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

                                  FORM 10-Q/A


                                   (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, 1996




          [ ] 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 organization)        (I.R.S. Employer Identification Number)


1050 West Blue Ridge Boulevard, PANACO Building,
                  Kansas City, MO                        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 _______ .




   12,345,361  shares of the  registrant's  $.01 par  value  Common  Stock  were
outstanding as of September 30, 1996.



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

--------------------------------------------------------------------------------
<PAGE>

<TABLE>
 
                                  PANACO, INC.
              Condensed Balance Sheets (Successful Efforts Method)
                                   (Unaudited)

<CAPTION>


 ASSETS                                                     As of                      As of
                                                        June 30, 1996            December 31, 1995
                                                   ------------------------   ------------------------
 CURRENT ASSETS:
<S>                                                  <C>                        <C>                  
      Cash and cash equivalents                      $           1,248,000      $           1,198,000
      Accounts receivable                                        3,913,000                  4,386,000
      Prepaid expenses                                             505,000                    465,000
                                                   ------------------------   ------------------------
         Total Current Assets                                    5,666,000                  6,049,000
                                                   ------------------------   ------------------------


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

      Oil and gas properties                                   106,493,000                103,105,000
      Less: accumulated depreciation,
         depletion and amortization                            (77,303,000)               (73,620,000)
                                                   ------------------------   ------------------------
         Net Oil and Gas Properties                             29,190,000                 29,485,000
                                                   ------------------------   ------------------------


 PROPERTY, PLANT AND EQUIPMENT:
      Equipment                                                     248,000                   196,000
      Less: accumulated depreciation                               (112,000)                  (92,000)
                                                   ------------------------   ------------------------
         Net Property, Plant and Equipment                          136,000                   104,000
                                                   ------------------------   ------------------------



 OTHER ASSETS:
      Restricted deposits                                        1,735,000                          -
      Loan costs, net                                              362,000                    471,000
      Certificate of deposit                                        27,000                     26,000
      Note receivable                                               21,000                     21,000
      Other                                                         13,000                     13,000
                                                   ------------------------   ------------------------
         Total Other Assets                                      2,158,000                    531,000
                                                   ------------------------   ------------------------


 TOTAL ASSETS                                        $          37,150,000      $          36,169,000
                                                   ========================   ========================

         The accompanying notes are an integral part of this statement.

</TABLE>
<PAGE>

<TABLE>

                                  PANACO, INC.
              Condensed Balance Sheets (Successful Efforts Method)
                                   (Unaudited)

<CAPTION>


 LIABILITIES AND STOCKHOLDERS' EQUITY                                        As of                            As of
                                                                         June 30, 1996                  December 31, 1995
                                                                    ------------------------         -----------------------
 CURRENT LIABILITIES:
<S>                                                                   <C>                             <C>                  
      Accounts payable                                                $           6,703,000           $           4,444,000
      Interest payable                                                              239,000                         161,000
      Current portion of long-term debt                                                   -                               -
                                                                    ------------------------         -----------------------
         Total Current Liabilities                                                6,942,000                        4,605,000
                                                                    ------------------------         -----------------------


 LONG-TERM DEBT                                                                  18,390,000                      22,390,000
                                                                    ------------------------         -----------------------


 STOCKHOLDERS' EQUITY
      Preferred stock, ($.01 par value,
         1,000,000 shares authorized; no
         shares issued and outstanding)                                                   -                               -
      Common stock, ($.01 par value,
         20,000,000 shares authorized and
         12,345,361 and 11,504,615 shares
         issued and outstanding, respectively)                                      123,000                         115,000
      Additional paid-in capital                                                 23,090,000                      21,155,000
      Retained earnings (deficit)                                               (11,395,000)                    (12,096,000)
                                                                    ------------------------         -----------------------
         Total Stockholders' Equity                                              11,818,000                        9,174,000
                                                                    ------------------------         -----------------------









 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $          37,150,000           $          36,169,000

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

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

<PAGE>
                                  PANACO, INC.
                Statements of Income (Successful Efforts Method)
                       For the Six Months Ended June 30,
                                  (Unaudited)

<TABLE>
<CAPTION>


                                                                              1996                    1995
 REVENUES
<S>                                                                           <C>                      <C>       
     Oil and natural gas sales                                                $10,808,000              $9,659,000
    
        Total                                                                  10,808,000               9,659,000

COSTS AND EXPENSES
     General & administrative                                                     382,000                 314,000
     Depletion, depreciation & amortization                                     3,812,000               4,398,000
     Exploration expenses                                                               0               2,174,000
     Provision for losses and (gains) on
        disposition and write-downs of assets                                           0                       0
     Lease operating                                                            4,184,000               3,617,000
     Taxes                                                                        327,000                 626,000
     West Delta fire loss                                                         500,000                       0
        Total                                                                   9,205,000              11,129,000

NET OPERATING INCOME (LOSS)                                                     1,603,000             (1,470,000)

OTHER INCOME (EXPENSE)
     Interest expense (net)                                                     (902,000)               (479,000)


NET INCOME (LOSS) BEFORE INCOME TAXES                                             701,000             (1,949,000)

INCOME TAXES                                                                            0                       0


NET INCOME (LOSS)                                                                $701,000            ($1,949,000)


Net income (loss) per share                                                         $0.06                 ($0.17)




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

<PAGE>
                                  PANACO, INC.
                Statements of Income (Successful Efforts Method)
                      For the Three Months Ended June 30,
                                  (Unaudited)
<TABLE>
<CAPTION>



                                                                              1996                    1995
REVENUES
<S>                                                                            <C>                     <C>       
     Oil and natural gas sales                                                 $3,469,000              $4,183,000
                  
        Total                                                                   3,469,000               4,183,000

COSTS AND EXPENSES
     General & administrative                                                     197,000                 134,000
     Depletion, depreciation & amortization                                     1,326,000               1,943,000
     Exploration expenses                                                               0               2,174,000
     Provision for losses and (gains) on
        disposition and write-downs of assets                                           0                       0
     Lease operating                                                            1,829,000               2,071,000
     Taxes                                                                        116,000                 246,000
     West Delta fire loss                                                         500,000                       0
        Total                                                                   3,968,000               6,568,000

NET OPERATING INCOME (LOSS)                                                     (499,000)             (2,385,000)

OTHER INCOME (EXPENSE)
     Interest expense (net)                                                     (450,000)               (190,000)


NET INCOME (LOSS) BEFORE INCOME TAXES                                           (949,000)             (2,575,000)

INCOME TAXES                                                                            0                       0


NET INCOME (LOSS)                                                              ($949,000)            ($2,575,000)


Net income (loss) per share                                                       ($0.08)                 ($0.22)

 




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

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


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

<S>               <C> <C>                           <C>                      <C>               <C>                 <C>          
Balance, December 31, 1995                          11,504,615               $115,000          $21,155,000         ($12,096,000)

Net income                                                   0                      0                    0               701,000

Common shares issued - warrants
exercised and ESOP contributions                       840,746                  8,000            1,935,000                     0


Balance, June 30, 1996                              12,345,361               $123,000          $23,090,000         ($11,395,000)









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

<PAGE>

                                  PANACO, INC.
                            Statement of Cash Flows
                           Six Months Ended June 30,
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                                             1996                    1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                
                            <C>                 <C>         
     Net income (loss)                                                         $701,000            ($1,949,000)

     Adjustments to reconcile net income (loss) before
     to net cash provided by operating activities:
        Depletion, depreciation and amortization                              3,703,000               4,248,000
        Exploration expenses                                                          0               2,174,000
        Amortization of loan costs                                              109,000                 150,000

        Changes in operating assets and liabilities:
            Certificates of Deposits - escrow                                   (1,000)                  21,000
            Accounts receivable                                                 473,000                 651,000
            Prepaid expenses                                                   (40,000)               (205,000)
            Other assets                                                              0                  44,000
            Accounts payable                                                  2,365,000               1,270,000
            Interest payable                                                     78,000               (106,000)
                       Net cash provided by operating activities              7,388,000               6,298,000

CASH FLOWS FROM INVESTING ACTIVITIES:
        Sale of oil and gas properties                                                0                   2,000
        Capital expenditures and acquisitions                               (3,388,000)             (2,038,000)
        Purchase of other property and equipment                               (52,000)                 (2,000)
        Increase in restricted deposits                                     (1,735,000)                       0
                       Net cash used by investing activities                (5,175,000)             (2,038,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
        Repayment of long-term debt                                         (4,000,000)             (7,000,000)
        Issuance of common stock-exercise of warrants                         1,837,000               2,476,000
            Net cash provided (used) by financing activities                (2,163,000)             (4,524,000)

NET INCREASE (DECREASE) IN CASH                                                  50,000               (264,000)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                1,198,000               1,583,000

CASH AND CASH EQUIVALENTS AT JUNE 30,                                        $1,248,000              $1,319,000

     Supplemental disclosures of cash flow information:
        Cash paid for six months ended June 30:
                       Interest                                                $774,000                $587,000

     Disclosure of accounting policies:
        1.  For purposes of the statement of cash flows, the Company considers all cash investments
            with original maturities of three months or less to be cash equivalents.
        2.  24,220 Common Shares were issued related to the Company's ESOP in a non-cash
            transaction.
       



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

<PAGE>


                                  PANACO, INC.
                          NOTES TO FINANCIAL STATEMENTS



1. In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position as of
June 30, 1996 and December 31, 1995 and the results of operations and changes in
stockholders'  equity and cash  flows for the  periods  ended June 30,  1996 and
1995.  Most  adjustments  made  to the  financial  statements  are of a  normal,
recurring nature. Other adjustments, if any, are discussed in later notes.

2. Effective December 31, 1995, the Company changed its method of accounting for
oil and gas  operations  from the full  cost  method to the  successful  efforts
method.  Management  concluded  that the  successful  efforts method will better
enable  investors  and others to  compare  the  Company  to similar  oil and gas
companies, the majority of which follow the successful efforts method.

         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 as conditions warrant.

         The Company  recognizes its ownership  interest in oil and gas sales as
revenue. It records revenues on an accrual basis,  estimating volumes and prices
for any  months  for  which  actual  information  is not  available.  If  actual
production  sold  differs  from its  allocable  share of  production  in a given
period,  such  differences  would be recognized as deferred  revenue or accounts
receivable.

         Capital costs of oil and gas properties  including the estimated  costs
to develop proved  reserves and estimated  future costs of capital  expenditures
and plugging offshore wells and removing structures,  are amortized on the units
of production  method,  using the ratio of current  production to the calculated
future production from the remaining proved oil and gas reserves.

         Reserve   determinations  are  subject  to  revision  due  to  inherent
imprecisions  in estimating  reserves and are revised as additional  information
becomes available.

3. The  results of  operations  for the six months  ended June 30,  1996 are not
indicative  of the results to be expected  for the full year.  On April 24, 1996
the Company  experienced an explosion and fire at Tank Battery #3 in West Delta.
Since that time,  the fields have been shut-in  while repairs are being made. No
revenues  for the 67  remaining  days in the  second  quarter  of 1996 have been
recorded,  while at the same  time,  a large  part of lease  operating  expenses
associated  with West Delta are fixed costs,  and have stayed at relatively  the
same level as before the fire.  Production taxes decreased as a result of the 67
days without  production from West Delta in the second quarter,  a large part of
which is in Louisiana State waters and is subject to severance  taxes.  Interest
expense is also up as a result of the fire due to reduced  cash  flows,  coupled
with increased  spending to repair Tank Battery #3. The Company did not begin to
receive  reimbursement  from  insurance for  repairing the platform  until third
quarter,  1996.

4. The net income per share for the six months  ended June 30, 1996 and 1995 has
been  calculated  based on 12,345,361  and  11,848,649  weighted  average shares
outstanding,  respectively and 12,206,886 and 11,509,728 weighted average shares
for the three months ended June 30, 1996 and 1995, respectively.

5. The  reserves  presented  in the  following  table are 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
                                               (Bbl                 (Mcf)

December 31, 1995                             1,900,000           46,711,000
Purchase of minerals-in-place                       -0-                  -0-
Production                                    (151,000)          (3,666,000)
Sale of minerals-in-place                           -0-                  -0-
Revisions of previous estimates                     -0-                  -0-
                                            -----------    -----------------
Estimated reserves at June 30, 1996           1,747,000          43,005,000
                                            ===========          ==========

No major  discovery or other favorable or adverse event has caused a significant
change in the estimated  proved  reserves  since June 30, 1996. 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.

6. The Company's common stock is quoted on the National Market System of NASDAQ.
The last trade on June 28 was at $4.1875 per share.

7. The Company is party to various escrow  agreements  which provide for monthly
deposits  into  escrow  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 of evidence
that  the  operation  was  conducted  in  compliance  with  applicable  laws and
regulations.   These  amounts  are  included  on  the  financial  statements  as
Restricted Deposits.

8. On April 24,  1996 the  Company  experienced  an  explosion  and fire on Tank
Battery #3 in West Delta.  The fire was caused by a service  company  performing
work on the  facility.  The loss from the fire is  management's  estimate of the
Company's  shortfall on insurance  reimbursement  of repairing  the  facilities,
which  includes a $225,000  deductible.  The Company will seek to recover  these
costs, along with lost profits, from the company whose workers caused the fire.

9. At December 31, 1995 the Company had net  operating  loss  carryforwards  for
federal income tax purposes of $15,765,000  which are available to offset future
federal taxable income through the year 2010.


<PAGE>



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

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  of the
Company's operations is read. Accordingly, the energy market has been unsettled,
making it difficult to predict future prices.


Liquidity and Capital Resources

     As discussed in notes to the financial statements,  the Company experienced
an  explosion  and fire on  April  24,  1996 at Tank  Battery  #3 in West  Delta
resulting  in the  fields  being  shut-in  to  date.  The  loss  of 67  days  of
production,  a corresponding decrease in expenses and a loss on repairing of the
facility caused a ($.08) per share loss.

         The  shut-in of West Delta  brought  about a loss in  revenues  of $2.4
million.  The decrease in production  also brought about a decrease in operating
taxes of $75,000, as a portion of the production from West Delta is in Louisiana
State waters and is subject to State severance  taxes.  Although  production was
shut in for 67 days in the second quarter, resulting in a decrease in West Delta
lease operating  expenses of $350,000 from expected  levels, a large part of the
lease operating expenses in West Delta are fixed expenses and continue.

         The Company is incurring the expenditures of repairing the facility and
being  reimbursed by its insurance  company.  The Company began  receiving these
reimbursements  during the third  quarter of 1996.  These  repair  expenditures,
coupled with the decrease in net operating cash flows  discussed  above resulted
in higher borrowing levels and interest expense.

         The resulting decrease in revenues, net of the corresponding production
taxes, slightly lower lease operating expense levels and higher interest expense
decreased  current assets (cash and accounts  receivable) by approximately  $2.0
million at the end of second  quarter of 1996. The repair  expenditures  on Tank
Battery #3, with no corresponding insurance  reimbursement,  also decreased cash
and increased  accounts  payable and long-term  debt.  Through June 30, 1996 the
Company had paid  $500,000  for repairs of Tank  Battery  #3.  Accounts  payable
included another  $1,747,000 in expenditures that had been accrued but not paid.
These items combined to impact  current assets and  liabilities as well as limit
the Company's ability to pre-pay its long-term debt.

         The price  received for natural gas  averaged  $2.44 per Mcf and $19.50
per barrel for oil for the three month period ended June 30, 1996.  Cash flow is
currently  being used to reduce  liabilities,  pay  general  and  administrative
overhead and drill and rework wells.

         At June 30, 1996, 79% of the Company's total assets were represented by
oil and gas properties, net of depreciation, depletion and amortization.

         The Company borrowed  $21,564,000 in 1991,  collateralized  by the West
Delta offshore properties and its onshore properties. The lenders received a net
profits  interest  (NPI) in the West Delta  properties.  During the three months
ended March 31, 1996,  payments  with  respect to this NPI averaged  $53,000 per
month.  Due to the  explosion  and fire at Tank Battery #3, no NPI payments were
made in the three months ended June 30, 1996.

         Effective  December 31, 1993 the Company  entered into a Senior  Second
Mortgage Term Loan Agreement with a group of seven lenders  represented by Kayne
Anderson Investment Management, Inc. The loan agreement permitted the Company to
borrow $5,000,000 to fund capital projects during 1994 and, at the discretion of
the lenders,  a second  $5,000,000  which may be borrowed in connection  with an
acquisition.  The  $5,000,000  loaned to the Company  under this loan  agreement
requires  payments  of  interest  only,  45 days after the end of each  calendar
quarter,  at a rate of 12% per annum.  The Company  may deliver PIK  (payment in
kind) notes in  satisfaction  of up to $1,000,000 in interest  obligations.  The
loan agreement contains certain financial  covenants  including  restrictions on
other  indebtedness  and payment of dividends.  The note matures on December 31,
1999 and is  secured  by a second  mortgage  on most of the  Company's  existing
offshore oil and gas properties.  The lenders were issued 815,256 (816,256 after
other  adjustments)  shares of common  stock at an  exercise  price of $2.25 per
share, anytime prior to December 31, 1998. By February 1996 all of these options
had been exercised.

         On July 1, 1994 the Company entered into a Credit  Agreement with First
Union  National  Bank of North  Carolina,  as the  agent for  Lenders  Signatory
thereto ("Primary Credit  Facility").  Initially the only lender was First Union
National Bank of North Carolina.  Banque Paribas has become a 35% participant in
this facility.  The loan is a reducing  revolver designed to provide the Company
up to $30 million  depending on the  Company's  borrowing  base.  The  Company's
borrowing  base at June 30, 1996 was $21 million.  The  principal  amount of the
loan is due July 1, 1998.  However,  at no time may the Company have outstanding
borrowings  under the Credit  Agreement in excess of its borrowing base.  Should
the borrowing base ever be determined to be less than the outstanding  principal
owed under the Credit Agreement the Company must immediately pay that difference
to the lenders.  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 loan arrangement
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.

         Pursuant  to  existing  agreements  the  Company is required to deposit
funds in escrow accounts to assure  satisfaction of its eventual  responsibility
to plug and abandon wells and remove  structures  when certain  fields no longer
produce oil and gas. Commencing in January 1996 the Company deposits $25,000 per
month in escrow until such time as  $1,500,000  has been  deposited,  to satisfy
such obligations  with respect to the Bayou Sorrel Field.  Each month $25,000 is
deposited,   until  another  $500,000  has  been  deposited,   to  satisfy  such
obligations with respect to a portion of its West Delta properties.  Pursuant to
the  Company's   agreement  to  acquire  the  offshore  properties  with  Zapata
Exploration  Company,  it agreed to escrow 80% of the net  income  from the East
Breaks  Fields  until  such  time  as the  Minerals  Management  Service  of the
Department of the Interior,  which has jurisdiction  over oil and gas operations
in the Outer Continental Shelf, has approved the transfer of East Breaks 109 and
110 to the Company,  which  approval is expected  during third  quarter 1996. In
addition, the Company has $8,150,000 in performance bonds to secure its plugging
and abandonment operations.

         Under a swap  agreement the Company has hedged the price of natural gas
by selling the equivalent of 15,000 MMBTU per day for 1996 at fixed prices which
range from $2.25 for January to $1.75 for July. If the closing price (settlement
price) on NYMEX for  natural  gas  futures is greater  than the swap price for a
given month the Company must pay that  difference to the bank which effected the
swap. If the settlement price is less than the swap price the bank must pay that
difference  to the  Company.  By  entering  into the swap in  December  1995 the
Company  locked in the fixed  prices on 15,000  MMBTU per day for each  month in
1996.  Because settlement prices have been above the fixed prices each month the
Company has been required to pay the  difference to the bank which  effected the
swap.  Since the  Company  sells its  natural gas on the spot market it realizes
prices which  approximate the settlement  prices on NYMEX,  less differences for
transportation  due to pipeline  locations that are varying distances from Henry
Hub,  Louisiana  which is the  delivery  point used for  natural  gas futures on
NYMEX.  Generally  these  differences  are  anticipatable  and not  significant.
However, to the extent that these differences become significant the Company may
realize  more or less on its spot sales of gas than was  anticipated  and may be
impacted  beneficially or detrimentally  by erratic  fluctuations in the natural
gas spot market or the futures  market on NYMEX.  Both such  eventualities  have
occurred so far this year. These erratic  fluctuations  which have characterized
the natural gas market in recent  months have  exposed the Company to market and
credit  risks.  In those months in which the spot price is below the  settlement
price,  the net amount  realized  by the Company on its total gas sales would be
proportionately  reduced by the swap agreements.  At present natural gas futures
on NYMEX for the  remaining  months of 1996 are all above the fixed prices under
the swap  agreement  and the  Company  anticipates  that this will result in its
realizing  less for its natural gas due to amounts  required for payments to the
bank under the swap  agreement.  Management  entered into the swap  agreement to
assure the Company of not receiving less than the fixed prices established under
the agreement for at least 15,000  MMBTU's of natural gas per day in 1996.  This
gave the Company assurance that it would be in a position to timely amortize its
long-term  debt.  Long-term debt had increased with  acquisitions  of the Zapata
offshore properties and Bayou Sorrel Field from Shell.  Management has generally
used hedge  transactions  to protect its cash flows when long-term debt has 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.  The Fair Value of these
remaining swap transactions at June 30, 1996 was ($ 2.6 million) due to the high
natural gas futures market prices on that date.

         Through  the six months  ended June 30, 1996 the Company had spent $3.4
million in capital  expenditures,  primarily for  development of its oil and gas
properties.  The  majority  of the  development  costs  were  incurred  to drill
developmental  wells in the Bayou  Sorrel Field and for the  Company's  share of
successfully  recompleting  two  wells on  Eugene  Island  Block  372,  which is
operated by Unocal.

         During 1995 the Company  raised  $3,173,000  in equity by virtue of the
exercise of options and  warrants.  Through June 30, 1996 the Company had raised
$1,837,000 in equity as a result of the exercise of warrants.




<PAGE>



Results of Operations

For the six months ended June 30, 1996 and 1995:

     Oil and  natural gas sales  increased  32% for the first six months of 1996
when compared to the same period in 1995.

         Natural gas production decreased 31% to 3,666,000 Mcf for the first six
months of 1996 from 5,284,000 Mcf for the same period in 1995.  This decrease is
primarily due to two factors:  67 days of no  production  from West Delta due to
the April 24, 1996 explosion and fire;  and higher  production in 1995 from West
Delta (above  anticipated  1996  production had the explosion not occurred) from
four horizontal wells drilled in 1994 that had declined significantly by the end
of 1995.  These two factors  were offset by the  production  from the Zapata and
Bayou Sorrel properties not owned during the second quarter of 1995.

         Oil  production  was also reduced by the Tank Battery #3 explosion  and
fire,  however,  production  for the first six months of 1996  increased 135% to
151,000  barrels from 65,000  barrels in the same period in 1995. Oil production
from the Zapata and Bayou Sorrel  properties  more than offset the decrease from
West Delta.

     On an Mcf equivalent basis, total oil and natural gas production  decreased
19% for the first six months in 1996 compared to the same period in 1995.

         These  reductions in production were more than offset by higher natural
gas prices in 1996 when compared to 1995.  Natural gas prices averaged $2.73 per
Mcf for the first six months in 1996  compared  to $1.59 for the same  period in
1995.  While oil prices  decreased to $17.92 per barrel for the first six months
in 1996 from $19.10 in 1995, the increased production as noted above offset this
price decline.

         Futures contracts  resulted in a loss of $1.9 million for the first six
months in 1996.  This contract loss averaged $.52 per Mcf,  bringing the average
price  received per Mcf to $2.21.  This average price per Mcf received  compares
favorably with the $1.59 received in 1995.

          The  Company  entered  into a  natural  gas swap  agreement  beginning
January  1,  1996 for the  sale of  15,000  MMBTU  of gas each day in 1996  with
contract  prices ranging from $1.75 per MMBTU to $2.25 per MMBTU.  Prior to this
agreement,  the Company had entered into a natural gas price floor contract that
expired December,  1994 and a natural gas swap agreement that expired September,
1993.

         Depletion,  depreciation and  amortization  decreased 13% for the first
six months of 1996 primarily due to the decreased  production from West Delta as
a result of the explosion and fire.

         Exploration  expenses  in 1995  were due to two dry  exploratory  wells
drilled on South  Timbalier  Block 33 and Eugene  Island  Block 50 in the second
quarter. The Company has not drilled any exploratory wells in 1996.

         Lease  operating  expenses  decreased,  in part due to the  changes  in
expenses  associated  with the April 24, 1996 explosion and fire at Tank Battery
#3 in West  Delta,  to 33% of oil and natural gas sales for the first six months
of 1996 from 37% for the same  period in 1995.  A large part of the  expenses of
West  Delta are fixed in  nature  and  continued,  even  with the  fields  being
shut-in.  Higher  oil and  natural  gas  sales in 1996 also  contributed  to the
decrease as a percentage of these amounts.

         The increase in the dollar amount of lease  operating  expenses for the
first  six  months  of 1996 is  primarily  due to the five  additional  offshore
properties purchased from Zapata Exploration Company in July, 1995 and the Bayou
Sorrel Field purchased from Shell Western E & P, Inc. in December, 1995.

         Taxes  decreased  to 2.5% of oil and natural gas sales in the first six
months  of 1996 from 6.9% of oil and  natural  gas sales for the same  period in
1995. A part of the decrease is due to the 67 days of lost  production from West
Delta,  which has a large percentage of its production in Louisiana State waters
which are subject to severance taxes.

         The  decrease  is also  due to the  shift in the  Company's  production
volumes from properties  subject to severance  taxes to federal  offshore waters
(primarily the Zapata properties) that are not subject to such taxes.

     The "West  Delta  fire loss" is the  Company's  expense  of  repairing  and
rebuilding  Tank Battery #3, the central  processing  facility in the West Delta
Fields.

         Interest  expense (net)  increased 56% for the first six months of 1996
compared  to the same  period in 1995 due to the  increase  in debt  incurred in
December  1995 in  connection  with the  purchase of the Bayou Sorrel Field from
Shell Western E & P, Inc.

         The April 24 West Delta  explosion  and repairs  resulting in decreased
discretionary  cash flows did not permit the Company to lower its long-term debt
levels as quickly as anticipated, and correspondingly contributed to an increase
in interest expense.

For the three months ended June 30, 1996:

     Oil and natural gas sales  increased 5% for the three months ended June 30,
1996 when compared to the same period in 1995.
         Natural gas production decreased 33% to 1,348,000 Mcf for the first six
months of 1996 from 2,022,000 Mcf for the same period in 1995.  This decrease is
primarily due to two factors:  67 days of no  production  from West Delta due to
the April 24, 1996 explosion and fire;  and higher  production in 1995 from West
Delta (above  anticipated  1996  production had the explosion not occurred) from
four horizontal wells drilled in 1994 that had declined significantly by the end
of 1995.  These two  factors  are offset by the  production  from the Zapata and
Bayou Sorrel properties not owned in the second quarter of 1995.

         Oil  production  was also reduced by the Tank Battery #3 explosion  and
fire,  however,  production  for the three months ended June 30, 1996  increased
107% to 56,000  barrels  from  27,000  barrels in the same  period in 1995.  Oil
production  from the Zapata and Bayou  Sorrel  properties  more than  offset the
decrease from West Delta.

     On an Mcf equivalent basis, total oil and natural gas production  decreased
23% for the three  months  ended June 30,  1996  compared  to the same period in
1995.
         The  reductions in production  were more than offset by higher  natural
gas prices in 1996 when compared to 1995.  Natural gas prices averaged $2.44 per
Mcf for the three  months  ended June 30,  1996  compared  to $1.77 for the same
period in 1995.  While oil prices  decreased  to $19.50 per barrel for the three
months  ended June 30, 1996 from $22.37 in 1995,  the  increased  production  as
noted above offset this price decline.

         Futures  contracts  resulted in a loss of $918,000 for the three months
ended June 30, 1996.  This contract  loss  averaged  $.68 per Mcf,  bringing the
average  price  received per Mcf to $1.76.  This average  price per Mcf remained
relatively flat from the $1.77 received in 1995.

         Depletion,  depreciation and  amortization  decreased 32% for the three
months ended June 30, 1996 primarily due to the decreased  production  from West
Delta as a result of the explosion and fire.

         Exploration  expenses  in 1995  were due to two dry  exploratory  wells
drilled on South  Timbalier  Block 33 and Eugene  Island  Block 50 in the second
quarter. The Company has not drilled any exploratory wells in 1996.

         Lease  operating  expenses  decreased  in  part  due to  some  expenses
associated with the April 24, 1996 explosion and fire at Tank Battery #3 in West
Delta,  to 42% of oil and natural gas sales for the three  months ended June 30,
1996  from  46% for the same  period  in 1995.  A large  part of the West  Delta
operating expenses are fixed in nature and continued, even with the fields being
shut-in.  Higher  oil and  natural  gas  sales in 1996 also  contributed  to the
decrease as a percentage  of these  amounts.  The West Delta  operating  expense
decrease was offset by operating  expenses  associated with the Zapata and Bayou
Sorrel properties not included in the 1995 lease operating expenses.


         Taxes  decreased  to 2.6% of oil and  natural  gas  sales in the  three
months  ended June 30,  1996 from 5.9% of oil and natural gas sales for the same
period in 1995. A part of the decrease is due to the 67 days of lost  production
from West Delta,  which has a large  percentage  of its  production in Louisiana
State waters which are subject to severance taxes.

         The  decrease  is also  due to the  shift in the  Company's  production
volumes from  properties  located in state waters subject to severance  taxes to
federal offshore waters  (primarily the Zapata  properties) that are not subject
to such taxes.

 The "West  Delta  fire loss" is the  Company's  expense  of  repairing  and
rebuilding  Tank Battery #3, the central  processing  facility in the West Delta
Fields.
         Interest  expense (net)  increased 137% for the three months ended June
30,  1996  compared  to the  same  period  in 1995 due to the  increase  in debt
incurred in December  1995 in  connection  with the purchase of the Bayou Sorrel
Field from Shell Western E & P, Inc.

         The April 24 West Delta  explosion  and repairs  resulting in decreased
discretionary  cash flows and did not permit the Company to lower its  long-term
debt levels as quickly as anticipated, which also caused an increase in interest
expense.

         The Company  currently does not intend to pay dividends with respect to
its Common Shares but rather intends to retain and reinvest its cash flow.



<PAGE>


PART II.
                                OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

     A lawsuit has been filed against the Company seeking $700,000,  relating to
a gas  gathering  system in  Oklahoma.  The  Company  has filed a counter  claim
against  the  plaintiff   seeking  damages  for  fraud.   Management  feels  the
plaintiff's suit is without merit and any outcome would be immaterial to results
of operations or financial position.

ITEM 2.           CHANGES IN SECURITIES

         None

ITEM 3.           DEFAULT UPON SENIOR SECURITIES

         None

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

         None

ITEM 5.           OTHER INFORMATION

         On April 24, 1996 the Company  experienced a fire,  caused by a service
company,  which has forced the shut down of Tank Battery #3 in West Delta. There
were no personnel  injuries or  environmental  damage.  It is estimated that the
fields will be shut-in while repairs are made.


ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

         On March 26, 1996 the Company filed a Current Report,  Amendment Number
1 on Form 8-K/A describing its  acquisition,  on December 27, 1995, of the Bayou
Sorrel Field in Iberville Parish, Louisiana from Shell Western E & P, Inc.

  On October  28,  1996 the  Company  filed a Current  Report on Form 8-K
describing its  acquisition,  on October 8, 1996 of the interest in six offshore
fields,  comprising  13  blocks  in the Gulf of  Mexico  from  Amoco  Production
Company.

     On  January  29,  1997  the  Company  filed a  Current  Report  on Form 8-K
describing its sale of the Bayou Sorrel Field to National Energy Group, Inc.

                                   SIGNATURES

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

                                  PANACO, INC.


Date: February 5,1997                      /s/Todd R. Bart  
                                           Todd R. Bart, Chief Financial Officer