------------------------------------
                                           Number of                         Additional
                                            Common           Common           Paid-in           Treasury           Accumulated
                                            Shares            Stock           Capital            Stock               Deficit
                                          -----------      ----------      ------------      --------------       --------------
<S>                                           <C>              <C>               <C>                <C>                  <C>

Balances, December 31, 1998               23,704,955       $  240,000      $ 69,197,000      $   (592,000)        $ (60,943,000)


Net Loss                                           -                -                 -                 -


Common shares issued to the ESOP             280,972            3,000           247,000                 -                     -

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


Balances, March 31, 1999                  23,985,927       $  243,000      $ 69,444,000      $  (592,000)          $(66,568,000)

                                          ==========       ==========      ============      ===========           ============

</TABLE>


         The accompanying notes are an integral part of this statement.


                                      -6-
<PAGE>


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


NOTE 1 - BASIS OF PRESENTATION


     In the  opinion of  management,  the  accompanying  unaudited  consolidated
financial  statements  contain all  adjustments  necessary to present fairly the
financial position as of March 31, 1999 and December 31, 1998 and the results of
operations  and cash flows for the periods  ended March 31, 1999 and 1998.  Most
adjustments made to the financial statements are of a normal,  recurring nature.
Although  the Company  believes  that the  disclosures  are adequate to make the
information   presented  not  misleading,   certain   information  and  footnote
disclosures,  including  significant  accounting policies,  normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles have been condensed or omitted  pursuant to the rules and regulations
of  the  Securities  and  Exchange  Commission  (the  "SEC").  A  more  complete
description of the accounting  policies followed by the Company are set forth in
Note 1 to the  Company's  financial  statements  in Form 10-K for the year ended
December 31, 1998. These financial statements should be read in conjunction with
the financial statements and notes included in the Form 10-K.


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.
Non-drilling  exploratory  costs including  geological and geophysical costs and
delay rentals are expensed.  Unproved  leaseholds with  significant  acquisition
costs are assessed periodically,  on a property-by-property basis, and a loss is
recognized  to the  extent,  if any,  that  the  cost of the  property  has been
impaired.  Unproved  leaseholds  whose  acquisition  costs are not  individually
significant  are  aggregated,  and  the  portion  of  such  costs  estimated  to
ultimately  prove  nonproductive,  based on  experience,  are amortized  over an
average holding period. As unproved  leaseholds are determined to be productive,
the  related  costs  are  transferred  to  proved   leaseholds.   Provision  for
depreciation  and depletion is  determined on a depletable  unit basis using the
unit-of-production  method.  Estimated future  abandonment costs are recorded by
charges  to  depreciation  and  depletion  expense  over the lives of the proved
reserves of the properties.

     The  Company  performs  a  review  for  impairment  of  proved  oil and gas
properties on a depletable unit basis when circumstances suggest there is a need
for such a review.  For each  depletable  unit  determined  to be  impaired,  an
impairment loss equal to the difference  between the carrying value and the fair
value of the  depletable  unit will be recognized.  Fair value,  on a depletable
unit basis,  is estimated to be the present value of expected  future cash flows
computed  by applying  estimated  future oil and gas prices,  as  determined  by
management,  to estimated  future  production  of oil and gas reserves  over the
economic  lives of the reserves.  Future cash flows are based upon the Company's
estimate of proved  reserves.  In addition,  other  factors such as probable and
possible  reserves  are taken into  consideration  when  justified  by  economic
conditions  and  actual or  planned  drilling.  The  Company  recorded  an asset
impairment in 1998 of $20.4 million,  primarily due to lower oil and natural gas
prices.

     Pipelines  and other  equipment  are  carried at cost.  Oil and natural gas
pipelines and equipment are depreciated on the  straight-line  method over their
estimated lives,  primarily fifteen years. Other property is also depreciated on
the straight-line  method over their estimated lives,  ranging from three to ten
years.  Fees for  processing  oil and  natural  gas for others are  treated as a
reduction  of  lease   operating   expense   related  to  the   facilities   and
infrastructure.


                                      -7-

<PAGE>

NOTE 3 - CASH FLOW INFORMATION

     For purposes of the statement of cash flows, the Company considers all cash
investments  purchased  with  original  maturities of three months or less to be
cash  equivalents.  Cash payments for interest  totaled  $269,000 and $4,930,000
during the first three months of 1999 and 1998,  respectively.  No cash payments
for income taxes were made during the first three months of 1999 or 1998.

NOTE 4 - RESTRICTED DEPOSITS


     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.  Through  November  30, 1997 the
Company  funded  $900,000 into an escrow  account with respect to the West Delta
Fields. At that time, the Company completed its obligation for the funding under
West Delta  agreement.  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 $2.4 million.  In connection  with the BP  Acquisition,  the
Company  deposited  $1.0 million into an escrow  account on July 1, 1998. On the
first day of each quarter thereafter, the Company will deposit $250,000 into the
escrow account until the balance in the escrow account reaches $6.5 million.

NOTE 5 - 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, 1998                                7,454,000           81,249,000
Extensions and discoveries                         822,000            1,587,000
Production                                        (262,000)          (3,359,000)
                                                 ---------           ----------
Estimated reserves at March 31, 1999             8,014,000           79,477,000
                                                 =========           ==========

     No major  discovery  or other  favorable  or  adverse  event  has  caused a
significant  change in the estimated  proved  reserves since March 31, 1999. 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.


                                      -8-

<PAGE>


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


Forward-looking Statements
--------------------------

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

General
-------

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

Liquidity and Capital Resources
-------------------------------

     The Company  currently has a $17 million capital budget for 1999,  which is
subject to change  upon review by  management  and the board of  directors.  The
Company   anticipated  funding  this  capital  budget  through  cash  flows  and
borrowings  under its line of credit.  In  conjunction  with an amendment to the
loan  agreement,  on April 13, 1999 the borrowing  base under the line of credit
was reduced to $25 million,  see "Bank Facility." The amendment  provides for $4
million  reductions  in this  borrowing  base on June 30, 1999 and September 30,
1999. With these reductions in the borrowing base, and the amount outstanding on
April 16, 1999 of $24  million,  the Company will be required to reduce its 1999
capital  budget to $11.5  million,  which it currently  has  committed to spend.
These   assumptions  do  not  include  any  external  sources  of  financing  or
redeterminations  of its borrowing  base. The line of credit permits the Company
to request such a redetermination from the bank.

     Bank Facility

     In April 1999, the Company  amended its reducing,  revolving line of credit
(the "Bank Facility") which is designed to provide the Company up to $75 million
depending on the Company's  borrowing  base,  as determined by the lenders.  The
Company's  borrowing base at March 31, 1999 was $40 million,  with  availability
under the  revolver  of $17  million.  The  principal  amount of the loan is due
October  22,  2002.  However,  at no  time  may  the  Company  have  outstanding
borrowings in excess of its borrowing  base. At April 1, 1999 the borrowing base
was  reduced  to $25  million.  The  borrowing  base is  subject  to $4  million
reductions  on June 30, 1999 and  September  30, 1999.  The balance  outstanding


                                      -9-

<PAGE>

     under the Bank Facility at April 15, 1999 was $24 million.  Interest on the
loan is computed at the bank's prime rate or at 1.5 to 2.25% (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. The Bank Facility is collateralized by a first mortgage on the Company's
offshore properties.

     The loan agreement  contains certain  covenants  including a requirement to
maintain a positive  indebtedness to cash flow ratio, a positive working capital
ratio,  a certain  tangible net worth,  as well as  limitations  on future debt,
guarantees,  liens, dividends, mergers, and sale of assets. At December 31, 1998
the Company was not in compliance  with these  covenants,  which was remedied by
waivers  and an  amendment  to the  Bank  Facility.  However,  the  Company  has
classified  this debt as a current  liability  since it is probable  the Company
will fail to meet these  covenants  at  measurement  dates prior to December 31,
1999. The failure to satisfy these  covenants,  or any of the other covenants in
the Bank Facility would  constitute an event of default  thereunder and, subject
to grace  periods,  may  permit  the  lenders  to  accelerate  the  indebtedness
outstanding  under the Bank Facility and demand immediate  payment  thereof.  In
such event,  the Company  could be required to sell  certain oil and gas assets,
sell equity securities or obtain additional bank financing.  No assurance can be
given that such  transactions  can be  consummated  on terms  acceptable  to the
Company or its lenders,  whose approval may be required.  In this situation,  if
the Company is unable to raise the necessary  funds, the Company could become in
default on the full amount of its indebtedness, which includes the Senior Notes.
The holders of the Senior  Notes have  acceleration  rights,  subject to certain
grace periods,  if the Company is in default under the Bank  Facility.

     Property Acquisition

     On May 14, 1998 the Company  entered  into a definitive  agreement  with BP
Exploration and Oil, Inc.  ("BP") to acquire BP's 100% working  interest in East
Breaks Blocks 165 and 209 and 75% working interest in High Island Block 587. The
acquisition  was accounted  for using the purchase  method and closed on May 26,
1998. PANACO became the operator of all three blocks effective June 1, 1998. The
Company  acquired  the  properties  for $19.6  million in cash.  Included in the
acquisition  is the  production  platform,  located in 863 feet of water in East
Breaks Block 165. The Company also acquired  31.72 miles of 12"  pipeline,  with
capacity  of over  20,000  barrels  of oil per day,  which  ties the  production
platform to the High Island Pipeline System, the major oil transportation system
in the area.  It also  acquired  9.3 miles of 12 3/4"  pipeline,  which ties the
production   platform  to  the  High  Island  Offshore  System,  the  major  gas
transportation system in the area.

     Senior Note offering

     On October 9, 1997, the Company issued $100 million  principal amount of 10
5/8%  Senior  Notes due  October  1,  2004.  Interest  on the  Notes is  payable
semi-annually  in  arrears on each April 1 and  October 1,  commencing  April 1,
1998.  Of the  $96.2  million  net  proceeds,  $55.5  million  was used to repay
substantially all of the Company's  outstanding  indebtedness with the remaining
$40.7 million used for capital expenditures and the BP Acquisition.

     Common Stock offering

     On March 5, 1997 the Company  completed  an offering of 8.4 million  common
shares at $4.00 per  share,  $3.728  net of the  underwriter's  commission.  The
offering  consisted  of 6.0  million  shares sold by the Company and 2.4 million
shares sold by  shareholders,  primarily Amoco  Production  Company (2.0 million
shares) and  lenders  advised by Kayne,  Anderson  Investment  Management,  Inc.
(373,305  shares).  The  Company's net proceeds of $22 million from the offering
were used to prepay $13.5 million of its 12% subordinated debt and the remaining
funds were temporarily paid on the Company's  revolving bank loan and ultimately
used for the development of its properties.


                                      -10-

<PAGE>


         Commodity price hedges

     In 1999 the  Company's  natural  gas  hedge  transactions  are  based  upon
published  gas  pipeline  index  prices.  The  Company has natural gas hedged in
quantities  ranging from 7,300 to 37,300 MMbtu per day in each month in 1999 for
a total of 8,770,000 MMbtu, at pipeline prices averaging approximately $1.99 per
MMbtu, for a NYMEX equivalent of approximately  $2.14 per MMbtu. The Company has
hedged 218 MMbtu for each day in 2000 at an average pipeline index swap price of
$1.87.

     The Company has hedged a total of 540,000 bbls of oil in 1999 at an average
NYMEX West Texas  Intermediate  equivalent  floor  price of $15.34 per bbl.  The
number of hedged  bbls per day ranges  from 2,800 to 4,800.  Of the oil  hedged,
1,000  bbls per day  have a floor  price of  $15.00  per bbl and a cap  price of
$19.12 per bbl and  another  1,000 bbls per day have a floor price of $15.00 per
bbl and a cap price of $17.50 per bbl. If the NYMEX equivalent prices exceed the
cap price for the period in which the  Company  has a cap price in  effect,  the
Company must pay the  difference  to the company that  effected the swap for the
total number of bbls hedged. The Company has hedged 232 Bbls of oil for each day
in 2000 at an average price of $17.35 per Bbl.

     Based on NYMEX  future  prices for oil and  natural  gas on March 31,  1999
these  hedge  agreements  would  result in future  gains of  approximately  $1.3
million.  Due to an increase in NYMEX  future  commodity  prices,  as of May 15,
1999, these hedge agreements would result in future losses of approximately $1.1
million.

     The Company produces and sells natural gas, oil and natural gas liquids. As
a result,  its  financial  results can be  significantly  affected by changes in
these commodity  prices.  The Company uses derivative  financial  instruments to
hedge its exposure to changes in the market price of natural gas and oil.  While
commodity financial instruments are intended to reduce the Company's exposure to
declines in these market prices,  the commodity  financial  instruments may also
limit the Company's  gains from increases in the market price of natural gas and
oil.  As a result,  gains and  losses on  commodity  financial  instruments  are
generally  offset by similar  changes in the realized  prices of natural gas and
oil.  Gains or losses on these  transactions  are  recognized in the  production
month to which a hedge contract relates.

     Restricted deposits

     Pursuant to existing agreements the Company is required to deposit funds in
bank trust and escrow accounts to provide a reserve against  satisfaction of its
eventual  responsibility  to plug and abandon wells and remove  structures  when
certain  fields no longer  produce oil and gas.  The Company has entered into an
escrow agreement with Amoco Production Company under which the Company deposits,
for the life of the fields,  in a bank escrow  account ten percent  (10%) of the
net cash flow,  as  defined in the  agreement,  from the Amoco  properties.  The
Company has  established the "PANACO East Breaks 110 Platform Trust" in favor of
the Minerals  Management  Service of the U.S.  Department of the Interior.  This
trust  required an initial  funding of $846,720 in December  1996, and remaining
deposits of $244,320  due at the end of each quarter in 1999 and $144,000 due at
the end of each quarter in 2000 for a total of  $2,400,000.  In connection  with
the BP acquisition,  the Company deposited  $1,000,000 into an escrow account on
July 1, 1998.  On the first day of each  quarter  thereafter,  the Company  will
deposit $250,000 into the escrow account until the balance in the escrow account
reaches $6,500,000.  In addition,  the Company has $9,250,000 in surety bonds to
secure its plugging and abandonment operations.


                                      -11-

<PAGE>


     Capital expenditures

     First  quarter  1999  capital   expenditures  totaled  $9.4  million  which
represents a 48% decrease  from the $17.8 capital  expenditures  incurred in the
comparable  period  of 1998.  The  capital  expenditures  incurred  in 1999 were
primarily for the  development of the East Breaks 165 Field,  which was acquired
in May 1998, and property  acquisition costs and  developmental  work on several
smaller properties operated by the Company. The decrease in capital expenditures
is primarily due to the decrease in availability of capital resources from lower
commodity prices.

Results of Operations
---------------------

For the three months ended March 31, 1999 and 1998:

     "Oil and natural gas sales"  decreased  18% for the first  quarter of 1999,
despite production remaining flat, due to a 25% decrease in oil prices and a 19%
decrease in natural gas prices.  Production  remained  flat in 1999  despite the
West  Delta  Fields  being shut in for the  majority  of the first  quarter  for
pipeline repairs by Tennessee Gas Pipeline Company. These Fields produced 26,000
bbls of oil in 1998 and  800,000  Mcf of  natural  gas in 1998.  The  additional
production  from  the  East  Breaks  165  Field  acquired  in May  1998  and the
subsequent  development  work offset the decrease  from West Delta.

     Production. Natural gas production decreased 21%, to 3,359,000 Mcf in 1999,
from  4,257,000  Mcf in 1998.  The shut in of the West Delta  Fields and reduced
production from the High Island 309 Fields accounted for the largest part of the
decreases.  Production  from the High Island 309 Fields was  reduced  during the
first  quarter  while repair work was being done on the  production  facilities.
Natural gas production  decreased from 2.1 billion cubic feet ("Bcf") in 1998 to
 .8 Bcf in 1999 due in part to the facilities work along with the natural decline
of the wells.  The West Delta Fields produced 800,000 Mcf of natural gas in 1998
versus  100,000 Mcf in 1999. The BP acquisition in May 1998 added 519,000 Mcf of
production in 1999, which,  along with successful  drilling in 1998, offset part
of the decreased production.

     Oil  production  increased  127% in 1999 to 262,000  barrels,  from 115,000
barrels in 1998.  The primary  factor in the  increased oil  production  was the
acquisition of the East Breaks 165 Field in May 1998,  which is primarily an oil
field.

     Prices.  Average  natural  gas  prices,  including  the  impacts of hedging
transactions,  decreased  19% in 1999,  from  $2.19  per Mcf in 1998 to $1.77 in
1999.  The 1999  natural  gas hedge  program  had the effect of  increasing  the
natural gas price  realized  by $0.05 per Mcf during the first  quarters of both
1999 and 1998.  The Company has natural gas hedged in  quantities  ranging  from
7,300 to  37,300  MMbtu per day in each  month in 1999 for a total of  8,770,000
MMbtu, at pipeline prices averaging  approximately  $1.99 per MMbtu, for a NYMEX
equivalent of approximately $2.14 per MMbtu.

     Average  oil  prices,   including  the  impacts  of  hedging  transactions,
decreased  25%, to $12.26 per barrel,  from $16.39 per barrel in 1998.  The 1999
oil  hedge  program  had the  effect of  increasing  the  average  net oil price
realized by $.16 per barrel.  The Company has hedged a total of 540,000  bbls of
oil in 1999 at an average NYMEX West Texas  Intermediate  equivalent floor price
of $15.34 per bbl. The number of hedged bbls per day ranges from 2,800 to 4,800.
Of the oil hedged, 1,000 bbls per day have a floor price of $15.00 per bbl and a
cap price of $19.12 per bbl and another 1,000 bbls per day have a floor price of
$15.00 per bbl and a cap price of $17.50 per bbl. If the NYMEX equivalent prices
exceed  the cap price for the  period  in which the  Company  has a cap price in
effect,  the Company must pay the  difference  to the company that  effected the
swap for the total  number  of bbls  hedged.  Depressed  commodity  prices  will


                                      -12-

<PAGE>
     continue to have a negative impact on the Company's  results of operations.
At  current  prices,  the  Company  expects  to incur an  additional  loss  from
operations for the second quarter of 1999.

     "Lease  operating  expense"  increased to 45% of oil and natural gas sales,
from 34% in 1998. On an Mcf equivalent  ("Mcfe") basis, lease operating expenses
also  increased  from  $0.77  in 1998 to  $0.84 in  1999.  These  increases  are
primarily due to the decreases in production discussed above.

     "Depletion, depreciation and amortization" decreased $344,000 primarily due
to a lower unit of production  cost in the first quarter of 1999. The amount per
Mcfe decreased from $1.41 in 1998 to $1.34 in 1999.

     "General and  administrative  expense" increased $278,000 in 1999 primarily
due to outside legal fees incurred in connection  with various  corporate  legal
matters.

     "Exploratory dry hole expense"  decreased $1 million in 1999 as a result of
the Company's limited  exploratory well participation in 1999. While the Company
believes that its  continued  participation  in a modest  amount of  exploratory
activities is an important  factor in increasing  shareholder  value, the amount
budgeted  for  1999 is  significantly  less  than  that  incurred  during  1998.

    "Geological  and  geophysical  expense"  increased  in 1999 as a result  of
rentals incurred on properties acquired during late 1998 and early 1999.

     "Interest income" decreased  primarily due to a decrease in cash on hand in
1999 versus the comparable  period of 1998.  The interest  income earned in 1998
related to the excess proceeds from the Company's Senior Note offering completed
in October 1997.


Year 2000 Issue
---------------

     The various problems that may result from the use of date codes in software
and other  machinery  is referred  to as the "Year 2000  Issue." The once common
practice  of using a  two-digit  identifier  for the year in a date may  cause a
program  or system to become  faulty or  inoperative  on or prior to  January 1,
2000.  This document  serves as an  informational  disclosure  regarding the Y2K
assessment  activities  for the  Company  under  the Year 2000  Information  and
Readiness Disclosure Act of 1998.

     The Company established a program during 1998 to ensure that, to the extent
reasonably possible, all systems are or will be Year 2000 ready prior to the end
of 1999. The Year 2000 Program ("Y2K Program"),  designed with the assistance of
an outside  consultant,  consists of five phases: (a) Assessment -which includes
compiling an inventory of assets, including significant third-party supplier and
customer relationships, (b) Repair/Upgrade/Replace -including an analysis of the
assets to determine  compliance or  non-compliance  and repairing,  upgrading or
replacing those that are non-compliant,  (c) Compliance Testing, (d) Contingency
Planning,  and  (e)  Roll-over  Planning.

     A team  consisting of the  Company's  managers of  Information  Technology,
Finance and Operations has been established as the Year 2000 Compliance  Project
Team.  With the assistance of its outside  consultant,  the Team has designed an
aggressive schedule to identify information  technology ("IT") and non-IT assets
requiring readiness upgrades, and a timetable for performance and testing of the
affected  systems.  In  addition,  the  Y2K  Program  calls  for  validation  of
compliance by significant  suppliers and customers. 

                                      -13-

<PAGE>
     Once  identified,  detailed  remediation  steps will be scheduled to ensure
that internal systems and significant  external suppliers and customers meet Y2K
compatibility requirements, or that sufficient contingency plans are in place.

     Current Status

     As of May 1999,  the Company's  Year 2000  assessment  is not complete.  An
inventory of computing,  communications  and facility  systems has been prepared
and validated.  Significant  third-party  suppliers and customers have also been
identified for validation.

     The Company has  substantially  completed the inventory for both its IT and
non-IT systems and expects to complete the assessment phase for these systems on
or prior to July 2, 1999. The Y2K Program calls for the completion of all phases
for both IT and non-IT systems by year-end 1999.

     The  Company  is also  performing  a  review  of  significant  third  party
suppliers and customers and, where available,  is surveying the public Year 2000
statements issued by them.  Additionally,  it has sent questionnaires to certain
third party  suppliers  and customers  requesting  information  regarding  their
vulnerability  to Year 2000 issues.  The Company  intends to pursue  appropriate
responses to these inquiries and evaluate the responses it receives to determine
if alternate business actions will be necessary.  Management expects to complete
the third  party  assessment  phase by July 2, 1999,  at which time  contingency
plans will be developed.

     Costs

     The  estimated  total  costs  for Y2K  readiness  has been  nominal.  It is
anticipated  that such costs for  complete  Y2K  readiness  will  continue to be
nominal. In addition,  there have been no material capital  expenditures for Y2K
and there is not  anticipated  to be  material  capital  expenditures,  as it is
believed at this point that most major  critical  field  operations  do not have
date sensitive  equipment.  The company does not  separately  track the internal
costs  incurred  for the Y2K project as such costs are  principally  the related
payroll costs for its  information  systems  group.  Remediation  and testing is
scheduled to be completed during the 3rd quarter of 1999. 

     Contingency Plans

     Should any systems,  customers or  significant  suppliers be  determined to
have questionable  remediation potential,  the Year 2000 Compliance Project Team
will  establish a  contingency  plan to address the at-risk  area.  This will be
decided  during the  analysis  phase of the overall  project now  underway.  The
Company is unable at this time to  determine  what  contingency  plans,  if any,
should be  implemented.  As the Company  progresses  through the Y2K Program and
identifies  specific  risk  areas,  it intends to timely  implement  appropriate
remedial actions and contingency plans.

     Risks

     The failure to correct a Year 2000 problem could result in the interruption
or failure of certain  normal  business  activities or  operations.  The Company
believes that the greatest risks lie in its (a) financial systems  applications,
(b) embedded chips in field equipment, (c) and third parties. A significant Year
2000-related  disruption in these systems could disrupt financial and accounting
functions, crude oil and natural gas production,  transportation,  and marketing
activities.  This  disruption  could  have  a  material  adverse  effect  on the
Company's operating results and liquidity.


                                      -14-

<PAGE>
     The Company is not  presently  aware of any vendor  related Year 2000 issue
that is likely  to result in any  disruption  of this  type.  Although  there is
inherent uncertainty in the Year 2000 issue, it expects that as it progresses in
its Y2K  Program,  the level of  uncertainty  about the  impact of the Year 2000
issue will be reduced significantly.

     Conclusion and Disclaimers

     These estimates and conclusions contain forward-looking  statements and are
based on  management's  best estimates of future events.  PANACO's  expectations
about  risks,  future  costs,  and  the  timely  completion  of  its  Year  2000
remediation  are subject to  uncertainties  that could cause  actual  results to
differ materially from the statements made in this readiness disclosure.


PART II                        OTHER INFORMATION

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

    (a)  Exhibits

         27                    Financial Data Schedule

    (b)  Reports on Form 8-K

         January 14, 1999      Other events-change in ownership and board of
                                 directors

         February 11, 1999     Other events-change in ownership and board of
                                 directors


                                   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:      May 19, 1999                    /s/ Todd Bart
     --------------------------            -------------------------------------
                                           Todd R. Bart, Chief Financial Officer


                                      -15-