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

                                    FORM 10-Q

(Mark One)

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

                  For the quarterly period ended June 30, 2000


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

                      Commission File Number 0-26662


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

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

     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 _______.


     24,323,521  shares of the  registrant's  $.01 par value  Common  Stock were
outstanding on June 30, 2000.



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<PAGE>
                                  PANACO, Inc.
                      Consolidated Condensed Balance Sheets



                                     ASSETS
<TABLE>
<CAPTION>

                                                         As of               As of
                                                     June 30, 2000      December 31, 1999
                                                     -------------      -----------------
        <S>                                               <C>                  <C>

   CURRENT ASSETS                                     (Unaudited)
      Cash and cash equivalents                       $ 1,506,000           $ 5,575,000
      Accounts receivable                              16,607,000             9,675,000
      Accounts receivable-employee                         27,000                16,000
      Prepaid and other                                 1,415,000               729,000
                                                   ---------------       ---------------
          Total current assets                         19,555,000            15,995,000
                                                   ---------------       ---------------

   OIL AND GAS PROPERTIES, AS DETERMINED BY THE
   SUCCESSFUL EFFORTS METHOD OF ACCOUNTING
      Oil and gas properties, proved                  273,991,000           262,043,000
      Less proved property accumulated depletion,
      depreciation and amortization                  (185,317,000)         (175,048,000)
      Net unproved oil and gas properties               1,887,000             1,893,000
                                                   ---------------       ---------------
          Net oil and gas properties                   90,561,000            88,888,000
                                                   ---------------       ---------------

   PIPELINES AND EQUIPMENT
      Pipelines and equipment                          26,348,000            26,327,000
      Less accumulated depreciation                    (7,454,000)           (6,130,000)
                                                   ---------------       ---------------
          Net pipelines and equipment                  18,894,000            20,197,000
                                                   ---------------       ---------------

   OTHER ASSETS
      Deferred income taxes                            27,602,000                     -
      Deferred debt costs, net                          3,962,000             4,456,000
      Employee note receivable                            300,000               300,000
      Restricted deposits                               7,102,000             5,602,000
                                                   ---------------       ---------------
          Total other assets                           38,966,000            10,358,000
                                                   ---------------       ---------------

    TOTAL ASSETS                                    $ 167,976,000         $ 135,438,000
                                                   ===============       ===============

                                                                            (continued)
</TABLE>



         The accompanying notes are an integral part of this statement.

                                       2
<PAGE>

                                  PANACO, Inc.
                      Consolidated Condensed Balance Sheets


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                         As of                As of
                                                     June 30, 2000       December 31, 1999
                                                     -------------       -----------------
 CURRENT LIABILITIES                                    (Unaudited)
<S>                                                         <C>                  <C>

      Accounts payable                                 $ 21,569,000           $ 20,408,000
      Interest payable                                    3,059,000              3,003,000
                                                    ----------------     ------------------
          Total current liabilities                      24,628,000             23,411,000
                                                    ----------------     ------------------

 DEFERRED CREDITS                                           625,000                      -

 LONG-TERM DEBT                                         138,251,000            138,902,000

 COMMITMENTS AND CONTINGENCIES

 STOCKHOLDERS' EQUITY (DEFICIT)
      Preferred Shares, $.01 par value,
          5,000,000 shares authorized; no
          shares issued and outstanding                           -                      -
      Common Shares, $.01 par value,
          100,000,000 shares authorized;
          24,323,521 and 23,986,521 shares
          issued and outstanding, respectively              246,000                243,000
      Additional paid-in capital                         68,976,000             68,852,000
      Accumulated deficit                               (64,750,000)           (95,970,000)
                                                    ----------------      -----------------
          Total stockholders' equity (deficit)            4,472,000            (26,875,000)
                                                    ----------------      -----------------


 TOTAL LIABILITIES AND
      STOCKHOLDERS' EQUITY (DEFICIT)                  $ 167,976,000          $ 135,438,000
                                                    ================      =================
</TABLE>



         The accompanying notes are an integral part of this statement.

                                       3
<PAGE>
                                  PANACO, Inc.
                      Consolidated Statements of Operations
                        For the Six Months Ended June 30,
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                           2000                   1999
                                                      --------------         --------------
<S>                                                          <C>                   <C>

 REVENUES
      Oil and natural gas sales                        $ 37,581,000           $ 20,126,000

 COSTS AND EXPENSES
      Lease operating expense                            10,076,000              8,405,000
      Depletion, depreciation & amortization             12,552,000             12,339,000
      General and administrative expense                  2,300,000              2,068,000
      Production and ad valorem taxes                       965,000                371,000
      Geological and geophysical expense                    852,000                564,000
      Exploratory dry hole expense                          447,000                845,000
      Lawsuit recovery                                     (990,000)                     -
                                                     ---------------        ---------------
          Total                                          26,202,000             24,592,000
                                                     ---------------        ---------------

 OPERATING INCOME (LOSS)                                 11,379,000             (4,466,000)

 OTHER INCOME (EXPENSE)
      Interest income                                        74,000                 35,000
      Interest expense                                   (7,836,000)            (5,443,000)
                                                     ---------------        ---------------
          Total                                          (7,762,000)            (5,408,000)
                                                     ---------------        ---------------

 INCOME (LOSS) BEFORE INCOME TAXES                        3,617,000             (9,874,000)

 INCOME TAX EXPENSE (BENEFIT)                           (27,602,000)                     -
                                                     ---------------        ---------------

 NET INCOME (LOSS)                                     $ 31,219,000           $ (9,874,000)
                                                     ===============        ===============

 Net income (loss) per share                                 $ 1.29                $ (0.41)
                                                     ===============        ===============

 Basic Shares Outstanding                                24,199,461             23,894,339
                                                     ===============        ===============
 Diluted Shares Outstanding                              24,199,461             23,894,339
                                                     ===============        ===============
</TABLE>



         The accompanying notes are an integral part of this statement.

                                       4

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


<TABLE>
<CAPTION>
                                                            2000                1999
                                                       --------------       ------------
<S>                                                         <C>                  <C>

 REVENUES
      Oil and natural gas sales                         $ 22,024,000        $ 10,627,000

 COSTS AND EXPENSES
      Lease operating expense                              5,885,000           4,285,000
      Depletion, depreciation & amortization               6,806,000           5,709,000
      General and administrative expense                   1,316,000             946,000
      Production and ad valorem taxes                        706,000             217,000
      Geological and geophysical expense                     551,000             177,000
      Exploratory dry hole expense                           127,000             845,000
      Lawsuit recovery                                      (990,000)                  -
                                                       --------------       -------------
          Total                                           14,401,000          12,179,000
                                                       --------------       -------------

 OPERATING INCOME (LOSS)                                   7,623,000          (1,552,000)

 OTHER INCOME (EXPENSE)
      Interest income                                         21,000              23,000
      Interest expense                                    (4,182,000)         (2,720,000)
                                                       --------------       -------------
          Total                                           (4,161,000)         (2,697,000)
                                                       --------------       -------------

 INCOME (LOSS) BEFORE INCOME TAXES                         3,462,000          (4,249,000)

 INCOME TAX EXPENSE (BENEFIT)                            (27,602,000)                  -
                                                       --------------       -------------

 NET INCOME (LOSS)                                      $ 31,064,000        $ (4,249,000)
                                                       ==============       =============

 Net income (loss) per share                                  $ 1.28             $ (0.18)
                                                       ==============       =============

 Basic Shares Outstanding                                 24,323,521          23,985,927
                                                       ==============       =============
 Diluted Shares Outstanding                               24,323,521          23,985,927
                                                       ==============       =============
</TABLE>



         The accompanying notes are an integral part of this statement.

                                       5
<PAGE>
                                                      PANACO, Inc.
                                          Consolidated Statement of Cash Flows
                                            For the Six Months Ended June 30,
                                                       (Unaudited)

<TABLE>
<CAPTION>

                                                                                  2000               1999
                                                                              --------------      -------------
<S>                                                                                <C>                   <C>

 CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
      Net income (loss)                                                         $ 31,219,000        $(9,874,000)
      Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
          Deferred income taxes                                                  (27,602,000)                 -
          Depletion, depreciation and amortization                                12,552,000         12,339,000
          Exploratory dry hole expense                                               447,000            845,000
          ESOP stock contribution                                                    127,000            250,000
          Changes in assets and liabilities:
             Accounts receivable                                                  (6,932,000)           501,000
             Accounts payable                                                      1,161,000          2,196,000
             Deferred credits                                                        625,000                  -
             Interest payable                                                         56,000            (44,000)
             Prepaid and other                                                      (697,000)          (175,000)
                                                                              ---------------    ---------------
                       Net cash provided by operating activities                  10,956,000          6,038,000
                                                                              ---------------    ---------------

 CASH FLOWS USED IN INVESTING ACTIVITIES
          Capital expenditures and acquisitions                                  (12,520,000)       (14,490,000)
          Increase in restricted deposits                                         (1,500,000)        (1,250,000)
                                                                              ---------------    ---------------
                       Net cash used in investing activities                     (14,020,000)       (15,740,000)
                                                                              ---------------    ---------------

 CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
          Long-term debt borrowings                                               10,349,000         10,500,000
          Repayment of long-term debt                                            (11,000,000)                 -
          Additional deferred financing costs                                       (354,000)                 -
                                                                              ---------------    ---------------
                       Net cash provided by (used in) financing activities        (1,005,000)        10,500,000
                                                                              ---------------    ---------------

 NET INCREASE (DECREASE) IN CASH                                                  (4,069,000)           798,000

 CASH AT BEGINNING OF YEAR                                                         5,575,000          3,452,000
                                                                              ---------------    ---------------

 CASH AT JUNE 30                                                                 $ 1,506,000        $ 4,250,000
                                                                              ===============    ===============
</TABLE>


         The accompanying notes are an integral part of this statement.

                                       6
<PAGE>
                                  PANACO, Inc.
       Consolidated Statement of Changes in Stockholders' Equity (Deficit)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                           Amount ($)
                                                      ----------------------------------------------------
                                       Number of                             Additional                               Total
                                        Common              Common            Paid-in           Accumulated         Stockholders'
                                        Shares              Stock             Capital             Deficit          Equity (Deficit)
                                    --------------     --------------     --------------      --------------      -----------------
<S>                                     <C>                <C>                <C>                <C>                     <C>

 Balances, December 31, 1999          23,986,521          $ 243,000       $ 68,852,000        $ (95,969,000)       $ (26,874,000)

 Net Income                                    -                  -                  -           31,219,000           31,219,000

 Common shares issued to the ESOP        337,000              3,000            124,000                    -              127,000

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

 Balances, June 30, 2000              24,323,521          $ 246,000       $ 68,976,000       $ (64,750,000)         $ 4,472,000

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

</TABLE>


         The accompanying notes are an integral part of this statement.

                                       7
<PAGE>

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

Note 1 - BASIS OF PRESENTATION

     In  the  opinion  of  management,   the  accompanying  unaudited  condensed
consolidated  financial statements contain all adjustments  necessary to present
fairly the financial  position as of June 30, 2000 and December 31, 1999 and the
results of  operations  and cash flows for the  periods  ended June 30, 2000 and
1999.  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,  1999.  These  financial   statements  should  be  read  in
conjunction with the financial statements and notes included in the Form 10-K.

     Certain  reclassifications  of prior  period  statements  have been made to
conform with current reporting practices.

     Weighted  average options to purchase  1,150,000  shares of common stock at
$4.45 per share were outstanding  during the second quarter of 2000 but were not
included in the  computation of diluted  earnings per share because the options'
exercise prices were greater than the average market price of the common shares.
These options were issued in 1997 to officers and directors and expired June 20,
2000.

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 initially capitalized. Exploratory drilling costs are also capitalized
pending determination of proved reserves. If proved reserves are not discovered,
the exploratory costs and associated lease  acquisition 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 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.


                                       8

<PAGE>

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

     Property and 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.

Note 3 - CASH FLOW INFORMATION

     For  purposes of the  consolidated  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
$7,884,000  and  $5,868,000  during  the  first  six  months  of 2000 and  1999,
respectively.  Cash  payments for income  taxes  totaled $0 during the first six
months of 2000 and 1999, respectively.

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 RLI,  Underwriter's
Indemnity.  This trust required an initial funding of $846,720 in December 1996,
and  remaining  deposits of $250,000  due at the end of each  quarter  until the
balance  in  the  account  reaches  $5.4  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  deposits
$250,000 into the escrow account until the balance in the escrow account reaches
$6.5 million.

Note 5 - COMMITMENTS AND CONTINGENCIES

     An action was filed  against  the  Company in  Louisiana,  along with Exxon
Pipeline Company ("Exxon"), National Energy Group, Inc. ("NEG"), Mendoza Marine,
Inc., Shell Western Exploration & Production,  Inc. ("Shell"), and the Louisiana
Department of Transportation  and Development.  The petition was filed in August
1998, and alleges that, in 1997 and perhaps  earlier,  leaks from a buried crude
oil pipeline contaminated the plaintiff's property.

     Pursuant to the purchase and sales  agreement  between the Company and NEG,
NEG is required to indemnify the Company from any damages  attributable to NEG's
operations  on the  property  after  the sale.  However,  NEG is in  Chapter  11
bankruptcy  proceedings,  and so any action by the  Company to assert  indemnity
rights against NEG is currently  stayed.  The Company's Counsel has prepared and
may  file a  motion  to lift  the  stay so  that  the  Company  may  assert  its
indemnification  rights  against NEG. But even if the Company is  successful  in
proving  its right to  indemnity,  NEG's  ability to satisfy  the  judgement  is
questionable because of the bankruptcy.


                                       9

<PAGE>

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

     Pursuant  to another  purchase  and sale  agreement,  the  Company  may owe
indemnity  to Shell and  Exxon,  from whom it  acquired  the  property  prior to
selling  same to NEG.  The Company may have  insurance  coverage  for the claims
asserted in the  petition,  and has notified all  insurance  carriers that might
provide  coverage  under its policies.  Some discovery has occurred in the case,
but discovery is not yet complete.  Therefore,  at this point it is not possible
to evaluate the likelihood of an unfavorable  outcome, or to estimate the amount
or range of potential loss.

     The Company is subject to various legal  proceedings and claims which arise
in the ordinary course of business. In the opinion of management,  the amount of
liability, if any, with the respect to these actions would not materially affect
the financial position of the Company or its results of operation.

Note 6 - LONG-TERM DEBT

     In October 1999 the Company put in place a new credit facility. The loan is
a reducing  revolver  which will  provide  the Company  with up to $60  million,
depending on the borrowing  base. The Company's  borrowing base at June 30, 2000
was $60.0 million,  with availability of $21.8 million.  The principal amount of
the loan is due September 30, 2001,  and may be extended for an additional  year
at the option of the Company.  Interest on the loan is computed at Wells Fargo's
prime rate plus .5% to 3.0%,  depending on the  percentage of the facility being
used. The Credit Facility is  collateralized  by a first mortgage on most of the
Company's properties. The loan agreement contains certain covenants including an
EBITDA (as defined in the  agreement) to interest  expense ratio of at least 1.5
to 1.0 and a working capital ratio (as defined in the agreement) of at least .25
to 1.0.  The loan  agreement  also  contains  limitations  on  additional  debt,
dividends,  mergers  and sales of assets.  At June 30,  2000 the  Company was in
compliance with all of the requirements of it long-term debt.

Note 7 - NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 133,  Accounting for
Derivative Instruments and Hedging Activities, and in June 2000, the FASB issued
SFAS No. 138, Accounting for Certain Derivative  Instruments and Certain Hedging
Activities,  an amendment of FASB Statement No. 133. These statements  establish
standards of  accounting  for and  disclosures  of  derivative  instruments  and
hedging  activities.  These  statements are effective for fiscal years beginning
after June 15, 2000.  While the Company has not yet completed its  evaluation of
the impact of these statements, the Company does not believe the statements will
have a significant impact on its results of operations as it expects its current
derivative activities would continue to qualify under hedge accounting.

Note 8 - INCOME TAXES

     At  December  31,  1999  the  Company  had a  tax  valuation  allowance  of
approximately  $29 million against its deferred tax assets. As of June 30, 2000,
the Company  determined  that it was more likely than not that the  deferred tax
assets would be realized. This determination was based on current projections of
future  taxable  income  in  addition  to  recent  reserve  additions.   Current
projections  of future taxable income are sufficient to utilize our deferred tax
assets due to higher  commodity  prices and  reserve  additions,  therefore  the
valuation allowance was removed.


                                       10

<PAGE>

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

     These projections of future taxable income are management's best estimates,
using current reserve estimates,  estimates of future commodity prices and other
information currently available. While the Company believes that the assumptions
used in these  projections are reasonable,  unfavorable  future events such as a
decrease in  commodity  prices could result in a reduction in some or all of the
deferred tax assets in a future period. The $29 million benefit recorded for the
removal of the  valuation  allowance  was offset by a $1.4 million  deferred tax
liability  that was  generated  during  the six  months  ended  June  30,  2000,
resulting in an overall tax benefit of $27.6 million.


                                       11

<PAGE>

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


Forward-looking Statements

     With the exception of historical information, the matters discussed in this
Form 10-Q contain forward-looking  statements. The forward-looking statements we
make, not only in this Form 10-Q, but also in press  releases,  oral  statements
and other  reports  that we file with the  Securities  and  Exchange  Commission
("SEC") are intended to be subject to the safe harbor  provisions of the Private
Securities  Litigation  Reform Act of 1995.  These  statements  relate to future
results of operations,  the ability to satisfy future capital requirements,  the
growth  of  our  Company  and  other   matters.   You  are  cautioned  that  all
forward-looking   statements   involve  risks  and   uncertainties.   The  words
"estimate," "anticipate," "expect," "predict," "believe" and similar expressions
are intended to qualify these  forward-looking  statements.  We believe that the
forward-looking  statements  that we make are based on reasonable  expectations.
However,  due to the nature of the business we are in and other factors,  we can
not assure you that the actual results of our Company will not differ from those
expectations.

General

     The oil and natural 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 those  products and other  uncertainties
in the world energy markets. You should consider the volatility of this industry
when reading the following.

Liquidity and Capital Resources

     In  implementing  our business  strategy of increasing our reserve base and
cash flows from operations, we have reinvested our cash flows from operations as
capital expenditures. During the first six months of 2000, our net cash provided
by operating  activities totaled $11.0 million,  which, along with cash on hand,
was used to fund our capital  expenditures  of $12.5  million,  and our required
restricted deposit increases of $1.5 million.  Our capital expenditures of $12.5
million for the first six months of 2000 were down from $14.5 million during the
first six months of 1999.

     For the year  2000,  our Board of  Directors  has  approved  a $30  million
capital budget.  This budget is based primarily on the resources available to us
at this time.  We believe  that our cash flows from  operations  and  borrowings
under our Credit Facility will fund this level of capital  expenditures and that
we will have sufficient availability under our Credit Facility.

Credit Facility

     Our primary source of capital beyond discretionary cash flows is our Credit
Facility.  Our Credit Facility is secured by a first mortgage on most of our oil
and natural gas  properties,  and is used  primarily as  development  capital on
properties  that we own. We may also use the Credit Facility for working capital
support, to provide letters of credit and general corporate purposes.

     In  October  1999 we put in  place a new  Credit  Facility,  with  Foothill
Capital  Corp. as the Agent,  and includes  Foothill  Partners,  L.P. and Ableco
Finance, a subsidiary of Cereberus Capital Management, L.P. This Credit Facility


                                       12

<PAGE>

is a $60  million  line,  with  a term  of  two  years,  and  extendable  for an
additional year at our option.  Borrowings  under this Facility bear interest at
rates ranging from prime plus .5% up to prime plus 3.0%  depending on the amount
borrowed.  We had $36 million  outstanding  at June 30, 2000, a decrease of $5.7
million during the second quarter of 2000. We will continue to use this Facility
in 2000 to fund part of our $30 million capital budget.

     The Credit  Facility is a  revolving  credit  agreement  subject to monthly
borrowing base determinations. These determinations are made based on internally
prepared engineering reports, using a two year average of NYMEX future commodity
process  and  are  based  on  our  semi-annual   third  party  reserve  reports.
Indebtedness  under this Credit Facility  constitutes  senior  indebtedness with
respect to the Senior Notes.

     Under  the  terms of this  Credit  Facility,  we must  maintain  a ratio of
trailing twelve-month EBITDA to net interest expense of not less than 1.5 to 1.0
throughout  the term of the Facility.  We must also  maintain a working  capital
ratio,  as  defined in the  agreement,  of not less than .25 to 1.0.  Also,  the
Credit Facility contains certain limitations on mergers, additional indebtedness
and pledging or selling assets. We were in compliance with all covenants on June
30, 2000 and anticipate compliance throughout the term of the loan.

Senior Note offering

     On October 9, 1997,  we 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.

Commodity price hedges

     We follow a hedging strategy designed to protect against the possibility of
severe  price  declines  due to  market  volatility.  We  usually  make  hedging
decisions to assure a payout of a specific acquisition or development project.

     For the year 2000, we have options to put oil and natural gas produced to a
purchaser  at an agreed  upon  price.  The  natural gas put option is for 10,000
MMbtu per day at a NYMEX  price of $2.04 per MMbtu.  The cost of the natural gas
put option was $366,000, which is being amortized over the period the hedge item
is produced,  fiscal year 2000. We also have an oil put option for 1,000 barrels
of oil per day beginning March 1, 2000 and continuing  through December 31, 2000
at NYMEX price of $20.00 per barrel.  The oil put option  cost  $275,000  and is
also being  amortized  over the period the hedge item is  produced,  fiscal year
2000.  In  addition  we have a swap in place on an average of 232 barrels of oil
for each day at $17.00 per barrel. This swap was assumed with the acquisition of
Goldking in 1997.

     On June 30,  2000 this open hedge  position  had a fair value of  estimated
future  losses  totaling  $506,000.  A 10% adverse  change in prices would cause
these estimated future losses to increase to $539,000.

     We produce and sell natural gas, oil and natural gas liquids.  As a result,
our  financial  results  can be  significantly  affected  by  changes  in  these
commodity  prices. We use derivative  financial  instruments to attempt to hedge
our  exposure  to  changes in the market  price of  natural  gas and oil.  While
commodity  financial  instruments are intended to reduce exposure to declines in
these market  prices,  the commodity  financial  instruments  may also limit the
gains from increases in the market price of natural gas and oil. Gains or losses
on these  transactions  are recognized in the production  month to which a hedge
contract relates.


                                       13

<PAGE>

Capital expenditures

     Capital  expenditures  totaled  $12.5  million  for the first six months of
2000,  which  represents  a 14%  decrease  from the  $14.5  million  of  capital
expenditures incurred in the comparable period of 1999. The capital expenditures
incurred in 2000 were primarily for three new wells  completed  during the first
quarter,  two acquisitions and developmental  work in the East Breaks 165 Field,
which took place during the second quarter.  The first  development  well was in
the Price Lake Field, the Sturlese #3 that was  successfully  completed in March
2000. We also drilled a new development well in the Umbrella Point Field, the ST
#87-12 well,  which was also  successfully  completed in March 2000. A third new
development well was completed in the West Delta Fields in January.

     In addition,  we acquired  minority,  non-operating  interests in our North
Coward's  Gully Field and in the East Breaks 109 Fields,  giving us  essentially
100% ownership of both of these Fields. These expenditures were funded with cash
flows  from   operations  in  addition  to  cash  on  hand.  Our  total  capital
expenditures during fiscal year 2000 are estimated to be $30 million.

Results of Operations

For the six months ended June 30, 2000 and 1999:

"Oil and natural gas sales"

Production and Prices:

<TABLE>
<CAPTION>


                                                                                   % Increase
                                              2000                1999              (Decrease)
                                              ----                ----             -----------
        <S>                                   <C>                 <C>                   <C>

    Natural gas production (MMcf)             6,833               6,304                  8%
    Average price per Mcf
     excluding hedging                    $    3.28            $   1.88                 74%
    Average price per Mcf
     including hedging                    $    3.25            $   1.85                 76%

    Oil Production (MBbl)                       541                 551                 (2%)
    Average price per Bbl
     excluding hedging                    $   28.92            $  15.19                 90%
    Average price per Bbl
     including hedging                    $   28.42            $  15.37                 85%
</TABLE>

     Natural gas  production  increased  8%, while oil  production  decreased 2%
during the first six of 2000 when compared to the first six months of 1999.  The
resumption of capital  spending during the fourth quarter of 1999 and continuing
in the first quarter of 2000 resulted in additional production in several fields
that we operate.  This additional  production resulted in offsetting  production
declines that occur naturally on some of our other properties.

     The fields that we  experienced  increased  production  from were the Price
Lake Field,  which did not produce during the first six months of 1999.  Initial
production  from the Price Lake Field began in September  1999 and was increased
further with a second successful well completed in March 2000. We also increased
production with two successful  projects in the Umbrella Point Field. A workover
of the ST #74-10 well in  December  1999 was the  primary  factor in  increasing


                                       14

<PAGE>

natural  gas  production  in the  Umbrella  Point  Field.  We also  completed  a
successful  development well in this Field,  the ST #87-12,  which did not begin
production until March 2000.

     "Lease operating  expense"  increased to $10.1 million during the first six
months of 2000 compared to $8.4 million in 1999. On an Mcf  equivalent  ("Mcfe")
basis,  lease  operating  expenses  also  increased to $1.00 in 2000 compared to
$0.87 in 1999.  Part of our  increased  capital  and  project  spending  in 2000
included a number of workover  and repair  expenditures,  which are  expensed as
they are  incurred.  The  largest of which were  incurred at our East Breaks 165
Field.  We  spent  approximately  $1.1  million  for  MMS  mandated  repairs  of
production tubing on several wells.

     "Depletion,  depreciation and amortization" increased $.2 million primarily
due to a 5%  increase  in total  production,  which was offset  slightly by a 3%
decrease in depletion per Mcfe. On an Mcfe basis,  depletion,  depreciation  and
amortization  decreased to $1.25 in 2000 from $1.28 in 1999.  The primary reason
for the  decrease was 35% lower  production  from the High Island 309 Fields for
the first six months of 2000.  This was offset  somewhat  by a higher  depletion
cost per Mcfe from the Price Lake Field,  however, this production did not begin
to increase significantly until the second quarter of 2000.

     "General and administrative expense" increased $.2 million during the first
six months of 2000 primarily due to higher salaries, wages and benefits.

     "Production and ad valorem taxes"  increased $.6 million,  or 160%,  during
the first six months of 2000 due to two factors.  Production  taxes on oil sales
are  calculated  based  on the  value  of the oil  being  sold  which  increased
significantly with a 90% increase in our realized oil prices. Our production mix
during 2000 also changed to include more production from properties  onshore, or
in state waters, which are subject to severance taxes.

     "Geological and geophysical expense" increased $.3 million during the first
six months of 2000. The increase relates to an increase in drilling activity and
related  required  geological  work over the first six  months of 1999.  We also
purchased 3-D seismic for further development of a field we operate.

     "Exploratory  dry hole  expense"  decreased  $.4  million  in  2000.  These
exploration  expenses incurred in 2000 primarily related to two successful wells
completed  during the first  quarter,  the Umbrella Point Field ST#87-12 and the
Price Lake Field D.T.  Sturlese #3.  Although the wells were  completed  and are
producing,  portions of the targeted zones in each well were exploratory and did
not  encounter an economical  quantity of reserves.  The  incremental  costs for
drilling to these zones were expensed based on their  proportional  costs of the
entire well.

     "Lawsuit  recovery"  relates  to a lawsuit  that we had  filed in 1996,  in
conjunction with our insurance  carrier,  related to a property that we operate.
Our part of the lawsuit was primarily for time value of delayed  revenues from a
fire caused by a third party service company.  The judgement against the service
companies'  insurance carrier was appealed on April 7, 2000 and was subsequently
settled for which we received $990,000.

     "Income tax  benefit"  reflects a reduction  of our  deferred  income taxes
valuation  allowance.  At December 31, 1999 we had a tax valuation  allowance of
approximately  $29 million against our deferred tax assets. As of June 30, 2000,
we  determined  that it was more  likely than not that the  deferred  tax assets
would be realized.  This  determination was based on our current  projections of
future  taxable  income in addition  to recent  reserve  additions.  Our current
projections  of future taxable income are sufficient to utilize our deferred tax


                                       15

<PAGE>

assets due to higher  commodity  prices and  reserve  additions,  therefore  the
valuation allowance was removed.

     These projections of future taxable income are management's best estimates,
using current reserve estimates,  estimates of future commodity prices and other
information  currently available.  While we believe that the assumptions used in
these projections are reasonable,  unfavorable  future events such as a decrease
in  commodity  prices could result in a reduction in some or all of the deferred
tax assets in a future period.  The $29 million benefit recorded for the removal
of the valuation  allowance was offset by a $1.4 million  deferred tax liability
that was  generated  during the six months ended June 30, 2000,  resulting in an
overall tax benefit of $27.6 million.

     "Interest  expense"  increased  due  to a  combination  of  higher  average
borrowings  and an increase in the prime  rate,  upon which our Credit  Facility
interest rate is based on.

For the three months ended June 30, 2000 and 1999:

"Oil and natural gas sales"

Production and Prices:
<TABLE>
<CAPTION>


                                                                              % Increase
                                             2000              1999            (Decrease
                                             ----              ----            ---------
        <S>                                   <C>               <C>                <C>

    Natural gas production (MMcf)             3,585             2,945               22%
    Average price per Mcf
     excluding hedging                    $    3.92          $   2.07               89%
    Average price per Mcf
     including hedging                    $    3.90          $   1.93              102%

    Oil Production (MBbl)                       275               289               (5%)
    Average price per Bbl
     excluding hedging                    $   29.88          $  16.86               77%
    Average price per Bbl
     including hedging                    $   29.18          $  17.06               71%
</TABLE>

     The  resumption of capital  spending  during the fourth quarter of 1999 and
continuing  in the first  quarter of 2000  resulted  in  increased  natural  gas
production in several fields that we operate.  This  additional  production more
than offset production declines that occur naturally on other properties.

     The fields that we  experienced  increased  production  from were the Price
Lake Field,  which did not produce  during the second  quarter of 1999.  Initial
production  from the Price Lake Field began in September  1999 and was increased
further with a second successful well completed in March 2000. We also increased
production with two successful  projects in the Umbrella Point Field. A workover
of the ST #74-10 well in  December  1999 was the  primary  factor in  increasing
natural  gas  production  in the  Umbrella  Point  Field.  We also  completed  a
successful development well in this Field, the ST #87-12, which began production
in March 2000.

     "Lease operating  expense" increased $1.6 million during the second quarter
of 2000 compared to the comparable period in 1999. On an Mcf equivalent ("Mcfe")


                                       16

<PAGE>

basis,  lease  operating  expenses  also  increased to $1.12 in 2000 compared to
$0.92 in 1999.  Part of our  increased  capital  and  project  spending  in 2000
included a number of workover and repair  expenditures during the second quarter
of 2000,  which are  expensed  as they are  incurred.  The largest of which were
incurred at our East Breaks 165 Field. We spent  approximately  $1.1 million for
MMS mandated repairs of production tubing on several wells in that Field.

     "Depletion,  depreciation and amortization" increased $1.1 million, or 19%,
primarily  due  to a  12%  increase  in  total  production.  On an  Mcfe  basis,
depletion,  depreciation and amortization  increased to $1.30 in 2000 from $1.22
in 1999. Although production from the High Island 309 Fields, which had a higher
cost per Mcfe of  production,  had decreased  during the second quarter of 2000.
Offsetting  increased  production  from the Price Lake  Field,  which also had a
relatively  higher cost per Mcfe,  had begun to increase  to  meaningful  levels
during the second quarter.

     "General and  administrative  expense"  increased  $.4 million  during 2000
primarily due to higher salaries, wages and benefits.

     "Production and ad valorem taxes"  increased $.5 million,  or 226%,  during
the second quarter of 2000 due to two factors. Production taxes on oil sales are
calculated   based  on  the  value  of  the  oil  being  sold  which   increased
significantly with a 77% increase in our realized oil prices. Our production mix
during 2000 also changed to include more production from properties  onshore, or
in state waters, which are subject to severance taxes.

     "Geological  and  geophysical  expense"  increased  $.4 million  during the
second quarter of 2000. The increase relates to an increase in drilling activity
and related  required  geological  work over the second quarter of 1999.  During
2000,  we also  purchased  3-D  seismic for  further  development  of a field we
operate.

     "Exploratory  dry hole  expense"  decreased  $.7 million  during the second
quarter of 2000. The unsuccessful  results in 2000 were from a non-operated well
drilled in Alabama, in which we owned a 12.5% interest.

     "Lawsuit  recovery"  relates  to a lawsuit  that we had  filed in 1996,  in
conjunction with our insurance  carrier,  related to a property that we operate.
Our part of the lawsuit was primarily for time value of delayed  revenues from a
fire caused by a third party service company.  The judgement against the service
companies'  insurance carrier was appealed on April 7, 2000 and was subsequently
settled for which we received $990,000.

     "Income tax  benefit"  reflects a reduction  of our  deferred  income taxes
valuation  allowance.  At December 31, 1999 we had a tax valuation  allowance of
approximately  $29 million against our deferred tax assets. As of June 30, 2000,
we  determined  that it was more  likely than not that the  deferred  tax assets
would be realized.  This  determination was based on our current  projections of
future  taxable  income in addition  to recent  reserve  additions.  Our current
projections  of future taxable income are sufficient to utilize our deferred tax
assets due to higher  commodity  prices and  reserve  additions,  therefore  the
valuation allowance was removed.

     These projections of future taxable income are management's best estimates,
using current reserve estimates,  estimates of future commodity prices and other
information  currently available.  While we believe that the assumptions used in
these projections are reasonable,  unfavorable  future events such as a decrease
in  commodity  prices could result in a reduction in some or all of the deferred
tax assets in a future period.  The $29 million benefit recorded for the removal
of the valuation  allowance was offset by a $1.4 million  deferred tax liability
that was  generated  during the six months ended June 30, 2000,  resulting in an
overall tax benefit of $27.6 million.


                                       17

<PAGE>

     "Interest  expense"  increased  due  to a  combination  of  higher  average
borrowings  and an increase in the prime  rate,  upon which our Credit  Facility
interest rate is based on.

Other Contingencies

     We are subject to various  legal  proceedings  and claims that arise in the
ordinary course of business.  We believe,  based on the information available to
us, that the amount of  liability,  if any,  with the  respect to these  actions
would not materially affect the financial position of the Company or its results
of operation.

     An action was filed against the Company,  Exxon Pipeline Company ("Exxon"),
National  Energy  Group,  Inc.  ("NEG"),  Mendoza  Marine,  Inc.,  Shell Western
Exploration  &  Production,  Inc.  ("Shell")  and the  Louisiana  Department  of
Transportation  and  Development.  The petition  was filed in August  1998,  and
alleges  that,  in 1997 and  perhaps  earlier,  leaks  from a buried  crude  oil
pipeline contaminated the plaintiff's property.

     Pursuant to the  purchase and sale  agreement  between the Company and NEG,
NEG is  required  to  indemnify  us  from  any  damages  attributable  to  NEG's
operations  on the  property  after  the sale.  However,  NEG is in  Chapter  11
bankruptcy proceedings, and so any action we take to assert our indemnity rights
against NEG is currently stayed.  Our Counsel has prepared and may file a motion
to lift the stay so that we may assert our  indemnification  rights against NEG.
But  even  if we are  successful  in  proving  our  right  to  indemnity,  NEG's
judgementworthiness is questionable because of the bankruptcy.

     Pursuant to another  purchase and sale  agreement,  we may owe indemnity to
Shell and Exxon,  from whom we acquired  the  property  prior to selling same to
NEG.  We believe we have  insurance  coverage  for the  claims  asserted  in the
petition,  and have notified all insurance  carriers that might provide coverage
under our policies.  Some  discovery has occurred in the case,  but discovery is
not yet  complete.  Therefore,  at this point it is not possible to evaluate the
likelihood  of an  unfavorable  outcome,  or to estimate  the amount or range of
potential loss.

Item 3a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity price hedges

     We follow a hedging strategy designed to protect against the possibility of
severe  price  declines  due to  market  volatility.  We  usually  make  hedging
decisions to assure a payout of a specific acquisition or development project.

     For the year 2000, we have options to put oil and natural gas produced to a
purchaser  at an agreed  upon  price.  The  natural gas put option is for 10,000
MMbtu per day at a NYMEX  price of $2.04 per MMbtu.  The cost of the natural gas
put option was $366,000, which is being amortized over the period the hedge item
is produced,  fiscal year 2000. We also have an oil put option for 1,000 barrels
of oil per day beginning March 1, 2000 and continuing  through December 31, 2000
at NYMEX price of $20.00 per barrel.  The oil put option  cost  $275,000  and is
also being  amortized  over the period the hedge item is  produced,  fiscal year
2000.  In  addition  we have a swap in place on an average of 232 barrels of oil
for each day at $17.00 per barrel. This swap was assumed with the acquisition of
Goldking in 1997.

     On June 30,  2000 this open hedge  position  had a fair value of  estimated
future  losses  totaling  $506,000.  A 10% adverse  change in prices would cause
these estimated future losses to increase to $539,000.


                                       18

<PAGE>

PART II                         OTHER INFORMATION

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

         27                     Financial Date Schedule

         (b)      Reports on Form 8-K

                  None

                                   SIGNATURES

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

                                  PANACO, Inc.

Date:     August 9, 2000                  /s/ Todd R. Bart
      -----------------------             -------------------------------------
                                          Todd R. Bart, Chief Financial Officer
<PAGE>