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

                                    FORM 10-Q

         (Mark One)

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

                For the quarterly period ended March 31, 1998




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


                         Commission File Number 0-26662


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


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

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

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




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



     23,962,813  shares of the  registrant's  $.01 par value  Common  Stock were
outstanding at May 15, 1998.



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

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<PAGE>


                                  PANACO, Inc.
                      Consolidated Condensed Balance Sheets
                                   (Unaudited)

       ASSETS
                                                  As of              As of
                                              March 31, 1998   December 31, 1997
 CURRENT ASSETS
      Cash and cash equivalents              $    27,906,000     $   36,909,000
      Accounts receivable                         10,901,000          9,735,000
      Prepaid and other                              321,000            626,000
                                               -------------     --------------
         Total current assets                     39,128,000         47,270,000
                                                 -----------     --------------

 OIL AND GAS PROPERTIES, AS DETERMINED BY THE
 SUCCESSFUL EFFORTS METHOD OF ACCOUNTING
      Oil and gas properties, proved             218,786,000        198,840,000
      Oil and gas properties, unproved            10,736,000         12,947,000
     Less: accumulated depletion, depreciation
         and amortization                      (105,281,000)       (99,239,000)
                                               -------------     --------------
         Net oil and gas properties              124,241,000        112,548,000
                                               -------------     --------------

 PROPERTY, PLANT AND EQUIPMENT
      Pipelines and equipment                     15,010,000         14,875,000
      Less: accumulated depreciation              (1,764,000)        (1,416,000)
                                                -------------    --------------
         Net property, plant and equipment        13,246,000         13,459,000
                                                -------------    --------------

 OTHER ASSETS
      Deferred debt costs, net                     3,669,000          3,813,000
      Restricted deposits and other                3,103,000          2,539,000
                                                -------------    --------------
         Total other assets                        6,772,000          6,352,000
                                                -------------    --------------
 TOTAL ASSETS                                 $  183,387,000    $   179,629,000
                                                =============    ==============

<PAGE>



                                  PANACO, Inc.
                      Consolidated Condensed Balance Sheets
                                   (Unaudited)
                    LIABILITIES AND STOCKHOLDERS' EQUITY
                                                   As of              As of
                                               March 31, 1998  December 31, 1997
 CURRENT LIABILITIES
      Accounts payable                             24,558,000       17,225,000
      Interest payable                                      -        2,416,000
      Current portion of long-term debt                     -                -
                                                --------------   --------------
         Total current liabilities                 24,558,000       19,641,000
                                                --------------   --------------

 LONG-TERM DEBT                                   104,200,000      101,700,000

 DEFERRED INCOME TAXES                              1,827,000        3,100,000

 COMMITMENTS AND CONTINGENCIES                              -                -

 STOCKHOLDERS' EQUITY
      Preferred Shares, $.01 par value,
         5,000,000 shares authorized; no
         shares issued and outstanding                      -                -

      Common Shares, $.01 par value,
         40,000,000 shares authorized;
         23,920,282 and 23,913,531 shares
         issued and outstanding, respectively         239,000          239,000

      Additional paid-in capital                   69,076,000       69,041,000
      Retained earnings (deficit)                 (16,513,000)     (14,092,000)
                                                --------------    -------------
         Total stockholders' equity                52,802,000       55,188,000
                                                --------------    -------------

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $ 183,387,000    $ 179,629,000
                                                ==============   ==============


<PAGE>



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



                                               1998                 1997
                                           ------------        ------------
 REVENUES
      Oil and natural gas sales             11,195,000     $     8,067,000

 COSTS AND EXPENSES
      Lease operating expense                3,836,000           2,911,000
      Depletion, depreciation & amortization 6,974,000           3,113,000
      General and administrative expense       516,000             198,000
      Production and ad valorem taxes          200,000              85,000
      Exploratory dry hole expense           1,013,000              67,000
      Geological and geophysical expense       252,000                  -
                                           ------------        ------------
         Total                              12,791,000           6,374,000
                                           ------------        ------------

 OPERATING INCOME (LOSS)                    (1,596,000)          1,693,000
                                           ------------        ------------

 OTHER INCOME (EXPENSE)
      Unrealized gain on investment in common stock  -              60,000
      Interest income                          424,000              42,000
      Interest expense                      (2,514,000)           (963,000)
                                           ------------        ------------
         Total                              (2,090,000)           (861,000)
                                           ------------        ------------

 INCOME BEFORE (LOSS) INCOME TAXES          (3,686,000)            832,000

 INCOME TAX (BENEFIT)                       (1,273,000)                 -
                                           ------------        ------------

 NET INCOME (LOSS)                         $(2,413,000)         $  832,000
                                           ============        ============


 Net income (loss) per share                 $   (0.10)           $   0.05
                                           ============        ============

 Basic Shares Outstanding                   23,970,962          16,102,553
                                           ============        ============
 Diluted Shares Outstanding                 23,970,962          16,138,901
                                           ============        ============


<PAGE>

<TABLE>
<CAPTION>


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


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

<S>                 <C> <C>               <C>             <C>                   <C>                 <C>          
 Balances, December 31, 1997              23,913,531      $      239,000        $ 69,041,000        $(14,092,000)

 Net Loss                                        -                   -                 -              (2,421,000)      

 Common shares issued - director
 stock bonuses                                 6,751                 -                35,000                  -


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

 Balance, March 31, 1998                  23,920,282      $      239,000        $ 69,076,000        $(16,513,000)

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

</TABLE>

<PAGE>
<TABLE>
<CAPTION>



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

                                                                            1998                 1997
                                                                      -----------------    -----------------
 CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                     <C>                  <C>           
      Net income (loss)                                                 $  (2,413,000)       $      832,000
      Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
         Depletion, depreciation and amortization                            6,974,000            3,113,000
         Exploratory dry hole expense                                        1,013,000               67,000
         Deferred Income tax benefit                                       (1,273,000)                    -
         Unrealized gain on investment in common stock                               -             (60,000)
         Other, net                                                                  -                9,000
         Changes in operating assets and liabilities:
             Accounts receivable                                           (1,166,000)              174,000
             Prepaid and other                                               (108,000)              223,000
             Accounts payable                                                6,320,000              980,000
             Interest payable                                              (2,416,000)            (282,000)
                                                                      -----------------    -----------------
                         Net cash provided by operating activities           6,931,000            5,056,000
                                                                      -----------------    -----------------

 CASH FLOWS FROM INVESTING ACTIVITIES
         Sale of oil and gas properties                                              -               23,000
         Capital expenditures and acquisitions                            (17,870,000)          (3,649,000)
         Decrease/(increase) in restricted deposits                          (564,000)              531,000
                                                                      -----------------    -----------------
                         Net cash used by investing activities            (18,434,000)          (3,095,000)
                                                                      -----------------    -----------------

 CASH FLOWS FROM FINANCING ACTIVITIES
         Proceeds from common stock offering, net                                    -           22,077,000
         Long term debt proceeds                                             2,500,000            1,500,000
         Repayment of long-term debt                                                 -         (26,000,000)                        
                                                                      -----------------    -----------------
                         Net cash used by financing activities               2,500,000          (2,423,000)
                                                                      -----------------    -----------------

 NET INCREASE (DECREASE) IN CASH                                           (9,003,000)            (462,000)

 CASH AT BEGINNING OF YEAR                                                  36,909,000            1,736,000
                                                                      -----------------    -----------------

 CASH AT MARCH 31                                                         $ 27,906,000        $   1,274,000
                                                                      =================    =================

</TABLE>

<PAGE>


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

Note 1 - BASIS OF PRESENTATION

         In the opinion of management,  the accompanying  unaudited consolidated
financial  statements  contain all  adjustments  necessary to present fairly the
financial position as of March 31, 1998 and December 31, 1997 and the results of
operations  and cash flows for the periods  ended March 31, 1998 and 1997.  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, 1997. These financial statements should be read in conjunction with
the financial statements and notes included in the Form 10-K.

Note 2 - OIL AND GAS PROPERTIES AND PIPELINES AND EQUIPMENT

       The Company utilizes the successful  efforts method of accounting for its
oil and gas properties.  Under the successful efforts method,  lease acquisition
costs are capitalized.  Non-drilling  exploratory costs including geological and
geophysical costs and delay rentals are expensed. Exploratory drilling costs are
capitalized pending determination of proved reserves. If proved reserves are not
discovered,  the  exploratory  costs are  expensed.  All  development  costs are
capitalized.  Interest  on  unproved  properties  is  capitalized  based  on the
carrying amount of the properties.  Provision for  depreciation and depletion is
determined  on a  field-by-field  basis  using  the  unit-of-production  method.
Estimated future  abandonment  costs are recorded by charges to depreciation and
depletion  expense over the lives of the proved reserves of the properties.  The
carrying amounts of proven and unproved properties are reviewed  periodically on
a  property-by-property  basis,  based on future net cash flows determined by an
independent  engineering firm, with an impairment reserve provided if conditions
warrant.

       Pipelines  and  equipment  are  carried  at  cost.  Oil and  natural  gas
pipelines  are  depreciated  on the  straight-line  method over their  estimated
useful lives, primarily fifteen years. Other property is also depreciated on the
straight-line method over their useful lives, ranging from three to seven years.

Note 3 - CASH FLOW INFORMATION

         For purposes of the statement of cash flows, the Company  considers all
cash investments  purchased with original  maturities of three months or less to
be  cash  equivalents.   Cash  payments  for  interest  totaled  $4,930,000  and
$1,245,000  during  the first  quarter of 1998 and 1997,  respectively.  No cash
payments for income taxes were made during the first quarter of 1998 or 1997.

Note 4 - RESTRICTED DEPOSITS

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

Note 5 - SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING ACTIVITIES

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


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

December 31, 1997                                 4,506,000          73,632,000
Production                                         (115,000)         (4,257,000)
                                                 -----------        ------------
Estimated reserves at March 31, 1998              4,391,000          69,375,000
                                                 ==========          ==========

No major  discovery or other favorable or adverse event has caused a significant
change in the estimated  proved  reserves since March 31, 1998. The Company does
not  have  proved  reserves  applicable  to  long-term  supply  agreements  with
governments  or  authorities.  All  proved  reserves  are  located in the United
States.

Note 6 - INCOME TAXES

         The Company had net operating loss carryforwards for federal income tax
purposes of  approximately  $40,000,000 at December 31, 1997 which are available
to  offset  future  federal  taxable  income  through  2012.  The  timing of the
Company's future utilization of net operating loss carry forwards may be limited
on an annual basis due to its issuance of common shares in a public offering and
in the acquisition of Goldking.  In connection with the Goldking acquisition the
Company  recorded a $3.1 million  deferred tax liability based upon the complete
utilization  of the  Company's  deferred tax asset  valuation  allowance and the
requirement  for  additional   deferred  tax  liabilities   resulting  from  the
acquisition. The Company recorded an income tax benefit for the first quarter of
1998 which partially offset this deferred tax liability.

Note 7 - SUBSEQUENT EVENTS

         On May 14,  1998  the  Company  announced  that it had  entered  into a
definitive  agreement  with BP  Exploration  ("BP") to acquire BP's 100% working
interest  in East  Breaks  Blocks 165 and 209 and 75%  working  interest in High
Island Block 587. The Company will acquire the  properties  for $19.5 million in
cash.  Included in the  acquisition is the production  platform,  located in 863
feet of water in East Breaks  Block 165.  The Company  will also  acquire  31.72
miles of 12"  pipeline,  with  capacity of over  20,000  barrels of oil per day,
which ties the production platform to the High Island Pipeline System, the major
oil transportation system in the area. It will also acquire 9.3 miles of 12 3/4"
pipeline, which ties the production platform to the High Island Offshore System,
the  major  gas  transportation  system in the  area.  The  acquisition  will be
accounted for using the purchase  method and following the closing,  expected to
occur  before the end of May,  the  Company  will  become  operator of all three
blocks effective June 1, 1998.

         Subsequent to March 31, 1998, it was determined that an additional $2.2
million of  exploratory  dry hole  expense  will be  incurred  during the second
quarter of 1998.


<PAGE>


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

Forward-looking Statements

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

General

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

Liquidity and Capital Resources

         On October 9, 1997 the Company completed an offering of $100,000,000 10
5/8% Senior Subordinated Notes due 2004. Interest is payable April 1 and October
1 of each year.  The net  proceeds of  $96,250,000  were used to repay or prepay
substantially  all of its  outstanding  debt in the amount of  $55,460,000.  The
remaining  proceeds are being used primarily for the development and acquisition
of oil and gas properties.

         On October 9, 1997 the Company  replaced its existing Bank Facility and
entered into a new, five year  $75,000,000  revolving  credit facility (the "New
Credit Facility") with First Union National Bank, as  administrative  agent, and
Banque  Paribas.  The purpose of the New Credit Facility is to provide funds for
working  capital  support and general  corporate  purposes and to have available
letters  of  credit.  The  borrowing  base on May 1, 1998 was  $40,000,000.  The
Company  may elect to pay  interest  on the New  Credit  Facility  at either the
Bank's prime rate or at the London  Interbank  Offered Rate on Eurodollar  loans
("LIBOR")  plus 1 to 1.75%,  depending upon the percentage of utilization of the
borrowing  base.  Eurodollar  loans can be for terms of one,  two,  three or six
months and interest is due at the expiration of the terms of such loans,  but no
less frequently than three months.

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

         At March 31, 1998, 75% of the Company's  total assets were  represented
by oil and gas  properties  and pipelines and  equipment,  net of  depreciation,
depletion and amortization.
<PAGE>

         In 1991 certain  lenders  received a net profits  interest (NPI) in the
West Delta  properties.  During the quarter ended March 31, 1998,  cash payments
with respect to this NPI totaled $114,000.

         The product  prices  received by the Company,  including  the impact of
hedge transactions  discussed below,  averaged $2.19 per Mcf for natural gas and
$16.39 per barrel for oil for the quarter ended March 31, 1998.

         For 1998 the Company's  natural gas hedge  transactions  are based upon
published  gas  pipeline  index  prices.  The  Company has natural gas hedged in
quantities ranging from 10,000 to 50,000 MMbtu per day in each month in 1998 for
a total of 11,980,000  MMbtu, at pipeline prices averaging  approximately  $2.05
per MMbtu, for a NYMEX equivalent of  approximately  $2.20 per MMbtu.  Including
hedge  transactions  that  Goldking  had in place,  the Company has hedged 7,356
MMbtu per day in 1999, all at an average  pipeline index swap price of $1.89 per
MMbtu.  The  Company  has  hedged  218 MMbtu for each day in 2000 at an  average
pipeline  index swap price of $1.87.  The Company has also hedged its oil prices
by hedging  1,268  Bbls of oil for each day in 1998 at an average  swap price of
$19.06 per Bbl, with a 40% participation  above $19.28 on 500 of the 1,268 Bbls.
The Company has hedged 223 Bbls of oil for each day in 1999 at an average  price
of $17.27 per Bbl and 232 Bbls of oil for each day in 2000 at an  average  price
of $17.28 per Bbl. For accounting purposes, gains or losses on swap transactions
are recognized in the production month to which a hedge contract relates.

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

         Capital  expenditures  of $17.8  million for the first  quarter of 1998
represent an increase of $14.2 million over 1997. These expenditures,  funded by
operating  cash flows and  proceeds  from the Senior  Note  offering,  consisted
primarily  of drilling  and  development  activities  on its oil and natural gas
properties.  Of the $18.9 million in capital  expenditures,  43% was invested in
the High Island 309 Field, 13% was invested in the Umbrella Point Field, 12% was
invested in the West  Cameron 144 Field,  7% was invested in the East Breaks 160
Field with the  remaining  capital  expenditures  being  incurred  primarily  on
development of its smaller onshore properties and on exploratory projects.

         On May 14,  1998  the  Company  announced  that it had  entered  into a
definitive  agreement  with BP  Exploration  ("BP") to acquire BP's 100% working
interest  in East  Breaks  Blocks 165 and 209 and 75%  working  interest in High
Island Block 587. The Company will acquire the  properties  for $19.5 million in
cash.  Included in the  acquisition is the production  platform,  located in 863
feet of water in East Breaks  Block 165.  The Company  will also  acquire  31.72
miles of 12"  pipeline,  with  capacity of over  20,000  barrels of oil per day,
which ties the production platform to the High Island Pipeline System, the major
oil transportation system in the area. It will also acquire 9.3 miles of 12 3/4"
pipeline, which ties the production platform to the High Island Offshore System,
the  major  gas  transportation  system in the  area.  The  acquisition  will be
accounted for using the purchase  method and following the closing,  expected to
occur  before the end of May,  the  Company  will  become  operator of all three
blocks effective June 1, 1998.
<PAGE>

Results of Operations

For the three months ended March 31, 1998 and 1997:

         "Oil and natural gas sales" increased 39% for the first quarter of 1998
despite  decreases  in natural gas and oil  prices.  A  significant  increase in
natural gas and an increase in oil production  brought about the increase in oil
and  natural  gas  sales.  The  increases  would have been  higher  had  several
successful  wells  drilled  during the first  quarter of 1998  produced  for the
entire quarter.

         Production.  Natural gas  production  increased 95% to 4,257,000 Mcf in
1998 from  2,180,000 Mcf in 1997. The Company's  1997  successful  developmental
drilling in the High Island 309 Field accounted for an increase of 1,519,000 Mcf
in 1998.  The success was  continued  in 1998 with eight  additional  successful
wells,  which  produced for only a portion of the first  quarter of 1998.  Also,
results for 1998 include  292,000 Mcf of natural gas production  from the former
Goldking properties,  acquired on July 31, 1997. Results for 1998 include only a
small  amount of  production  from a successful  well  completed in the Umbrella
Point  Field in  January.  The well was placed on  production  February  25 at a
restricted rate. This well is currently producing over 17,000 Mcf of natural gas
per day and over 340  barrels  of  condensate  per day.  Results  for 1998  also
include  production  from a successful  well drilled in West Cameron  Block 144,
which was placed on production in February.

         Oil production  increased 43% in 1998 to 115,000  barrels,  from 81,000
barrels in 1997. The former Goldking properties, acquired on July 31, 1997 added
31,000 Bbls of oil production in 1998.

         Prices.  Average  natural  gas  prices,  net of the  impacts of hedging
transactions,  decreased  27% in 1998,  from  $2.99  per Mcf in 1997 to $2.19 in
1998.  The 1998  natural  gas hedge  program  had the effect of  increasing  the
natural gas price realized by $.05 per Mcf , compared to a reduction of $.02 per
Mcf in 1997.  The  Company has natural  gas hedged in  quantities  ranging  from
10,000 to 50,000  MMbtu per day in each month in 1998 for a total of  11,980,000
MMbtu, at pipeline prices averaging  approximately  $2.05 per MMbtu, for a NYMEX
equivalent of approximately $2.20 per MMbtu.

         Average  oil prices  decreased  15% in 1998 to $16.39  per barrel  from
$19.22  per  barrel  in 1997.  The 1998 oil  hedge  program  had the  effect  of
increasing  the net oil price  realized  by $2.80 per  barrel.  The  Company has
hedged  its oil  prices on 1,268  Bbls of oil for each day in 1998 at an average
swap price of $19.06 per Bbl,  with a 40%  participation  above $19.28 on 500 of
the 1,268 Bbls.

         "Lease  operating  expenses"  decreased  to 34% of oil and  natural gas
sales, from 36% in 1997.  Moreover,  on an Mcf equivalent  ("Mcfe") basis, lease
operating  expenses  decreased from $1.09 in 1997 to $0.78 in 1998, even without
the new wells discussed above producing for the full period.

         "Depletion,  depreciation and amortization" increased $3,861,000 due to
the increase in 1997  production  as discussed  above.  The amount per Mcfe also
increased from $1.17 in 1997 to $1.41 in 1998.

         "General and  administrative  expenses"  increased  $318,000 in 1998 in
part due to the Goldking  Acquisition  in July 1997.  As a percentage of oil and
natural gas sales and on an Mcfe basis,  these  expenses also increased to 5% of
oil and  natural  gas sales from 2% in 1997 and to $0.10 per Mcfe from $0.07 per
Mcfe in 1997.

         "Production and ad valorem taxes"  increased  $115,000 in 1998 to 2% of
oil and natural  gas sales from 1% of oil and  natural gas sales in 1997.  These
expenses also  increased  from $0.03 per Mcfe in 1997 to $0.04 per Mcfe in 1998.
The  increase  is  due  to  the  former  Goldking  properties,  with  all of the
production onshore or in state waters and is subject to severance taxes.

         "Exploratory dry hole expense"  increased $946,000 due to the Company's
increased  exploratory  activities in 1998. Of the ten wells the Company drilled
or  participated  in during the first quarter of 1998, two were  exploratory dry
holes.  One of the wells was spudded and  completed  during the first quarter of
1998,  the other was  spudded  but did not reach  total  depth  until the second
quarter of 1998.  In each case the wells were  operated by third parties and the
Company  owned a 10% and 20% working  interest  in each of the wells.  Had these
wells been  commercially  productive,  the cost per unit of the reserves and the
quality of reserves would have enhanced the Company's existing reserve base. The
Company  believes  that  its  continued  participation  in a  modest  amount  of
exploratory activities is an important factor in increasing shareholder value.
<PAGE>

         "Geological  and  geophysical  expense"  during 1998  resulted from the
Company's non-drilling exploratory activities incurred.

         "Interest income" increased  $382,000 in 1998 primarily due to interest
income earned on the excess  proceeds  from the  Company's  Senior Note offering
completed in October 1997.

         "Interest  expense"  increased  $1,551,000  in  1998  primarily  due to
increased  borrowing  levels.  The increase in borrowing is due to the Company's
Senior Note offering completed in October 1997. The increase in borrowing levels
is somewhat  offset by a reduced  interest  rate on a majority of the  Company's
long term debt. In connection  with the offering,  the Company prepaid or repaid
long term debt, a significant amount of which had rates in excess of the 10 5/8%
rate on the Notes.  This included  amounts borrowed in connection with the Amoco
acquisition  in October  1996 and debt assumed in  connection  with the Goldking
acquisition in July 1997.


PART II
                                OTHER INFORMATION

Item 6.           EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                           27 Financial Data Schedule

         (b)      Reports on Form 8-K

                  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:    May 18, 1998                 /s/Todd R.Bart 
                                      Todd R. Bart, Chief Financial Officer