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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, 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 incorporation or (I.R.S. Employer Identification
             organization)                                      Number)

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

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




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



              20,382,087  shares of the registrant's $.01 par value Common Stock
were outstanding as of March 31, 1997.



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<PAGE>


<TABLE>
<CAPTION>


                                  PANACO, Inc.
                          Quarterly Report on Form 10-Q
                      for the Quarter Ended March 31, 1997

                                   (Unaudited)


PART I.  FINANCIAL INFORMATION

<S>    <C>                              
  Item 1.    Financial Statements

             Condensed Balance Sheets as of March 31, 1997 and December 31, 1996           3

             Statements of Income (Operations) for the Three Months Ended March 31,
                      1997 and 1996                                                        5

             Statements of Changes in Stockholders' Equity for the Three Months
                      Ended March 31, 1997                                                 6

             Statements of Cash Flows for the Three Months Ended March 31, 1997
                      and 1996                                                             7

             Condensed Notes to Financial Statements                                       8

  Item 2.    Management's Discussion and Analysis of Financial Condition and Results
                      of Operations                                                       10


PART II. OTHER INFORMATION

  Item 6.    Exhibits and Reports on Form 8-K                                             13


SIGNATURES                                                                                13





                                       2

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                             PANACO, INC.
                                       Condensed Balance Sheets
                                             (Unaudited)



ASSETS                                                         As of                     As of
                                                          March 31, 1997           December 31, 1996
                                                       ----------------------    ----------------------
CURRENT ASSETS
<S>                                                               <C>                       <C>       
     Cash and cash equivalents                                    $1,274,000                $1,736,000
     Accounts receivable                                           6,023,000                 6,197,000
     Investment in common stock                                    1,701,000                 1,642,000
     Prepaid and other                                               245,000                   424,000
                                                       ----------------------    ----------------------
        Total current assets                                       9,243,000                 9,999,000
                                                       ----------------------    ----------------------

OIL AND GAS PROPERTIES, AS DETERMINED BY THE
SUCCESSFUL EFFORTS METHOD OF ACCOUNTING
     Oil and gas properties, proved                              126,553,000               125,283,000
     Oil and gas properties, unproved                              7,128,000                 7,128,000
     Less: accumulated depreciation, depletion,
        amortization and valuation allowances                   (84,650,000)              (81,871,000)
                                                       ----------------------    ----------------------
        Net oil and gas properties                                49,031,000                50,540,000
                                                       ----------------------    ----------------------

PROPERTY, PLANT AND EQUIPMENT
     Pipelines and equipment                                      12,890,000                10,534,000
     Less: accumulated depreciation                                (534,000)                 (327,000)
                                                       ----------------------    ----------------------
        Net property, plant and equipment                         12,356,000                10,207,000
                                                       ----------------------    ----------------------

OTHER ASSETS
     Restricted deposits                                           1,584,000                 2,115,000
     Loan costs, net                                                 559,000                   611,000
     Other                                                           252,000                   296,000
                                                       ----------------------    ----------------------
        Total other assets                                         2,395,000                 3,022,000
                                                       ----------------------    ----------------------


TOTAL ASSETS                                                     $73,025,000               $73,768,000
                                                       ======================    ======================

                                   The accompanying notes are an integral part of this statement

                                                               3
</TABLE>

<PAGE>
<TABLE>
<CAPTION>



                                                   PANACO, INC.
                                             Condensed Balance Sheets
                                                   (Unaudited)



LIABILITIES AND STOCKHOLDERS' EQUITY                                      As of                     As of
                                                                     March 31, 1997           December 31, 1996
                                                                  ----------------------    -----------------------
CURRENT LIABILITIES
<S>                                                                          <C>                        <C>       
     Accounts payable                                                        $7,226,000                 $6,246,000
     Interest payable                                                           242,000                    524,000
     Current portion of long-term debt                                                0                          0
                                                                  ----------------------    -----------------------
        Total current liabilities                                             7,468,000                  6,770,000
                                                                  ----------------------    -----------------------


LONG-TERM DEBT                                                               25,000,000                 49,500,000
                                                                  ----------------------    -----------------------


STOCKHOLDERS' EQUITY
     Preferred Shares, $.01 par value,
        5,000,000 shares authorized; no
        shares issued and outstanding                                                 0                          0
     Common Shares, $.01 par value,
        40,000,000 shares authorized;
        20,382,087 and 14,350,255 shares
        issued and outstanding, respectively                                    204,000                    143,000
     Additional paid-in capital                                              53,656,000                 31,490,000
     Retained earnings (deficit)                                           (13,303,000)               (14,135,000)
                                                                  ----------------------    -----------------------
        Total stockholders' equity                                           40,557,000                 17,498,000
                                                                  ----------------------    -----------------------






TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $73,025,000                $73,768,000
                                                                  ======================    =======================


                                 The accompanying notes are an integral part of this statement



                                                              4
</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                              PANACO, INC.
                                    Statements of Income (Operations)
                                  For the Three Months Ended March 31,
                                               (Unaudited)



                                                                        1997                   1996
                                                                  -----------------      -----------------
REVENUES
<S>                                                                     <C>                    <C>       
     Oil and natural gas sales                                          $8,067,000             $7,339,000

COSTS AND EXPENSES
     Lease operating                                                     2,911,000              2,355,000
     Depletion, depreciation & amortization                              3,113,000              2,486,000
     General and administrative                                            198,000                185,000
     Production and ad valorem taxes                                        85,000                211,000
     Exploration expenses                                                   67,000                      0
     Provision for losses and (gains) on disposition
        and write-down of assets                                                 0                      0
                                                                  -----------------      -----------------
        Total                                                            6,374,000              5,237,000
                                                                  -----------------      -----------------

NET OPERATING INCOME                                                     1,693,000              2,102,000
                                                                  -----------------      -----------------

OTHER INCOME (EXPENSE)
     Unrealized gain on investment in common stock                          60,000                      0
     Interest expense, net                                               (921,000)              (452,000)
                                                                  -----------------      -----------------
        Total                                                            (861,000)              (452,000)
                                                                  -----------------      -----------------

NET INCOME BEFORE INCOME TAXES                                             832,000              1,650,000

INCOME TAXES                                                                     0                      0
                                                                  -----------------      -----------------

NET INCOME                                                                $832,000             $1,650,000
                                                                  =================      =================


Net income per share                                                         $0.05                  $0.14
                                                                  =================      =================


                           The accompanying notes are an integral part of this statement


                                                       5

</TABLE>

<PAGE>
<TABLE>
<CAPTION>



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


                                                                                   Amount ($)
                                             Number of                             Additional          Retained
                                               Common             Common             Paid-in           Earnings
                                               Shares              Stock             Capital           (Deficit)
                                           ---------------    ----------------   ----------------   ----------------

<S>                <C> <C>                     <C>                   <C>             <C>              <C>          
Balances, December 31, 1996                    14,350,255            $143,000        $31,490,000      ($14,135,000)

Net Income                                              0                   0                  0            832,000

Common shares issued - Offering                 6,000,000              60,000         22,017,000                  0

Common shares issued - ESOP
contribution and stock bonuses                     31,832               1,000            149,000                  0

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

Balance, March 31, 1997                        20,382,087            $204,000        $53,656,000      ($13,303,000)

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


                       The accompanying notes are an integral part of this statement



                                                  6
</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                PANACO, INC.
                                          Statement of Cash Flows
                                        Three Months Ended March 31,
                                                (Unaudited)

                                                                               1997               1996
                                                                          ----------------   ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                              <C>              <C>       
     Net income                                                                  $832,000         $1,650,000
     Adjustments to reconcile net income to net cash
     provided by operating activities:
        Depletion, depreciation and amortization                                3,113,000          2,486,000
        Unrealized gain on investment in common stock                            (60,000)                  0
        Exploration expenses                                                       67,000
        Other, net                                                                  9,000
        Changes in operating assets and liabilities:
            Accounts receivable                                                   174,000          (893,000)
            Prepaid and other                                                     223,000            282,000
            Accounts payable                                                      980,000             66,000
            Interest payable                                                    (282,000)           (17,000)
                                                                          ----------------   ----------------
                      Net cash provided by operating activities                 5,056,000          3,574,000
                                                                          ----------------   ----------------

CASH FLOWS FROM INVESTING ACTIVITIES
        Sale of oil and gas properties                                             23,000                  0
        Capital expenditures and acquisitions                                 (3,649,000)          (336,000)
        Decrease/(increase) in restricted deposits                                531,000        (1,745,000)
                                                                          ----------------   ----------------
                      Net cash used by investing activities                   (3,095,000)        (2,081,000)
                                                                          ----------------   ----------------

CASH FLOWS FROM FINANCING ACTIVITIES
        Common stock offering proceeds, net                                    22,077,000                  0
        Long-term debt proceeds                                                 1,500,000                  0
        Repayment of long-term debt                                          (26,000,000)        (3,000,000)
        Issuance of common stock-exercise of warrants                                   0          1,837,000
                                                                          ----------------   ----------------
                      Net cash used by financing activities                   (2,423,000)        (1,163,000)
                                                                          ----------------   ----------------

NET INCREASE (DECREASE) IN CASH                                                 (462,000)            330,000

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

CASH AND CASH EQUIVALENTS AT MARCH 31,                                         $1,274,000         $1,528,000
                                                                          ================   ================

                                   The accompanying notes are an integral part of this statement

                                                               7
</TABLE>

<PAGE>


                                  PANACO, INC.
                     CONDENSED NOTES TO FINANCIAL STATEMENTS

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 March  31,  1997  and  December  31,  1996  and the  results  of
operations  and changes in  stockholder's  equity and cash flows for the periods
ended March 31, 1997 and 1996. Most adjustments made to the financial statements
are of a normal,  recurring  nature.  Although  the  Company  believes  that the
disclosures  are  adequate to make the  information  presented  not  misleading,
certain information and footnote disclosures,  including significant  accounting
policies,  normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the rules and  regulations  of the Securities  and Exchange  Commission  (the
"SEC").  It is suggested that these financial  statements be read in conjunction
with the financial  statements  and the notes thereto  included in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1996.

Note 2 - OIL AND GAS PROPERTIES AND PIPELINES AND EQUIPMENT

       The Company utilizes the successful  efforts method of accounting for its
oil and gas properties.  Under the successful efforts method,  lease acquisition
costs are capitalized.  Exploratory  drilling costs are also capitalized pending
determination  of proved  reserves.  If proved reserves are not discovered,  the
exploratory costs are expensed. All development costs are capitalized. 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  remaining  useful
lives of fifteen years.  Other property is also depreciated on the straight-line
method over remaining useful lives ranging from five to seven years.

Note 3 - CASH FLOW INFORMATION

         For purposes of the statement of cash flows, the Company  considers all
highly liquid debt instruments  purchased with original maturities of six months
or less to be cash  equivalents.  Net  cash  provided  by  operating  activities
includes cash  payments for interest  totaling  $1,203,000  and $469,000 for the
first three months of 1997 and 1996, respectively.

Note 4 - RESTRICTED DEPOSITS

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


                                       8
<PAGE>

Note 5 - INVESTMENT IN COMMON STOCK

         In  connection  with the sale of the  Bayou  Sorrel  Field to  National
Energy Group,  Inc. in 1996,  the Company  received  477,612  shares of National
Energy Group,  Inc.  common stock.  The Company has  classified  this asset as a
trading  security.  At  March  31,  1997  the  market  value  of the  stock  was
$1,701,000,  with an  unrealized  gain of $60,000  recognized in the first three
months of 1997 to reflect the increase in market value from December 31, 1996.

Note 6 - NET INCOME PER SHARE

     The net income per share for the three months ended March 31, 1997 and 1996
has been calculated  based on 16,090,053 and 12,068,412  weighted average shares
outstanding, respectively.

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

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


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

December 31, 1996                                2,239,000           41,446,000
Purchase of minerals-in-place                          -0-                  -0-
Production                                        (81,000)          (2,180,000)
Revisions of previous estimates                        -0-                  -0-
                                              ------------        ------------
Estimated reserves at March 31, 1997             2,158,000          39,266,000
                                              ============         ===========

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






                                       9

<PAGE>


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

Forward-looking Statements

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

General

         The oil and gas  industry has  experienced  significant  volatility  in
recent years  because of the  oversupply  of most fossil  fuels  relative to the
demand for such products and other  uncertainties  in the world energy  markets.
These  industry  conditions  should be  considered  when this  analysis is read.
Accordingly,  the  energy  market has been  unsettled,  making it  difficult  to
predict future prices.

Liquidity and Capital Resources

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

         On October 8, 1996 the  Company  amended its Bank  Facility  with First
Union National Bank of North  Carolina (60%) and Banque Paribas (40%).  The loan
is a reducing  revolver  designed to provide up to $40,000,000  depending on the
borrowing base, as determined by the lenders.  The borrowing base on May 1, 1997
was $28 million. At March 31, 1997 the Company had $16,500,000 outstanding under
the loan. The principal amount of the loan is due July 1, 1999.  However,  at no
time may the Company  have  outstanding  borrowings  under the Bank  Facility in
excess of its  borrowing  base.  Interest  on the loan is computed at the bank's
prime rate or at 1 to 1 3/4%  (depending  upon the  percentage  of the  facility
being used) over the  applicable  London  Interbank  Offered  Rate  ("LIBOR") on
Eurodollar  loans.  Eurodollar  loans can be for terms of one, two, three or six
months and interest on such loans is due at the  expiration of the terms of such
loans,  but no less  frequently than every three months.  Management  feels that
this Bank Facility  greatly  facilitates  its ability to make necessary  capital
expenditures  to maintain and improve  production  from its properties and makes
available to the Company additional funds for future acquisitions.

                                       10

<PAGE>

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

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

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

         (c) 1996 Tranche B Bridge Loan Subordinated  Notes. On October 8, 1996,
$8,500,000 was borrowed,  due October 8, 2003, but prepayable any time after May
8,  1998.  These  Notes  were  prepaid  on March 6, 1997  with a portion  of the
proceeds of the common share offering.

         The product prices received by the Company,  net of the impact of hedge
transactions,  averaged  $2.99 per Mcf for natural gas and $19.22 per barrel for
oil for the three months ended March 31, 1997. Cash flow is currently being used
to  reduce   liabilities,   make  capital   expenditures  and  pay  general  and
administrative overhead.  Starting in 1997 hedge transactions on natural gas are
based upon published gas pipeline index prices instead of the NYMEX. This change
has  mitigated the risk of price  differences  due to  transportation.  In 1997,
14,000 MMBtu per day has been  hedged,  reducing to 10,000 MMBtu per day in 1998
and 7,000 MMBtu per day in 1999. The Company is hedging at a swap price of $1.80
per MMBtu for 1997 with varying levels of  participation  (93% in January to 40%
in September ) in settlement  prices above the $1.80 per MMBtu swap price level.
In 1997 the Company has also hedged its oil prices by selling the  equivalent of
720 barrels of oil per day at $20.00,  with a 60%  participation in prices above
the $20.00 swap price level. Management has generally used hedge transactions to
protect its cash flows when the  Company's  levels of  long-term  debt have been
higher and refrained from hedge transactions when long-term debt has been lower.
For accounting purposes,  gains or losses on swap transactions are recognized in
the production month to which a swap contract relates.

         At March 31, 1997, 84% of the Company's  total assets were  represented
by oil and gas  properties  and pipelines and  equipment,  net of  depreciation,
depletion and amortization.

         In 1991 certain  lenders  received a net profits  interest (NPI) in the
West Delta  properties.  During the three months ended March 31, 1997,  payments
with respect to this NPI totaled $110,000.

         Pursuant  to  existing  agreements  the  Company is required to deposit
funds  in  bank  trust  and  escrow   accounts  to  provide  a  reserve  against
satisfaction of its eventual responsibility to plug and abandon wells and remove
structures when certain fields no longer produce oil and gas. Each month,  until
November  1997,  $25,000 is deposited  in a bank escrow  account to satisfy such
obligations with respect to a portion of its West Delta properties.  The Company
has entered into an escrow agreement with Amoco  Production  Company under which
the Company will deposit,  for the life of the fields,  in a bank escrow account
ten percent  (10%) of the net cash flow,  as defined in the  agreement,  for the
Amoco  properties.  The Company  has  established  the  "PANACO  East Breaks 110
Platform  Trust"  in  favor  of the  Minerals  Management  Service  of the  U.S.
Department of the Interior.  This trust required an initial  funding of $846,720
in December  1996,  and  remaining  deposits of $244,320  due at the end of each
quarter in 1999 and  $144,000 due at the end of each quarter in 2000 for a total
of $2,400,000. In addition, the Company has $9,250,000 in surety bonds to secure
its plugging and abandonment operations.

         Through  the three  months  ended  March 31, 1997 the Company had spent
$3,649,000 in capital  expenditures,  primarily for the completion of an oil and
gas  pipeline in the West Delta  Fields and for  development  of its oil and gas
properties.  Through March 31, 1996 the Company had raised  $1,837,000 in equity
as a result of the exercise of warrants.

                                       11
<PAGE>

Results of Operations

For the three months ended March 31, 1997 and 1996:

         "Oil and natural gas sales" increased 10% for the first three months of
1997.  While both oil and natural  gas  production  decreased  slightly in 1997,
higher net prices for both  products  offset this  decrease.  First quarter 1996
includes  the  results  for the Bayou  Sorrel  Field  which  was sold  effective
September 1, 1996.  First  quarter 1997 includes  results of operations  for the
Amoco properties which were purchased on October 8, 1996.

         Production.  Natural gas production decreased 6% in 1997 from 2,318,000
Mcf in 1996 to 2,180,000  Mcf.  While the loss of the Bayou Sorrel Field natural
gas production  was more than offset by the addition of the Amoco  properties in
1997, a decrease in production from the West Delta Fields was the primary factor
in the total decrease in gas production.  The federal production from West Delta
Block 58 was brought  back  on-line in March with the  completion  of a dual six
inch, eight mile pipeline to the West Delta central  processing  facility,  Tank
Battery #3. This pipeline also allowed Tana Oil and Gas  Corporation and Samedan
Corporation to resume production from their wells, drilled on farm-outs from the
Company,  on which the Company receives  overriding royalty revenue and fees for
processing the oil and gas.

         Oil  production  decreased  15% in 1997 from 95,000  barrels in 1996 to
81,000  barrels.  The  sale of the  Bayou  Sorrel  Field in 1996  decreased  the
Company's  oil  production.  In the first quarter of 1996 the Bayou Sorrel Field
produced 34,000 barrels.  For the reasons explained above the West Delta federal
oil  production  was also down in 1997. The Amoco  acquisition  provided  39,000
barrels of new oil production in first quarter 1997. On an Mcf equivalent basis,
total oil and natural gas production decreased 8% in 1997.

         Prices.  The reductions in production volumes were offset by higher net
prices  received in 1997. The 1997 hedge program  reduced the net price received
by only ($.02) per Mcf in 1997 compared to ($.43) per Mcf in 1996. The new hedge
program allows the Company more  participation in the increases in market prices
for natural gas, while  providing the price  stability of no less than $1.80 per
MMBtu in 1997 on over half of its natural gas production.  The net gas price per
Mcf in first  quarter 1997 was $2.99  versus  $2.47 per Mcf in 1996.  Oil prices
also increased in 1997 to $19.22 per barrel from $17.01 in 1996.

         "Lease  operating  expenses"  increased  24% in 1997 in part  due to an
increase in West Delta operating  expenses.  The rebuilt  platform,  put back in
service in October 1996 is continuing to be modified to work as  efficiently  as
possible.  Also,  fees  paid by  others  for  processing  oil and gas were  only
realized in March with the  completion of the eight mile pipeline in West Delta.
First  quarter 1996  included a full quarter of the benefit of these  processing
fees.  First  quarter  1997 also  includes  the  operating  expenses of thirteen
offshore  blocks  acquired from Amoco in October 1996.  Several of the platforms
included in that acquisition have required significant upgrades and repairs by a
new operator.

                                       12
<PAGE>

         "Depletion,  depreciation and amortization" increased 25% and from $.86
per Mcf  equivalent in 1996 to $1.17 per Mcf  equivalent in 1997, due to several
factors. Downward engineering revisions from the Company's independent petroleum
engineers,  Ryder  Scott  Company,  in the West Delta and East Breaks 110 Fields
were  a  significant  part  of  the  increase.   Also,   $4,000,000  in  capital
expenditures made during 1996 to rebuild Tank Battery #3, the central processing
facility for the West Delta Fields, increased the depletion cost per Mcf.

         "Production  and ad valorem  taxes"  decreased 60% in 1997 to 1% of oil
and natural gas sales from 3% of oil and natural gas sales in 1996. The decrease
is due to the Company's shift to federal offshore waters from where there are no
state severance taxes.

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

         "Interest  expense,  net" increased 104% in 1997 due to the significant
increase in borrowing levels in 1997. The average outstanding  long-term debt in
1997 was  $42,000,000  versus  $21,000,000 in 1996. The increased debt level was
due to the Amoco  acquisition  made in October 1996, for which  $32,000,000  was
paid in cash and  financed  with  long-term  debt.  With the closing of a common
share  offering  the  Company  prepaid  $13,500,000  of  subordinated  debt  and
temporarily prepaid $8,500,000 on its revolving bank loan, ultimately to be used
for property development and future acquisitions.  The weighted average interest
rate  also  increased  due  to  the  increased  subordinated  debt  incurred  in
connection with the Amoco acquisition in October 1996. The weighted average rate
increased from 8.5% in 1996 to 9.5% in 1997.

         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 will materially affect earnings per share data previously reported.

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 29, 1997          Sale of the Bayou Sorrel Field

                                   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 15, 1997                          /s/Todd R.Bart
                                           -------------------------------------
                                           Todd R. Bart, Chief Financial Officer