PANACO INC, POS AM, 1996-06-17

PANACO INC
POS AM, 1996-06-17
CRUDE PETROLEUM & NATURAL GAS

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As filed with the Securities and Exchange Commission on June 14, 1996
Registration No. 33-81058

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

Post-effective Amendment No. Seven

Form S-1/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
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P A N A C O, I n c.
(Exact name of registrant as specified in its charter)
<CAPTION>

<S> <C> <C>
Delaware 1311 43-1593374
(State or other jurisdiction in (Primary Standard Industrial (I.R.S. Employer
registration or organization) Classification Code Number) Identification No.)

1050 West Blue Ridge Boulevard
Panaco Building
Kansas City, MO 64145-1216
(816) 942-6300
(Address, including ZIP code, and telephone
number, including area code, of registrant's
principal executive offices)

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

--------------------------------------------------------------
(Approximate date of commencement of proposed sale to the public)
|If any of the securities being registered on this Form are to be offered on a delayed or
|continous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: X
Calculation of Registration Fee

Title of Each Class Proposed Maximum Proposed Maximum
of Securities to Amount to be Offering Aggregate Amount of
be Registered Registered(1) Price Per Share(2) Offering Price Registration Fee

Common Stock, par 3,661,526
value $.01 per share..... shares $4.25 $15,561,486 $5,366.03

(1) Based upon the maximum number of shares that may be sold in the transactions described herein.
(2) Estimated in accordance with Rule 457(g) & (c).
------------------------
| The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective |date until the
registrant shall file a further amendment which specifically states
that this Registration Statement shall |thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
</TABLE>

<PAGE>

PROSPECTUS

1,280,891 Common Shares

PANACO, Inc. (the "Company"), a Delaware corporation, was formed in
1992 to acquire by merger Pan Petroleum, MLP, effective September 1, 1992. This
prospectus has been prepared in connection with the possible resale by Selling
Stockholders of Common Shares acquired or to be acquired upon the exercise of
warrants or options. The Company would not receive any proceeds in connection
with any such resales by Selling Shareholders. Selling Shareholders, who are
officers and directors of the Company, are offering 365,000 Common Shares and
other persons are offering 915,891 Common Shares. A Selling Shareholder, who is
an officer and director presently has warrants to acquire 160,000 Common Shares
at $2.375 per share and 90,000 Common Shares at $2.00 per share, which, pursuant
to a Board of Directors resolution extending the date, expire 30 days after the
date of this Prospectus. Another Selling Shareholder, who is not an officer or
director, has warrants to acquire 39,365 Common Shares at $2.00 per share which
expire December 31, 1997. The Board of Directors has the power to alter the
terms of these warrants and options, including the exercise dates.

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

See "Risk Factors", page number 5, for a discussion of
certain matters that should be considered by
potential investors.

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

The Common Shares (symbol: "PANA") are traded on the National Market System
of NASDAQ. The last reported sale of the Common Shares on June 10, 1996 was $
4.00 per share.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>

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PANACO, INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K

Showing Location in Prospectus of
Information Required by Items of Form S-1
<CAPTION>

Number and Caption Location in Prospectus
<S> <C> <C> <C> <C> <C> <C>

1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus ...................................................Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus ..........................................Inside Front Cover Page; Other Matters
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges ...........................Summary; Risk Factors; Summary of
Selected Historical Financial and Reserve
Information
4. Use of Proceeds ..................................................Use of Proceeds
5. Determination of Offering Price ..................................Use of Proceeds
6. Dilution .........................................................*
7. Selling Security Holders .........................................Principal and Selling Stockholders
8. Plan of Distribution .............................................*
9. Description of Securities to be Registered .......................Front Cover Page; Description of
Capital Stock
10. Interests of Named Experts and Counsel ...........................Legal Opinions; Experts
11. Information With Respect to the Registrant .......................Front Cover Page; Summary; The
Company; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business and Properties;
Management; Description of Capital Stock;
Index to Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities .................Other Matters

*Omitted because answer is not applicable or negative.

</TABLE>

<PAGE>

AVAILABLE INFORMATION

The Company is currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
accordance therewith the Company files reports, proxy statements, and other
information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy statements, and other information can be inspected and copied at
the offices of the SEC at 450 Fifth Street, NW, Washington, D.C. 20549 and at
the regional offices of the SEC at 75 Park Place, New York, New York 10007 and
Kluczynski Federal Building, 230 South Dearborn Street, Chicago, Illinois 60604,
and copies of such material can be obtained from the Public Reference Section at
the principal office of the SEC, 450 Fifth Street, NW, Washington, D.C. 20549,
at prescribed rates.

Until ___________________, all dealers effecting transactions in Common
Shares, whether or not participating in this distribution, may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as Soliciting Dealers.

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than Common Shares to which
it relates or an offer to or solicitation of any person in any jurisdiction in
which such offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstance imply that
information contained herein is correct at any time subsequent to its date.

TABLE OF CONTENTS
Page
Definitions ....................................................... 2
Prospectus Summary ................................................ 4
Risk Factors ...................................................... 5
The Company ....................................................... 9
Property .......................................................... 15
Pro Forma Financial Information ................................... 17
Legal Proceedings ................................................. 24
Capitalization .................................................... 24
Management ........................................................ 24
Principal Stockholders ............................................ 31
Certain Relationships and Related Transactions .................... 32
Selling Stockholders .............................................. 33
Description of Capital Stock ...................................... 34
Selected Financial Data ........................................... 40
Managements Discussion and Analysis ............................... 41
Other Matters ..................................................... 44
Legal Opinions .................................................... 44
Experts ........................................................... 45
Index to Financial Statements ..................................... F-1
<PAGE>

DEFINITIONS

The following are definitions of certain terms found herein. Certain
other defined terms not used throughout are defined in the text.

Bbl. A standard barrel, being 42 U.S. gallons.

Bcf. One billion cubic feet or one million Mcf.

Developed Acreage. Oil and gas acreage spaced for or assignable to
productive wells.
Equivalent Bbls. A measure of gas volumes representing the estimated
relative energy content of natural gas to oil, being 6 Mcf of natural gas per
Bbl of oil.

FERC. The Federal Energy Regulatory Commission.

Long-term Incentive Plan. The Company's Long-term Incentive Plan described
in "Management - Other Compensation Arrangements - Long-term Incentive Plan."

Mcf. One thousand cubic feet.

Mmcf. One million cubic feet or one thousand Mcf.

NGA. The Natural Gas Act of 1938, as amended.

NGDA. The Natural Gas Wellhead Decontrol Act of 1989, which amends the
NGPA.
NGPA. Natural Gas Policy Act of 1978, as amended.

OPEC. The Organization of Petroleum Exporting Countries.

Outstanding. When used in reference to the number of outstanding shares
of capital stock of the Company, means the number treated as outstanding under
generally accepted accounting principles.

Proved Developed Nonproducing Reserves. Proved Developed Reserves that
exist behind the casing of existing wells or at minor depths below the present
bottom of such wells and that are expected to be produced through these wells in
the predictable future, where the cost of making such oil and gas available for
production should be relatively small compared to the cost of a new well.

Proved Developed Producing Reserves. Proved Developed Reserves that are
expected to be produced from existing completion intervals now open for
production in existing wells.

Proved Developed Reserves. Proved Reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods,
including Proved Developed Nonproducing Reserves and Proved Developed Producing
Reserves.

Proved Reserves. Those estimated quantities of crude oil, natural gas,
and natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known oil and gas
reservoirs under existing economic and operating conditions. Proved Reserves are
limited to those quantities of oil and gas that can be expected to be
recoverable commercially at current prices and costs, under existing regulatory
practices, and with existing conventional equipment and operating methods.

Proved Undeveloped Reserves. Proved Reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.

<PAGE>

SEC 10 Value. The present value of estimated future net revenues,
before taxes, of the specified reserves or property, determined in all material
respects in accordance with the rules and regulations of the SEC (generally
using prices and costs in effect at a fixed date and a 10% discount rate).

Undeveloped Acreage. Oil and gas acreage on which wells have not been
drilled or to which no Proved Reserves other than Proved Undeveloped Reserves
have been attributed by independent petroleum engineers on the date of
acquisition.

Unproved Properties. Oil and gas acreage to which no Proved Reserves have
been attributed by independent petroleum engineers on the date of acquisition.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the detailed
information and financial statements elsewhere herein. Each prospective investor
is urged to read this document in its entirety.

The Company

PANACO, INC. (the "Company") is a Delaware corporation organized to
effect a merger of Pan Petroleum MLP ("PAN") into the Company. When used herein
the word "Company" includes its predecessor Pan Petroleum MLP. The merger took
place on September 1, 1992. The Company is in the oil and gas business,
acquiring, developing and operating oil and gas properties. The Company owned
oil and gas properties containing, as of December 31, 1995, Proved Reserves of
1,900,000 Bbls of oil and 46,711,000 Mcf of gas. The SEC 10 Value (which means
the present value of estimated future net revenues, before taxes, determined in
all material respects in accordance with the rules and regulations of the SEC,
generally using prices and costs in effect as of the date of the report and a
10% discount rate) of such Proved Reserves as of December 31, 1995 was
$72,432,000. The Company operates 250 offshore and onshore wells and owns
interests in 324 onshore wells operated by others. It operates nine of the
twelve offshore blocks in which it owns an interest. For a description of the
properties owned and the activities conducted by the Company, see "The Company."

The Company acquired the Bayou Sorrel Field from Shell Western E&P,
Inc. in December 1995 for $9,855,000, which was borrowed on the Company's
revolving credit facility. The field, located in Iberville Parish, Louisiana has
31 producing wells and five salt water disposal wells. As of December 31, 1995
proved reserves attributable to the field were 898,000 barrels of oil and 3.1
Bcf of natural gas.

Common Shares are quoted on the National Market System of NASDAQ under
the symbol "PANA".

The Company's Board of Directors consists of eight persons, three of which
are employees of the Company. See "Management - Officers and Directors."
The Company's headquarters are located at 1050 West Blue Ridge
Boulevard, PANACO Building, Kansas City, Missouri 64145-1216, and its telephone
number at such offices is (816) 942-6300, FAX (816) 942-6305. The Houston office
is located at 1100 Louisiana, Suite 5110, Houston, Texas 77002-5220, and the
telephone number is (713) 652-5110, FAX (713) 651-0928.

<PAGE>

Summary of Selected Historical Financial and Reserve Information

The following table sets forth summaries of certain selected historical
financial and reserve information for the Company as of the dates and for the
periods indicated. 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. The information provided below reflects this change
and will not agree with previously reported financial information. Future
results may vary significantly from the amounts reflected in the information set
forth hereafter because of, among other reasons, normal production declines,
acquisitions, and changes in the price of oil and gas. See "Risk Factors
Estimates of Reserves and Future Net Revenues" and "Risk Factors - Recent
Changes in Oil and Gas Prices."
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For the Quarter Ended March 31, As of and For the Year Ended December 31,
(As Restated) (As Restated)
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Operations Data
<S> <C> <C> <C> <C> <C>
Oil & Gas Sales ....................... $ 8,345,000 $ 5,476,000 $ 18,447,000 $ 17,367,000 $ 15,638,000
Futures Contracts ..................... (1,006,000) 0 0 (29,000) (3,033,000)
Funds Provided By Operations .......... 4,773,000 3,550,000 9,314,000 11,101,000 6,554,000
Depletion, depreciation &
amortization .................. 2,486,000 2,455,000 8,064,000 6,038,000 4,288,000
Net income (loss) ..................... 1,650,000 626,000 (9,290,000) 1,115,000 (3,986,000)
Net Income (loss) per share ........... .14 .06 (.81) .11 (.53)

Balance Sheet Data
Oil and gas properties, net ........... 27,359,000 29,485,000 23,945,000 19,183,000
Total assets .......................... 36,705,000 36,169,000 29,095,000 24,432,000
Long-term debt ........................ 19,390,000 22,390,000 12,500,000 12,465,000
Stockholders' equity .................. 12,767,000 9,174,000 14,882,000 8,744,000
Book value per share .................. $ 1.03 $ .80 $ 1.46 $ 1.07

Oil and Gas Data
Production:
Oil and condensates (Bbls) ............ 95,000 38,000 170,000 137,000 180,000
Gas (Mcf) ............................. 2,318,000 3,262,000 9,850,000 8,139,000 5,586,000
Estimated Proved Reserves:(a)
Oil and condensates (Bbls) ............ 1,805,000 905,000 1,900,000 943,000 745,000
Gas (Mcf) ............................. 44,393,000 38,320,000 46,711,000 41,582,000 43,696,000
SEC 10 Value (a) ...................... $ 72,432,000 $ 47,159,000 $ 58,185,000

(a) Determined in accordance with the rules and regulations of the SEC
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RISK FACTORS

Prospective investors should carefully read this entire document and
should give particular attention to the following risk factors.

Company's Dividend Policy

The Company does not currently intend to pay any cash dividends with
respect to Common Shares.

<PAGE>

The Company hopes, however, that the retention and reinvestment of funds that
could otherwise be distributed will have the effect of increasing the financial
strength of the Company and, therefore, increasing the market value of Common
Shares. The Company's Board of Directors will reexamine the Company's dividend
policy from time to time.

The Delaware General Corporation Law, to which the Company is subject,
permits the Company to pay dividends only out of its capital surplus (the excess
of net assets over the aggregate par value of all outstanding shares of capital
stock) or out of net profits for the fiscal year in which the dividend is
declared or the preceding fiscal year.

The Company's Primary and Secondary Loans both require the consent of
lenders to any dividends by the Company and, to any purchases by the Company of
Common Shares. See "The Company - Funding of Business Activities - Borrowings
and Obligations."

Company Common Shares Held by Management

The Company's officers and directors and their affiliates own 1,200,238
shares (9.7%) of the 12,345,361 presently outstanding Common Shares, in each
case excluding Common Shares subject to options and warrants. Assuming exercise
of all presently outstanding warrants and options held by management, the
officers and directors of the Company would beneficially own 1,450,238 of the
12,595,361 Common Shares then outstanding, or 11.5%.

As a result, the Company's officers and directors may be able to
influence the outcome of stockholder votes on various matters, including the
election of directors, extraordinary corporate transactions, and certain
business combinations.

Lack of Independent Counsel

H. James Maxwell has served as counsel to the Company in connection with
this Prospectus and the Registration Statement of which it is a part. Mr.
Maxwell's representation results in due diligence not being performed by
independent legal counsel. Mr. Maxwell is President, CEO and Chairman of the
Company and owns 322,971 Common Shares, 65,000 of which may be offered pursuant
to this offering. The shares were acquired upon the exercise of options and are
restricted securities which could not be the subject of a public offering were
it not for the registration of this offering. See "Legal Opinions."
Anti-takeover Provisions

Documents governing the Company's affairs provide for or contain
several procedures, provisions, and plans designed to reduce the likelihood of a
change in the management or voting control of the Company without the consent of
the then incumbent Board of Directors, including a classified Board of
Directors, "fair price" provisions, the ability of the Board of Directors to
issue classes or series of preferred stock, restrictions on the ability of
stockholders to call meetings and propose business at meetings of the common
stockholders, restrictions on the ability of stockholders to approve actions or
proposals by written consent rather than at meetings and acceleration of vesting
provisions in stock award and option plans upon a change in control. These
provisions may have the effect of reducing interest in the Company as a
potential acquisition target or encouraging persons considering an acquisition
or takeover of the Company to negotiate with the Company's Board of Directors
rather than pursue non-negotiated acquisition or takeover attempts, although no
assurance can be given that they will have that effect.

<PAGE>

In the past the Company has received indications from other oil and gas
companies of their desire or willingness to pursue an acquisition of the
Company. A Shareholder Rights Plan was adopted in 1995 in response to such an
indication which the Board of Directors considered inadequate. The plan is
designed to frustrate such takeover attempts and force the acquiring company to
negotiate with the Company's Board of Directors.

In addition, the Company chose to be governed by Section 203 of the
Delaware General Corporation Law, which prohibits business combination between
the Company and any interested stockholder of the Company for a period of three
years following the date on which that stockholder became an owner of 15% or
more of the outstanding voting stock of the Company unless certain statutory
exceptions are satisfied. Section 203 may also have the effect of discouraging
non-negotiated takeover attempts.

For a discussion of documents and provisions with potential
anti-takeover effects, see "The Company - Funding of Business Activities -
Borrowings and Obligation," "Management - Other Compensation Arrangements -
Long-term Incentive Plan," "Description of Capital Stock - Certain Anti-takeover
Provisions," and "Description of Capital Stock - Shareholder Rights Plan."

Future Dilution

Of the 20,000,000 Common Shares, 12,345,361 are presently issued,
leaving 7,654,639 shares which may be issued without further approval from the
shareholders. If the Company issues additional Common Shares or shares of
preferred stock, the interest in the assets, liabilities, cash flows, and
results of operations of the Company represented by the Common Shares may be
diluted. Additional issuances may occur for many reasons, including pursuant to
the Company's Long-term Incentive Plan described in "Management - Other
Compensation Arrangements - Long-term Incentive Plan." As of the date of this
prospectus the only outstanding commitment are warrants to acquire 289,365
Common Shares. The warrants to acquire 289,365 Common Shares are exercisable at
prices per share ranging from $2.00 to $2.375 and expire thirty days after the
date of this Prospectus (250,000) or on December 31, 1997 (39,365). The Board of
Directors has the power to alter the terms of these warrants including extending
the exercise dates and has extended the exercise date of the 250,000 shares. The
exercise of such warrants would likely occur primarily when the exercise prices
are below the current market prices resulting in dilution.

Market Conditions and Business Risks

General Market Conditions. Revenues generated from the oil and gas
operations of the Company are highly dependent on the future prices of and
demand for oil and gas. Various factors beyond the control of the Company affect
prices of oil, gas, and natural gas liquids, including the worldwide supply of
oil and gas, the ability of the members of OPEC to agree to and maintain
production controls, political instability or armed conflict in oil-producing
regions, the price of foreign imports, the levels of consumer demand, the price
and availability of alternative fuels and changes in existing regulation. Prices
for oil, gas, and natural gas liquids have fluctuated greatly during the past
few years, and markets for oil, natural gas, and natural gas liquids continue to
be volatile. The currently unsettled energy markets make it particularly
difficult to estimate future prices of oil, natural gas, and natural gas
liquids, and any assumptions about future prices may prove incorrect. See "Risk
Factors - Recent Changes in Oil and Gas Prices." In addition, demand for natural
gas and fuel oil can fluctuate significantly with seasonal and annual variations
in weather patterns because those products are used in large part as heating
fuels. See "Risk Factors - Estimates of Reserves and Future Net Revenues" and
"The Company - Competition, Markets and Regulation".

Risks of Development, Exploration, and Other Activities. The Company
engages in exploration

<PAGE>

activities on Undeveloped Acreage, drills development wells, and reworks and
recompletes wells on the properties it owns as well as on other properties to be
acquired subsequently, and anticipates that it will expend a significant portion
of its net cash flow for those activities. See "The Company - Business
Activities Acquisition, Development and Other Activities." Those activities
involve a significant degree of risk. For example, the drilling of exploratory
and development well involves risks such as encountering unusual or unexpected
formations, pressures, and other conditions that could result in the Company
incurring substantial losses. In addition, all drilling is subject to the risk
of dry holes or a failure to produce oil or gas in commercial quantities. The
degree of risk will vary depending on the distance between the well and the
nearest producing well and the geological features of the area.

Replacement of Reserves. In general, the volume of production from
natural gas and oil properties declines as reserves are depleted. Except to the
extent the Company acquires properties containing proved reserves or conducts
successful development and exploration activities, or both, the proved reserves
of the Company will decline as reserves are produced. The Company's future
natural gas and oil production is, therefore, highly dependent upon its level of
success in finding or acquiring additional reserves. The business of exploring
for, developing or acquiring reserves is capital intensive. To the extent cash
flow from operations is reduced and external sources of capital become limited
or unavailable, the Company's ability to make the necessary capital investment
to maintain or expand its asset base of natural gas and oil reserves would be
impaired. In addition, there can be no assurance that the Company's future
development, acquisition and exploration activities will result in additional
proved reserves or that the Company will be able to drill productive wells at
acceptable costs.

Acquisitions. Although acquisitions of oil and gas properties with
Proved Reserves involve less risk than are inherent in exploratory or
developmental drilling, the criteria on which decisions to acquire properties
are usually based (such as the estimates of reserve quantities and the
projections of future rates of production, future development and production
costs, and prices to be received on sale) may prove to be wrong, which may
affect the profitability of an acquisition.

Environmental Risks. The discharge of oil, gas, or other pollutants
into the air, soil, or water may give rise to liability to the government and
third parties and may require the Company to incur costs to remedy the
discharge. Oil or gas may be discharged in many ways, including from a well or
drilling equipment at a drill site, leakage from pipelines or other gathering
and transportation facilities, leakage from storage tanks, and sudden discharges
from damage or explosion at processing plants or oil or gas wells. Hydrocarbons
tend to degrade slowly in soil and water, which makes remediation costly, and
discharged hydrocarbons may migrate through soil to water supplies or adjoining
property, giving rise to additional liabilities. See "Risk Factors - Market
Conditions and Business Risks." A variety of federal and state laws and
regulations govern the environmental aspects of oil and gas production,
transportation, and processing and may, in addition to other law, impose
liability in the event of discharges (whether or not accidental), failure to
notify the proper authorities of a discharge, and other noncompliance with those
laws. The Company has both an Offshore Oil Spill Contingency Plan (OOSC) and
onshore Spill Prevention Control Countermeasure Plans (SPCC). Environmental laws
may also affect the costs of the Company's acquisitions of oil and gas
properties.

The Company does not believe that its environmental risks are
materially different from those of comparable companies in the oil and gas
industry. Nevertheless, no assurance can be given that environmental laws will
not, in the future, result in a curtailment of production or processing or a
material increase in the costs of production, development, or exploration or
otherwise adversely affect the Company's operations and financial condition.
Pollution and similar environmental risks generally are not fully insurable.

Other Operating Risks. The Company is also subject to all the operating
hazards and risks normally incident to drilling for or producing, processing and

<PAGE>

transporting oil and gas,
including blowouts, cratering, pollution, and fires, each of which could result
in damage to or destruction of oil and gas wells, producing formations,
production, pipeline, or processing plants, or persons or other property.
Although the Company maintains insurance coverage that is similar to that
maintained by comparable companies in the oil and gas industry, there can be no
assurance that the coverage will be adequate to insure fully against all risks.

Estimates of Reserves and Future Net Revenues

Numerous uncertainties exist in estimating quantities of Proved
Reserves and future net revenues. Oil and gas engineering is a subjective
process of estimating underground accumulations of oil and gas that cannot be
measured exactly. The accuracy of any reserve estimate is a result of the
quality of available geologic and engineering data, geological interpretation,
and judgment. As a general rule, reserve estimates based on volumetric analysis
are less reliable than those based on lengthy production history. Actual results
of drilling, testing, and production after the date of an estimate may indicate
the need to revise the estimate. No significant amount of the reserves of the
Company are calculated using volumetric analysis. Prices used to estimate
quantities of reserves and future net revenues affect both calculations, for a
higher price can generally result in a longer estimated economic life for
reserves and can increase estimated future net revenues because both the
estimated reserves are larger and the price per reserve unit (Bbl or Mcf) is
higher.

SEC 10 Values presented in certain disclosures of reserves and the
present value of estimated future net revenues represent a reporting convention
adopted by the SEC that uses prices at the date of the reserve presentation and
a 10% discount rate. While SEC 10 Values provide a common basis for comparing
oil and gas companies subject to the rules and regulations of the SEC, the use
of prices on the presentation date may not represent the prices ordinarily
received or that will be received for oil and gas because of seasonal price
fluctuations or other varying market conditions. See "Risk Factors - Recent
Changes in Oil and Gas Prices." SEC 10 Values are not necessarily indicative of
future results of operations. Accordingly, reserve estimates set forth herein
may be materially different from the quantities of oil and gas that are
ultimately recovered, and estimates of future net revenues may also be
materially different from the net revenues that are ultimately received.

Recent Changes in Oil and Gas Prices

The posted price of West Texas Intermediate crude oil averaged $20.08 a
barrel for 1991, $19.21 for 1992, $16.95 for 1993, $15.60 for 1994, and $16.64
for 1995.

Prices for natural gas have fluctuated erratically, including seasonal
fluctuations, because of uncertainty over the demand for and supply of natural
gas and deliverabilty questions. The price the Company received for natural gas
averaged $1.46 per Mcf during 1991, $1.81 during 1992, $2.24 in 1993, $1.88 for
1994, and $1.58 in 1995. When levels of long term debt are relatively high the
Company engaged in swap transactions in the futures market to protect natural
gas prices and assure its ability to amortize such debt.

THE COMPANY

General

PANACO, Inc. (the Company) is a Delaware corporation that was organized
in October 1991. Effective September 1, 1992, Pan Petroleum MLP was merged into
the Company. The Company is in the oil and gas business, acquiring, drilling and
operating oil and gas properties.

<PAGE>

Between 1984 and 1988 a total of 114 limited partnerships were
consolidated into the Company. From time to time the Company bought additional
properties. With the acquisition of the West Delta properties in 1991 the
Company shifted its emphasis offshore. Additional offshore properties were
acquired in 1994 and 1995, and the Bayou Sorrel Field was acquired in 1995. In
recent years the Company has been disposing of numerous onshore properties.
These sales were part of management's plan to concentrate on more profitable
properties in the Gulf of Mexico and to operate those properties. The Company
plans to continue disposing of properties operated by others and to concentrate
on properties it operates.

The Company has fourteen full time employees, some of whom are
officers. The Company utilizes an additional thirty contract personnel in the
operation of the offshore and Bayou Sorrel properties, and uses numerous outside
geologists, production engineers, reservoir engineers, seismologists,
geophysicists and other professionals on a consulting basis.

The Company's headquarters are located at 1050 West Blue Ridge
Boulevard, PANACO Building, Kansas City, Missouri 64145-1216, and its telephone
number is (816) 942-6300, FAX (816) 942-6305. The Houston, Texas office is
located at 1100 Louisiana, Suite 5110, Houston, Texas 77002-5220, telephone
(713) 652-5110, FAX (713) 651-0928.

Business Activities

Production of Proved Reserves. The Company owns interests in
approximately 574 wells located offshore Louisiana and Texas and onshore in
Kansas, Louisiana, Oklahoma and Texas. As of December 31, 1995, these properties
contained estimated Proved Reserves of approximately 1,900,000 Bbls of oil and
condensate and approximately 46,711,000 Mcf of gas and the SEC 10 Value of such
Proved Reserves was approximately $72,432,000. Approximately 20% of such Proved
Reserves was attributable to oil and 80% to natural gas, based on six Mcf of gas
being equivalent to one Bbl of oil. Information included herein with respect to
Proved Reserves and the SEC 10 Value thereof, has been prepared by the Company,
including adjustments calculated by the Company, based upon information
contained in reserve reports prepared by professional reservoir engineering
firms. See "Item 2. Properties - Significant Proved Properties."

The Company expects to hold its producing properties until the
economically recoverable reserves attributable thereto are depleted, although
the Company may sell any of its properties if management believes that such sale
would be in the Company's best interest.

Well Operations. The Company operates approximately 250 wells and owns
all or substantially all of the working interests in those wells. The Company's
remaining 324 wells are operated by third party operators. The operator of an
oil and gas property supervises production, maintains production records,
employs field personnel, and performs other functions required in the production
and administration of such property. The compensation paid to the operator for
such services customarily varies from well to well, depending on the nature,
depth, and location of the well being operated. Where wells are operated by the
Company, it generally owns all of the working interests or a majority of the
working interest in the leases. Therefore, its revenue and expense associated
with portions of leases it operates for other working interest holders is not
significant.

Acquisition, Development, and Other Activities. The Company utilizes
its capital budget for (a) reworks and recompletions of its existing wells, (b)
the acquisition of interests in other producing properties and (c) the drilling
of development and exploratory wells. In addition, the Company evaluates other
opportunities that arise and may spend a portion of its capital budget on other
types of oil and gas activities.

<PAGE>

Depending on the sales prices of oil and gas and its ability to finance
such activities, the Company may also drill exploratory wells on properties it
acquires. The Company does not currently have plans to drill exploratory wells
during 1996 but will evaluate potential prospects to determine the economic
benefit to the Company and may drill exploratory wells if the benefit to the
Company is reasonable when measured against the risks involved. The Company owns
approximately 10,180 gross onshore acres (1,685 net acres) that do not contain
Proved Developed Reserves.

The number and type of wells drilled by the Company will vary from
period to period depending on the amount of the capital budget available for
drilling, the cost of each well, the Company's commitment to participate in the
wells drilled on properties operated by third parties (as described in "The
Company - Proposed Business activities"), the size of the fractional working
interest acquired by the Company in each well, and the estimated recoverable
reserves attributable to each well.

The Company anticipates that the funds utilized by the Company for
drilling in 1996 will be expended for drilling activities on onshore and
offshore Louisiana properties; however, the Company may engage in drilling
activities in any geographic area. The Company and its predecessors engaged in
oil and gas exploration, development, and production in sixteen states since
1974 and have participated in drilling numerous oil and gas wells, most of which
were completed as commercially productive wells. The Company currently operates
250 onshore and offshore wells. The Company believes that its management
experience will enable it to effectively utilize relatively low-risk development
drilling to increase its cash flow and reserves.

Acquisitions of properties may include acquisitions of working
interests, royalty interests, net profits interests, production payments, and
other forms of direct or indirect ownership interest in oil and gas production.
The Company may also acquire general or limited partner interest in general or
limited partnerships and interest in joint ventures, corporations, or other
entities that own, manage, or are formed to acquire, explore for, or develop oil
and gas properties or conduct other activities associated with the ownership of
oil and gas production. The Company may also acquire or participate in the
expansion of natural gas processing plants and natural gas transportation or
gathering systems. The Company currently anticipates that any properties it
acquires through its acquisition program will consist of both Producing
Properties and Unproved Properties or properties to which Proved Undeveloped
Reserves are attributable in areas it believes have potential for successful
development.

The success of the Company's acquisitions will depend on (a) the
Company's ability to establish accurately the volumes of reserves and rates of
future production from producing properties being considered for acquisition and
the future net revenues attributable to reserves from such properties, taking
into account future operating costs, market prices for oil and gas, rates of
inflation, risks attendant to production of oil and gas, and a suitable return
on investment, and (b) the Company's ability to purchase properties and produce
and market oil and gas therefrom at prices and rates that over time will
generate cash flows resulting in an attractive return on the initial investment.
The Company's cash flow and return on investment will vary to the extent that
the Company's production from an acquired property is greater or less than that
estimated at the time of acquisition because of, for example, the results of
drilling or improved recovery programs, the demand for oil and gas, or changes
in the prices of oil and gas from those used to calculate the purchase price for
producing properties. The Company will evaluate any economically feasible
project that would enhance the value of its properties. Such a project may
involve both the acquisition of developed and undeveloped properties and the
drilling of infield and water injection wells.

The Company expects that its primary activities will continue to be
concentrated onshore and offshore Louisiana. The Company can, if it so chooses,
invest in any geographic area. Drilling on and production from offshore
properties often involves higher costs than does drilling on and production from
onshore properties,

<PAGE>

but the production achieved is much greater.

The Company may also seek to acquire oil and gas companies through
stock purchases, asset purchases, and purchases of interests in partnerships.
The Company intends to pay for those acquisitions with its own securities, cash
or any other property, or any combination of the foregoing. The consent of the
Company's lenders may be required for such purchases.

Marketing of Production. Production from the Company's properties is
marketed consistently with industry practices, which include the sale of oil at
the wellhead to third parties and the sale of gas to third parties at prices
based on factors normally considered in the industry, such as the spot price for
gas or the posted price for oil, and the quality of the oil and gas.

The Company markets most of its oil production to Texaco, Vastar,
Citgo, Conoco, Shell and Koch Industries, and is not dependent upon any single
customer. Natural gas is mostly sold on the spot market. Offshore gas is sold on
the spot market. There are numerous potential purchasers for offshore gas,
including in one instance an affiliate of the pipeline on which some of the gas
is transported. There are numerous gas purchasers doing business in the areas
involved and natural gas brokers and clearing houses. Furthermore, the Company
can contract to sell the gas directly to end users. For these reasons the
Company is not dependent upon any one customer or group of customers for the
purchase of natural gas.

The Company from time to time has entered into swap transactions, in
effect selling natural gas on the NYMEX, to assure future prices for natural gas
and protect its ability to service long term debt. In 1994 the Company utilized
natural gas floor price transactions to protect prices and suffered a small
loss. No hedging transactions were entered into in 1995 as debt was reduced to
such low levels management did not feel price protection was necessary. For 1996
the Company has entered into natural gas swap transactions at prices ranging
from $1.7511 per MMBTU to $2.253 per MMBTU, for an average price of $1.876 per
MMBTU on 15,000 MMBTU's per day.

Insurance. The Company maintains insurance coverage as is customary for
companies of a similar size engaged in operations similar to the Company's. The
Company's insurance coverage includes comprehensive general liability insurance
in the amount of $50,000,000 per occurrence for personal injury and property
damage and cost of control and operators extra expense insurance generally up to
$50,000,000 per occurrence. The Company maintains $38,000,000 in property
insurance on its offshore properties.

Funding of Business Activities

Cash Flow from Operations. Funding for the Company's activities is
provided primarily by cash flow from operations; however, the Company may use
its borrowing facilities described below and other sources. Generally, cash flow
from properties declines over time as production declines. The cash flow
generated by the Company's activities, therefore, would decline in the absence
of increases in the prices that the Company receives for oil and gas production
or increases in the Company's production of oil and gas resulting from the
development of its properties, the acquisition of additional producing
properties, the successful implementation of improved recovery projects, or the
acquisition and development of other oil and gas properties.

Issuance of Additional Common Stock and Other Securities. The Company
may issue additional shares of Common Stock or other securities for cash, to the
extent that market and other conditions permit, and use the proceeds to fund its
activities. Additional securities issued by the Company may be of a class
preferred as to the Common Stock with respect to such matters as dividends and
liquidation rights and may also have other rights and preferences as determined
by the Board of Directors. The Certificate of Incorporation and

<PAGE>

By-laws of the Company generally do not require the Company to obtain the
consent of stockholders for the issuance and sale of shares of Common Stock or
other securities.

Borrowings and Obligations. The Company is permitted to incur
indebtedness for any Company purpose. It is currently expected that Company
indebtedness will consist primarily of borrowings from commercial banks and
credit corporations, the sale of debt instruments, and advances from oil, gas,
pipeline and other companies.

On July 1, 1994 the Company entered into a Credit Agreement with the
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 since become a 35%
participant. The loan is a reducing revolver designed to provide the Company up
to $30 million depending upon the Company's borrowing base, $22 million as of
April 1, 1996. 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 base rate (the bank's prime rate) or at 1.00% to 1.75% over
the applicable Libor rate on Eurodollar loans, presently less than the bank's
prime rate. Eurodollar loans can be for terms of either 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.

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 in 1994. At the discretion of the
lenders, a second $5,000,000 can be borrowed in connection with an acquisition.
Funds loaned to the Company under this loan agreement require 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 on any funds advanced. The loan
agreement contains certain financial covenants including restrictions on other
indebtedness and the payment of dividends. The note matures on December 31, 1999
and is secured by a second mortgage on a portion of the offshore oil and gas
properties of the Company. The lenders were issued warrants to acquire 815,526
(816,526 after adjustment) shares of Common Stock at an exercise price of $2.25
per share, anytime prior to December 31, 1998. These warrants were all exercised
early in 1996.

Competition, Markets, and Regulation

Competition. There are a large number of companies and individuals
engaged in the exploration for and development of oil and gas properties.
Competition is particularly intense with respect to the acquisition of oil and
gas producing properties. The Company encounters competition from various
independent oil companies in raising capital and in acquiring producing
properties. Many of the Company's competitors have financial resources and
staffs considerably larger than the Company.

Markets. The ability of the Company to produce and market oil and gas
profitably depends on numerous factors beyond the control of the Company. The
effect of these factors cannot be accurately predicted or anticipated. These
factors include the availability of other domestic and foreign production, the
marketing of competitive fuels, the proximity and capacity of pipelines,
fluctuations in supply and demand, the availability of a ready market, the
effect of federal and state regulation of production, refining, transportation,

<PAGE>

and sales of oil and gas, political instability or armed conflict in
oil-producing regions, and general national and worldwide economic conditions.
In recent years, worldwide oil production capacity and gas production capacity
in the United States exceeded demand and resulted in a substantial decline in
the price of oil and natural gas in the United States.

Since early 1986, certain members of the Organization of Petroleum
Exporting Countries ("OPEC") have, at various times, dramatically increased
their production of oil, causing a significant decline in the price of oil in
the world market. The Company cannot predict future levels of production by the
OPEC nations, the prospects for war or peace in the Middle East, or the degree
to which oil and gas prices will be affected, and it is possible that prices for
any oil, natural gas liquids, or gas produced by the Company will be lower than
those currently available.

The demand for gas in the United States has fluctuated in recent years
due to economic factors, a deliverability surplus, conservation and other
factors. This lack of demand has resulted in increased competitive pressure on
producers. However, environmental legislation is requiring certain markets to
shift consumption from fuel oils to natural gas, thereby increasing demand for
this cleaner burning fuel.

In view of the many uncertainties affecting the supply and demand for
oil, gas, and refined petroleum products, the Company is unable to predict
future oil and gas prices. In order to minimize these uncertainties the Company
hedges prices with futures contracts.

Seasonality. Historically the nature of the demand for natural gas
caused prices and demand to vary on a seasonal basis. Prices and production
volumes were generally higher during the first and fourth quarters of each
calendar year. For example, from a high of $1.78 per Mcf in January of 1991 the
average price of the Company's natural gas reached a low of $1.09 in July and a
new high of $1.95 in December, averaging $1.46 for the year. However, the
substantial amount of gas storage becoming available in the U.S. is altering
this seasonality. During 1993, 1994 and 1995 the Company's gas prices ranged
from$2.78 to $1.64, $2.43 to $1.39 and $2.37 to $1.37, averaging $2.13, $1.88
and $1.58, respectively.

Regulation. The production of oil and gas is subject to federal and
state laws and regulations governing a wide variety of matters, including the
drilling and spacing of wells on producing acreage, allowable rates of
production, marketing of oil and gas, prevention of waste and pollution, and
protection of the environment.

Possible Legislation. Currently there are legislative proposals
pertaining to the regulation and taxation of the oil and gas industry. Any of
such proposals may directly or indirectly affect the activities of the Company.
No prediction can be made as to what additional energy legislation may be
proposed, if any, enacted into law or when any such bills, if enacted, would
become effective.

Regulation of the Environment. The exploration, development,
production, and processing of oil and gas are subject to various federal and
state laws and regulations to protect the environment. Various state and
governmental agencies are considering, and some have adopted, other laws and
regulations regarding environmental control that could adversely affect the
business of the Company. These laws and regulations require the acquisition of a
permit before drilling commences, prohibit drilling activities on certain lands
lying within wilderness and other protected areas, and impose substantial
liabilities for pollution resulting from the operation of facilities owned by
the Company. Compliance with such legislation and regulations, together with any
penalties resulting from noncompliance therewith, may increase the cost of oil
and gas development, production, and processing. The Company does not currently
believe that compliance with federal, state, and local environmental regulations
will have a material adverse effect upon the Company.

<PAGE>

Offshore Operations. Offshore operations of the Company are conducted
on both federal and state lease blocks. In all offshore areas the more stringent
regulation of the federal system, as implemented by the Mineral Management
Service of the Department of the Interior are now applicable to state leases as
well as federal leases.

The Oil Pollution Act of 1990 requires operators of oil and gas leases
on or near navigable waterways to provide $150 million in financial
responsibility by the year 1995. Implementation of this legislation has been
delayed. At present the financial responsibility requirement is $35 million and
the Company is satisfying that requirement with an insurance policy. The cost of
the additional insurance will be born by the Company.

PROPERTIES

The Company's properties consist of producing properties located
offshore Louisiana and Texas and onshore in Kansas, Louisiana, Oklahoma and
Texas.

Significant Proved Properties. The following table sets forth certain
information with respect to the Company's properties. Such properties account
for 96% of the aggregate SEC 10 Value of the Company's properties as of December
31, 1995.
<TABLE>

SIGNIFICANT PROVED PROPERTIES
As of December 31, 1995

<CAPTION>
Proved Reserves
Oil Gas SEC 10
Property Area (Bbls) (Bcf) Value(a)
-----------
<S> <C> <C> <C>
WEST DELTA PROPERTIES ........................ Offshore LA 448,000 26.2 $34,920,410
FORMER ZAPATA PROPERTIES ..................... Offshore TX & LA 222,000 15.3 $23,896,874
BAYOU SORREL FIELD ........................... Onshore LA 898,000 3.1 $10,517,826
</TABLE>

(a) Calculated in accordance with the rules and regulations of the SEC.

West Delta Properties. These properties consist of 14,312 acres in
Blocks 52-56 and Block 58 in the West Delta Area, Offshore Louisiana. The
properties have 35 wells, five of which were recently drilled. In 1995 the
Company spent $6.9 million on a drilling and recompletion program on these
properties. The Company is the operator and owns 100% of the working interest,
with a 87.5% net revenue interest, in the wells. Presently, most of the wells
produce from depths ranging from 1,200 feet to 12,500 feet, from Miocene age
deltaic deposits. Because of the existing surface structures and production
equipment, additional wells can be added on the properties with lower completion
costs.

In recent years, major oil companies have been selling offshore
properties to independent oil companies because these properties do not have the
remaining reserve potential needed by a major oil company. Numerous independent
oil companies have acquired these offshore properties and achieved significant
success in further exploitation of these properties. Even though a property does
not meet the criteria for further development by a major oil company, that does
not mean it is lacking further exploitation potential. The majors are simply
moving further offshore and to other countries where they can find and produce
the super-fields that fit their criteria.

The West Delta properties were acquired from Conoco, Inc., Atlantic
Richfield Company (now Vastar Resources, Inc.), OXY USA, Inc. and Texaco
Exploration and Production, Inc. in May 1991. During 1995 the

<PAGE>

properties had net production averaging approximately 20,643 Mcf of natural gas
and 264 barrels of oil and condensate per day.

During 1994 the Company farmed out the deep rights (below 11,300 feet)
to an 1,800 acre parcel in Block 58 to Energy Development Corporation which
drilled a successful well to 16,500 feet. Production commenced in April 1995.
The Company retained a 12 1/2% overriding royalty interest in that acreage. The
well produces 21,000 Mcf per day and 1,500 barrels of condensate per day. Energy
Development Corporation has commenced drilling a second well.

The main production facility on the West Delta properties is a four
platform complex designated as Tank Battery #3. There are four ancillary
platforms in the eastern portion of the properties connected to Tank Battery #3.
Three wells are on one of these platforms. In the western portion there is one
production platform designated as Platform "D" in Block 58, with three wells.
The remaining 29 wells are located on satellite structures connected to Tank
Battery #3 or one of its ancillary platforms. Eight wells produce oil and
natural gas. The remaining wells produce natural gas.

In connection with its acquisition of the West Delta offshore
properties the Company has provided the sellers with a $4,700,000 plugging bond

Former Zapata Properties. On July 12th, 1995, the Company entered into
a Purchase and Sale Agreement with Zapata Exploration Company ("Zapata") to
acquire all of Zapata's offshore oil and gas properties in the Gulf of Mexico.
The properties consist of East Breaks Blocks 109 and 110, East Cameron Block
359, Eugene Island block 372, South Timbalier Block 185 and West Cameron Block
538, totaling 31,134 gross acres. The transaction was closed July 26, 1995. The
Company took over as operator of the East Breaks and West Cameron properties
effective at closing. The East Cameron property is operated by Anadarko
Petroleum Corporation. The Eugene Island property is operated by UNOCAL and the
South Timbalier property is operated by Louisiana Land & Exploration Company.
Proved reserves at December 31, 1995 attributable to the oil and gas interests
acquired, net to the Company's interest, were 222,000 Bbls and 15.3 Bcf of
natural gas. Management has identified probable and possible reserves
attributable to these properties. During 1995, subsequent to July 26th, the
properties produced 20,000 barrels and 1.8 Bcf of natural gas, net to the
Company's interest.

In addition to the mineral interests acquired, the Company purchased a
100% interest in a 31 mile natural gas pipeline connecting the Company's East
Breaks 110 platform to the High Island Offshore System ("HIOS") and a 22 mile
oil pipeline which connects the East Breaks 110 platform with the High Island
Pipeline System ("HIPS"). HIOS and HIPS are the primary natural gas and crude
oil systems in that part of the Gulf of Mexico.

The Company's East Breaks 110 platform has significant excess capacity
for both crude oil and natural gas. Earlier in 1995, Zapata had entered into a
Facilities Sharing Agreement with AGIP Petroleum Company, Inc. ("AGIP") under
which AGIP will pay certain fees to the Company and split the cost of operating
the East Breaks 110 platform with the Company, based upon each company's
proportion of production. A portion, not to exceed $6 million, of the monies
earned pursuant to this Facilities Sharing Agreement will be paid to Zapata by
the Company.

<PAGE>

produced, if that much is produced. Payments to Zapata on this production
payment are to be made by the Company when it is paid for the oil or gas. Oil
and gas reserves attributable to this production payment are not included in the
reserves for the properties set forth herein.

Bayou Sorrel Field. As of November 30, 1995, the Company entered into a
Purchase and Sale Agreement with Shell Western E&P Inc. ("Shell") to acquire all
of Shell's interest in the Bayou Sorrel Field in Iberville Parish, Louisiana.
The transaction closed December 27, 1995 and PANACO took over as operator from
Shell. Proved reserves attributable to the field at December 31, 1995 were
898,000 barrels and 3.1 Bcf of natural gas. In addition to the proven reserves
management has identified significant probable and possible reserves
attributable to this field. The purchase price of the field and a related
receivable of $600,000 was $10,455,000, including a $205,000 brokers' fee. This
amount was paid with funds borrowed using the Company's Primary Credit Facility.
See "Funding of Business Activities - Borrowing and Obligations," herein.

The Bayou Sorrel Field is located approximately 80 miles west of New
Orleans in Township 10 South and Ranges 10 and 11 East, Iberville Parish,
Louisiana. Cumulative production from the field as of April 30, 1995, was 35
million barrels of oil and condensate and 206 Bcf of gas.

The field was discovered by Shell in August 1954 with the drilling of
the Shell Schwing No. 1 which penetrated seven pay sands including the "D" sand
reservoir, which is the major accumulation at Bayou Sorrel. The initial
production from the field began in 1955.

Since completion of the discovery well, hydrocarbons have been
encountered in 36 sands that include 48 separate reservoirs. Production has been
established from 28 sands and 37 reservoirs. Productive sands range in depth
from 7,000 feet to 11,100 feet ("W" through "L4" sands) and range in age from
Lower Miocene to the Heterostegina zone of Upper Oligocene.

The most recent well drilled in the field was a horizontal test, the
Baist Cooperage State Unit No. 1-6 Sidetrack, which was successfully completed
in the "D" Sand during July 1995. One well was drilled in 1994 (BCSU 1-8), one
drilled in 1986, several were drilled in 1982. Most wells in this field were
drilled in the 1950's and 1960's. There are 31 wells in the field at the present
time and five salt-water disposal wells.

The Company's current lease position in the field totals 2,120 (gross
and net) acres from eight leases. The weighted-average royalty interest of the
acreage is 14%. There are 13 active producing sand units in the field. There are
currently three areas farmed out to others.

PRO FORMA FINANCIAL INFORMATION

On July 26, 1995, the Company completed the acquisition of five
offshore producing properties from Zapata Exploration Company ("Zapata"). The
purchase price for the Zapata properties and a related receivable of $174,000
($84,000 at year end 1995) was $2,748,000 in cash and an obligation to pay a
production payment to Zapata based on future production. On December 26, 1995,
the Company completed the acquisition of the Bayou Sorrel Field in Iberville
Parish, Louisiana from Shell Western E & P, Inc. The purchase price of Bayou
Sorrel, $10,455,000 which included a related receivable of $600,000 and a
broker's fee of $205,000, was paid using the Company's Primary Credit Facility.

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. The information provided below reflects this change
and will not agree with previously reported financial information.

The unaudited pro forma statement of income (operations) for the year ended
December 31, 1995

<PAGE>

assumes the Zapata and Bayou Sorrel acquisitions had been consummated January 1,
1995. The unaudited pro forma statement of income (operations) includes certain
adjustments to give effect to the acquisitions of the oil and gas properties.

The pro forma statement do not purport to be indicative of the results
of the Company had these acquisitions occurred on the date assumed, nor is the
pro forma statement necessarily indicative of the future results of the Company.
The pro forma statement should be read together with the Financial Statements of
the Company, including the notes thereto and included elsewhere in this
Statement.

<TABLE>

PANACO, INC.
Unaudited Pro Forma Combined Statement of Income (Operations)
For the Year Ended December 31, 1995
<CAPTION>

Zapata Bayou PANACO, Inc.
PANACO, Inc. Properties Sorrel Field Pro Forma Pro Forma
(As Restated) 1/1 - 7/26/95 1/1 - 12/26/95 Adjustments Combined
--------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Oil and gas sales ........................... $ 18,447,000 $ 3,623,000 $ 3,326,000 -- $ 25,396,000
Future contracts
------------ ------------ ------------ ------------ ------------
Total .................................... 18,447,000 3,623,000 3,326,000 -- 25,396,000
------------ ------------ ------------ ------------ ------------

COSTS AND EXPENSES
Lease operating ............................. 8,055,000 1,460,000 867,000 280,000(a) 10,662,000
Depreciation, depletion and amortization .... 8,064,000 -- -- 2,955,000(b) 11,019,000
Exploration expenses ........................ 8,112,000 -- -- -- 8,112,000
Provision for losses and (gains) on
disposition and write-down of assets 751,000 -- -- -- 751,000
General and administrative .................. 690,000 -- -- -- 690,000
Production and ad valorem taxes ............. 1,078,000 -- 297,000 -- 1,375,000
------------ ------------ ------------ ------------ ------------
Total .................................... 26,750,000 1,460,000 1,164,000 3,235,000 32,609,000

NET OPERATING INCOME (LOSS) ...................... (8,303,000) 2,163,000 2,162,000 (3,235,000) (7,213,000)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 5,000 -- -- -- 5,000
Interest expense ............................ (992,000) -- -- (651,000)(c) (1,643,000)
------------ ------------ ------------ ------------ ------------
Total .................................... (987,000) -- -- (651,000) (1,638,000)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES ............ (9,290,000) 2,163,000 2,162,000 (3,886,000) (8,851,000)
INCOME TAXES (BENEFIT) -- -- -- -- --
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) ................................ $ (9,290,000) $ 2,163,000 $ 2,162,000 $ (3,886,000) $ (8,851,000)
============ ============ ============ ============ ============

EARNINGS (LOSS) PER COMMON SHARE
Primary
Net earnings (loss) $ (0.81) $ (0.77)
============ ============

Assuming full dilution
Net earnings (loss) $ (0.81) $ (0.77)
============ ============

Weighted average shares outstanding:
Primary .................................. 11,504,615 11,504,615
============ ============
Assuming full dilution ................... 11,504,615 11,504,615
============ ============

The accompanying notes to pro forma financial statements are an integral part of
this statement.
</TABLE>

<PAGE>

NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME (OPERATIONS)

1. Basis of Presentation

The Unaudited Pro Forma Statement of Income (Operations) of PANACO,
Inc. presents the combined effects of the acquisition of the Zapata properties
and Bayou Sorrel Field as if the acquisitions had been consummated January 1,
1995.

2. Pro Forma Entries

(a) To record the estimated additional insurance expense.
(b) To record the additional depletion and depreciation expense for the
increased property costs and production volumes (see Note 4 below). (c)
To record the additional interest expense for increased term of
borrowing.

3. Taxes

No additional operating taxes are included for the Zapata properties as
the production from these properties is from federal offshore waters and are not
subject to severance taxes.

4. Depletion, depreciation & amortization

Additional depletion and depreciation expense is included for the
additional property costs and production volumes. The original purchase prices
are used for the cost of the properties to assume the transactions had taken
place January 1. The actual purchase prices of the properties were reduced by
the net income of the properties from the effective dates of the purchases until
the closing dates.

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

Undeveloped Acreage and Unproved Properties. The Company holds interest
in 10,180 gross onshore acres (1,685 net acres) of Undeveloped Acreage to which
no Proved Developed Reserves have been assigned. The Company may undertake
development activities on certain of this acreage, although it is not likely at
this time.

The Undeveloped Acreage and Unproved Properties consist of interests in
undeveloped nonproducing oil and gas leases, undeveloped oil and gas leases held
by production, and certain nonproducing royalty interests. The development
potential of these leases varies greatly. The nonproducing royalty acreage
consists of royalty and overriding royalty interests.

Oil and Gas Information.

The following tables set forth selected oil and gas information for the
Company. The Company's offshore and Bayou Sorrel reserve reports were prepared
by Ryder Scott Company and the onshore reserve report was prepared by McCune
Engineering. Future results may vary significantly from the amounts reflected in
the information set forth herein because of normal production declines and
future acquisitions.

Estimated Proved Reserves. The following table sets forth information
as of December 31, 1995 as to the estimated Proved Reserves attributable to the
Company's properties.

<PAGE>

PROVED RESERVES (a)
As of December 31, 1995

Oil and liquids (Bbls):
Proved Developed Reserves ...................... 1,794,000
Proved Undeveloped Reserves .................... 106,000
----------
Total Proved Reserves ...................... 1,900,000
Natural gas (Mcf):
Proved Developed Reserves ...................... 40,323,000
Proved Undeveloped Reserves .................... 6,388,000
----------
Total Proved Reserves ...................... 46,711,000

(a) Calculated in accordance with the rules and regulations of the SEC, based
upon year end prices of $17.75 per barrel of oil and $2.24 per MMBTU of
gas, adjusted for basis differentials, BTU content of gas and specific
gravity of oil. The Company prepares a reserve report as of the end of
each calendar year.

Estimated Future Net Revenues from Proved Reserves. The following table
sets forth information as of December 31, 1995 as to the estimated future net
revenues (before deduction of income taxes) from the production and sale of the
Proved Reserves attributable to the Company's properties.

ESTIMATED FUTURE NET REVENUES
FROM PROVED RESERVES (a)
As of December 31, 1995

Proved Total
Developed Proved
Reserves Reserves
Estimated Future net revenues (b):
1996 ..................................... $23,604,312 $23,534,097
1997 ............................... ..... 21,534,708 21,976,058
1998 ..................................... 16,618,831 18,861,208
1999 ..................................... 9,404,159 11,538,915
Thereafter ............................... 10,876,163 13,613,627
----------- -----------
Total .................................... $82,038,173 $89,523,905
Present value (10%) of estimated future net
revenues ................................. $69,792,508 $72,432,426

(a) Calculated in accordance with the rules and regulations of the SEC,
based upon year end prices of $17.75 per barrel of oil and $2.24 per
MMBTU of offshore gas, adjusted for basis differentials, BTU content of
gas and specific gravity of oil. The Company prepares a reserve report
as of the end of each calendar year.
(b) Estimated future net revenues represent estimated future gross revenues
from the production and sale of Proved Reserves, net of estimated
operating costs, future development costs estimated to be required to
achieve estimated future production and estimated future costs of
plugging offshore wells and removing offshore structures.

Production, Price, and Cost Data. The following table sets forth
certain production, price, and cost data with respect to the Company's
properties, for the three years ended December 31, 1995, 1994 and 1993.

<PAGE>

<TABLE>

PRODUCTION, PRICE, AND COST DATA For
the Years Ended December 31, 1995, 1994 and 1993
<CAPTION>

1995 1994 1993
----------- ----------- -----------
Oil:

<S> <C> <C> <C>
Net Production (Bbls)(a) ........................... 170,000 137,000 180,000
Revenue ............................................ $ 2,853,000 $ 2,103,000 $ 3,003,000
Average net Bbls per day (a) ....................... 466 375 493
Average sales price per Bbl ........................ $ 16.78 $ 15.35 $ 16.69
Gas:
Net production (Mcf)(a) ............................ 9,850,000 8,139,000 5,586,000
Revenue ............................................ $15,594,000 $15,264,000 $12,635,000
Average net Mcf per day (a) ........................ 27,000 22,300 15,300
Average sales price per Mcf......................... 1.58 $ 1.80 $ 2.24
Total revenues ........................................... 18,447,000. $17,367,000 $15,638,000
Production costs:
Production cost .................................... $ 8,055,000 $ 5,231,000 $ 5,297,000
Equivalent Mcf(b) .................................. 10,870,000 8,961,500 6,666,000
Production costs per Equivalent Mcf ................ $ .74 $ .58 $ .79
</TABLE>

(a) Production information is net of all royalty interests, overriding royalty
interest and the net profits interest in the West Delta properties owned
by the Company's lenders under the EnCap Credit Facility.
(b) Oil production is converted to Equivalent Mcf at the rate of 6 Mcf per
Bbl, representing the estimated relative energy content of natural gas to
oil.

Productive Wells. The following table sets forth the number of productive
oil and gas wells, as of December 31, 1995, attributable to the Company's
properties.

PRODUCTIVE WELLS(a)
As of December 31, 1995

Company Operated
Gross productive onshore wells(b):
Oil .................................. 245 83
Gas .................................. 246 110
---- ----
Total ............................. 491 193

Net productive onshore wells(c):
Oil ..................................... 111 56
Gas ..................................... 91 83
---- ----
Total .............................. 202 139

Gross productive offshore wells(b):
Oil ..................................... 8 8
Gas ..................................... 75 49
---- ---
Total .............................. 83 57
Net productive offshore wells(c):
Oil ..................................... 8 8
Gas ..................................... 50 45
---- ----
Total .............................. 58 53

<PAGE>

(a) Productive wells consist of producing wells and wells capable of
production, including shut-in wells and water disposal and injection
wells. One or more completions in the same bore hole are counted as one
well.
(b) A "gross well" is a well in which a working interest is owned. The number
of gross wells represents the sum of the wells in which a working interest
is owned.
(c) A "net well" is deemed to exist when the sum of the fractional working
interests in gross wells equals one. The number of net wells is the sum of
the fractional working interests in gross wells.

Acreage. The following table sets forth the developed, undeveloped, and
royalty acreage, as of December 31, 1995, attributable to the Company's
properties.

LEASEHOLD ACREAGE
As of December 31, 1995

Developed onshore acreage(a):
Gross acres(b) .................... 74,849
Net acres(c) ...................... 14,656
Undeveloped onshore acreage(d):
Gross acres(b) .................... 10,180
Net acres(c) ...................... 1,685

Onshore royalty acreage(e) ................. 28,548

Developed offshore acreage:
Gross acres(b) .................... 44,699
Net acres(c) ...................... 29,637

(a) Developed acreage is acreage spaced for or assignable to productive wells.
(b) A "gross acre" is an acre in which a working interest is owned. The number
of gross acres represents the sum of the acres in which a working interest
is owned.
(c) A "net acre" is deemed to exist when the sum of the fractional working
interests in gross acres equals one. The number of net acres is the sum of
the fractional working interests in gross acres.
(d) Undeveloped acreage is oil and gas acreage on which wells have not been
drilled or to which no Proved Reserves other than Proved Undeveloped
Reserves have been attributed by independent petroleum engineers on the
date of acquisition.
(e) Royalty acreage is acreage in which the Company has a royalty interest but
no direct working interests.

Drilling Activities. The following table sets forth the number of gross
productive and dry wells in which the Company had an interest, that were drilled
and completed during the five years ended December 31, 1995. Such information
should not be considered indicative of future performance, nor should it be
assumed that there is necessarily any correlation between the number of
productive wells drilled and the oil and gas reserves generated thereby or the
costs to the Company of productive wells compared to the costs to the Company of
dry wells.

<PAGE>

DRILLING ACTIVITIES

For the five years Ended December 31, 1995

Developmental Wells Exploratory Wells
Completed Dry Completed Dry
Oil Gas Oil Gas Oil Gas Oil Gas
-- -- -- -- -- -- -- --

1991 4 1 0 0 0 0 0 0
1992 0 0 1 0 0 0 0 0
1993 3 0 0 0 0 0 0 0
1994 5 4 0 0 0 1 0 0
1995 0 0 0 0 0 0 0 3

Total 12 5 1 0 0 1 0 3

Title to Oil and Gas Properties.

In the case of acquired properties title opinions are obtained. Prior
to the commencement of drilling operations a thorough drillsite title
examination is conducted and curative work performed with respect to significant
defects.

LEGAL PROCEEDINGS

The company is presently a party to four legal proceedings, which it
considers to be routine and in the ordinary course of its business. Management
has no knowledge of any pending or threatened claims that could give rise to
litigation.

CAPITALIZATION

The following table sets forth the capitalization of the Company, as of
March 31, 1996. The table should be read in conjunction with the Financial
Statements of the Company (and the related notes) included elsewhere herein

As of March 31, 1996

Long-term debt (less current maturities) ..............$ 19,390,000
Stockholders' equity:
Common Shares, par value $.01 per share;
12,345,361 shares issued ............................... 123,000
Additional Paid in Capital ............................. 23,090,000
Retained Earnings (deficit) ............................ (10,446,000)
Total stockholders' equity ........................ 12,767,000
Total capitalization ..................................$ 32,157,000

MANAGEMENT

Officers and Directors

The Company has a classified Board of Directors. Directors are elected
to serve for three-year terms and until their successors are elected and
qualified. One-third of the directors stand for election each year as their
terms expire. The Board of Directors consists of three employees of the Company
and five independent directors.

<PAGE>

Officers are elected by and serve at the discretion of the Board of
Directors.

Set forth below are the names, ages, and positions of the persons who
are executive officers and directors of the Company.
<TABLE>
<CAPTION>

Director
Name Age Since Position

<S> <C> <C>
H. James Maxwell ....................... 51 1992 Chairman of the Board, President,
Chief Executive Officer, and Director(a)
Bob F. Mallory ......................... 64 1992 Chief Operating Officer, Executive Vice
President and Director(a)
Larry M. Wright ........................ 51 1992 Executive Vice President and
Director(b)
Robert G. Wonish ....................... 42 --- Vice President

William J. Doyle ....................... 44 --- Vice President

Todd R. Bart ........................... 31 --- Chief Financial Officer, Secretary and
Treasurer

A. Theodore Stautberg, Jr............... 49 1993 Director(c)-Compensation Committee

Donald W. Chesser ...................... 56 1992 Director(a)-Audit and Compensation
Committees
Allen H. Sweeney ....................... 49 1993 Director(c)-Audit Committee

James B. Kreamer ....................... 56 1993 Director(c)

N. Lynne Sieverling .................... 58 1992 Director(b)-Audit and Compensation
Committees
</TABLE>

(a) These persons are designated as Class III directors, with their term of
office expiring at the annual meeting of stockholders in 1998.
(b) These persons are designated as Class II directors, with their term of
office expiring at the annual meeting of stockholders in 1997.
(c) These persons are designated as Class I directors, with their term of
office expiring at the annual meeting of stockholders in 1996.

Set forth below are descriptions of the principal occupations, during
at least the past five years, of the directors and executive officers of the
Company.

H. James Maxwell received a B.A. degree in Economics from the
University of Missouri-Kansas City and received his Law Degree from that same
University in 1972. Mr. Maxwell practiced securities law from 1972 to 1984, and
was a frequent author and speaker on oil and gas tax and securities law. He
served as a General Partner of Castle Royalty Limited Partnership from 1984 to
1988, Managing General Partner of PAN from 1987 to 1992 and President, CEO and
Chairman of the Company from 1992 to date. He is a member of the Executive
Committee.

<PAGE>

Bob F. Mallory received his PhD in Geology from the University of
Missouri in 1968 and a B.A. in Geology from the University of Wichita in 1961.
He began consulting in the oil industry in 1980. He served as a General Partner
of Castle Royalty Limited Partnership from 1984 to 1988, as a General Partner of
PAN from 1987 to 1992 and Executive Vice President and Chief Operating Officer
of the Company from 1992 to date. He is a member of the Executive Committee.

Larry M. Wright received his B.S. Degree in Engineering from the
University of Oklahoma in 1966. From 1966 to 1976 he was with Union Oil Company
of California. From 1976 to 1980 he was with Texas International Petroleum
Corporation, ultimately as division operations manager. From 1980 to 1981 he was
with what is now Transamerica Natural Gas Company as Vice President-Exploration
and Production. From 1981-1982 he was Senior Vice President of Operations for
Texas International, and from 1983 to 1985 he was Executive Vice President of
Funk Fuels Corp., a subsidiary of Funk Exploration. From 1985 to 1993 Mr. Wright
was an independent consultant. From 1993 to date he has served as Executive Vice
President of the Company.

Robert G. Wonish received his B.S. in Mechanical Engineering in 1975
from the University of Missouri-Rolla. He was a production engineer with Amoco
form 1975 to 1977, Napeco, Inc. from 1977 to 1979; Division Operation Engineer
with Texas International from 1979 to 1980; Production Manager with Cliffs
Drilling Company from 1980 to 1984 and District Superintendent with Ladd
Petroleum Corporation form 1985 to 1991. He then worked as a consultant,
starting with the Company in 1992 and became an employee in 1993.

William J. Doyle received his Masters in Geology in 1975 from Texas A&M
University and his B.S. in Earth Sciences from the University of New Orleans in
1973. From 1975 to 1978 he was a geologist with Mobil Oil focusing on offshore
Gulf of Mexico projects. From 1978 to the present he has worked as an employee
and consultant for various oil and gas exploration companies operating in the
Gulf Coast.

Todd R. Bart received his B.A. in Accounting from Abilene Christian
University in 1987. He worked in the energy industry with Pennzoil Company from
1987 to 1990 and the public accounting firm of Arthur Andersen and Company from
1990 until 1992. From 1992 to 1995 he worked for Yellow Freight System, Inc., a
trucking company, in financial accounting and reporting. He joined the Company
as Controller in 1995 and was elected Chief Financial Officer, Treasurer and
Secretary in 1996. He received his C.P.A. designation in Texas in 1990 and in
Kansas in 1993, and is a member of the A.I.C.P.A.

A. Theodore Stautberg, Jr. has since 1981 been the President and a director
of Triumph Resources Corporation and its parent company, Triumph Oil and Gas
Corporation of New York. Triumph engages in the oil and gas business, assists
others in financing energy transactions, and serves as general partner of
Triumph Production L.P. Mr. Stautberg is also the president of Triumph
Securities Corporation and BT Energy Corporation. Prior to forming Triumph in
1981, Mr. Stautberg was a Vice President of Butcher & Singer, Inc., an
investment banking firm, from 1977 to 1981. From 1971 to 1977, Mr. Stautberg was
an attorney with the Securities and Exchange Commission. Mr. Stautberg is a
graduate of the University of Texas and the University of Texas School of Law.

Donald W. Chesser received his BBA in Accounting from Texas Tech
University in 1963 and has served with several CPA firms since that time,
including eight years with Elmer Fox and Company. From 1977 to 1981 he was with
IMCO Enterprises, Inc. Since 1981 he has practiced accounting in Wichita, Kansas
under the name Chesser and Company.

Allen H. Sweeney received his Masters in Finance from Oklahoma City
University in 1972 and a Bachelor Degree in Accounting from Oklahoma State
University in 1969. He served as Treasurer and CAO of Phoenix Resources Company
form 1978 to 1980, Vice President-Finance of Plains Resources, Inc. from

<PAGE>

1980 to 1981 and Vice President-Finance of Wildcat Mud, Inc. from 1982 to
1984. In 1984 he started an independent consulting service under the name AHS
and Associates, Inc. Since 1992 he has served as Vice President of Columbia
Production Company and Mid-America Waste Management, Inc.

James B. Kreamer received his B.S. Degree in Business from the
University of Kansas in 1963 and has been active in investment banking since
that time. Since 1982 he has managed his personal investments.

N. Lynne Sieverling received his B.S. Degree in Accounting from the
University of Kansas in 1959 and has practiced as a CPA since graduation,
serving 17 years as a partner with the accounting firm of Coopers & Lybrand. Mr.
Sieverling has been actively involved in the oil and gas industry for the past
ten years both as an investor and as an operator of oil and gas leases in
Kansas, Oklahoma and North Dakota. He is a member of the Kansas Division of the
Interstate Oil Compact Commission.

None of the officers or directors serve pursuant to employment
agreements.

Long-term Incentive Plan. The Company's Long-term Incentive Plan (the
"Long-term Incentive Plan"), provides for the granting to certain officers and
key employees of the Company and its participating subsidiaries incentive awards
in the form of stock options, stock appreciation rights ("SARs"), stock, and
cash awards. The Long-term Incentive Plan is administered by a committee of
independent members of the Board of Directors with respect to awards to certain
executive officers of the Company but may be administered by the Board of
Directors with respect to any other awards (either, the "Plan Committee").
Except for certain automatic awards, the Plan Committee has discretion to select
the employees to be granted awards, to determine the type, size, and terms of
the awards, to determine when awards will be granted, and to prescribe the form
of the instruments evidencing awards.

Options, which include nonqualified stock options and incentive stock
options, are rights to purchase a specified number of shares of Common Stock at
a price fixed at the time the option is granted. Payment may be made with cash
or other shares of Common Stock owned by the optionee or a combination of both.
Options are exercisable at the time and on the terms that the Plan Committee
determines. The payment of the option price can be made either in cash or by the
person exercising the option turning in to the Company shares presently owned by
him, which would be valued at the then current market price. SARs are rights to
receive a payment, in cash or shares of Common Stock or both, based on the value
of the Common Stock. A stock award is an award of shares of Common Stock or
denominated in shares of Common Stock that may be subject to a restriction
against transfer as well as a repurchase option exercisable by the Company.
During the period of the restriction, the employee may be given the right to
vote and receive dividends on the shares covered by restricted stock awards.
Cash awards are generally based on the extent to which pre-established
performance goals are achieved over a pre-established period but may also
include individual bonuses paid for previous, exemplary performance. It is
currently expected that the Plan Committee will determine performance objectives
and award levels before the beginning of each plan year.

The Long-term Incentive Plan provides for the issuance of a maximum
number of shares of Common Stock equal to 20% of the total number of shares of
Common Stock outstanding from time to time. Unexercised SARs, unexercised
options, restricted stock, and performance units under the Long-term Incentive
Plan are subject to adjustment in the event of a stock dividend, stock split,
recapitalization or combination of the Company, merger, or similar transaction
and are not transferable except by will and by the laws of descent and
distribution. Except when a participant's employment terminates as a result of
death, disability, or retirement under an approved retirement plan or following
a change in control in certain circumstances, an award generally may be
exercised (or the restriction thereon may lapse) only if the participant is an
officer, employee, or director of the Company or a subsidiary at the time of
exercise or lapse or, in certain

<PAGE>

circumstance, if the exercise or lapse occurs within 180 days after employment
is terminated.

The Long-term Incentive Plan allows for the satisfaction of a
participant's tax withholding with respect to an award by the withholding of
shares of Common Stock issuable pursuant to the award or the delivery by the
participant of previously owned shares of Common Stock, in either case valued at
the fair market value, subject to limitations the Plan Committee may adopt.

Awards granted pursuant to the Long-term Incentive Plan may provide
that, upon a change of control of the Company, (a) each holder of an option will
be granted a corresponding SAR, (b) all outstanding SARs and stock options
become immediately and fully vested and exercisable in full, and (c) the
restriction period on any restricted stock award shall be accelerated and the
restriction shall expire. Options and SARs will remain exercisable for their
original terms whether or not employment is terminated following a change in
control.

The Long-term Incentive Plan may be amended by the Board of Directors,
except that under current law no amendment that materially increases the number
of shares of Common Stock subject to the Long-term Incentive Plan or that makes
certain other material changes may be made without stockholder approval. No
grants or awards may be made under the Long-term Incentive Plan after the tenth
anniversary of the Closing Date. No stockholder approval will be sought for
amendments to the Long-term Incentive Plan except as required by law (including
Rule 16b-3 under the Exchange Act) or the rules of any national securities
exchange on which the Common Stock is then listed.

There were no incentive awards under the Long-term Incentive Plan
outstanding at December 31, 1995.

Under the Company's Long-Term Incentive Plan beginning in 1996, all
employees share a bonus equal to 5% of the Company's pre-tax net income,
computed in accordance with GAAP, exclusive of extraordinary and non-recurring
items. The bonuses will be paid to all full time (1,000 + hours) employees at
December 31. The bonus will be paid upon delivery of the independent audit. The
bonus shall be allocated to the full time employees based upon their salary at
December 31.

Each non-employee director of the Company who becomes a director will,
on the day after the first meeting of the Board of Directors at which that
director is in attendance, automatically be granted a restricted stock award of
the number of shares of Company Common Stock that have a value of $10,000, which
will be calculated based on the average trading price of the Common Stock during
the 60 days immediately preceding the date of grant. These restricted stock
awards will vest at the rate of one-third annually, with one-third vesting six
months following the date of grant, another one-third vesting on the first
anniversary of the date of grant, and the last one-third vesting on the second
anniversary of the date of grant so long as the non-employee director remains a
director of the Company through those vesting dates.

Each non-employee director will be entitled to vote each share subject
to these restricted stock awards from the date of grant until the shares are
forfeited, if ever. The Long-term Incentive Plan requires each non-employee
director to make an election under Section 83(b) of the Code to include the
value of the restricted stock in his income in the year of grant and provides
for cash awards to the non-employee directors in amounts sufficient to pay the
federal income taxes due with respect to the award.

The following table shows information with respect to restricted stock
awards owned by non-employee directors.

<PAGE>

Name Date of Grant Shares Price
---------- ------------- ------ -----
James B. Kreamer July 12, 1993 4,098 2.44
A. Theodore Stautberg July 12, 1993 4,098 2.44
Allen H. Sweeney July 12, 1993 4,098 2.44
--------
Total 12,294

Employee Stock Ownership Plan. In 1994 the Shareholders approved the
adoption of the Panaco, Inc. Employee Stock Ownership Plan ("ESOP"). The primary
purposes of the ESOP are to enable participants to acquire stock ownership in
the Company and to provide a source of equity capital to the Company. The ESOP
provides for the establishment of a trust to hold ESOP assets which will
primarily consist of common shares of the Company. The ESOP will be administered
by a committee of the Board of Directors. Subject to the discretion of the Board
of Directors, the Company may contribute up to fifteen percent (15%) of the
participant's (including employees and other consultants to the Company) annual
compensation to the ESOP. The ESOP does not allow contributions by participants
in the Plan.

Company contributions to the ESOP may be in the form of common shares
or cash. Cash contributions may be used, at the discretion of the Board of
Directors, to purchase common shares in the open market or from the Company at
prevailing prices.

The allocation of ESOP assets is determined by a formula based on
participant compensation. Participation in the ESOP requires completion of more
than one thousand (1,000) hours of service to the Company within twelve (12)
consecutive months.

The ESOP is intended to satisfy any applicable requirements of the
Internal Revenue Code of 1986 and the Employee Retirement and Income Security
Act of 1974. The Company has been advised that its contributions to the ESOP
will be deductible for Federal Income Tax purposes, and the participants will
not recognize income on their allocated share of ESOP assets until such assets
are distributed.

Executive Compensation

The following table sets forth the annual compensation paid to the
Company's Chief Executive Officer and each executive officer whose compensation
exceeds $100,000 during 1995. <TABLE>

Summary Compensation Table

<CAPTION>
Long-Term Incentive Plan
Annual Compensation Awards Payouts
Securities
Other Restricted Underlying LTIP All
Name and Principal Salary Bonus Annual Stock Options Payouts Other
Position .......... Year ($)(1) ($) Comp.($) Award(s)($) (#) ($) Comp.($)(2)
---- ------- ------ --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H. James Maxwell 1995 153,500 0 0 0 24,615 0 22,500
President and Chief 1994 120,000 0 0 0 22,857 0 18,000
Executive Officer 1993 80,000 0 0 0 115,000 0 0

Larry M. Wright 1995 147,300 0 0 0 0 0 22,100
Executive Vice 1994 134,000 0 0 0 0 0 20,000
President 1993 120,000 0 0 0 0 0 0

<PAGE>

Robert G. Wonish 1995 92,100 0 0 0 0 0 13,800
Vice President 1994 78,800 0 0 0 0 0 11,800
1993 77,000 0 0 0 0 0 0
</TABLE>

(1) The 1993 salary figures for Messrs. Wright and Wonish include payments
made to them as independent consultants before becoming employees of
the Company in that year.
(2) The other compensation figures for 1995 and 1994 represent
contributions to the accounts of the employees under the Company's
Employee Stock Ownership Plan. The Plan was adopted in 1994.

The following table provides information relating to the number and
value of Common Shares subject to options exercised during 1995 or held by the
named executive officers as of December 31, 1995.

Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>

Number of
securities underlying Value of unexercised
Securities unexercised options in-the-money
acquired Value at fiscal year-end ($) options at year-end($)(2)
Name on Exercise (#) Realized ($)(1) Exercisable/unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C> <C> <C>
H. James Maxwell 250,972 410,129 -0- / -0- -0- / -0-
Larry M. Wright 0 0 250,000 / -0- 549,375 / -0-
Robert G. Wonish 0 0 -0 -/ -0- -0- / -0-
</TABLE>

(1) Value realized is calculated based upon the difference between the
options exercise price and the market price of the Company's Common
Stock on the date of exercise multiplied by the number of shares to
which the exercise price relates.
(2) Value of unexercised in-the-money options is calculated based on the
difference between the option exercise price and the closing price of
the Company's Common Stock at year-end, multiplied by the number of
shares underlying the options. The closing price on December 29, 1995
of the Company's Common Stock was $4.4375.

The following table identifies the grants of stock options made to the
named executive officers in 1995.
<TABLE>

Option Grants in Last Fiscal Year
<CAPTION>

Number of Percent of
Securities total options
Underlying granted to Exercise or Market price
Options employees Base price at date Expiration Grant Date
Name Granted in fiscal year ($/Share) of grant($) Date Value($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H. James Maxwell 24,615 (1) 33% 2.03125 4.0625 12/31/95 50,000
Larry M. Wright -0- -0- N/A N/A N/A N/A
Robert G. Wonish -0- -0- N/A N/A N/A N/A
</TABLE>

(1) Mr. Maxwell's options were exercised in 1995.

Cash Compensation of Directors. Directors receive travel expenses incurred
in attending Board of Directors or committee meetings. Officers of the Company
who serve as directors do not receive special

<PAGE>

compensation for serving on the Board of Directors or a committee thereof.
However, Messrs. Stautberg, Chesser, Sweeney, Kreamer and Sieverling, the five
non-employee directors, were each issued 1,039 shares of Common Stock as a
$5,000 bonus during 1995. In addition Mr. Chesser was issued warrants to acquire
25,000 Common Shares at $2.50 per share, which expired December 31, 1995, for
services performed for the Company in 1991. See "Certain Relationships and
Related Transactions," herein.

Newly elected non-employee directors are granted a one time restricted
stock award in Common Shares equal in value to $10,000 upon their being elected
to the Board. See "Management - Long-Term Incentive Plan," herein.

PRINCIPAL SHAREHOLDERS

The following table sets forth information with respect to beneficial
ownership of Company Common Stock by (a) each officer and director of the
Company, (b) all officers and directors of the Company as a group, and (c) for
each person who beneficially owns 5% or more of the Common Stock as of May 1,
1996. <TABLE>

Name and Positions of Beneficial Owners Shares Owned Beneficially
<CAPTION>
Number Percent
<S> <C> <C> <C> <C> <C> <C>
H. James Maxwell: Chief Executive Officer,
President, Chairman of the Board & Director ............ 322,971 2.56
Larry M. Wright; Executive Vice President &
Director ................................................ 654,999 (1) 5.18
Bob F. Mallory; Chief Operating Officer,
Executive Vice President & Director ..................... 233,030 1.84
Robert G. Wonish; Vice President ............................ 18,328 .15
William J. Doyle; Vice President ............................ 4,405 .04
Todd R. Bart; Chief Financial Officer, Secretary, Treasurer . 0 .00
A. Theodore Stautberg; Director ............................. 6,137 .05
Donald W. Chesser; Director ................................. 1,039 .01
Allen H. Sweeney; Director .................................. 150,137 (2) 1.19
James B. Kreamer; Director .................................. 51,055 .40
N. Lynne Sieverling; Director ............................... 8,137 .06

All directors and officers as a group (11 persons) .......... 1,450,238 11.48

Carl C. Icahn .............................................. 1,040,000 (3) 8.23
% Icahn Associates Corp.
114 West 47th Street, 19th Fl
New York, NY 10036
Richard A. Kayne ............................................ 694,047 (4) 5.49
% Kayne Anderson Investment Management, Inc.
1800 Avenue of the Stars, #1425
Los Angeles, CA 90067
</TABLE>

(1) Includes 250,000 shares issuable pursuant to currently exercisable warrants
which, pursuant to Board resolution extending the date, expire thirty days
after the date of this Prospectus.
(2) Mr. Sweeney's shares are held by AHS and Associates, Inc., a corporation of
which he is President and a director.
(3) Mr. Icahn is the sole stockholder of Riverdale Investors Corp, Inc., the
general partner of High River Limited Partnership, the record holder of
these shares.
(4) Mr. Kayne has sole voting power with respect to investments of Kayne,
Anderson Investment Management, Inc., which is the general partner of KAIN
Non-Traditional, L.P., which is the general partner of: Offense Group
Associates Limited; Opportunity Associates, L.P.; ARBCO Associates, L.P.;
and Kayne, Anderson Non-Traditional Investments, L.P.; the record holders
of these shares.

31
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 1995 each of the five directors who are not employees of the
Company were issued a stock bonus of $5,000, paid by the issuance of 1,039
shares of Common Stock.

During 1995 Donald W. Chesser, a director who is not an employee of the
Company was issued warrants to acquire 25,000 shares of Common Stock at $2.50
per share for past services to the Company. The warrants, which would have
expired December 31, 1995, were all exercised during 1995.

Employees of the Company are eligible to receive stock awards, stock
options, stock appreciation rights, and performance units pursuant to the
Company's Long-term Incentive Plan.

The Company has several procedures, provisions, and plans designed to
reduce the likelihood of a change in the management or voting control of the
Company without the consent of the incumbent Board of Directors. These
provisions may have the effect of strengthening the ability of officers and
directors of the Company to continue as officers and directors of the Company
despite changes in stock ownership of the Company.

Under the terms of the Company's Long Term Incentive Plan, three of the
officers and directors surrendered shares of Common Stock in January 1995 in
exercise of outstanding options during 1995. The following table sets forth the
number of shares surrendered and market value thereof and the number of options
exercised and the aggregate exercise price thereof.

Shares Market Options Aggregate
Surrendered (1) Value ($) Exercised Price ($) (2)
--------------- --------- --------- -------------

H. James Maxwell 24,615 99,998 43,100 100,245
Bob F. Mallory 24,615 99,998 42,400 100,018
Thomas E. Clark 24,615 99,820 38,900 100,137

(1) Persons surrendering shares in payment of the exercise price of an
option were granted new options for a like number of shares at $2.03125
expiring December 31, 1995.
(2) Differences between the value of the share surrendered and the exercise
prices were paid in cash by the person exercising the option.

Messrs. Maxwell and Mallory are the partners of 1050 Blue Ridge
Building Partnership, which owns a 5,200 square foot office building at 1050
West Blue Ridge Boulevard, Kansas City, Missouri, which they lease to the
Company on a triple net basis for $4,000 per month for a term of ten years,
expiring in 2003. The lease was approved by the Board of Directors, which
determined that the rate was as good or better than that which could be obtained
from a non-affiliated party.

<PAGE>

SELLING STOCKHOLDERS

<TABLE>

The following table sets forth information as of March 18, 1996 as
adjusted to reflect the sale of the Common Stock offered hereby, with respect to
the Common Stock offered by the Selling Stockholders. <CAPTION>

Shares Shares Beneficially
Name and Positions of Shares Owned Offered Owned After
Beneficial Owners Directly Beneficially (1) Hereby (2) Offering (3)
- - ----------------------------------------- ----------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
H. James Maxwell; Chief Executive
Officer, President, Chairman
of the Board .......................... 313,386 322,971 2.56% 65,000 257,971 2.04%
Larry M. Wright; Executive Vice
President ..........................(4) 395,000 654,999 5.18 250,000 404,999 3.21
Allen H. Sweeney; Director ........... (5) 150,137 150,137 1.19 50,000 100,137 0.79
Thomas E. Clark .......................(6) 212,109 212,109 1.68 60,000 152,109 1.20
Gaines Berland, Inc. ..................(7) 0 39,365 0.31 39,365 0 0.00
Mr. Joe Berland
950 Third Avenue
New York, NY 10022
Offense Group Associates Limited (8) 163,305 163,305 1.29 163,305 0 0.00
1800 Avenue of the Stars, #1425
Los Angeles, CA 90067
ATTN: Alvin J. Portnoy
Opportunity Associates, L.P. ......... (8) 40,826 40,826 0.32 40,826 0 0.00
1800 Avenue of the Stars, #1425
Los Angeles, CA 90067
ATTN: Alvin J. Portnoy
ARBCO Associates, L.P. ............... (8) 285,785 285,785 2.26 285,785 0 0.00
1800 Avenue of the Stars, #1425
Los Angeles, CA 90067
ATTN: Alvin J. Portnoy
Kayne, Anderson Non-Traditional
Investments, L.P. ..................(8) 204,131 204,131 1.62 204,131 0 0.00
1800 Avenue of the Stars, #1425
Los Angeles, CA 90067
ATTN: Alvin J. Portnoy
Evanston Insurance Company ...... (8) 81,653 81,653 0.65 81,653 0 0.00
P.O. Box 2009
Glen Allen, VA 23058-2009
ATTN: Betty
Nobel Insurance Company ........... (8) 40,826 40,826 0.32 40,826 0 0.00
3010 LBJ Freeway, Suite 320
Dallas, TX 75234
ATTN: Glen Rogers, Jr.

Total ............. 1,887,158 2,196,107 17.38% 1,280,891 915,216 7.24%
</TABLE>

(1) Includes shares issuable upon exercise of all outstanding warrants and
options held by such persons and assumes all shares offered hereby are in
fact sold, which may not be the case as some of these persons have advised
the Company they do not intend to sell under this offering.
(2) Assuming such persons exercise all outstanding warrants and thereafter
offer for resale all or a portion of the shares acquired by exercising the
warrants and any previous exercises of warrants or options.

<PAGE>

(3) Assumes such persons sell all shares acquired by the exercise of warrants
and options and offered hereby.
(4) Includes 250,000 shares issuable pursuant to currently exercisable warrants
which, pursuant to Board resolution extending the date, expire thirty days
after the date of this Prospectus; for 90,000 shares at $2.00 per share and
160,000 shares at $2.375 per share.
(5) Mr. Sweeney's shares are held by AHS and Associates, Inc., a corporation of
which he is President and a director.
(6) Mr. Clark is a former director and employee of the Company.
(7) These warrants are exercisable at a price of $2.00 per share and expire on
December 31, 1997. Gaines Berland, Inc. was the investment banker for the
Company prior to August 1995 and presently a principal market marker in the
Common Shares.
(8) These firms are the Company's lenders under the Senior Second Mortgage Term
Loan described under "Funding of Business Activities - Borrowing and
Obligations." In 1993 they were issued warrants to acquire a total of
816,526 Common Shares at an exercise price of $2.25 anytime prior to
December 31, 1998, all of which were exercised during first quarter 1996.

The following table sets forth information with respect to ownership of
options and warrants by (a) each officer and director of the Company, (b) all
officers and directors as a group, and (c) for each person who beneficially owns
5% or more of the Company Common Stock. <TABLE>
<CAPTION>

Name Warrants Options Expiration Price(s)
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Larry M. Wright 250,000 0 (1) 2.00/2.38
All officers and directors as a
group (11 persons) 250,000 0 -

(1) Thirty days after the date of this Prospectus.
</TABLE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 20,000,000
shares of Company Common Stock, par value $.01 per share, and 1,000,000 shares
of preferred stock, par value $.01 per share. The following description of the
capital stock of the Company does not purport to be complete or to give full
effect to the provisions of statutory or common law and is subject in all
respects to the applicable provisions of the Company's Certificate of
Incorporation and the information herein is qualified in its entirety by this
reference.

Company Common Stock

The Company is authorized by its Certificate of Incorporation to issue
20,000,000 shares of Common Stock, of which 12,345,361 shares were issued and
outstanding as of May 1, 1996 and are held by approximately 5,400 shareholders.

The holders of shares of Common Stock are entitled to one vote for each
share held on all matters submitted to a vote of common stockholders. The Common
Stock does not have cumulative voting rights, which means that the holders of a
majority of the shares of Common Stock outstanding can elect all the directors
if they choose to do so. In that event, the holders of the remaining shares will
not be able to elect any directors.

Each share of Common Stock is entitled to participate equally in dividends,
as and when declared by
34

<PAGE>

the Board of Directors, and in the distribution of assets in the event of
liquidation, subject in all cases to any prior rights of outstanding shares of
preferred stock. The shares of Common Stock have no preemptive or conversion
rights, redemption rights, or sinking fund provisions. The outstanding shares of
Common Stock are duly authorized, validly issued, fully paid, and nonassessable.

Warrants

The Company has outstanding warrants to acquire 289,365 Common Shares
at prices ranging from $2.00 to $2.375, of which 250,000 expire thirty days
after the date of this Prospectus and 39,365 expire December 31, 1997. These
warrants contain limited provisions for adjustment of the number of shares in
the event of a subdivision, combination or reclassification of Common Shares.
They do not have any rights to demand registration or "piggy back" rights in the
event of registration of Common Shares.

In addition the Company's lenders, pursuant to the Senior Second
Mortgage Term Loan, acquired 816,526 Common Shares upon the exercise of warrants
which are restricted securities within the meaning of the Securities Act of 1933
and can only be sold pursuant to an exemption from registration or an offering
which is the subject of an effective registration statement. The holders of
these shares have demand registration rights and "piggy back" rights in the
event the Company registers an offering of its Common Shares. See "Funding of
Business Activities - Borrowing and Obligations," herein.

Preferred Stock

Pursuant to the Company's Certificate of Incorporation, the Company is
authorized to issue 1,000,000 shares of preferred stock, and the Company's Board
of Directors, by resolution, may establish one or more classes or series of
preferred stock having the number of shares, designations, relative voting
rights, dividend rates, liquidation and other rights preferences, and
limitations that the Board of Directors fixes without any stockholder approval.

A number of shares of Preferred Stock equal to one share for every one
hundred Common Shares outstanding has been reserved for issuance pursuant to the
Company's Shareholder Rights Plan, and designated as Series A Preferred Stock.
No shares of this series A Preferred Stock have been issued or are outstanding.
Other than the designation as Series A the Series A Preferred Stock has not had
designations, preferences and rights established by the Board of Directors. See
"Shareholder Rights Plan," below. The designations, preferences and rights will
be established if and when any of this Series A Preferred stock is to be issued.

Transfer Agent

The transfer agent, registrar and dividend disbursing agent for the
Common Stock is American Stock Transfer and Trust Company, 6201 15th Avenue,
Brooklyn, New York 11204.

Market Prices

The Company Common Stock is quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ") under the symbol
"PANA". The following table sets forth, for the periods indicated, the high and
low bid for the Common Stock.

<PAGE>

1994

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------

High 3 5/8 4 3/8 4 5/8 4 1/4
Low 2 9/16 2 15/16 3 1/2 3 5/8

1995

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
High 4 5/16 4 7/8 5 5/16 5
Low 3 5/8 4 4 1/8 4

1996

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
High 5
Low 3 7/16

Dividends

Dividend History. The Company has not paid any cash dividends on the
Company Common Stock.
Dividend Restrictions. The Delaware General Corporation Law, to which the
Company is subject, permits the Company to pay dividends only out of its capital
surplus (the excess of net assets over the aggregate par value of all
outstanding shares of capital stock) or out of net profits for the fiscal year
in which the dividend is declared or the preceding fiscal year. The two credit
facilities require the consent of the lenders to any dividends or distributions
by the Company and to any purchases by the Company of shares of Common Stock.
Dividend Policy. Subject to the restrictions in the preceding paragraph,
the Company will pay dividends on the Company Common Stock if, as, and when
declared by the Board of Directors. The Company retains its earnings and cash
flow to finance the expansion and development of its business and currently does
not intend to pay dividends on the Company Common Stock. The Company hopes,
however, that the retention and reinvestment of funds that would otherwise be
distributed will have the effect of increasing the financial strength of the
Company and, therefore, increasing the market value of the Common stock. Any
payments of dividends will depend on, among other factors, the earnings, cash
flow, financial condition, and capital requirements of the Company.

Shareholder Rights Plan

On August 2, 1995, the Board of Directors declared a dividend
distribution of one Right for each outstanding share of Common Stock of the
Company to the stockholders of record on August 3, 1995, (the "Record Date").
Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Preferred Stock (the "Preferred Stock"), or
in some circumstances, Common Stock, other securities, cash or other assets as
summarized below, at a price of $30.00 per share (the "Purchase Price"), subject
to adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and American Stock
Transfer and Trust Company, as Rights Agent.

<PAGE>

The Shareholder Rights Plan was designed to reduce the likelihood of
inadequate bids, partial bids, market accumulations and front-end loaded offers
to acquire the Company's Common Shares, which are not in the best interest of
all the Company's shareholders. The adoption of the Plan communicates the
Company's intention to resist such actions as are not in the best interest of
all shareholders, provides time for the Board of Directors to consider any offer
and seek alternative transactions to maximize shareholder value. The Plan was
adopted upon the advice of the Company's investment bankers in 1995 when there
were numerous statements in the media that the Company might be the target of a
takeover attempt, which never materialized.

Until the earlier to occur of (i) the date of a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") acquired, or obtained the right to acquire, beneficial ownership of 20%
or more of the outstanding shares of the Common Stock or (ii) ten days following
the commencement or announcement of an intention to make a tender offer or
exchange offer that would result in a Person or group beneficially owning 20% or
more of such outstanding shares of Common Stock (the earlier of such dates being
called the "Distribution Date"), the Rights will be evidenced, with respect to
any of the Company's Common Stock certificates outstanding as of the Record
Date, by such Common Stock certificate. The Rights Agreement provides that,
until the Distribution Date, the Rights will be transferred with and only with
the Company's Common Stock. Until the Distribution Date (or earlier redemption
or expiration of the Rights), new Common Stock certificates issued after the
Record Date upon transfer or new issuance of the Company's Common Stock will
contain a notation incorporating the Rights Agreement by Reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any of the Company's Common Stock certificates
outstanding as of the Record, will also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Rights Certificates") will be mailed to holders of record of the
Company's Common Stock as of the close of business on the Distribution Date and
such separate Rights Certificates alone will evidence the Rights.

The Rights are not exercisable until the Distribution Date. The Rights
will expire on August 4, 2005, unless earlier redeemed by the Company as
described below.

The Purchase Price payable, and the number of shares of Preferred Stock
(or Common Stock, other securities, cash or other assets, as may be necessary)
issuable upon exercise of the Rights are subject to adjustment from time to time
to prevent dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of the Preferred Stock, (ii) upon the grant to
holders of the Preferred Stock of certain rights or warrants to subscribe for
shares of the Preferred Stock or convertible securities at less than the current
market price of the Preferred Stock or (iii) upon the distribution to holders of
the Preferred Stock of evidences of indebtedness or assets (excluding regular
periodic cash dividends out of earnings or retained earnings or dividends
payable in the Preferred Stock) or of subscription rights or warrants) other
than those referred to above).

In the event that the Company were acquired in a merger or other
business combination transaction of 50% or more of its assets or earning power
were sold, proper provision shall be made so that each holder of a Right, other
than of Rights that are or were beneficially owned by an Acquiring Person (which
will thereafter be void) shall thereafter have the right to receive, upon the
exercise thereof at the then current exercise price of the Right, that number of
shares of Common Stock of the acquiring company which at the time of such
transaction would have a market value of two times the exercise price of the
Right. In the event that an Acquiring Person becomes the beneficial owner of 20%
or more of the outstanding shares of Common Stock, proper provision shall be
made so that each holder of a Right, other than of Rights that are or were
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of shares of the
Common Stock (or in certain other circumstances, assets or other

<PAGE>

securities) having a market value of two times the exercise price of the Right.

With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares will be issued (other than fractional
shares which are integral multiples of one one-hundredth of a share of Preferred
Stock) and, in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Stock on the last Trading Date prior to the date
of exercise.

At any time prior to 5:00 P.M. Kansas City time on the tenth calendar
day after the first date after the public announcement that a person or group of
affiliated or associated persons has acquired beneficial ownership of 20% or
more of the outstanding shares of the Common Stock of the Company (the "Shares
Acquisition Date"), the Company may redeem the Rights in whole, but not in part,
at a price of $0.005 per Right (the "Redemption Price"). Following the Shares
Acquisition Date, but prior to an event listed in Section 13(a) of the Rights
Agreement, the Company may redeem the Rights in connection with any event
specified in Section 13(a) in which all shareholders are treated alike and which
does not include the Acquiring Person or his Affiliates or Associates.
Thereafter, the Company's right of redemption may be reinstated if an Acquiring
Person reduces his beneficial ownership to 10% or less of the outstanding shares
of Common Stock in a transaction or series of transactions not involving the
Company. Immediately upon the action of the Board of Directors of the Company
electing to redeem the Rights, the Company shall make announcement thereof, and
upon such election, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.

Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.

The provisions of the Rights Agreement may be amended by the Board of
Directors in order to cure any ambiguity or correct any defect or inconsistency,
extend the Redemption Period and, prior to the Distribution Date, to make
changes deemed to be in the best interests of the holders of the Rights or,
after the Distribution Date, to make such other changes which do not adversely
affect the interests of the holders of the Rights (excluding the interests of
any Acquiring Person and its Affiliates and Associates).

A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
August 21, 1995. A copy of the Rights Agreement is available free of charge from
the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.

Certain Anti-takeover Provisions

The provisions of the Company's Certificate of Incorporation and
By-laws summarized in the following paragraphs may be deemed to have an
anti-takeover effect and may delay, defer, or prevent a tender offer or takeover
attempt that a stockholder might consider to be in that stockholder's best
interests, including attempts that might result in a premium over the market
price for the shares held by stockholders. In addition, certain provisions of
Delaware law and the Company's Long-term Incentive Plan may be deemed to have a
similar effect.

Certificate of Incorporation and By-laws. The Board of Directors of the
Company is divided into three classes. The term of office of one class of
directors expires at each annual meeting of stockholders, when their successors
are elected and qualified. Directors are elected for three-year terms.
Stockholders may remove

<PAGE>

a director only for cause. In general, the Board of Directors, not the Company's
stockholders, has the right to appoint persons to fill vacancies on the Board of
Directors.

Pursuant to the Company's Certificate of Incorporation, the Company's
Board of Directors, by resolution, may establish one or more classes or series
of preferred stock having the number of shares, designation, relative voting
rights, dividend rates, liquidation and other rights, preferences, and
limitations that the Board of Directors fixes without any stockholder approval.
Any rights, preferences, privileges, and limitations that are established could
have the effect of impeding or discouraging the acquisition of control of the
Company.

The Company's Certificate of Incorporation contains a "fair price"
provision that requires the affirmative vote of the holders of at least 80% of
the voting stock of the Company and the affirmative vote of at least two-thirds
of the voting stock of the Company not owned, directly or indirectly, by the
Related Person (hereafter defined) to approve any merger, consolidation, sale or
lease of all or substantially all of the assets of the Company, or certain other
transactions involving any Related Person. For purposes of the fair price
provision, a "Related Person" is any person beneficially owning 10% or more of
the voting stock of the Company who is a party to the Transaction at issue, a
director who is also an officer of the Company and is a party to the Transaction
at issue, an affiliate of either such person, and certain transferees of those
persons. The voting requirement is not applicable to certain transactions,
including those that are approved by the Company's Continuing Directors (as
defined in the Certificate of Incorporation) or that meet certain "fair price"
criteria contained in the Certificate of Incorporation.

The Company's Certificate of Incorporation further provides that
stockholders may act only at annual or special meeting of stockholders and not
by written consent, that special meetings of stockholders may be called only by
the Board of Directors, and that only business proposed by the Board of
Directors may be considered at special meetings of stockholders.

The Company's Certificate of Incorporation also provides that the only
business (including election of directors) that may be considered at an annual
meeting of stockholders, in addition to business proposed (or persons nominated
to be directors) by the directors of the Company, is business proposed (or
persons nominated to be directors) by stockholders who comply with the notice
and disclosure requirements of the Certificate of Incorporation. In general, the
Certificate of Incorporation requires that a stockholder give the Company notice
of proposed business or nominations no later than 60 days before the annual
meeting of stockholders (meaning the date on which the meeting is first
scheduled and not postponements or adjournments thereof) or (if later) 10 days
after the first public notice of the annual meeting is sent to common
stockholders. In general, the notice must also contain information about the
stockholder proposing the business or nomination, his interest in the business,
and (with respect to nominations for director) information about the nominee of
the nature ordinarily required to be disclosed in public proxy solicitations.
The stockholder must also submit a notarized letter from each of his nominees
stating the nominee's acceptance of the nomination and indicating the nominee's
intention to serve as director if elected.

The Certificate of Incorporation also restricts the ability of
stockholders to interfere with the powers of the Board of Directors in certain
specified ways, including the constitution and composition of committees and the
election and removal of officers.

The Certificate of Incorporation provides that approval by the holders
of at least two-thirds of the outstanding voting stock is required to amend the
provisions of the Certificate of Incorporation discussed in the preceding
paragraphs and certain other provisions, except that approval by the holders of
at least 80% of the outstanding voting stock of the Company, together with
approval by the holders of at least two-thirds of the

<PAGE>

outstanding voting stock not owned, directly or indirectly, by the Related
Person, is required to amend the fair price provisions and except that approval
of the holders of at least 80% of the outstanding voting stock is required to
amend the provisions prohibiting stockholders from acting by written consent.

Delaware Anti-takeover Statute. The Company is a Delaware corporation
and is subject to Section 203 of the Delaware General Corporation Law. In
general, Section 203 prevents an "interested stockholder" (defined generally as
a person owning 15% or more of the Company's outstanding voting stock) from
engaging in a "business combination" (as defined in Section 203) with the
Company for three years following the date that person became an interested
stockholder unless (a) before that person became an interested stockholder, the
Board of Directors of the Company approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination, (b) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the Company outstanding at
the time the transaction commenced (excluding stock held by directors who are
also officers of the Company and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer), or (c) following
the transaction in which that person became an interested stockholder, the
business combination is approved by the Board of Directors of the Company and
authorized at a meeting of stockholders by the affirmative vote of the holders
of at least two-thirds of the outstanding voting stock of the Company not owned
by the interested stockholder.

Under Section 203, these restrictions also do not apply to certain
business combinations proposed by an interested stockholder following the
announcement or notification of one of certain extraordinary transactions
involving the Company and a person who was not an interested stockholder during
the previous three years or who became an interested stockholder with the
approval of a majority of the Company's directors, if that extraordinary
transaction is approved or not opposed by a majority of the directors who were
directors before any person became an interested stockholder in the previous
three years or who were recommended for election or elected to succeed such
directors by a majority of such directors then in office.

Long-term Incentive Plan. Awards granted pursuant to the Company's
Long-term Incentive Plan may provide that, upon a change in control of the
Company, (a) each holder of an option will be granted a corresponding stock
appreciation right, (b) all outstanding stock appreciation rights and stock
options become immediately and fully vested and exercisable in full, and (c) the
restriction period on any restricted stock award shall be accelerated and the
restrictions shall expire.

Debt. Certain provisions in the Primary and Secondary Loans may also
impede a change in control, in that they provide that the loans become due if
there is a change in the management of the Company or a merger with another
company.

SELECTED FINANCIAL DATA

Selected financial data for the five years 1991 through 1995 is
presented below. 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. The information provided below reflects this change
and will not agree with previously reported financial information. This data
also reflects a retroactive restatement for all periods presented to reflect the
merging of Pan Petroleum MLP into the Company effective September 1, 1992. The
information also reflects the acquisition of the West Delta offshore properties
as of May 28, 1991, accounted for utilizing the "purchase" method.

<PAGE>

Summary of Operations:
For the year ended December 31,
(As Restated)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Oil and Gas revenue $ 18,447,000 17,367,000 15,638,000 14,436,000 8,017,000
Futures contracts - (29,000) (3,033,000) (1,101,000) 132,000
Total revenue $ 18,447,000 17,338,000 12,605,000 13,335,000 8,149,000
Depreciation, depletion
& amortization 8,064,000 6,038,000 4,288,000 4,245,000 3,305,000
Lease operating expense 8,055,000 5,231,000 5,297,000 5,762,000 3,728,000
Exploration expenses 8,112,000 - - - -
Provision for losses and (gains)
on disposition and write-downs
of assets 751,000 1,202,000 3,824,000 - (91,000)
Net operating income (loss) $ (8,303,000) 3,274,000 (2,100,000) 1,922,000 128,000
Interest (net) and other
expenses 987,000 1,623,000 1,886,000 2,323,000 1,597,000
Net income (loss) $ (9,290,000) 1,115,000 (3,986,000) (401,000) (1,469,000)
Net income (loss) per
common share $ (0.81) 0.11 (0.53) (0.05) (0.23)

Summary Balance Sheet Data:

Total assets $ 36,169,000 29,095,000 24,432,000 31,085,000 33,827,000
Long-term debt 22,390,000 12,500,000 12,465,000 15,380,000 18,945,000
Stockholders' equity 9,174,000 14,882,000 8,744,000 11,700,000 10,889,000
Cash dividends declared
per common share $ 0.00 0.00 0.00 0.00 0.03
</TABLE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the years ended December 31, 1991 - December 31, 1995

General

"Oil and Gas Revenue" has varied due to several factors. The prices of
oil and gas have fluctuated widely during the years shown. Oil prices are
influenced by world political events as well as decisions made by OPEC regarding
the production quotas of its members. Prices are further influenced by world
economic conditions which affect industrial output and the need for oil. In 1995
the Company sold 170,000 barrels for an average of $16.78 per barrel accounting
for 15% of oil and gas revenue. The Bayou Sorrel acquisition in December should
substantially increase oil production. In 1994 oil was 12% of such revenue with
137,000 barrels at an average price of $15.35. In 1993 oil was 19% of such
revenue with 180,000 barrel at an average price of $16.69. In 1992 oil was 25%
of such revenue with 174,000 barrels at an average price of $19.41. In 1991 the
Company sold 129,000 barrels of oil for an average price of $19.68 per barrel;
accounting for 29% of its oil and gas revenue.

The acquisition of the Bayou Sorrel Field increased the percentage of
the Company's reserves attributable to oil from 12% to 20% and one could
anticipate that there will be a corresponding increase in the

<PAGE>

percentage of Oil and Gas Revenue attributable to oil. The Company plans up to
$4 million in capital expenditures on the field during 1996 which will be funded
with cash from operations.

A large part of the changes affecting most operating accounts in 1992
was due to West Delta being operated for twelve months compared with only seven
months in 1991.

The average natural gas price received by the Company has fluctuated
but generally followed the trend of national gas prices. By 1995, gas revenue
contributed 85% of revenue compared with 46% in 1990. While 1995 saw a
production increase of 21%, the drop in natural gas prices to $1.58 offset most
of the benefit. Part of the increase was due to the Zapata acquisition. By
drilling four horizontal wells and recompleting eight existing wells, the
Company increased production by 34% in 1994. With the West Delta acquisition gas
production increased in 1992, 1993 and 1994 to 5,811,000, 5,586,000 and
8,139,000 Mcf, which sold for an average price of $1.81, $2.24 and $1.88 per
Mcf. In 1991 the Company sold 3,714,000 Mcf for an average price of $1.46.

"Futures contracts" were swap transactions on the natural gas futures
market on NYMEX. They resulted in significant losses during 1992 and 1993 which
had the effect of lowering the price received by the Company for natural gas.

"Total revenue" increased in 1995 due to the production increase even
though natural gas prices were lower, averaging $1.58. The revenue increase of
38% in 1994 was a result of the increased production, management's change from
futures contracts to floor contracts to protect gas prices and the adverse
affect of the mezzanine financing being prepaid in 1994. The 5% decrease in 1993
was the result of additional losses on futures contracts. The acquisition and
development of the West Delta properties and a $.35 per Mcf increase in the
average natural gas price contributed to the 64% increase in revenues in 1992.

The "depreciation, depletion and amortization" increase in 1995 was
primarily the result of the acquisition of the Zapata properties for $2,748,000,
$1.5 million in capitalized costs on existing properties and the increase in
production bringing about an increase in the rate of depletion. The increase in
1994 is due to the 1994 drilling and rework program increasing capitalized cost
and the 34% increase in production. The expense for 1993 remained relatively
constant over 1992 with only a slight decrease due to lower production.

"Lease operating expense" increased significantly during 1995 due to
(1) the acquisition of the Zapata properties in July which added interests on
six offshore platforms and 44 wells, (2) additional operating expenses on the
West Delta properties to maintain production from some of the more rapidly
declining wells, and (3) expensing of some items which might otherwise have been
capitalized. Such expenses rose from $.58 per Mcfe in 1994 to $.74 per Mcfe in
1995, after having been $.84, $.84, and $.79 per Mcfe in 1991, 1992, and 1993,
respectively.

"Net operating income (loss)" for 1995 would have been $560,000 were it
not for the $8,112,000 exploratory expenses and $751,000 property write-down.
The increased production in 1994, along with $2.6 million lower asset
write-downs brought about the large increase in 1994. The operating income for
1993 decreased due to lower production, and an asset write-down of $3.8 million.
Net operating income increased from 1991 to 1992 primarily due to the
realization of the benefit of a large number of expenses incurred in 1991 and
again the ownership of the West Delta properties for a full twelve months.

The lower levels of long term debt that prevailed throughout most of
1995 resulted in a decrease in "interest expense." Long term debt increased
during 1995 to fund the acquisitions of the Zapata properties in July and more
importantly the acquisition of the Bayou Sorrel Field in late December. The
decreases of 19%

<PAGE>

in 1993 and 13% in 1994 were due to the significant decrease in long term debt
and the refinancing of such debt on July 1, 1994 at lower interest rates.
Interest expense increased significantly in 1992 because of the debt incurred to
acquire the West Delta properties being in place a full twelve months.

"Net income (loss) per common share" is based upon the weighted average
number of shares outstanding of 11,504,615 for 1995, 10,039,042 for 1994,
7,583,761 for 1993, 7,314,041 for 1992, and 6,399,338 for 1991.

The net loss in 1995 is primarily due to $8,112,000 in unsuccessful
exploration expenses and the increase in lease operating expenses, partially
offset by a 39% decrease in interest and other expenses. The net income in 1994
is due to the drilling and rework program, the lack of a futures contract losses
and the long term debt being refinanced. The net losses in 1992 and 1993 were
primarily due to futures contract losses of $1,101,000 and $3,033,000,
respectively, which were only partially offset by increases in natural gas
prices. The net loss in 1991 is due to additional interest expense and increased
lease operating expense.

The Company currently does not intend to pay dividends with respect to
the Common Stock but rather intends to retain and reinvest its cash flow. The
Board of Directors of the Company will reexamine the Company's dividend policy
from time to time. The terms of the Primary and Secondary Loans require Lender
consent to the payment of dividends or any purchase of Common Shares by the
Company.

Liquidity and Capital Resources

Cash flow from operations is used to reduce long term debt, drill
developmental wells and rework wells on the Company's properties.

On July 1, 1994 the Company entered into a Credit Agreement with the
First Union National Bank of North Carolina, as the agent for Lenders Signatory
thereto ("Primary Loan"). Initially the only lender was First Union National
Bank of North Carolina. The loan is a reducing revolver designed to provide the
Company up to $30 million depending upon the Company's borrowing base. 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 Libor rate on Eurodollar loans.
Eurodollar loans can be for terms of either 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 new 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.

During the years 1991 through 1994 the Company's only capital
commitment was for monthly payments of $14,500 on the 1992 purchase of a natural
gas compressor, which was paid in full in December 1994. All other capital
expenditures have been committed for only after assurance that funding was
available. Cash flow from operations has always exceeded principal and interest
payments and provided funding for capital expenditures. During 1995 the cash
flow from operations was $9,300,000.

Capital Spending

In 1995 the Company spent $8,112,000 on exploratory drilling which did
not result in a discovery and $1,497,000 on developmental costs. During 1994 it
recompleted eight offshore wells and drilled four offshore

<PAGE>

horizontal wells. During that year over $11,749,000 was spent on offshore
recompletions and the drilling of horizontal wells.

All four horizontal wells and all eight recompletions in 1994 were
successful and offshore natural gas production increased significantly. During
the last part of 1993 the Company raised $1,163,000 in equity primarily by
virtue of options and warrants being exercised. During 1994 the Company raised
$5,023,000 in equity primarily as the result of such exercises of options and
warrants. Likewise most of the $3,173,000 of equity proceeds in 1995 was from
the exercise of options and warrants. As explained under "Business Funding of
Business Activities.", the Company procured a Secondary Loan at year-end 1993.
The Company utilized $5,000,000 of these funds, along with equity proceeds and
cash flow from operations described above, to drill the wells and do the
recompletions in 1994 and 1995. Another $5,000,000 is presently available under
the secondary facility. Repayment is due December 31, 1999.

OTHER MATTERS

Resale of Company Common Shares

Common Shares received in the 1992 merger by affiliates of the Company
may be sold only in compliance with Rule 144 or Rule 145 under the Securities
Act, pursuant to an effective registration statement under the Securities Act,
or pursuant to any other applicable exemption from registration. Rule 144 and
Rule 145 imposes holding periods and volume restrictions. The executive officers
and directors of the Company are subject to Rule 144 and Rule 145.

Registration Statement

The Company has filed with the SEC a Registration Statement on Form S-1
under the Securities Act with respect to the Common Shares offered hereby. This
Prospectus, which constitutes a part of that Registration Statement, does not
contain all the information set forth in that Registration Statement and the
exhibits relating thereto. Statements contained herein concerning the provisions
of documents are necessarily summaries of those documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the SEC. For further information with respect to the Common Shares to
which this Prospectus relates, reference is made to the Registration Statement
and exhibits thereto, copies of which are on file at the offices of the SEC and
may be obtained upon payment of the fee prescribed by the SEC or may be examined
without charge at the public reference facilities of the SEC, 450 Fifth Street,
NW, Washington, D.C. 20549.

SEC Position on Indemnification

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling the
registrant pursuant to any provisions described in this Prospectus, the
registrant has been informed that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is therefore
unenforceable.

LEGAL OPINIONS

Certain legal matters in connection with Common Shares have been passed
upon for the Company by H. James Maxwell, Kansas City, Missouri, who is counsel
to the Company. Mr. Maxwell is currently the President, Chief Executive Officer,
Chairman of the Board and a 2.62% stockholder of the Company, and therefore
holds a substantial interest in the Company. See "Management - Cash Compensation
and Other
44

<PAGE>

Compensation Arrangements" and "Principal Stockholders" and "Selling
Stockholders." EXPERTS

The financial statements of the Company as of December 31, 1995 and
1994 and for each of the years in the three year period ended December 31, 1995
and the audit of Schedules of Revenues, Direct Operating Expenses and Production
Taxes of the Zapata properties and the Bayou Sorrel Field for each of the two
years in the period ended December 31, 1994 included in this Prospectus have
been examined by Barrett and Associates, independent certified public
accountants, to the extent and for the periods indicated in their reports with
respect thereto, and are included herein in reliance upon those reports and upon
the authority of that firm as experts in accounting and auditing.

The information with respect to the reserve reports as of December 31,
1995 prepared by Ryder Scott Company and McCune Engineering, P.E., petroleum
engineers, has been used by the Company in preparing reserve information
included herein in reliance upon such firms as experts with respect to such
information. Mr. McCune was formerly an employee of the Company.

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers.

Article Twelve of the Certificate of Incorporation of PANACO, INC. (the
"Company") provides that the Company must indemnify its officers and directors
to the extent allowed by the Delaware General Corporation Law. Pursuant to
Section 145 of the Delaware General Corporation Law, the Company generally has
the power to indemnify its present and former directors and officers against
expenses and liabilities incurred by them in connection with any suit to which
they are, or are threatened to be made, a party by reason of their serving in
those positions so long as they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action, they had no reasonable cause
to believe their conduct was unlawful. With respect to suits by or in the right
of the Company, however, indemnification is generally limited to attorney's fees
and other expenses and is not available if the person is adjudged to be liable
to the Company unless the court determines that indemnification is appropriate.
The statute expressly provides that the power to indemnify authorized thereby is
not exclusive of any rights granted under any by-law, agreement, vote of
stockholders or disinterest directors, or otherwise. The Company also has the
power to purchase and maintain insurance for its directors and officers.
Additionally, Article Twelve of the Certificate of Incorporation provides that,
in the event that an officer or director files suit against the Company seeking
indemnification of liabilities or expenses incurred, the burden will be on the
Company to prove that the indemnification would not be permitted under the
Delaware General Corporation Law.

The preceding discussion of the Company's Certificate of Incorporation
and Section 145 of the Delaware General Corporation Law is not intended to be
exhaustive and is qualified in its entirety by the Certificate of Incorporation
and Section 145 of the Delaware General Corporation Law.

Item 21. Exhibits and Financial Statement Schedules.

(a) Exhibits

Exhibit
Number Description

2.1 Plan of Merger dated as of October 7, 1991 between Pan Petroleum MLP and
PANACO, Inc., included as Appendix B to the Prospectus/Proxy Statement.
3.1 Certificate of Incorporation of the Company.

3.2 Amendment to Certificate of Incorporation of the Company.

3.3 By-laws of the Company.

4.1 Article Fifth of the Certificate of Incorporation of the Company in
Exhibit 3.1 of this Registration Statement.

4.2 Form of Certificate of Common Stock par value $.01 per share, of the
Company.

II-1

<PAGE>

4.3 Rights Agreement, dated as of August 3, 1995, between PANACO, Inc.,
and American Stock Transfer and Trust Company, which includes as
Exhibit A the Form of Certificate of Designation of Series A Preferred
Stock, Exhibit B the Form of Rights Certificate and Exhibit C the
Summary of Rights to Purchase Preferred Stock was filed as Exhibit 1
to the Registration Statement on Form 8-A, filed with the Commission
on August 21, 1995, and incorporated herein by this reference.

5* Opinion of H. James Maxwell & Associates regarding the legality of the
securities being registered.

10.1 Company Long-term Incentive Plan (included as Appendix C to the
Prospectus/Proxy Statement).

10.2 Credit Agreement dated as of May 28, 1991 among Pan Petroleum MLP and,
NMB Postbank Groep N.V., New England Mutual Life Insurance Company,
and EnCap 1989-I Limited Partnership.

10.3 Notice and Agreement dated November 21, 1991 between Pan Petroleum MLP
and The Lincoln National Life Insurance Company.

10.4 Master Forward and Protection Agreement as of September 13, 1991
between Pan Petroleum MLP and NMB Postbank Groep, N.V.

10.5 Purchase and Sale/Exchange Agreement as of March 12, 1991 between
Conoco, Inc., Atlantic Richfield Company, OXY USA Inc., Texaco
Exploration and Production Inc., and Pan Petroleum MLP.

10.6 First Amended and Restated Credit Agreement between PANACO, Inc. et
al, dated September 30, 1992.

10.7 Senior Second Mortgage Term Loan Agreement as of December 31, 1993,
between PANACO, Inc., and seven lenders represented by Kayne Anderson
Investment Management, Inc.

10.8*Credit Agreement among PANACO, Inc. and First Union National Bank of
North Carolina as of July 1, 1994.

10.9 Purchase and Sale Agreement, dated July 12, 1995, between Zapata
Exploration Company, Zapata Offshore Gathering Co., Inc., and PANACO,
Inc. Filed as an exhibit to the Current Report on Form 8-K filed with
the Commission on August 1, 1995, and incorporated herein by this
reference.

10.10Option to Purchase Production Payment, dated July 26, 1995, between
Zapata Exploration Company and PANACO, Inc. Filed as an exhibit to the
Current Report on Form 8-K filed with the Commission on August 1,
1995, and incorporated herein by this reference.

10.11Assignment/East Breaks 110, effective October 1, 1994, from Zapata
Exploration Company to PANACO, Inc. The Assignment/East Breaks 109
document is identical. Filed as an exhibit to the Current Report on
Form 8-K filed with the Commission on August 1, 1995, and incorporated
herein by this reference.

II-2

<PAGE>

10.12Purchase and Sale Agreement dated November 30, 1995, between Shell
Western E&P, Inc. and PANACO, Inc., filed as an exhibit to the Current
Report on Form 8-K filed with the Commission on January 31, 1996, and
incorporated herein by this reference.

10.13** PANACO, Inc. Employee Stock Ownership Plan & Trust.

13.13** First quarter, 1996 unaudited Financial Statements

24.1** Consent of Barrett and Associates.

24.4*Consent of H. James Maxwell and Associates (included in Exhibit 5 to
this Registration Statement.)

28.6 Form of Warrant of PANACO, Inc.

* Previously filed with this Registration Statement.
** Filed herewith.
All others previously filed with the Registration Statement on Form S-4,
Commission File No. 33-44486, initially filed December 13, 1991, and
incorporated herein by this reference.

(b) Financial Statement Schedules

None.

All other statements and schedules for which provision is made in the
applicable regulation of the Securities and Exchange Commission have been
omitted because they are not required under related instruction or are
inapplicable, or the information is shown in the financial statements and
related notes.

Item 22. Undertakings.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;

(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;

II-3

<PAGE>

(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.

The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415 will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective
II-4

<PAGE>

amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

<PAGE>

PANACO, INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>

AUDITED FINANCIAL STATEMENTS - PANACO, INC. Page
<CAPTION>

<S> <C>
Independent Auditors' Report F-2

Balance Sheets, December 31, 1995 and 1994 F-3, F-4

Statements of Income (Operations) for the Years Ended
December 31, 1995, 1994 and 1993 F-5

Statements of Changes in Stockholders' Equity and Retained Earnings (Deficit)
for the Years Ended December 31, 1995, 1994 and 1993 F-6

Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 F-7, F-8

Notes to Financial Statements for the Years Ended
December 31, 1995, 1994 and 1993 F-9 - F18
</TABLE>

SCHEDULES OMITTED:
Schedules other than those listed above are omitted because they are not
required, are not applicable or the required information is shown in the
financial statements or in the related notes.
<TABLE>

AUDITED SCHEDULES OF REVENUES, SELECTED DIRECT OPERATING EXPENSES
AND PRODUCTION TAXES - ZAPATA PROPERTIES AND BAYOU SORREL FIELD
<CAPTION>

<S> <C>
Independent Auditors' Report F-19

Schedules of Revenues, Selected Direct Operating Expenses and Production Taxes
for the Years Ended December 31, 1994 and 1993 F-20

Notes to the Schedules of Revenues, Selected Directed Expenses and Production
Taxes for the Years Ended December 31, 1994 and 1993 F-21 - F-24

UNAUDITED FINANCIAL STATEMENTS - PANACO, INC

Balance Sheets, March 31, 1996 and December 31, 1995 F-25, F-26

Statements of Income (Operations) for the Quarters Ended
March 31, 1996 and 1995 F-27

Statements of Changes in Stockholders' Equity and Retained Earnings (Deficit)
for the Quarter Ended March 31, 1996 F-28

Statements of Cash Flows for the Quarters Ended
March 31, 1996 and 1995 F-29

Notes to Financial Statements for the Quarters Ended
March 31, 1996 and 1995 F-30
</TABLE>

F-1

<PAGE>

Independent Auditors' Report

To the Board of Directors
Panaco, Inc.

We have audited the accompanying balance sheets of Panaco, Inc. (a Delaware
corporation) as of December 31, 1995 and 1994, and the related statements of
income (operations), changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the financial Statements, the Company has given
retroactive effect to the change in accounting for its oil and gas operations.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Panaco, Inc. as of December 31,
1995 and 1994, and the results of its operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.

BARRETT & ASSOCIATES
Overland Park, Kansas

February 26, 1996, except for Note 1, which the date is June 7, 1996

F-2

<PAGE>

<TABLE>

PANACO, INC.
BALANCE SHEETS
(AS RESTATED)
<CAPTION>

ASSETS

December 31,
1995 1994
- - ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,198,000 $ 1,583,000
Accounts receivable
Trade 3,294,000 2,230,000
Other 1,092,000 1,000
Prepaid expenses 465,000 272,000
---------- ----------
Total current assets 6,049,000 4,086,000

OIL AND GAS PROPERTIES, AS DETERMINED
BY THE SUCCESSFUL EFFORTS METHOD
OF ACCOUNTING
Oil and gas properties 103,105,000 89,010,000
Less accumulated depreciation,
depletion, amortization, and valuation allowances (73,620,000) (65,065,000)
---------- -----------
Net oil and gas properties 29,485,000 23,945,000

PROPERTY, PLANT, AND EQUIPMENT
Equipment 196,000 158,000
Less accumulated depreciation (92,000) (68,000)
---------- ----------
Net property, plant, and equipment 104,000 90,000

OTHER ASSETS:
Loan costs, net 471,000 714,000
Certificates of deposit - escrow 26,000 47,000
Other 5,000 6,000
Accounts receivable - other 8,000 186,000
Note receivable 21,000 21,000
---------- ---------
Total other assets 531,000 974,000

TOTAL ASSETS $ 36,169,000 $ 29,095,000
=========== ===========

</TABLE>

The accompanying notes to financial statements are an integral
part of this statement.

F-3

<PAGE>

<TABLE>
PANACO, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
(AS RESTATED)
<CAPTION>

December 31,
1995 1994
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 4,444,000 $ 1,528,000
Interest payable 161,000 185,000
Current portion of long-term debt -- --
---------- ----------
Total current liabilities 4,605,000 1,713,000

LONG-TERM DEBT 22,390,000 12,500,000

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;
11,504,615 and 10,220,138 shares

issued and outstanding, respectively 115,000 102,000
Additional paid in capital 21,155,000 17,586,000
Retained earnings (deficit) (12,096,000) (2,806,000)
----------- ----------
Total stockholders' equity 9,174,000 14,882,000

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,169,000 $ 29,095,000
============ ============

</TABLE>

The accompanying notes to financial statements are an integral
part of this statement.

F-4

<PAGE>

<TABLE>
PANACO, INC.
STATEMENTS OF INCOME (OPERATIONS)
(AS RESTATED)
<CAPTION>

Year Ended December 31,
-------------------------------------------------------------
REVENUES 1995 1994 1993
<S> <C> <C> <C>
Oil and gas sales $ 18,447,000 $ 17,367,000 $ 15,638,000
Future contracts - (29,000) (3,033,000)
----------- ---------- -----------
Total 18,447,000 17,338,000 12,605,000

COSTS AND EXPENSES
Lease operating 8,055,000 5,231,000 5,297,000
Depreciation, depletion and amortization 8,064,000 6,038,000 4,288,000
General and administrative 690,000 587,000 542,000
Production and ad valorem taxes 1,078,000 1,006,000 754,000
Exploration expenses 8,112,000 - -
Provision for losses and (gains) on disposition
and write-down of assets 751,000 1,202,000 3,824,000
---------- ---------- ----------
Total 26,750,000 14,064,000 14,705,000

NET OPERATING INCOME (LOSS) (8,303,000) 3,274,000 (2,100,000)

OTHER INCOME (EXPENSE)
Interest income 5,000 46,000 27,000
Interest expense (992,000) (1,669,000) (1,913,000)
---------- ---------- ----------
Total (987,000) (1,623,000) (1,886,000)

NET INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY ITEM (9,290,000) 1,651,000 (3,986,000)

INCOME TAXES (BENEFIT) - - -

NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (9,290,000) 1,651,000 (3,986,000)

EXTRAORDINARY ITEM - LOSS ON EARLY
RETIREMENT OF DEBT - (536,000) -

NET INCOME (LOSS) $ (9,290,000) $ 1,115,000 $ (3,986,000)

EARNINGS (LOSS) PER COMMON SHARE
Primary:
Earnings (loss) before extraordinary item $ (.81) $ .16 $ (.53)
Extraordinary loss - (.05) -
Net earnings (loss) $ (.81) $ .11 $ (.53)

Assuming full dilution:
Earnings (loss) before extraordinary item $ (.81) $ .16 $ (.53)
Extraordinary loss - (.05) -
Net earnings (loss) $ (.81) $ .11 $ (.53)

Weighted average shares outstanding:
Primary 11,504,615 9,952,870 7,583,761
Assuming full dilution 11,504,615 10,039,042 7,583,761

</TABLE>

The accompanying notes to financial statements are an integral
part of this statement.

F-5

<PAGE>

<TABLE>
PANACO, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND RETAINED EARNINGS (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(AS RESTATED)
<CAPTION>

Common Additional Retained
Stock Paid-In Earnings
Shares Par Value Capital
(Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992 7,534,496 $ 75,000 $ 11,298,000 $ 65,000
Net loss - - - (3,986,000)
Exercises of stock options and warrants 620,759 7,000 1,285,000 -
Balances, December 31, 1993 8,155,255 82,000 12,583,000 (3,921,000)

Net income - - - 1,115,000
Exercises of stock options and warrants and
stock issued under Employee Stock Owner-
ship Plan 2,064,883 20,000 5,003,000
- - -
Balances, December 31, 1994 10,220,138 102,000 17,586,000 (2,806,000)

Net Loss - - - (9,290,000)
Exercise of stock options and
warrants 1,181,602 12,000 3,137,000 -
Issuance of new stock 102,875 1,000 432,000 -
Balances, December 31, 1995 11,504,615 $ 115,000 $21,155,000 $(12,096,000)

</TABLE>

The accompanying notes to financial statements are an integral
part of this statement.

F-6

<PAGE>

<TABLE>

PANACO, INC.
STATEMENTS OF CASH FLOWS
(AS RESTATED)
<CAPTION>

Year Ended December 31,
---------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994 1993
--------------- -------------- --------------
<S> <C> <C> <C>
Net income (loss) before extraordinary item $ (9,290,000) $ 1,651,000 $ (3,986,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion, and amortization 8,065,000 6,038,000 4,288,000
Amortization of loan discount - 340,000 512,000
Exploration expenses 8,112,000 - -
Provision for losses and (gains) on disposition and
write-down of assets 751,000 1,202,000 3,824,000
Changes in operating assets and liabilities:
Accounts receivable (2,155,000) (1,202,000) 1,261,000
Prepaid expenses (193,000) (113,000) (20,000)
Other assets 200,000 (388,000) (11,000)
Accounts payable 2,916,000 (79,000) (896,000)
Interest payable (24,000) 26,000 (40,000)
Extraordinary loss - (536,000) -

Net cash provided by operating activities 8,382,000 6,939,000 4,932,000

CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of oil and gas properties 11,000 300,000 41,000
Capital expenditures and acquisitions (21,803,000) (12,101,000) (790,000)
Purchase of other property and equipment (38,000) (37,000) (52,000)
Sale of other property and equipment - 10,000 -
Purchase of certificate of deposit - - -
- (26,000)
Net cash used by investing activities (21,830,000) (11,828,000) (827,000)

CASH FLOW FROM FINANCING ACTIVITIES:
Long-term debt proceeds 16,890,000 5,564,000 -
Repayment of long-term debt (7,000,000) (7,326,000) (3,535,000)
Issuance of common stock - exercise of warrants & options 3,173,000 5,023,000 1,163,000
Net cash provided (used) by financing activities 13,063,000 3,261,000 (2,372,000)

NET INCREASE (DECREASE) IN CASH (385,000) (1,628,000) 1,733,000

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,583,000 3,211,000 1,478,000

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,198,000 $ 1,583,000 $3,211,000

</TABLE>

The accompanying notes to financial statements are an integral
part of this statement.

F-7

<PAGE>

Supplemental schedule of non-cash investing and financing activities:

FOR THE YEAR ENDED DECEMBER 31, 1995:

The Company issued 97,680 shares of common stock totaling $409,000 in exchange
for oil and gas properties.

FOR THE YEAR ENDED DECEMBER 31, 1994:

The Company farmed out an oil & gas property and retained a 12.5% overriding
royalty interest. The Company contributed 30,850 shares to the ESOP.

FOR THE YEAR ENDED DECEMBER 31, 1993:

The Company issued 36,363 shares in payment of a finders fee on new financing.
The Company received oil and gas properties in exchange for $8,000 in accounts
receivable and 1,200 shares of stock. The Company awarded 12,294 shares to three
new directors.

Supplemental disclosures of cash flow information:

Cash paid during the year ended December 31:

1995 1994 1993

Interest $1,016,000 $1,409,000 $1,441,000

Income taxes $ - $ - $ -

The accompanying notes to financial statements are an integral
part of this statement.

F-8

<PAGE>

PANACO, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Panaco, Inc. (the Company) is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
who are responsible for the integrity and objectivity of the financial
statements. These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
financial statements.

Revenue Recognition
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 or accounts receivable.

Hedging Transactions
The Company engages in natural gas futures contracts within the normal course of
its business. The Company uses futures and floor contracts to reduce the effects
of fluctuations in natural gas prices. Changes in the market value of these
contracts are deferred and subsequent gains and losses are recognized monthly in
the same period as the hedged item based on the difference between the First
Nearby Contract for Natural Gas - NYMEX and the contract price. The Company
entered into a hedge agreement beginning in January, 1996, for the delivery of
15,000 MMBTU of gas for each day in 1996 with contract prices ranging from
$1.7511/MMBTU to $2.253/MMBTU. Prior to this agreement, the Company had entered
into a floor contract that expired December, 1994, and a hedge contract which
expired September, 1993.

Income Taxes
In 1993, the Company adopted Statement of Financial Accounting Standards (FAS)
No. 109 - "Accounting for Income Taxes", which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Generally, FAS 109 allows for at least the
partial recognition of deferred tax assets in the current period for the future
benefit of net operating loss carryforwards.

Income (Loss) per share
The computation of earnings or loss per share in each year is based on the
weighted average number of common shares outstanding. When dilutive, stock
options and warrants are included as share equivalents using the treasury stock
method. Stock options and warrants were not included in the calculation for 1993
and 1995, as the effects were not dilutive. Shares to be contributed to the ESOP
plan are treated as common stock equivalents.

Property, Plant & Equipment
Other property and equipment is recorded at cost. Depreciation is provided using
the straight-line method based on estimated useful lives which range from 5 to 7
years.

F-9
<PAGE>

Oil and Gas Producing Activities and Depreciation, Depletion and Amortization
Effective December 31, 1995, Panaco 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 more appropriately
reflect Panaco's oil and gas operations and will enable investors and others to
better compare Panaco to similar oil and gas companies, the majority of which
follow the successful efforts method. All prior period financial statements have
been restated to reflect the change.

Under the successful efforts method, lease acquisition costs are capitalized.
Significant unproved properties are reviewed periodically on a
property-by-property basis to determine if there has been impairment of the
carry values, with any such impairment charged to expense currently.

Exploratory drilling costs are capitalized pending determination of proved
reserves. If proved reserves are not discovered, the exploratory drilling costs
are expensed. Other exploration costs are also expensed. All development costs
are capitalized. Provision for depreciation, depletion and amortization is
determined on a field-by-field basis using the unit-of-production method. The
carrying amounts of proven and unproven properties are reviewed periodically and
an impairment reserve is provided as conditions warrant. The provision for write
down of assets was $751,000 for 1995, $1,202,000 for 1994, and $3,824,000 for
1993.

The change in Panaco's accounting method decreases 1994 and 1993 income by
$1,298,000 or $.13 per share, and $3,800,000 or $.51 per share respectively,
from previously reported results under the full cost method. As of December 31,
1994, retained earnings was reduced by $4,851,000 as a result of the accounting
change, and additional paid in capital was reduced by $1,264,000.

Amortization of Note Discount
The note discount was being amortized utilizing the interest method, which
applies a constant rate of interest to the book value of the note. Additional
interest expense of $0, $234,000, and $512,000, was recorded in 1995, 1994 and
1993, respectively, from the amortization of the discount. Effective July 1,
1994 the debt related to the note discount was extinguished, and the balance of
the note discount totaling $106,000 was recorded as an extraordinary item.

Statement of Cash Flows
For purposes of reporting cash flows, the Company considers all cash investments
with maturities of three months or less to be cash equivalents.

Use of Estimates
Management relies on the use of estimates for oil and gas reserve information
and the valuation allowance for deferred income taxes in preparing financial
statements in accordance with generally accepted accounting principles.
Estimates related to oil and gas reserve information and the standardized
measure are based on estimates provided by third parties. Changes in prices
could significantly affect these estimates from year to year.

Reclassification
Certain financial statement items have been reclassified to conform to the
current year's presentation.

Note 2 - LOAN COSTS

Loan costs in the amount of $602,000 and $255,000 are being amortized over the
lives of the loans, three years and six years, respectively. Additional loan
costs of $402,000 were incurred during 1994.

Note 3 - MAJOR CUSTOMERS

One purchaser accounted for 69% and 83% of revenues in 1995 and 1994,
respectively, and two purchasers accounted for 65% and 17% of revenues in 1993.
F-10
<PAGE>

Note 4 - CERTIFICATE OF DEPOSITS - ESCROW

The Company has CD's to satisfy plugging obligations with certain government
entities.

Note 5- LONG-TERM DEBT
1995 1994
Note payable (a) $ 5,000,000 $ 5,000,000
Note payable (b) 17,390,000 7,500,000
22,390,000 12,500,000

Less current portion - -
Long-term debt $ 22,390,000 $ 12,500,000

(a) Note payable dated December 31, 1993 due to a group of six lenders in the
amount of $5,000,000 bearing interest at 12%. The lenders at their discretion
can loan an additional $5,000,000 to the Company. Payments for interest only are
required quarterly. The Company may deliver up to $1,000,000 in PIK (payment in
kind) notes, bearing interest at 12%, in satisfaction of all or part of any
interest payment. The loan agreement limited the use of the first $5,000,000 to
capital expenditures and the next $5,000,000 (assuming the lenders approve
additional borrowings) to acquisitions. The loan agreement contains certain
financial covenants including future indebtedness and payment of dividends. The
note matures on December 31, 1999 and is collateralized by a second mortgage on
a substantial portion of offshore oil and gas properties, production proceeds
and receivables. The lenders were issued 816,526 warrants, at an exercise price
of $2.25, expiring December 31, 1998 in connection with the financing (see Note
8).

(b) Reducing Revolving Line of Credit dated July 1, 1994 with a maximum debt
incurred equal to the lesser of thirty million dollars or the Borrowing Base
($21,000,000 at December 31, 1995). The Borrowing Base reduces on a monthly
basis at a rate of $500,000 and is reviewed on a semi-annual basis as of June 30
and December 31. The note is due July 1, 1998 and bears interest at either prime
or Libor plus 1.0% to 1.75% depending on the percentage of the borrowing base
used (8% and 7.625% at December 31, 1995, respectively). At December 31, 1995,
the Company had $3,025,000 borrowed at 7.625%, $10,500,000 borrowed at 7.5625%,
and $3,865,000 borrowed at 7.6875%. Interest is due on the last day of the month
for prime notes and is due on the last day of the interest period or every three
months on Libor notes. A commitment fee of .375% to .5% of the average unused
portion of the Borrowing Base is due on a quarterly basis. The revolving line of
credit is collaterialized by a substantial portion of the oil and gas
properties, receivables, inventory and general intangibles. The loan agreement
contains certain covenants including maintaining a positive indebtedness to cash
flow ratio, a positive working capital ratio, a certain tangible net worth,
limitations on future debt, guarantees, liens, dividends, mergers, material
change in ownership by management, and sale of assets. In addition, the Lender
has issued the Company a letter of credit for $3,000,000 to collateralize a
plugging bond which reduces the available Borrowing Base.

Maturities of long-term debt are as follows:

December 31, 1997 $17,390,000
December 31, 1999 $ 5,000,000
$22,390,000

F-11
<PAGE>

Note 6 - STOCKHOLDERS' EQUITY

During 1995, 1,181,602 shares were issued related to the exercise of warrants
and options, 97,680 shares were issued related to property acquisition costs and
5,195 shares were issued for board of directors fees.

During 1994, 2,034,033 shares were issued related to the exercise of warrants
and options, and 30,850 shares were issued related to the Company's ESOP.

During 1993, 12,294 shares were awarded to three new directors, 1,200 shares
were issued in exchange for oil and gas properties, 36,363 shares were issued
for payment of a finders fee on new financing (see Note 5) and 575,000 shares
were issued related to the exercise of warrants and options.

During 1993, 4,098 shares were relinquished to the Company under the terms of
the long-term incentive plan by a director upon his resignation. These shares
were reissued in the above transactions during 1993.

Shares outstanding are as follows:
Year Ending December 31,
Common Preferred
Stock Stock
1993 8,155,255 -
1994 10,220,138 -
1995 11,504,615 -

Note 7- WARRANTS

Warrants outstanding at December 31, 1995, to acquire common stock are as
follows:

Number of Price per
Shares Share Expiration Date
160,000 $2.375 June 1, 1996
90,000 $2.00 June 1, 1996
39,365 $2.00 December 31, 1997
289,365

During 1995, warrants with exercise prices ranging from $2.00 to $4.00 per
share were exercised for a total of 495,735 shares.

Note 8 - LENDER WARRANTS

In connection with the note payable dated December 31, 1993 (See Note 4)
warrants were issued to a group of six lenders. These warrants differ from those
described in Note 5; they have stronger antidilution provisions, effective
January 1, 1996 the holders can demand registering the warrant shares either
issuable upon exercise or held by the holder, and the holder may also, if the
Company files a registration statement, have an opportunity to include the
warrant shares in such registration statement. Warrants to acquire common stock
were as follows:

Number of Price per
Shares Share Expiration Date
------------- ------------ ----------------------
816,526 $2.25 December 31, 1998

Early in 1996,the warrants were exercised.

F-12
<PAGE>

Note 9 - STOCK OPTIONS AND LONG-TERM INCENTIVE PLAN

On August 26, 1992, the stockholders approved a long-term incentive plan
allowing the Company to grant incentive and nonstatutory stock options,
performance units, restricted stock awards and stock appreciation rights to key
employees, directors, and certain consultants and advisors of the Company up to
a maximum of 20% of the total number of shares outstanding.

At December 31, 1995, there were no stock options outstanding.

During 1995, options with exercise prices ranging from $2.00 to $3.975 per
share were exercised for a total of 759,712 shares.

Under the terms of the long-term incentive plan, three directors surrendered
73,845 shares of stock to exercise 124,400 options. New options were issued
equal to the number of shares surrendered at a price of $2.0313 per share.

Note 10 - RELATED PARTY TRANSACTIONS

During 1995, 25,000 warrants at a price of $2.50 per share were issued to and
exercised by a director.

During 1994, 650,000 warrants at a price of $2.75 per share were issued to
the Board of Directors. All warrants were exercised during 1994.

The Company entered into a triple net lease agreement with a partnership owned
by two directors for the lease of an office building. The lease, which expires
November, 2003, has monthly rental payments of $4,000. During 1995 and 1994,
$48,000 per year in rent was paid under the lease agreement. During 1993, no
rent was due under the lease agreement. A deposit of $4,000 was due and included
in accounts payable at December 31, 1993.

Stock options (see Note 7) originally issued to three directors to acquire
250,000 shares each, were exercisable through December 31, 1995 at $2.00 per
share. During 1995, 1994 and 1993, 150,000, 275,000 and 300,000 options were
exercised at $2.00 per share. In 1994 and 1993, an additional 275,000 and
300,000 options respectively were issued at prices ranging from $2.32 per share
to $3.9375 per share, and all options were exercised in 1995.

Under the terms of the long-term incentive plan, three directors were issued
73,845 options at $2.0313 per share and 68,567 options at $2.1875 per share in
1995 and 1994, respectively. These options were exercised in 1995.

Warrants were issued to a director in 1991 to acquire 250,000 shares. Of these,
160,000 shares were exercised in 1993 at $2.00 per share and 90,000 warrants are
exercisable through June 1, 1996 at $2.00 per share. In addition, 160,000
warrants at $2.375 issued December 10, 1993, are exercisable through June 1,
1996.

Consulting fees of $80,000 were paid in 1993 to an entity in which a
director is a 100% owner. At December 31, 1993, no such fees were payable to
this entity.
In 1993, three new directors were awarded 4,098 shares each (valued at a total
of $30,000) pursuant to the Company's Long-term Incentive Plan. These shares
become vested over a thirty month period.

During 1993, a director relinquished 4,098 shares upon his resignation.

Note 11 - LEASES

F-13
<PAGE>

The following is a schedule of future rental payments required under an
office building lease described in Note 10 as of December 31, 1995.

Year ending December 31,
1996 $ 48,000
1997 48,000
1998 48,000
1999 48,000
2000 48,000
2001-2003 140,000
$ 380,000

Rental expense incurred on a former office lease for the year ended December 31,
1993, was $26,180.

Note 12 - INCOME TAXES

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 2010.

Significant components of the Company's deferred tax liabilities and assets as
of December 31 are as follows:

1995 1994
Deferred tax assets
Fixed asset basis differences 1,408,000 557,000
Net operating loss carry forwards 6,306,000 3,504,000
Total deferred tax assets 7,714,000 4,061,000

Valuation allowance for deferred
tax assets (7,714,000) (4,061,000)
Total deferred tax assets $ - $ -

A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized.

The valuation allowance for deferred tax assets as of December 31, 1993 was
$3,704,000. The net change in the total valuation allowance for the years ended
December 31, 1995 and 1994 was an increase of $3,653,000 and $357,000,
respectively.

Note 13 - COMMITMENT AND CONTINGINCIES

A $3,000,000 letter of credit, collateralizing a plugging bond, expires on
December 14, 1996. The contract amount of the letter of credit approximates its
fair value.

The Company has had a suit filed against it related to a gas gathering system in
Oklahoma in an amount in excess of $700,000. Management feels the suit is
without merit and will be disposed of for less than the amount claimed, although
no such assurance can be given.

F-14
<PAGE>

Note 14 - EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)

In August, 1994, the Company established an Employee Stock Ownership Plan (ESOP)
and Trust that covers substantially all employees. The Board of Directors can
approve contributions, up to a maximum of 15% of eligible employees' gross
wages. The Company incurred $132,000 and $123,000 in costs for the years ended
December 31, 1995 and 1994, respectively.

Note 15 - IMPAIRMENT OF LONG-LIVED ASSETS

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of",
requires that long-lived assets and identifiable intangibles be reviewed for
impairment when the assets carrying amount may not be recoverable based on the
future cash flows of the asset. The Company evaluates its oil and gas properties
for impairment on a field by field basis as prescribed by FAS No. 121.

Note 16 - FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" requires disclosure of an estimate of the fair
value of certain financial instruments. The carrying amount and fair values of
the Company's financial instruments at December 31, 1995, are as follows:

Assets (Liabilities)
------------------------------------
Carrying Amount Fair Value
Cash and cash equivalents $ 1,198,000 $ 1,198,000
Receivables 4,415,000 4,415,000
Payables (4,605,000) (4,605,000)
Long-term variable rate debt (17,390,000) (17,390,000)
Long-term fixed rate debt (5,000,000) (3,675,150)
Off balance sheet financial instruments
Letter of credit 0 0
Hedge contracts 0 (2,000,000)

Cash and cash equivalents, receivables, payables, and long-term variable
rate debt The carrying amount reported on the consolidated balance sheet
approximates its fair value because of the short maturities of these
instruments.
Long-term, fixed rate debt
The Company estimates the fair value of its long-term, fixed rate debt generally
using discounted cash flow analysis based on the Corporation's current borrowing
rates for debt with similiar maturities.

Letter of credit
A $3,000,000 letter of credit collaterializes a plugging bond. Fair value
estimated on the basis of fees paid to obtain the obligation is not material at
December 31, 1995.

Hedge contract
The fair values of the Company's futures contracts are estimated based on
current settlement values.

F-15

<PAGE>

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of bank account balances in excess of federally
insured limits and trade receivables. The Company's receivables consist of oil
and gas sales to third parties primarily from offshore production in the Gulf of
Mexico and onshore oil production in the central part of the United States. This
concentration may impact the Company's overall credit risk, either positively or
negatively, in that these entities may be similarly affected by changes in
economic or other conditions. Receivables are generally not collateralized.
Historical credit losses incurred by the Company on receivables have not been
significant.

Note 17 - SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED)
<TABLE>

The following table reflects the costs incurred in oil and gas property
activities for each of the three years ended December 31:
<CAPTION>

1995 1994 1993
-------------- -------------- ---------------
<S> <C> <C> <C>
Property acquisition costs, proved $12,603,000 $ 352,000 $ -

Property acquisition costs, unproved $ - $ - $ -

Exploration costs $ 8,112,000 $ - $ -

Development costs $ 1,497,000 $11,749,000 $ 801,000

Quantities of Oil and Gas Reserves
</TABLE>

The estimates of proved developed and proved undeveloped reserve quantities at
December 31, 1995 are based upon reports of petroleum engineers and do not
purport to reflect realizable values or fair market values of Panaco's reserves.
It should be emphasized that reserve estimates are inherently imprecise and
accordingly, these estimates are expected to change as future information
becomes available. These are estimates only and should not be construed as exact
amounts.
All reserves are located in the United States.

Proved reserves are estimated reserves of natural gas and crude oil and
condensate that 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 reserves are those expected
to be recovered through existing wells, equipment, and operating methods.
<TABLE>

Proved developed and undeveloped reserves Oil Gas
<CAPTION>
(BBLS) (MCF)
<S> <C> <C> <C> <C>
Estimated reserves as of December 31, 1992 1,121,000 46,595,000

Production (180,000) (5,586,000)
Sale of minerals in-place (12,000) (155,000)
Revisions of previous estimates (184,000) 2,842,000
Estimated reserves as of December 31, 1993 745,000 43,696,000

Production (137,000) (8,139,000)
Extensions and discoveries 183,000 16,930,000
Sale of minerals in-place (24,000) (45,000)
Revisions of previous estimates 176,000 (10,860,000)
Estimated reserves as of December 31, 1994 943,000 41,582,000

Production (170,000) (9,850,000)
Sale of minerals in-place (1,000) (22,000)
Purchase of minerals in-place 1,140,000 20,094,000
Revisions of previous estimates (12,000) (5,093,000)
Estimated reserves as of December 31, 1995 1,900,000 46,711,000

</TABLE>

F-16

<PAGE>

Proved developed reserves
Oil Gas
(BBLS) (MCF)
---------- ------------

December 31, 1992 1,053,000 36,208,000

December 31, 1993 745,000 24,665,000

December 31, 1994 907,000 36,282,000

December 31, 1995 1,794,000 40,323,000

Standardized Measure of Discounted Future Net Cash Flows
Future cash inflows are computed by applying year-end prices of oil and gas
(with consideration of price changes only to the extent provided by contractual
arrangements) to the year-end estimated future production of proved oil and gas
reserves. Estimates of future development and production costs are based on
year-end costs and assume continuation of existing economic conditions. The
estimated future net cash flows are then discounted using a rate of 10 per cent
per year to reflect the estimated timing of the future cash flows. The
standardized measure of discounted cash flows is the future net cash flows less
the computed discount.
<TABLE>

The accompanying table reflects the standardized measure of discounted future
cash flows relating to proved oil and gas reserves as of the three years ended
December 31:
<CAPTION>

1995 1994 1993
<S> <C> <C> <C>
Future cash inflows $140,247,000 $88,893,000 $113,419,000
Future development and production costs 50,723,000 32,197,000 38,375,000
Future net cash flows 89,524,000 56,696,000 75,044,000
Future income taxes 11,755,000 6,304,000 13,937,000
Future net cash flows after income taxes 77,769,000 50,392,000 61,107,000
10% annual discount (14,848,000) (8,477,000) (13,728,000)
Standardized measure after income taxes $ 62,921,000 $41,915,000 $ 47,379,000
Standardized measure before income taxes $ 72,432,000 $47,159,000 $ 58,185,000

Changes Relating to the Standardized Measure of Discounted Future Net Cash Flows
The accompanying table reflects the principal changes in the standardized
measure of discounted future net cash flows attributable to proved oil and gas
reserves for each of the three years ended December 31:
1995 1994 1993
Beginning balance $ 41,915,000 $47,379,000 $ 48,163,000
Sales of oil and gas, net of production costs (9,314,000) (11,047,000) (9,426,000)
Net change in income taxes (4,267,000) 5,562,000 (2,130,000)
Changes in price and production costs 11,498,000 (10,781,000) 2,199,000
Purchase of minerals in-place 34,415,000 - -
Revision of previous estimates, extensions,
discoveries, & sales of minerals in place-net (11,326,000) 10,802,000 8,573,000
Ending balance $ 62,921,000 $41,915,000 $ 47,379,000

Price per MCF $ 2.24 $ 1.75 $ 2.40
Price per BBL $ 17.75 $ 16.00 $ 12.75

</TABLE>

F-17

<PAGE>

Note 18 - ACQUISITIONS

On July 12, 1995, the Company entered into a Purchase and Sale Agreement with
Zapata Exploration Company ("Zapata") to acquire all of Zapata's offshore oil
and gas properties in the Gulf of Mexico. The properties consist of East Breaks
Blocks 109 and 110, East Cameron Block 359, Eugene Island Block 372, South
Timbalier Block 185 and West Cameron Block 538, totaling 31,134 gross acres. The
transaction closed July 26, 1995.

The purchase price for the assets acquired in this transaction was $2,748,000 in
cash and the obligation to pay a production payment to Zapata based upon future
production. The production payment is based upon production from the East Breaks
109 Field after production of 12 Bcfe gross (10 Bcfe net) measured from October
1, 1994. The Company will pay to Zapata $.4167 per Mcfe on the next 27 Bcfe
produced. Payments to Zapata on this production payment are to be made by the
Company when it is paid for the oil or gas. Oil and gas reserves attributable to
this production payment are not included in the reserves for the properties set
forth herein.

As of November 30, 1995, the Company entered into a Purchase and Sale Agreement
with Shell Western E&P Inc. ("Shell") to acquire all of Shell's interest in the
Bayou Sorrel Field in Iberville Parish, Louisiana. The transaction closed
December 27, 1995, and PANACO took over as operator from Shell. Proved reserves
attributable to the field at December 31, 1995, were 898,000 barrels and 3.1 Bcf
of natural gas. In addition to the proved reserves management has identified
significant probable and possible reserves attributable to this field. The
purchase price of the field was $10,455,000 which included a $204,000 brokers'
fee and a related receivable of $600,000.

Both of the acquisitions made in 1995 were accounted for using the purchase
method. The results of the Zapata properties acquisition are included in the
Company's statement of income (operations) from July 27 to December 31, 1995.
The results of the Bayou Sorrel acquisition are included in the Company's
statement of income (operations) from December 28 to December 31, 1995. See
pages F-20 to F-24 for pro-forma results of operations.
<PAGE>

Independent Auditors' Report

To the Board of Directors
Panaco, Inc.

We have audited the accompanying schedules of Revenues, Direct Operating
Expenses and Production Taxes of the Zapata properties (which were acquired by
Panaco, Inc., on July 26, 1995) and the Bayou Sorrel Field (which was acquired
by Panaco on December 27, 1995) for each of the two years in the period ended
December 31, 1994. These schedules are the responsibility of Panaco, Inc.'s
management. Our responsibility is to express an opinion on the schedules based
on our audits.

We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Schedules of Revenues, Direct Operating Expenses and
Production Taxes are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
schedule presentation. We believe that our audits provides a reasonable basis
for our opinion.

The accompanying Schedules of Revenues, Selected Direct Operating Expenses and
Production Taxes were prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission (for inclusion in the
current report on Form 10-K) and is not intended to be a complete presentation
of the Zapata properties and Bayou Sorrel Field's revenues and expenses.

In our opinion, the Schedules of Revenues, Direct Operating Expenses and
Production Taxes referred to above present fairly, in all material respects, the
revenues, selected direct operating expenses and production taxes of the Zapata
properties and the Bayou Sorrel Field for each of the two years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.

BARRETT & ASSOCIATES
Overland Park, Kansas

December 15, 1995

F-19

<PAGE>

<TABLE>

ZAPATA PROPERTIES AND BAYOU SORREL FIELD
SCHEDULES OF REVENUES, SELECTED DIRECT OPERATING EXPENSES
AND PRODUCTION TAXES
<CAPTION>

Year Ended December 31, 1994
------------------------------------------------------

Zapata Bayou Sorrel Total
-------------- ------------------- --------------
<S> <C> <C> <C>
Oil and gas revenues $ 7,540,000 $ 2,888,000 $ 10,428,000

Selected direct operating expenses $ 3,317,000 $ 1,942,000 $ 5,259,000

Production taxes $ 0 $ 310,000 $ 310,000

Year Ended December 31, 1993
------------------------------------------------------

Zapata Bayou Sorrel Total
-------------- ------------------- --------------
Oil and gas revenues $ 11,823,000 $ 2,908,000 $ 14,731,000

Selected direct operating expenses $ 3,696,000 $ 1,806,000 $ 5,502,000

Production taxes $ 0 $ 352,000 $ 352,000

</TABLE>

See accompanying notes to this schedule
F-20

<PAGE>

ZAPATA PROPERTIES AND BAYOU SORREL FIELD
NOTES TO THE SCHEDULES OF REVENUES,
SELECTED DIRECT OPERATING EXPENSES AND PRODUCTION TAXES

FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993

Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies related to the Schedules of
Revenues, Selected Direct Operating Expenses and Production Taxes of the Zapata
properties and the Bayou Sorrel Field is presented to assist in understanding
the schedules. The schedules and notes are representations of Panaco, Inc.'s
management, which is responsible for the integrity and objectivity of the
schedules. These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
statement.

Acquisitions
The Zapata properties were acquired by Panaco, Inc. on July 26, 1995 from
Zapata Exploration Co. The Bayou Sorrel Field was acquired by Panaco, Inc.
on December 27, 1995, from Shell-Western E&P, Inc.

Revenue Recognition
Revenues are recorded on the accrual basis, with volumes and prices being
estimated for properties during periods when actual production information is
not available.

Selected Direct Operating Expenses
Selected direct operating expenses include necessary and ordinary expenses to
maintain production. Insurance expense is not included since sufficient
information is not available from the Seller. Management estimates insurance
costs to be $280,000 per annum.

Depreciation, depletion and amortization
Depreciation, depletion and amortization is not presented as sufficient
information is not available from the Seller.

Operating Taxes
No additional tax expense is included for the Zapata propeties, as the
production from federal offshore waters are not subject to state severance
taxes.

F-21

<PAGE>

General, Administrative, and Overhead Expenses
General, administrative, and overhead expenses are not presented as sufficient
information is not available from the Seller.

Note 2 - 1995 REVENUES, SELECTED DIRECT OPERATING EXPENSES AND PRODUCTION
TAXES (UNAUDITED

<TABLE>

The following is a schedule of revenues, selected direct operating expenses and
production taxes for the periods in 1995 that Panaco, Inc. did not own the
Zapata properties and the Bayou Sorrel Field. The schedule is not intended to be
a complete presentation of the Zapata properties and Bayou Sorrel Field's
revenues and expenses.
<CAPTION>

Oil and Gas Selected Direct Production
Revenues Operating Expenses Taxes
------------------ -------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Zapata Properties
January 1, 1995 to July 25, 1995 $ 3,623,000 $ 1,460,000 $ 0

Bayou Sorrel
January 1, 1995 to December 26, 1995 3,326,000 867,000 297,000

TOTAL $ 6,949,000 $ 2,327,000 $ 297,000
</TABLE>

Note 3 - SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED)

Quantities of Oil and Gas Reserves
The estimates of proved developed and proved undeveloped reserve quantities of
the Zapata properties and the Bayou Sorrel Field at December 31, 1994 are based
upon management's computation from the report of Panaco's independent petroleum
engineers as of December 31, 1995, and do not purport to reflect realizable
values or fair market values of the properties' reserves. It should be
emphasized that reserve estimates are inherently imprecise and accordingly,
these estimates are expected to change as future information becomes available.
These are estimates only and should not be construed as exact amounts. All
reserves are located in the United States. Reserve quantities for the Zapata
properties and the Bayou Sorrel Field were not available at December 31, 1992,
1993, and 1994, and the balances at those dates were derived from production
activity during 1993 and 1994.

F-22
<PAGE>

Proved reserves are estimated reserves of natural gas and crude oil that
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 reserves are those expected to be
recovered through existing wells, equipment, and operating methods.
<TABLE>
<CAPTION>

Proved developed and OIL (BBLS) GAS (MCF)
undeveloped reserves ----------------------------------------- -----------------------------------------------
Zapata Bayou Total Zapata Bayou Total
Sorrel Sorrel
------------ ----------- ---------- ------------- ------------ -------------

<S> <C> <C> <C> <C> <C> <C>
Estimated reserves as of
December 31, 1992 391,000 1,323,000 1,714,000 27,647,000 4,039,000 31,686,000

Production (54,000) (143,000) (197,000) (4,924,000) (228,000) (5,152,000)

Estimated reserves as of
December 31, 1993 337,000 1,180,000 1,517,000 22,723,000 3,811,000 26,534,000

Production (67,000) (127,000) (194,000) (3,419,000) (368,000) (3,787,000)

Estimated reserves as of
December 31, 1994 270,000 1,053,000 1,323,000 19,304,000 3,443,000 22,747,000

Proved, developed reserves:

December 31, 1993 337,000 1,180,000 1,517,000 22,723,000 3,811,000 26,534,000
December 31, 1994 270,000 1,053,000 1,323,000 19,304,000 3,443,000 22,747,000

</TABLE>

Standardized Measure of Discounted Future Net Cash Flows
Future cash inflows are computed by applying year-end prices of oil and gas
(with consideration of price changes only to the extent provided by contractual
arrangements) to the year-end estimated future production of proved oil and gas
reserves. Estimates of future development and production costs are based on
year-end costs and assume continuation of existing economic conditions. The
estimated future net cash flows are then discounted using a rate of 10 percent
per year to reflect the estimated timing of the future cash flows. The
standardized measure of discounted cash flows is the future net cash flows less
the computed discount.

F-23

<PAGE>

The accompanying table reflects the standardized measure of discounted future
cash flows relating to the proved oil and gas reserves of the Zapata properties
as of the two years ended December 31:
<TABLE>
<CAPTION>

1994 1993
-------------------------------------------- ----------------------------------------------
Zapata Bayou Total Zapata Bayou Total
Sorrel Sorrell
------------ ------------ ----------- ------------- ----------- -------------

<S> <C> <C> <C> <C> <C> <C>
Future cash inflows $ 45,181,000 $27,233,000 $72,414,000 $52,721,000 $30,121,000 $ 82,842,000
Future development and
production costs 15,341,000 9,021,000 24,362,000 18,658,000 11,273,000 29,931,000
Future net cash flows 29,840,000 18,212,000 48,052,000 34,063,000 18,848,000 52,911,000
10% annual discount to
reflect timing of cash flows 1,821,000 5,532,000 7,353,000 1,821,000 5,532,000 7,353,000
Standardized measure
before income taxes $ 28,019,000 $12,680,000 $40,699,000 $ 32,242,000 $13,316,000 $ 45,558,000

</TABLE>

Changes Relating to the Standardized Measure of Discounted Future Net Cash Flows
The accompanying table reflects the principal changes in the standardized
measure of discounted future net cash flows attributable to proved oil and gas
reserves of the Zapata properties for each of the two years ended December 31:
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C> <C>
Beginning balance $ 32,242,000 $13,316,000 $45,558,000 $ 40,369,000 $14,066,000 $ 54,435,000
Sales of oil and gas,
net of production costs 4,223,000 636,000 4,859,000 8,127,000 750,000 8,877,000

Ending balance $ 28,019,000 $12,680,000 $40,699,000 $ 32,242,000 $13,316,000 $ 45,558,000
</TABLE>

<PAGE>

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, Barrett & Associates consents to the
use of our reports and to all references to our firm included in or made a part
of this Registration Statement on Form S-1 filed with the Securities and
Exchange Commission by Panaco, Inc. under the Securities Act of 1933, as
amended, including any references to our firm as experts.

BARRETT & ASSOCIATES
Overland Park, Kansas

June 13, 1996

PANACO, INC.
Condensed Balance Sheets (Successful Efforts Method)
(Unaudited)
(As Restated)
<CAPTION>

ASSETS As of As of
March 31, 1996 December 31, 1995
------------------------ ------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,528,000 $ 1,198,000
Accounts receivable
5,279,000 4,386,000
Prepaid expenses
183,000 465,000
------------------- --------------------
Total Current Assets
6,990,000 6,049,000
-------------------- ---------------------

OIL AND GAS PROPERTIES, AS DETERMINED BY THE
SUCCESSFUL EFFORTS METHOD OF ACCOUNTING:
Oil and gas properties 103,394,000 103,105,000
Less: accumulated depreciation,
depletion and amortization (76,035,000) (73,620,000)
-------------------- --------------------
Net Oil and Gas Properties 27,359,000 29,485,000
-------------------- --------------------

PROPERTY, PLANT AND EQUIPMENT:
Equipment
243,000 196,000
Less: accumulated depreciation
(102,000) (92,000)
-------------------- --------------------
Net Property, Plant and Equipment
141,000 104,000
-------------------- --------------------

OTHER ASSETS:
Restricted deposits
1,745,000 -
Loan costs, net
410,000 471,000
Certificate of deposit
26,000 26,000
Note receivable
21,000 21,000
Other
13,000 13,000
-------------------- --------------------
Total Other Assets
2,215,000 531,000
-------------------- --------------------

TOTAL ASSETS $ 36,705,000 $ 36,169,000
==================== ====================
</TABLE>
F-25

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

LIABILITIES AND STOCKHOLDERS' EQUITY As of As of
March 31, 1996 December 31, 1995
----------------------- ------------------------
CURRENT LIABILITIES:
<S> <C>
Accounts payable $ $ 4,444,000
4,404,000
Interest payable
144,000 161,000
Current portion of long-term debt
- -
----------------------- ------------------------
Total Current Liabilities
4,548,000 4,605,000
----------------------- ------------------------

LONG-TERM DEBT 22,390,000
19,390,000
----------------------- ------------------------

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 21,155,000
23,090,000
Retained earnings (deficit) (12,096,000)
(10,446,000)
----------------------- ------------------------
Total Stockholders' Equity
12,767,000 9,174,000
----------------------- ------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ $ 36,169,000
36,705,000

======================= ========================
</TABLE>
F-26

<PAGE>
<TABLE>
PANACO, INC.
Statements of Income (Successful Efforts Method)
For the Three Months Ended March 31,
(Unaudited)
(As Restated)
<CAPTION>

1996 1995
------------------- -------------------
REVENUES
<S> <C> <C>
Oil and natural gas sales $ 8,345,000 $ 5,476,000
Futures contracts (1,006,000) -

------------------- -------------------
Total 7,339,000 5,476,000
------------------- -------------------

COSTS AND EXPENSES
General & administrative 185,000 180,000
Depletion, depreciation & amortization 2,486,000 2,455,000
Exploration expenses
- -
Provision for losses and (gains) on
disposition and write-downs of assets
- -
Lease operating 2,355,000 1,546,000
Taxes 211,000 380,000
------------------- -------------------
Total 5,237,000 4,561,000
------------------- -------------------

NET OPERATING INCOME 2,102,000 915,000
------------------- -------------------

OTHER INCOME (EXPENSE)
Interest expense (net) (452,000) (289,000)
------------------- -------------------

NET INCOME BEFORE INCOME TAXES 1,650,000 626,000

INCOME TAXES
- -
------------------- -------------------

NET INCOME $ 1,650,000 $ 626,000
=================== ===================

Net income per share
$ 0.14 $ 0.06

=================== ===================
</TABLE>
F-27

PANACO, INC.
Statement of Changes in Stockholders' Equity
(Unaudited)
(As Restated)
<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 1,650,000
- - -

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

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

Balance, March 31, 1996 12,345,361 $ 123,000 $ 23,090,000 $(10,446,000)

================= ================== ================= =================
</TABLE>
F-28

<PAGE>

<TABLE>
PANACO, INC.
Statement of Cash Flows
Three Months Ended March 31,
(Unaudited)
(As Restated)

<CAPTION>
1996 1995
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,650,000 $ 626,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization 2,425,000 2,380,000
Amortization of loan costs
61,000 75,000
Changes in operating assets and liabilities:
Certificates of Deposits - escrow
- 22,000
Accounts receivable (893,000) 270,000
Prepaid expenses 282,000
62,000
Other assets
- 1,000
Accounts payable (130,000)
66,000
Interest payable
(17,000) (41,000)
----------------- -----------------
Net cash provided by operating activities 3,574,000 3,265,000
----------------- -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of oil and gas properties
- -
Capital expenditures and acquisitions (289,000) (575,000)
Purchase of other property and equipment
(47,000) (2,000)
Increase in restricted deposits (1,745,000)
-
----------------- -----------------
Net cash used by investing activities (2,081,000) (577,000)
----------------- -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (3,000,000) (3,500,000)
Issuance of common stock-exercise of warrants 1,837,000 1,373,000
----------------- -----------------
Net cash provided (used) by financing activities (1,163,000) (2,127,000)
----------------- -----------------

NET INCREASE (DECREASE) IN CASH 330,000 561,000

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

CASH AND CASH EQUIVALENTS AT MARCH 31, $ 1,528,000 $ 2,144,000
================= =================

Supplemental disclosures of cash flow information: Cash paid for three
months ended March 31:
Interest $ 469,000 $ 329,000

Disclosure of accounting policies:
1. For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of six
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.
</TABLE>
F-29

<PAGE>

PANACO, INC.
NOTES TO FINANCIAL STATEMENTS
(As Restated)

1. In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position as of
March 31, 1996 and December 31, 1995 and the results of operations and changes
in stockholders' equity and cash flows for the periods ended March 31, 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. Significant unproved properties are reviewed periodically on a
property-by-property basis to determine if there has been impairment of carrying
values, with any such impairment charged to expense currently.

Exploratory drilling costs are capitalized pending determination of proved
reserves. If proved reserves are not discovered, the exploratory drilling costs
are expensed. Other exploratory costs are also expensed. All development costs
are capitalized. Provision for depreciation, depletion and amortization 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
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 three months ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year.

4. The net income per share for the three months ended March 31, 1996 and 1995
has been calculated on 12,068,412 and 11,167,237 fully diluted shares
outstanding, 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

(Bbls) (Mcf)

December 31, 1995 1,900,000 46,711,000
Purchase of minerals-in-place -0- -0-
Production (95,000) (2,318,000)
Sale of minerals-in-place -0- -0-
Revisions of previous estimates -0- -0-
Estimated reserves at March 31, 1996 1,805,000 44,393,000

No major discovery or other favorable or adverse event has caused a significant
change in the estimated proved reserves since March 31, 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 March 29 was at $3.75 per share.

7. Generally accepted accounting principles require the Net Profits Interest,
assigned to the Company's lenders in 1991, to be treated as a discount of the
note payable, and the discount amortized over the life of the loan. This
resulted in an effective interest rate on the note of 12.88%. This note was
repaid with the proceeds of the July 1, 1994 financing discussed later.

8. 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 abandoning 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.

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.

MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(As Restated)

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

The price received for natural gas averaged $2.47 per Mcf and $17.01
per barrel for oil for the three month period ended March 31, 1996. Cash flow is
currently being used to reduce liabilities, pay general and administrative
overhead and drill and rework wells.

At March 31, 1996, 75% 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. This NPI, originally valued at $1,801,572, was treated as a discount
reducing the note payable and increasing the effective interest rate of the note
to 12.888 % for periods prior to July 1, 1994 when this loan was repaid with the
proceeds of the financing described below.

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. In the three months ended March 31,
1996 all of these options were 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 March 31, 1996 was $19.5 million ($22 million at April 1,
1996). 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.

During 1995 the Company raised $3,173,000 in equity by virtue of the
exercise of options and warrants. Through March 31, 1996 the Company had raised
$1,837,000 in equity as a result of the exercise of warrants.

Results of Operations

Oil and natural gas sales increased 53% for the first three months of
1996 primarily due to higher oil and natural gas prices. A futures contract loss
of $1.0 million offset this increase, resulting in a 34% increase in total
revenues.

Natural gas prices averaged $2.47 per Mcf during the first three months
of 1996 compared with $1.48 for the same period in 1995. Oil prices averaged
$17.01 per barrel during the first three months in 1996 compared to $16.86 for
the same period in 1995.

Oil production increased to 95,000 barrels in the first three months in
1996 from 38,000 barrels in the same period in 1995. Natural gas production
declined to 2,318,000 Mcf in the first three months in 1996 from 3,262,000 in
the same period in 1995 primarily due to decline in production from four
horizontal wells drilled in 1994.

Futures contracts resulted in a loss of $1.0 million for the first
three months in 1996. The Company entered into a natural gas swap agreement
beginning January 1, 1996 for the delivery of 15,000 MMBTU of gas each day in
1996 with contract prices ranging from $1.7511 per MMBTU to $2.253 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.

Lease operating expenses remained constant at 28% of oil and natural
gas sales for the first three months of 1996 compared to the same period in
1995. The increase in the dollar amount of lease operating expenses is primarily
due to the additional five 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 three
months of 1996 from 6.9% of oil and natural gas sales for the same period in
1995. The decrease is due to the shift in the Company's production volumes from
state locations subject to severance taxes to federal offshore waters that are
not subject to such taxes.

Interest expense (net) increased 56% for the first three months of 1996
compared to the same period in 1995 primarily 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 Company currently does not intend to pay dividends with respect to its
Common Shares but rather intends to retain and reinvest its cash flow.

F-30

<PAGE>

Exhibit 10.13

PANACO, INC.
EMPLOYEE STOCK OWNERSHIP PLAN

Section 1. Nature of Plan.

The purpose of the Panaco, Inc. Employee Stock Ownership Plan ("Plan")
is to enable participating employees (the "Participants") to share in the growth
of Panaco, Inc. (the "Company") and to provide Participants with an opportunity
to accumulate capital for their future economic security. The Plan is intended
to do this without any deductions from Participants' paychecks and without
requiring them to invest their personal savings. The primary purpose of the Plan
is to enable Participants to acquire stock ownership interests in the Company.
The trust (the "Trust") established under the Plan will be invested primarily in
stock of the Company (the "Stock"). The Plan is also designed to be a source of
equity capital to the Company. Accordingly, the Plan may be used to accomplish
the following objectives, among others:
(a) To provide Participants with beneficial ownership of the Stock,
substantially in proportion to their relative compensation, without requiring
any cash outlay, any reduction in pay or other personal investment on the part
of Participants;
(b) To receive loans (or other extensions of credit) to finance the
acquisition of the Stock ("Acquisition Loans"), with such Acquisition Loans to
be repaid by contributions by the Company to the Trust;
(c) To provide the Company a source of equity capital.
The Plan, hereby adopted effective as of April 28, 1994, subject to
shareholder approval at the next Annual Meeting of shareholders and the receipt
of a "determination letter" from the Internal Revenue Service, is a stock bonus
plan intended to qualify under Section 401(a) of the Internal Revenue Code of
1986 (the "Code"). The Plan is designed to invest primarily in the Stock and is
an employee stock ownership plan ("ESOP") under Section 4975(e) (7) of the Code.
The Trust created under the Plan is intended to be exempt under Section 501(a)
of the Code.

All trust assets held under the Plan will be administered, distributed,
forfeited and otherwise governed by the provisions of this Plan and the related
Trust Agreement (as hereinafter defined).

The Plan is administered by the Board of Directors ("Board") for the
exclusive benefit of Participants (and their Beneficiaries (as hereinafter
defined)).

Section 2. Definitions.

In the Plan, whenever the context so indicates, the singular or plural
number and the masculine, feminine or neuter gender shall be deemed to include
the other, the terms "he", "his" and "him" shall refer to a Participant, and the
capitalized terms shall have the following meanings:

"Account" -- The entire interest of the Participant under the Plan,
including the Stock Account (as hereinafter defined) and the Other Investments
Account (as hereinafter defined). See Section 6.

"Acquisition Loan" -- A loan (or other extension of credit) used by the
Trustee to finance the acquisition of Stock, which loan may constitute an
extension of credit to the Trust (as defined herein) from a party in interest
(as defined in ERISA). See Section 5(b).

"Allocation Date" -- The 31st day of December of each year (the last day of
each Plan Year).

"Annual Additions" -- Amounts allocated to a Participant's Account for
a Plan Year, as determined in Section 7 (a).

"Approved Absence" -- A leave of absence (without pay) granted to an
Employee (as defined herein) by the Company under its established leave policy.

<PAGE>

"Beneficiary" The person (or persons) entitled to receive any benefit under
the Plan in the event of a Participant's death. See Section 16(c).

"Board" -- The Board of Directors of the Company.

"Break in Service" -- A Plan Year in which an Employee is not credited with
more than 500 Hours of Service (as hereinafter defined). See Section 13(d).

"Capital Accumulation" -- A Participant's vested, non-forfeitable interest
in his Account under the Plan. See Section 11.

"Code" -- The Internal Revenue Code of 1986, as amended.

"Company" -- Panaco, Inc., a Delaware corporation, whose address if
1050 West Blue Ridge Boulevard, Kansas City, Missouri 64145-1216.

"Compensation" -- The total remuneration paid by the Company to a
Participant in each Plan Year. However, compensation credited to any Participant
can not exceed $150,000 for any Plan Year pursuant to Section 401(a) (17).

"Credited Service" --The number of Plan Years in which an Employee is
credited with at least 1,000 Hours of Service. See Section 14.

"Employee" -- Any common-law employee of the Company and any
non-employee director of the Company admitted to the Plan at the discretion of
the Board.

"Employer Contributions" -- Payments made to the Trust by the Company. See
Section 4.
"Employment Commencement Date" -- The date on which an Employee is
first credited with an Hour of Service.

"ERISA" -- The Employee Retirement Income Security Act of 1974, as
amended.

"Financed Shares" -- Shares of Stock acquired under the Plan with the
proceeds of an Acquisition Loan.

"Forfeiture" -- Any portion of a Participant's Account (under the Plan)
which is not vested and does not become a part of his Capital Accumulation. See
Section 13(b).

"Hour of Service" -- Each hour of service for which an Employee is
credited under the Plan, as described in Section 3(d).

"Normal Retirement Age" -- A Participant's sixty-fifth (65th) birthday. See
Section 12.

"Other Investments Account" -- The account which reflects each
Participant's interest under the Plan attributable to Trust Assets other than
Stock. See Section 6.

"Participant" -- Any Employee who is participating in this Plan. See
Section 3.

"Plan" -- The PANACO, Inc. Employee Stock Ownership Plan, which includes
this Plan and the Trust Agreement.

"Plan Administrator" -- The person or persons appointed by the Board
whose duties are specified in this Plan.

<PAGE>

"Plan Year" -- The twelve-month period ending on each Allocation Date
and coinciding with each calendar year (which is the Company's taxable year).

"Qualified Participant" -- as defined in Section 17(b) (1).

"Qualified Election Period" -- as defined in Section 17(b) (2).

"Service" -- Employment with the Company.

"Stock" -- Shares of the Company's .01 par value Common Stock (or
preferred stock convertible into voting common stock) and are "employer
securities" under Section 409(e) of the Code and Section 407 of ERISA.

"Stock Account" -- The account which reflects each Participant's
interest in the Stock held under the Plan. See section 6.

"Trust" -- The PANACO, Inc. Employee Stock Ownership Trust, maintained
under the Trust Agreement entered into between the Company and the Trustee.

"Trust Agreement" -- The Agreement between the Company and the Trustee
(as defined herein) specifying the duties of the Trustee.

"Trust Assets" -- The Stock (and other assets) held in the Trust for
the benefit of Participants including changes in the Stock's fair market value
and income earned on such assets.
See Section 5.

"Trustee" -- The Trustee (and any successor Trustee) to be appointed by
the Board to hold the Trust Assets.

Section 3. Eligibility and Participation.

(a) Each Employee shall be eligible to participate in the Plan on the
first Allocation Date following his Employment Commencement Date provided he is
credited with at least 1,000 Hours of Service during the Plan Year ending on
that date. An Employee who fails to satisfy this requirement by the Allocation
Date following his Employment Commencement Date shall be eligible to participate
in the Plan on the date he first completes one year of Service during which he
is credited with at least 1,000 Hours of Service. For this purpose, the
computation period for determining the one year of Service shall initially be
the period of twelve (12) consecutive months following the Employment
Commencement Date and thereafter shall be each Plan Year beginning after the
Employment Commencement Date.

(b) A Participant is entitled to share in the allocation of Company
Contributions and Forfeitures under Section 6(a) and (b) only for a Plan Year in
which he is credited with at least 1,000 Hours of Service and in which he is an
eligible Employee (or on Approved Absence) on the Allocation Date. A Participant
shall also share in the allocation of Company Contributions and Forfeitures for
the Plan Year of his retirement, disability or death.

(c) A former Participant who is reemployed by the Company shall become
a Participant as of his date of reemployment. An Employee who is on an Approved
Absence shall not become a participant until the end of his Approved Absence,
but a Participant who is on an Approved Absence shall continue as a Participant
during the period of his Approved Absence.

(d) Hours of Service. For purposes of determining the Hours of Service to
be credited to an Employee under the Plan, the following rules shall be applied:

<PAGE>

1. Hours of Service shall generally include each Hour of Service for
which an Employee is paid (or entitled to payment) for the performance of
duties; each Hour of Service during which the Employee participates in the
Company's business, whether paid or not; each Hour of Service for which an
Employee is paid (or entitled to payment) for a period during which no duties
are performed because of vacation, holiday, illness, incapacity (including
disability), lay-off, jury duty, military duty or paid leave of absence, and
each additional Hour of Service for which back pay is either awarded to agreed
to (irrespective of mitigation of damages); provided, however, that no more than
501 Hours of Service need be credited for one continuous period during which an
Employee does not perform duties.

2. The crediting of Hours of Service shall be determined by the Board
in accordance with the rules set forth in Section 2530.200b-2 of the regulations
prescribed by the Department of Labor, which rules shall be consistently applied
with respect to all Employees within the same job classification.

3. Hours of Service shall not be credited to an Employee for a period
during which no duties are performed if payment is made or due under a plan
maintained solely for the purpose of complying with applicable worker's
compensation, unemployment compensation or disability insurance laws, and Hours
of Service shall not be credited on account of any payment made or due an
Employee solely in reimbursement of medical or medically-related expenses.

Section 4. Employer Contributions.

(a) Determination and Manner of Contribution.

(1) Employer Contributions under the Plan shall be paid to the
Trustee for each Plan Year in such amounts (or under such formula) as may be
determined by the Board. The amount of the Employer Contribution: (i) shall not
exceed 15% of the aggregate compensation of all Participants eligible to share
in Employer Contributions under this Plan in the year for which such
contribution is being determined except as provided in Section 4(a) (1) (iii);
(ii) shall not exceed the Annual Additions limitation of the Code (see Section
7(a); and (iii) shall not exceed 25% of the aggregate compensation of all
Participants eligible to share in Employer Contributions under this Plan in the
year for which the Contribution is being determined, to the extent permitted in
Section 404(a) (9) of the Code.

(2) Employer Contributions under the Plan for each Plan Year shall be
paid to the Trustee not later than the due date (including extensions) for
filing the Company's federal income tax return for the Plan Year. Employer
Contributions under the Plan may be paid in cash or in Stock, as determined by
the Board; provided, however, that such Employer Contributions shall be paid in
cash to the extent needed to provide the Trust with cash sufficient to pay any
currently maturing obligations under any Acquisition Loan.

(b) Mistaken Contributions.

In the event that Employer Contributions are paid to the Trust by
reason of a mistake of fact, such Employer Contributions may be returned to the
Company by the Trustee (upon the direction of the Board) within one (1) year
after the payment to the Trust.

No Participant shall be required to permitted to make contributions to
the Trust.

Section 5. Investment of Trust Assets.
(a) Trust Assets will be invested by the Trustee primarily in Stock in
accordance with directions from the Board. Contributions (and other Trust
Assets) may be used to acquire shares of Stock from any shareholder of the
Company or from the Company. Therefore, the Trust may

<PAGE>

purchase Stock on the open market or may purchase newly issued shares from the
Company. The Trustee may also invest Trust Assets in such other prudent
investments as the Board deems to be desirable for the Trust, or Trust Assets
may be held temporarily in cash. All purchases of Stock by the Trustee shall be
made only as directed by the Board and only at prices which do not exceed the
fair market value of such Stock, as determined in good faith by the Board in
accordance with the provisions of section 21. The Board may direct the Trustee
to invest and hold up one hundred percent (100%) of the Trust Assets in Stock.

(b) The Board may direct the Trustee to incur Acquisition Loans to
finance the acquisition of Stock ("Financed Shares") or to repay a prior
Acquisition Loan. An installment obligation incurred in connection with the
purchase of Stock shall be treated as an Acquisition Loan. An Acquisition Loan
shall be for a specific term, shall bear a reasonable rate of interest and shall
not be payable on demand except in the event of default. An Acquisition Loan may
be secured by a pledge of the Financed Shares so acquired (or acquired with the
proceeds of a prior Acquisition Loan which is being refinanced). No other Trust
Assets may be pledged as collateral for an Acquisition Loan, and no lender shall
have recourse against Trust Assets other than any Financed Shares remaining
subject to pledge. If the lender is a party in interest (under ERISA), the
Acquisition Loan must provide for a transfer of Trust Assets on default only
upon and to the extent of the failure of the Trust to meet the payment schedule
of the Acquisition Loan. Any pledge of Financed Shares must provide for the
release of the shares so pledged as payments on the Acquisition Loan are made by
the Trustee and such Financed Shares are allocated to Participants' Stock
Accounts under Section 6. Payments of principal and/or interest on any
Acquisition Loan shall be made by the Trustee (as directed by the Board) only
from Employer Contributions (under the Plan) paid in cash to enable the Trust to
repay such Acquisition Loan, from earnings attributable to such Employer
Contributions and from any cash dividends received by the Trust on such Financed
Shares.

(c) The Board may direct the Trustee to sell shares of Stock to any
person (including the Company) provided that any such sale must be made at a
price not less favorable to the Plan than fair market value (as determined in
good faith by the Board in accordance with the provisions of Section 21). In the
event that the Trustee is unable to make payments of principal and/or interest
on an Acquisition Loan when due, the Board may direct the Trustee to sell any
Financed Shares that have not yet been allocated to Participants' Stock Accounts
or to obtain an Acquisition Loan in an amount sufficient to make such payments.

Section 6. Allocations to Participants' Accounts.

A Stock Account and an Other Investment Account shall be maintained to
reflect the interest of each Participant under the Plan.

(a) Stock Account. The Stock Account maintained for each Participant
will be credited annually with his allocable shares of Stock (including
fractional shares) purchased and paid for or contributed in kind under the Plan,
with any Forfeitures of Stock and with any stock dividends on Stock also
allocated to the Participant's Stock Account. Any Financed Shares acquired by
the Trust shall initially be credited to a "Loan Suspense Account" and will be
allocated to the Stock Account of the Participants only as payments on the
Acquisition Loan are made by the Trustee. The number of Financed Shares to be
released from the Loan Suspense Account for allocation to the Participants'
Stock Account for each Plan Year shall be determined by the Board (as of each
Allocation Date) as follows:

(1) General Rule. The number of Financed Shares held in the Loan
Suspense Account immediately before the release for the current Plan Year shall
be multiplied by a fraction. The numerator of the fraction shall be the amount
of principal and/or interest paid on the Acquisition Loan for the Plan Year. The
denominator of the fraction shall be the sum of the numerator plus the total
payments of principal and interest on that Acquisition Loan projected to be

<PAGE>

paid for all future Plan Years. For this purpose, the interest to be paid in
future years is to be computed by using the interest rate in effect as of the
current Allocation Date.

(2) Special Rule. The Board may elect (at the time an Acquisition Loan
is incurred) or the provisions of the Acquisition Loan may provide for the
release of Financed Shares from the Loan Suspense Account based solely on the
ratio that the payments of principal for each Plan Year bear to the total
principal amount of the Acquisition Loan. This method may be used only to the
extent that: (A) the Acquisition Loan provides for annual payments of principal
and interest at a cumulative rate that is not less rapid at any time than level
annual payments of such amounts for ten (10) years; (B) interest included in any
payment on the Acquisition Loan is disregarded only to the extent that it would
be determined to be interest under standard loan amortization tables; and (C)
the entire duration of the Acquisition Loan repayment period does not exceed ten
(10) years, even in the event of a renewal, extension or refinancing of the
Acquisition Loan.

(b) Other Investments Account. The Other Investments Account maintained
for each Participant will be credited annually with such Participant's allocable
share of Employer Contributions under the Plan in cash, with any forfeiture from
Other Investment Accounts, with any cash dividends on the Company's Stock
allocated to such Participant's Stock Account (other than currently distributed
dividends) and net income (or loss) of the Trust attributable to Trust Assets
under the Plan. Such account will be debited for the Participant's share of any
cash payments made by the Trustee for the acquisition of Stock or for the
payment of any principal and/or interest on an Acquisition Loan.

(1) Plan. Employer Contributions under Section 4(a) and Forfeitures
under Section 13(b) will be allocated as of the Allocation Date among the Stock
Account and Other Investments Account of Participants so entitled under Section
3(b) in the ratio that the Compensation of each such Participant bears to the
total Compensation of all such Participants for that Plan Year, subject to the
allocation limitations described in Section 7(a) and elsewhere in this Plan.

(2) Net Income (or Loss) of the Trust. The net income (or loss) of the
Trust for each Plan Year will be determined as of the Allocation Date. Prior to
the allocation of Employer Contributions and Forfeitures for the Plan Year, each
Participant's share of any net income (or loss) will be allocated to such
Participant's Other Investment Account in the ration that the total balances of
both Accounts (under the Plan) on the preceding Allocation Date (as reduced by
any distribution of Capital Accumulation during the Plan Year) bears to the sum
of such total account balances for all Participants as of that date. The net
income (or loss) of the Trust includes the increase (or decrease) in the fair
market value of Trust Assets (other than Stock), interest income, dividends and
other income and gains (or loss) attributable to Trust Assets (other than any
dividends on allocated Stock) since the preceding Allocation Date, reduced by
any expenses charged to the Trust Assets for that Plan Year. The determination
of the net income (or loss) of the Trust shall not take into account any
interest paid by the Trust under an Acquisition Loan.

(3) Dividends on the Company's Stock. Any cash dividends received on
shares of Stock allocated to Participants' Stock Accounts will be allocated to
the Other Investments Accounts of such Participants. Any cash dividends received
on unallocated shares of Stock (including any financed shares credited to the
Loan Suspense Account) shall be included in the computation of the net income
(or loss) of the Trust. Any stock dividends received on Stock shall be credited
to the Accounts to which such Stock was allocated. Any cash dividends which are
currently distributed to Participants under Section 19 shall not be credited to
their Other Investments Accounts.
(4) Accounting For Allocations. The Board shall establish accounting
procedures for the purpose of making the allocations to Participants' Accounts
provided for in this Section 6. The Board shall maintain adequate records of the
aggregate cost basis of each class of Stock allocated to each Participant's
Account. The Board shall also keep separate records of Financed Shares and

<PAGE>

of Employer Contributions (and any earnings thereon) made for the purpose of
enabling the Trust to repay any Acquisition Loan. From time to time, the Board
may modify the accounting procedures for the purpose of achieving equitable and
nondiscriminatory allocations among the Accounts of Participants in accordance
with the general concept of the Plan, the provisions of this Section 6 and the
requirements of the Code and ERISA.

Section 7. Allocation Limitations.

(a) Limitations on Annual Additions. The Annual Additions for each Plan
year with respect to any Participant may not exceed the lesser of:

` (1) Twenty-five percent (25%) of his Compensation;

(2) $30,000 as adjusted for increases in the cost of living pursuant to
Section 415(d) of the Code.

For this purpose, "Annual Additions" shall be the total of the Employer
Contributions and Forfeitures (including any income attributable to Forfeitures)
allocated to the Accounts of a Participant for the Plan Year, except at provided
in Section 7(c). In determining such Annual Additions, Forfeitures of Stock
shall be included at the fair market value of the Stock as of the Allocation
Date.

Any Employer Contributions or Forfeitures which cannot be allocated to
any Participant's Account by reason of these limitations shall be credited to an
"Unallocated Suspense Account" and allocated under Section 7(a) for the next
succeeding Plan Year (prior to the allocation of Employer Contributions for such
succeeding Plan Year).

(b) Increased Dollar Limitation. Under certain circumstances, the
dollar limitation set forth in Section 7(a) (2) may be increased. The increase
will occur only if not more than one-third (1/3) of the total Employer
Contributions for the Plan Year are allocated to the Accounts of Participants
who are officers of the Company, shareholders owning more than ten percent (10%)
of the Company's Stock, as determined under Section 415(c) (6) (B) (iv) of the
Code, or Participants whose Compensation exceeds an amount equal to twice the
dollar amount referred to in Section 7(a) (2). The amount of the increase will
be the lesser of the following: (A) the dollar amount otherwise applicable for
the Plan Year; or (B) the amount of Employer Contributions allocated to the
Participant's Accounts (as of the Allocation Date of the Plan Year) representing
Stock which is:

(1) contributed to the Trust for that Plan Year;

(2) purchased with Employer Contributions (in cash) not later than
sixty (60) days after the due date (including extensions) for filing the
Company's federal income tax return for that Plan Year; or

(3) released from the Loan Suspense Account by reason of payments on an
Acquisition Loan for that Plan Year.

(c) Special Acquisition Loan Rules: Any Employer Contributions which
are used by the Trust (not later than the due date, including extensions, for
filing the Company's federal income tax return for the Plan Year) to pay
interest on an Acquisition Loan, and any Financed Shares which are allocated as
Forfeitures, shall not be included as Annual Additions under Section 7(a);
provided, however, that the provisions of this Section 7(c) shall be applicable
only for a Plan Year in which no more than one-third (1/3) of the Employer
Contributions applied to pay principal and/or interest on an Acquisition Loan
are allocated to Participants who are officers of the Company, shareholders
owning more than ten percent (10%) of the Company's Stock, as determined under

<PAGE>

Section 415(c) (6) of the Code, or Employees whose Compensation exceeds an
amount equal to twice the dollar amount referred to in Section 7(a) (2), and the
Board shall reallocate such Employer Contributions to the extent necessary to
satisfy this special rule.

(d) Limitation on Electing Shareholder. To the extent that a
shareholder sells Stock to the Trust and elects (with the consent of the
Company) nonrecognition of gain under Section 1042 of the Code, no portion of
the Stock so purchased (under the Plan) from such shareholder by the Trust (or
any dividends or other income attributable thereto) may be allocated to the
Accounts of:

(1) the selling shareholder;

(2) such shareholder's spouse, brothers or sisters (whether by the whole or
half blood), ancestors of lineal descendants; or

(3) any shareholder owning (as determined under Section 318(a) of the
Code) more than twenty-five percent (25%) in value of any class of stock of the
Company.

Section 8. Expenses of the Plan and Trust.

All expenses of administering the Plan and Trust shall be charged to
and paid out of Trust Assets. The Company may elect to pay all or any portion of
such expenses, and payment of expenses by the Company shall not be deemed to be
an Employer Contribution.

Section 9. Voting Stock.

All Stock in the Trust shall be voted by the Trustee only in such
manner as shall be directed by the Board. With respect to any matter, if any,
which (by the Delaware Corporation Act or by the Company's Articles of
Incorporation) must be decided by more than a majority vote of outstanding
common shares voted, each Participant will be entitled to instruct the Board as
to the manner in which shares of Stock then allocated to his Accounts will be
voted, but only to the extent required by Sections 401(a) (22) and 409(e) (3) of
the Code and the regulations thereunder. In that event, any allocated Stock of
the Company with respect to which voting instructions are not received from
Participants shall not be voted and all Stock of the Company held by the Trust
which is not then allocated to Participants' Accounts shall be voted in the
manner determined by the Board.

Section 10. Disclosure to Participants.

(a) Summary Plan Description. Each Participant shall be furnished with
the summary plan description ("Summary Description") of the Plan required by
Section 102(a) (1) and 104(b) (1) of ERISA. Such Summary Description shall be
updated from time to time as required under ERISA and Department of Labor
regulations thereunder.

(b) Summary Annual Reports. Within nine (9) months after each
Allocation Date, each Participant shall be furnished with the summary annual
report ("Annual Report") of the Plan required by Section 104(b) (3) of ERISA, in
the form prescribed in the regulations of the Department of Labor.

(c) Annual Statement. Following each Allocation Date, each Participant
shall be furnished with a statement reflecting the following information:

(1) The balance (if any) in such Participant's Account as of the beginning
of the Plan Year.

(2) The amount of Employer Contributions and Forfeitures allocated to such
Participant's Account for the Plan Year.

<PAGE>

(3) The adjustments to such Participant's Account of reflect such
Participant share of dividends (if any) on the Stock and any net income (or
loss) of the Trust for the Plan Year.

(4) The new balance in such Participant's Account, including the number
of shares of Stock allocated to such Participant's Account and the fair market
value of the Stock as of that Allocation Date.

(5) The Participant's number of years of Credited Service and such
Participant's vested percentage in the Account balances (under Sections 13 and
14) as of that allocation Date.

(d) Additional Disclosure. The Company shall make available for
examination by any Participant copies of the Plan, the Trust Agreement and the
latest Annual Report of the Plan filed (on Form 5500) with the Internal Revenue
Service. Upon written request of any Participant, the Company shall furnish
copies of such documents and may make a reasonable charge to cover the cost of
furnishing such copies, as provided in the regulations of the Department of
Labor.

Section 11. Capital Accumulation.

The vested (nonforfeitable) interest in a Participant Account under the
Plan is called the Capital Accumulation. The Capital Accumulation shall be
determined in accordance with the provisions of Section 12 and 13. Each
Participant's Capital Accumulation shall be distributed as provided in Sections
15 and 16.

Section 12. Retirement, Disability or Death.

Upon a Participant's retirement, disability or death, the Capital
Accumulation will be the total of the Participant's Account balances (100%
vested). A Participant will share in the allocation of Employer Contributions
and Forfeitures for the Plan Year in which such Participant's retirement,
disability or death occurs. A Participant will be treated as having retired
under the Plan if the Participant's Service ends by any of the following:

(a) Normal Retirement.

A Participant's Normal Retirement Age is the Participant's sixty-fifty
(65th) birthday. Upon attaining Normal Retirement Age while an Employee, a
Participant's Account balances will become nonforfeitable.

(b) Deferred Retirement.

In the event a Participant's Service continues after Normal Retirement
Age, the Participant shall continue to participate in the Plan.

If a Participant has become totally and permanently disabled while an
Employee, such Participant will be granted disability retirement under the Plan
without regard to age or Credited Service, and therefore, the Participant's
Account Balances will become nonforfeitable.

Section 13. Other Termination of Service, Vesting, Forfeitures and Break in
Service. (a) Vesting. If a Participant's Service terminates for any reason other
than retirement, disability or death, the Participant's Capital Accumulation
under the Plan will be based on such Participant's nonforfeitable interest in
the Participant's Account balances, determined under the following vesting
schedule:

Credited Service Nonforfeitable
Under Section 14 Percentage

<PAGE>

Less than One Year 0%
More than One Year, Less than Two Years 33%
More than Two Years, Less than Three Years 66%
Three or More Years 100%

A Participant will not share in the allocation of Employer
Contributions and Forfeitures for a Plan Year if such Participant's Service
terminates prior to the Allocation Date.

(b) Forfeitures. Any portion of the final balances on a Participant's
Account (under the Plan) which is not vested (and does not become part of the
Capital Accumulation) will become a Forfeiture upon the occurrence of a
five-consecutive-year Break in Service. Forfeitures shall first be charged
against a Participant's Other Investment account, with any balance charged
against the Stock Account (at the fair market value of the Stock). Financed
Shares shall be forfeited only after other shares of the Stock have been
forfeited. Forfeitures will be reallocated to the Stock Accounts and Other
Investments Accounts of remaining Participants, as provided in Section 6, as of
the Allocation Date of the Plan Year in which a five-consecutive-year Break in
Service occurs.

(c) Vesting Upon Reemployment. If the Participant received a
distribution of the Participant Capital Accumulation prior to the occurrence of
a five-consecutive-year Break in Service and such Participant is reemployed
prior to the occurrence of such a Break in Service, the portion of the
Participant's Accounts which was not vested shall be maintained separately until
the Participant becomes 100% vested. The Capital Accumulation ("X") attributable
to such separate Account shall be determined (prior to 100% vesting) at the time
the Participant's participation in the Plan subsequently terminates, in
accordance with the following formula:

X = P (AB + D) - D

For purposes of applying this formula, P is the vested percentage at
the time of the subsequent termination; AB is the total of such Account balances
at that time; and D is the amount of the Participant's Capital Accumulation
previously distributed.

(d) Break in Service. A one-year Break in Service shall occur in a Plan
Year in which a Participant is not credited with more than 500 Hours of Service.
A Five-consecutive-year Break in Service shall be five consecutive one-year
Breaks in Service. For purposes of determining whether a Break in Service has
occurred, if an Employee begins a maternity/paternity leave of absence described
in Section 411(a) (6) (E) (i) of the Code, the computation of Hours of Service
shall include the Hours of Service that would have been credited if such
Employee had not been so absent (or eight (8) Hours of Service for each normal
work day of such absence if the actual Hours of Service cannot be determined).
An Employee shall be credited for such Hours of Service (up to a maximum of 501
Hours of Service) in the Plan Year in which such absence begins (if such
crediting will prevent him from incurring a Break in Service in such Plan Year)
or in the next following Plan Year.

Section 14: Credited Service.

(a) General Rule. An Employee's Credited Service shall be the number of
Plan Years in which such Participant is credited with at least 1,000 Hours of
Service. A Participant shall be entitled to credit for prior Service to the
Company or any predecessor.
(b) Employment. If a former Employee is reemployed after a one-year
Break in Service, the following special rules shall apply in determining
Credited Service.
(1) New Accounts will be established to reflect the Participant's
interest under the Plan attributable to the Participant's Service after the
Break in Service.
(2) Credited Service with respect to the Participant's new Account will
include Credited Service accumulated prior to the Break in Service only after
the Participant completes one (1) Plan Year of Credited Service following
reemployment.

<PAGE>

(3) If the Participant is reemployed after the occurrence of a
five-consecutive-year Break in Service, Credited Service after the Break in
Service will not increase the vested interest in the Accounts attributable to
Service prior to the Break in Service.
(4) In the case of a Participant who is reemployed after a
five-consecutive-year Break in Service and who has not attained a vested
interest under the Plan, Service prior to the Break in Service shall not be
included in determining Credit Service if the number of years of the Break in
Service equals or exceeds the Credited Service prior to the Break in Service.

Section 15. When Capital Accumulation Will Be Distributed.

(a) A Participant's Capital Accumulation will be computed following the
termination of Service. In the event of retirement, disability or death, the
Capital Accumulation will normally be distributed in a single distribution
following termination of Service and following the Allocation Date of that Plan
Year. In the event of termination of Service for any reason other than
retirement, disability or death, the distribution of the Capital Accumulation
will normally be deferred until after the Participant incurs a one-year Break in
Service. The following alternative modes of distribution may be selected by the
Board (after considering the available liquid assets of the Company and the
Trust):

(1) Distribution of a Participant's Capital Accumulation in a single
distribution at some earlier or later date, as determined by the Board in a
nondiscriminatory manner; or

(2) Distribution of a Participant's Capital Accumulation in
substantially equal, annual installments over a period not exceeding five (5)
years from the date of termination of Service (provided that such period does
not exceed the life expectancy of the Participant); or

(3) any combination of the foregoing.

(b) If the Trust purchases shares of Stock from a shareholder who
elects nonrecognition of gain under Section 1042 of the Code in connection with
such purchase, any distribution (which includes such shares) to be made within
three (3) years after the date of such purchase shall be deferred until the
Participant incurs a one-year Break in Service if the Participant's Service
terminates for any reason other than retirement (after age 59 1/2), disability
or death.

(c) Notwithstanding the provisions of Section 15(a) and (b),
distribution of a Participant's Capital Accumulation shall commence not later
than sixty (60) days after the Allocation Date coinciding with or next following
his Normal Retirement Age (or his termination of Service, if later). Except as
provided in Section 15(d), the distribution of the Capital Accumulation of any
Participant who is a "5% owner" as defined in Section 416 (i) (1) (B) (i) of the
Code) with respect to the Plan Year in which the Participant attains age 70 1/2
must commence not later than April 1st of the next Plan Year (even if he has not
terminated Service). If the amount of a Participant's Capital Accumulation
cannot be determined (by the Board) by the date on which a distribution is to
commence, or if the Participant cannot be located, distribution of the Capital
Accumulation shall commence within sixty (60) days after the date on which the
Capital Accumulation can be determined or after the date on which the Board
locates the Participant.

(d) If any part of a Participant's Capital Accumulation is retained in
the Trust after the Participant's Service or participation ends, the Account
will continue to be treated as provided in Section 6. However, such Account
shall not be credited with any additional Employer Contributions or Forfeitures.

Section 16. How Capital Accumulation Will Be Distributed.

(a) The Trustee will make distributions from the Trust only as directed by
the Board. Distribution of a Participant's Capital Accumulation will be made in
whole shares of Stock, cash or a

<PAGE>

combination of both, as determined by the Board; provided, however, that the
Board shall notify the Participant of the Participant's right to demand
distribution of the Capital Accumulation entirely in whole shares of Stock (with
the value of any fractional share paid in cash).

(b) If the Articles of Incorporation or by-laws of the Company restrict
the ownership of substantially all outstanding shares of Stock to current
employees and the Trust, the distribution of a Participant's Capital
Accumulation may be made entirely in cash without granting the Participant the
right to demand distribution in Stock. Alternatively, Stock may be distributed
subject to the requirement that it be resold to the Company (or to the Trust) at
fair market value.

(c) Distribution of a Participant's Capital Accumulation will be made
to the Participant if living, and if not, to his Beneficiary, as designated by
the Participant, or if none, his estate. A Participant may designate a different
Beneficiary (and contingent Beneficiaries) from time to time (any may change
such designation at any time) by filing a written designation with the Board. A
deceased Participant's entire Capital Accumulation shall be distributed to his
Beneficiary within five (5) years after his death.

(d) The Company shall furnish the recipient of a distribution with the
tax consequence explanation required by Section 402(f) of the Code and shall
comply with the applicable withholding requirements of Section 3405 of the Code
with respect to distributions from the Trust (other than any dividend
distributions under Section 19). If a Participant's Capital Accumulation exceeds
$3,500, the Capital Accumulation shall not be immediately distributed without
the Participant's consent.

Section 17. Withdrawals.

(a) General Prohibition Against Withdrawals. Except as provided in Section
15, no Participant may withdraw any part of the Account attributable to Employer
Contributions and the earnings, losses, and changes in the fair market value of
such Contributions.

(b) Diversification Distributions.

(1) Notwithstanding any other provision of this Plan, any Participant
who has attained age fifty-five (55) and who has completed at least ten (10)
years of participation in the Plan (hereinafter referred to as a "Qualified
Participant") shall be entitled to elect, within ninety (90) days after the end
of any Plan Year in the Participant's Qualified Election Period, to receive a
distribution of up to twenty-five percent (25%) of the total number of shares of
Stock that have been allocated to the Participant's Account and that were
acquired by or contributed to the Plan after April 28, 1994, less any shares of
such Stock that have previously been distributed to the Participant. With
respect to the last Plan Year in a Participant's Qualified Election Period, the
preceding sentence shall be applied by substituting fifty percent (50%) for
twenty-five percent (25%). An election to receive a distribution of Stock under
this Subsection may not be made by a Qualified Participant unless the fair
market value (as of any computation date during the participant's Qualified
Election Period) of Stock that has been allocated to the Participant's Account
and that was acquired by or contributed to the Plan after April 28, 1994,
exceeds Five Hundred Dollars ($500).

(2) The "Qualified Election Period" for a Qualified Participant is the
period consisting of the five (5) consecutive Plan Years beginning with the Plan
Year after the Plan Year in which the Participant first becomes a Qualified
Participant.

(3) Any distribution of shares of Stock pursuant to a Qualified
Participant's election shall be made within ninety (90) days after the end of
the Plan during which the Qualified Participant made the election.

Section 18. Restrictions on Stock.

<PAGE>

Shares of Stock held or distributed by the Trustee may include such
legend restrictions on transferability as the Company may reasonably require in
order to assure compliance with applicable Federal and State Securities laws.
The provisions of this Section 18 shall continue to be applicable to the Stock
even if the Plan ceases to be an ESOP under Section 4975(e) (7) of the Code.

Section 19. Dividend Distributions.

If so determined by the Board, any cash dividends on the Stock
allocated to the Accounts of Participants may be paid currently (or within
ninety (90) days after the end of the Plan Year in which the dividends are paid
to the Trust) in cash to such Participants on a nondiscriminatory basis, or the
Company may pay such dividends directly to Participants. Such distribution (if
any) of cash dividends to Participants may be limited to Participants who are
still Employees, may be limited to dividends on shares of the Stock which are
then vested or may be applicable to dividends on all shares allocated to
Participants' Accounts.

Section 20. No Assignment of Benefits.

A Participant's Capital Accumulation may not be anticipated, assigned
(either at law or in equity), alienated or subject to attachment, garnishment,
levy, execution or other legal or equitable process except in accordance with a
"qualified domestic relations order" (as defined in Section 414(p) of the Code)
or by applicable laws of descent.

Section 21. Administration.

The Plan will be administered by the Board. The Board members shall be
the named fiduciaries with authority to control and manage the operation and
administration of the Plan.

Board action will be by vote of a majority of the members at a meeting
or in writing without a meeting. Minutes of each meeting or action of the Board
shall be kept. The Board shall make such rules, regulations, computations,
interpretations, and decisions, and shall maintain such records and accounts as
may be necessary to administer the Plan in a nondiscriminatory manner for the
exclusive benefit of the Participants and their Beneficiaries (as required under
the Code and ERISA). The Board shall establish procedures to determine the
qualified status of domestic relations orders and to administer distributions
under such qualified orders (in accordance with Section 414(p) of the Code). The
Board will give instructions to the Trustee on all matters which require
instructions or directions, as provided in this Plan and the Trust Agreement.
The Board may allocate its fiduciary responsibilities among its members and may
designate other persons (including the Trustee) to carry out its fiduciary
responsibilities (other than investment responsibilities), under the Plan.

The Board shall be responsible for directing the Trustee as to the
investment of the Trust Assets. The Board may delegate to the Trustee the
responsibility for investing Trust Assets other than the Stock. The Board shall
establish a funding policy and method for directing the Trustee to acquire Stock
(and for otherwise investing the Trust Assets) in a manner that is consistent
with the objectives of the Plan and the requirements of ERISA. In determining
the fair market value of the Stock for purposes of the Plan, the Board may use
(i) the average of the last reported sale prices of the last ten (10) trading
days preceding such determination date for the Company's Stock on the principal
national securities exchange on which the Stock is listed or traded, (ii) if the
Stock no longer trades on a national securities exchange, the average of the
reported closing bid and asked prices for the last ten (10) trading days
preceding such determination date on the over the counter market as reported by
the National Association of Securities Dealers' Automated Quotation System or,
if not so reported, as reported by any member of the National Association of
securities Dealers, Inc. selected from time to time by the Board for that
purpose or, (iii) if the Stock is no longer traded on the over the counter
market for a national securities exchange, generally accepted methods of

<PAGE>

valuing stock with reliance upon an appraisal of the Stock as may be determined
by an experienced, independent valuation consultant.

The Board is empowered, on behalf of the Plan to employ investment
advisors, accountants, legal counsel and other agents to assist it in the
performance of its duties under the Plan. All reasonable expenses of the Board
shall be paid as provided in Section 8. The Company shall secure fidelity
bonding for the fiduciaries of the Plan, required by Section 412 of ERISA.

The Company or the Trustee (as directed by the Board) may purchase
insurance for the Board (and other fiduciaries of the Plan) to cover liability
or loss occurring by reason of the act or omission of a fiduciary. If such
insurance is purchased with Trust Assets, the insurance must permit recourse by
the insurer against the fiduciary in the case of a breach of a fiduciary
obligation by such fiduciary. The Company shall indemnify each member of the
Board (to the extent permitted by law and the Company's Articles of
Incorporation) against any personal liability or expense.

The Company shall be the Plan Administrator under Section 414(g) of the
Code and under Section 3 (16) (A) of ERISA. The Board shall be the designated
agent of the Plan for the service of legal process.

Section 22. Claims Procedure.

A Participant (or Beneficiary) who does not receive a distribution of
benefits to which the Participant believes entitled may present a claim to the
Board. The claim for benefits must be in writing and addressed to the Board or
to the Company. If the claim for benefits is denied, the Board shall notify the
Participant (or Beneficiary) in writing within ninety (90) days after the Board
initially received the benefit claim. Any notice of a denial of benefits shall
advise the Participant (or Beneficiary) of the basis for the denial, any
additional material or information necessary for the Participant (or
Beneficiary) to perfect his claim and the steps which the Participant (or
Beneficiary) must take to have his claim of benefits reviewed.

Each Participant (or Beneficiary) whose claim for benefits had been
denied may file a written request for a review of his claim by the Board The
request for review must be filed by the Participant (or Beneficiary) within
sixty (60) days after he received the written notice denying his claim. The
decision of the Board will be made within sixty (60) days after receipt of a
request for review and shall be communicated in writing to the Claimant. Such
written notice shall set forth the basis for the Board's decision. If there are
special circumstances (such as the need to hold a hearing) which require an
extension of time for completing the review, the Board's decision shall be
rendered not later than one hundred twenty (120) days after receipt of a request
for review.

Section 23. Guaranties.

A Participant's Capital Accumulation will be based only on the vested
interest in the Accounts under the Plan and will be paid only from the Trust
Assets. The Company, the Trustee or the Board shall not have any duty or
liability to furnish the Trust with any funds, securities or other assets,
except as expressly provided in the Plan.
The adoption and maintenance of the Plan shall not be deemed to
constitute a contract of employment or otherwise between the Company, and any
Employee, or to be a consideration for, or an inducement or condition of, any
employment. Nothing contained in this Plan shall be deemed to give an Employee
the right to be retained in the Service of the Company or to interfere with the
right of the Company to discharge, with or without cause, any Employee at any
time.

Section 24. Future of the Plan.

As future conditions cannot be foreseen, the Company reserves the right
to amend or terminate the Plan (in whole or in part) and the Trust Agreement at
any time by action of the Board. Neither amendment nor termination of the Plan
shall retroactively reduce the vested rights of

<PAGE>

Participants or permit any part of the Trust Assets to be diverted to or used
for any purpose other than for the exclusive benefit of the Participants (and
their Beneficiaries).

The Company specifically reserves the right to amend the Plan and the
Trust Agreement retroactively in order to satisfy any applicable requirements of
the Code and ERISA.

The Company further reserves the right to terminate the Plan in the
event of a determination by the Internal Revenue Service (after a timely
Application for Determination is filed by the Company) that the Plan initially
fails to satisfy the applicable requirements of Section 401(a), 409 and 4975(e)
(7) of the Code. In that event, all Trust Assets shall (upon written direction
of the Company) be returned by the Company, and the Plan and the Trust shall
terminate.

If the Plan is terminated (or partially terminated) pursuant to the
preceding paragraph, participation of Participants affected by the termination
will end. If Employer Contributions are not replaced by contributions to a
comparable plan which meets the requirements of Section 401(a) of the Code, the
Accounts of Participants affected by the termination will become nonforfeitable
as of the date of termination. A complete discontinuance of Employer
Contributions shall be deemed to be a termination of the Plan for this purpose.
After termination of the Plan, the Trust will be maintained until the Capital
Accumulations of all Participants have been distributed. Capital Accumulations
may be distributed following termination of the Plan or distributions may be
deferred as provided in Section 15, as the Company shall determine, subject to
the provisions of Section 15 (d).

In the event of the merger or consolidation of this Plan with another
plan, or the transfer of Trust Assets (or liabilities) to another plan, the
Account balances of each Participant immediately after such merger,
consolidation or transfer must be at least at great as immediately before such
merger, consolidation or transfer (as if the Plan had then terminated).

Section 25. "Top-Heavy" Contingency Provisions.

(a) The provisions of this Section 25 are included in the Plan pursuant
to Section 401(a) (10) (B) (ii) of the Code and shall become applicable only if
the Plan becomes a "top-heavy plan" under Section 416(g) of the Code for any
Plan Year.

(b) The determination as to whether the Plan becomes "top-heavy" for
any such Plan Year shall be made as of the Allocation Date of the immediately
preceding plan Year (as of December 31, 1994, for the first Plan Year). The Plan
shall be "top-heavy" only if the total of the Account balances for "key
employees" as of the determination date exceeds sixty percent (60%) of the total
of the Account balances for all Participants. For such purpose, Account balances
shall be computed and adjusted pursuant to Section 416(g) of the Code, and "key
employees" shall be certain Participants (who are officers or shareholders) and
Beneficiaries, as described in Section 416(i) (1) or (5) of the Code. In
determining "key employees" under this Section 25(b), the term "annual
compensation" in Section 416(i) (1) (A) of the Code shall mean Compensation (as
defined in Section 2).
(c) For any Plan year in which the Plan is "top-heavy", each
Participant who is an Employee on the Allocation Date (and who is not a "key
employee") shall receive a minimum allocation of Employer Contributions and
Forfeitures which is equal to the lesser of:

(1) Three percent (3%) of his Compensation; or

(2) The same percentage of his Compensation as the allocation to the
"key employee" for whom the percentage is the highest for that Plan Year.

(d) For any Plan Year in which the Plan is "top-heavy", Compensation of
each Employee for purposes of the Plan shall not take into account any amount in
excess of $150,000, as adjusted for increase in the cost of living.

<PAGE>

(e) As of the first day of any Plan Year in which the Plan has become
"top heavy", the vesting schedule in Section 13(a) shall be amended to read as
follows:

Credited Nonforfeitable
Service Percentage
Less than One Year 0%
More than One Year, Less than Two Years 33%
More than Two Years, Less than Three Years 66%
Three or More Years 100%

If the Plan ceases to be "top heavy", the Capital Accumulation of a
Participant who, at that time, has less than three (3) years of Credited Service
shall thereafter be determined under the vesting schedule in Section 13(a),
instead of vesting schedule in this Section 25(e), except that his
nonforfeitable percentage shall not be reduced below the nonforfeitable
percentage that he had at the time the Plan ceased to be "top heavy". If the
Plan ceases to be "top heavy", the Capital Accumulation of a Participant who, at
that time, has three (3) or more years of Credited Service shall continue to be
determined under the vesting schedule in this Section 25(e).

(f) Total Employer Contributions under this Plan plus any other Company
contributions under any defined benefit or defined contribution plan allocated
to any Participant in any Plan Year shall not exceed amounts permitted under
Section 416 of the Code or any other applicable law. The Board may at its
discretion reduce and or reallocate contributions under this Plan or any other
plan in order to comply with such law.

Section 26. Governing Law.

The provisions of the Plan and the Trust Agreement shall be construed,
administered and enforced in accordance with the laws of the State of Missouri,
to the extent such laws are not superseded by ERISA.

Section 27. Execution.

To record the adoption of the Plan, the Company has caused this
document to be executed on this 28th day of April, 1994.

PANACO, Inc.

By:
President

By:
Secretary

<PAGE>

Exhibit 10.13

PANACO, INC.
EMPLOYEE STOCK OWNERSHIP TRUST

THIS AGREEMENT, made and entered into this _____ day of December 1994,
by and between PANACO, INC., a Delaware corporation (the "Company"), and UMB
Bank, a national banking association (the "Trustee").

WITNESSETH:

WHEREAS, the Company has established an employee stock ownership plan
(as described in Section 4975(e)(7) of the Internal Revenue Code of 1986, as it
may be amended from time to time (the "Code")), which is known as the Panaco,
Inc. Employee Stock Ownership Plan ("Plan"), a copy of which, as amended from
time to time, will be filed with the Trustee; and

WHEREAS, the Plan is established for the exclusive benefit of the
eligible employees of the Company.

NOW, THEREFORE, and pursuant to the authority delegated to the
undersigned officers of the Company by resolution of its Board of Directors
adopted on April 28, 1994, IT IS AGREED, by and between the parties hereto, that
the trust provisions shall constitute the agreement between the Company and the
Trustee in connection with the Plan; and

IT IS FURTHER AGREED that the Trustee hereby accepts its appointment as
such under this Trust Agreement, effective as of the day and year first written
above; and

IT IS FURTHER AGREED, by and between the parties hereto as follows:

ARTICLE I - Name

This Trust Agreement and Trust hereby evidenced shall be known as "PANACO,
INC. EMPLOYEE STOCK OWNERSHIP TRUST".

ARTICLE II - Management and Control of Trust Fund Assets

II-1. The Trust Fund. The Trust Fund as at any date means all property of
every kind then held by the Trustee pursuant to the Trust.

II-2. General Powers. Subject to the provisions of paragraphs II-4 and II-5
and Article III, with respect to the Trust Fund, the Trustee shall have the
following powers, rights and duties in addition to those provided elsewhere in
this Trust Agreement, the Plan or by law:

<PAGE>

(a) to receive and to hold all contributions paid to it under the Plan;
provided, however, that the Trustee shall have no duty to require any
contributions to be made to it, to determine that the contributions received by
it comply with the provisions of the Plan or with any resolution of the Board of
Directors of the Company;

(b) to retain in cash (pending investment, reinvestment or the payment of
dividends) such reasonable amount as may be required for the proper
administration of the Trust and to invest such cash as provided in paragraph
III-1;

(c) to make payments from the Trust Fund to such persons, in such manner,
at such times and in such amounts as the Committee (as described in paragraph
II-5) shall direct without inquiring as to whether a payee is entitled to the
payment, or as to whether a payment is proper, and without liability for a
payment made in good faith without actual notice or knowledge of the changed
condition or status of the payee;

(d) as directed by the Committee, to borrow from any lender (including the
Company) to finance the acquisition of Stock (as defined in Section 2 of the
Plan), giving its note as Trustee with such reasonable interest and security
(which shall only consist of Stock to the extent that proceeds of the loan are
used to purchase Stock or to refinance a prior Acquisition Loan (as defined in
Section 2 of the Plan)) for the loan as may be appropriate or necessary,
provided that such borrowing shall comply with the applicable provisions of the
Plan;

(e) as directed by the Participants of the Plan, to vote any stocks
(including Stock as provided in Section 9 of the Plan), bonds or other
securities held in the Trust and allocated to such Participants, or otherwise
consent to or request any action on the part of the issuer in person or by
proxy;

(f) as directed by the Committee, to deposit securities in any voting
trust, or with any protective or like committee, or with a trustee or with
depositories designated thereby;

(g) as directed by the Committee, to contract or otherwise enter into
transactions between itself, as Trustee, and the Company or any Company
shareholder, for the purpose of acquiring or selling Stock and absent any
direction by the Committee, shall retain such Stock;

(h) as directed by the Committee, to compromise, contest, arbitrate, settle
or abandon claims and demands;

(i) as directed by the Committee, to begin, maintain or defend any
litigation necessary in connection with the investment, reinvestment and
administration of the Trust, provided, however, that the Trustee shall not be
obligated to take any action which would subject it to expense or liability
unless it first be indemnified in an amount and manner satisfactory to it, or be
furnished with funds sufficient in its sole judgment to cover the expense or
liability;

<PAGE>

(j) to retain any funds or property subject to any dispute without
liability for the payment of interest, or to decline to make payment or delivery
thereof until final adjudication is made by a court of competent jurisdiction;

(k) to report to the Committee and the Company as of the last day of each
Plan Year, as of any Allocation Date (as defined in Section 2 of the Plan) (or
as soon thereafter as practicable), or at such other times as may be required
under the Plan, the then "Net Worth" of the Trust Fund, that is, the fair market
value of all property held in the Trust Fund, reduced by any liabilities other
than liabilities to Participants (as defined in Section 2 of the Plan) in the
Plan and their Beneficiaries (as defined in Section 2 of the Plan), as
determined by the Trustee;

(l) to furnish to the Committee and the Company an annual written account
and accounts for such other periods as may be required under the Plan, showing
the Net Worth of the Trust Fund at the end of the period, all investments,
receipts, disbursements and other transactions made by the Trustee during the
accounting period, and such other information as the Trustee may possess which
the Committee or the Company requires in order to comply with Section 103 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). All
Accounts (as defined in Section 2 of the Plan) of the Trustee shall be kept on
an accrual basis. If, during the term of this Trust Agreement, the Depart ment
of Labor issues regulations under ERISA regarding the valuation of securities or
other assets for purposes of the reports required by ERISA, the Trustee shall
use such valuation methods for purposes of the Accounts described by this
paragraph. All valuations of shares of Stock, which are not publicly traded on a
national securities market or exchange, shall be made by an "Independent
Appraiser" (as described in Section 401(a)(28) of the Code);

(m) to pay any estate inheritance, income or other tax, charge or
assessment attributable to any benefit which, as directed by the Committee, it
shall or may be required to pay out of such benefit; and to require before
making any payment such release or other document from any taxing authority and
such indemnity from the intended payee as the Trustee shall deem necessary for
its protection;

(n) to employ agents, attorneys, actuaries, accountants or other persons
(who also may be employed by or may represent the Company) for such purposes as
the Trustee considers desirable;

(o) to assume, until advised to the contrary, that the Trust evidenced by
this Trust Agreement is qualified under Section 401(a) of the Code and is
entitled to tax exemption under Section 501(a) thereof;

(p) to have the authority to invest and reinvest the assets of the Trust
Fund in real or personal property of any kind, except that assets attributable
to Employer Contributions (as defined in Section 2 of the Plan) shall, at such
time or times as directed by the Committee, primarily be invested in Company
Stock;

<PAGE>

(q) to perform any and all other acts in its judgment necessary or
appropriate for the proper and advantageous management, investment and
distribution of the Trust Fund;

(r) to invest all or a part of the assets of the Trust and deposits in its
own banking department or in any other bank or similar financial institution
supervised by the United States or any state, provided that the deposits have a
reasonable rate of interest; and

(s) to transfer moneys and assets of this Trust to the FUND FOR POOLING
EQUITY INVESTMENTS OF EMPLOYEE TRUSTS or the FUND FOR POOLING DEBT INVESTMENTS
OF EMPLOYEE TRUSTS, or both of them, each of such Funds having been created by a
separate instrument entitled "Trust Agreement and Declaration", dated the 5th
day of December 1955, the City National Bank and Trust Company of Kansas City
(now known as UMB Bank, n.a.) being named trustee of such fund. The Trustee
shall also have full power and authority to transfer moneys and assets of this
Trust Account to the POOLED INCOME FUND FOR EMPLOYEE TRUSTS created and
maintained by UMB Bank, n.a., as trustee thereof under separate instrument
entitled "Plan and Declaration of Trust", dated December 27, 1974, (hereinafter
collectively, "Funds"). The Trustee hereby appoints UMB Bank as its Agent for
purposes of utilizing the Funds. Said instruments are made a part hereof as
fully as if set forth at length at this place. Moneys and assets placed in such
Funds shall be held and administered by the trustee thereof strictly in
accordance with the terms of, and under the powers granted in, said instru
ments. The commingling of moneys and assets of this Trust with moneys and assets
of other qualified participating trusts in such Funds is specifically
authorized. The Trustee shall have full power and authority, in its absolute
discretion, to determine the respective amount or proportion of the moneys and
assets of this Trust Account so transferred to either or all of such Funds at
any time and from time to time.

II-3. Compensation and Expenses. The Trustee shall be entitled to
reasonable compensation for its services, as agreed to between the Company and
Trustee from time to time in writing. The Trustee is authorized to pay from the
Trust Fund such fees and all of the Trustee's expenses, taxes and charges
(including fees of persons employed by them in accordance with subparagraph
II-2(n)) incurred in connection with the collection, administration, management,
investment, protection and distribution of the Trust Fund to the extent that
they are not paid directly by the Company.

II-4. Exercise of Trustee's Duties. The Trustee shall discharge its duties
hereunder solely in the interest of the Plan Participants and other persons
entitled to benefits under the Plan, and;

(a) for the exclusive purpose:

(i) providing benefits to Participants and other persons entitled to
benefits under the Plan; and

(ii) defraying reasonable expenses of administering the Plan;

<PAGE>

(b) with the care, skill, prudence, and diligence under the
circumstances than prevailing that a prudent person acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims; and

(c) in accordance with the documents and instruments governing
the Plan insofar as such documents and instruments are consistent with the
provisions of ERISA.

II-5. Plan Administration. Except as provided in paragraph II-6 below, the
Plan shall be administered by a committee appointed by the Board of Directors of
the Company (the "Committee"). The Secretary of the Company shall from time to
time, certify the names of the members of the Committee.

II-6. Initial Trustee Responsibilities. Notwithstanding any provision to
the contrary, if the Trustee is offered the opportunity to purchase a majority
of the outstanding Stock (determined on a post-transaction basis) and to enter
into a series of related transactions which would result in the Trustee owning
all of the outstanding Stock (determined on a post-transaction basis) the
Trustee is authorized to independently determine whether to participate in such
purchase and series of related transactions, and to negotiate any and all terms
of its participation in such transactions in its sole discretion without
direction from the Committee.

ARTICLE III - Provisions Related to Investment in Company Stock

III-1. Investment of Cash. If an Employer Contribution made pursuant to the
provisions of Section 4 of the Plan for any Plan Year is in cash, such cash
shall be used first to make any scheduled or accelerated amortization payment on
an Acquisition Loan and, if any amounts remain thereafter, to purchase Stock at
such time as the Trustee is directed by the Committee. Subject to the provisions
of paragraph II-2 and Section 6 of the Plan, any cash dividends received by the
Trustee on Stock held in the Trust Fund shall be applied, at such time as the
Committee directs after the receipt of such cash dividends, to the purchase of
additional shares of Stock. The Trustee is authorized to purchase Stock with the
assets contained in the Participants' Other Investments Account. The Trustee is
further authorized to purchase Stock from the Company or from any shareholder,
and such Stock may be outstanding, newly issued or treasury stock. All such
purchases must be at a price not in excess of fair market value, as determined
by an Independent Appraiser where such Stock is not publicly traded. Pending
investment of cash in Stock, such cash may be invested in savings accounts,
certificates of deposit, high-grade short-term securities, common or preferred
stocks, bonds, or other investments, or may be held in cash. Such investments
may include any collective investment trust which provides for the pooling of
assets of plans described in Section 401(a) of the Code and exempt from tax
under Section 501(a) of the Code, including any such trust maintained by the
Trustee.

III-2. Stock Dividends, Splits and Other Capital Reorganizations. Any Stock
received by the Trustee as a stock split or dividend or as a result of a
reorganization or other recapitalization of the Company shall be allocated as of
each Allocation Date under the Plan in proportion to the Stock to which it is
attributable.

<PAGE>

III-3. Voting of Shares and Tender or Exchange Offers. Stock held in the
Trust Fund shall be voted by the Trustee in the manner set forth in Section 9 of
the Plan.

ARTICLE IV - Miscellaneous

IV-1. Disagreement as to Acts. If there is a disagreement between the
Trustee and anyone as to any act or transaction reported in any accounting, the
Trustee shall have the right to have its account settled by a court of competent
jurisdiction.

IV-2. Persons Dealing With Trustee. No person dealing with the Trustee
shall be required to see to the application of any money paid or property
delivered to the Trustee, or to determine whether or not the Trustee is acting
pursuant to any authority granted to it under this Trust Agreement or the Plan.

IV-3. Benefits May Not Be Assigned or Alienated. The interests under the
Plan and this Trust Agreement of Participants and other persons entitled to
benefits under the Plan are not subject to the claims of their creditors and may
not be voluntarily or involuntarily assigned, alienated or encumbered, except to
the extent provided in Section 20 of the Plan.

IV-4. Indemnification of Trustee. To the extent permitted by applicable
law, the Trustee shall be indemnified by the Company against any and all
liabilities, settlements, judgments, losses, costs, and expenses (including
reasonable legal fees and expenses) of whatever kind and nature which may be
imposed on, incurred by or asserted against the Trustee by reason of the
performance or nonperformance of a Trustee's function if such action did not
constitute gross negligence or willful misconduct. Furthermore, the Company
agrees to indemnify the Trustee against any liability imposed as a result of a
claim asserted by any person or persons under federal or state law where the
Trustee acts in good faith. The foregoing right of indemnification shall be in
addition to other rights of the Trustee by law or by reason of insurance
coverage of any kind. The Company may, at its own expense, and as allowed by
law, settle any claim asserted or proceeding brought against the Trustee when
such settlement appears to be in the best interests of the Company. If the
Company obtains fiduciary liability insurance to protect the Trustee, the
provisions of this paragraph IV-4 shall be applicable only to the extent that
such insurance coverage is insufficient.

IV-5. Evidence. Evidence required of anyone under this Trust Agreement may
be by certificate, affidavit, document or other instrument which the person
acting in reliance thereon considers pertinent and reliable, and signed, made or
presented by the proper party.

IV-6. Waiver of Notice. Any notice required under this Trust Agreement may
be waived in writing by the person entitled thereto.

IV-7. Counterparts. This Trust Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and no other
counterparts need be produced.

<PAGE>

IV-8. Governing Laws. This Trust Agreement shall be construed and
administered according to the laws of the State of Missouri to the extent that
such laws are not preempted by the laws of the United States of America.

IV-9. Successors, Etc. This Trust Agreement shall be binding on the
Company, the Trustee and their successors and on all persons entitled to
benefits under the Plan and their respective heirs and legal representatives.

IV-10. Successors to Company. If provision is made for a successor to
Company or a purchaser of all or substantially all of Company's assets to
continue the Plan, such successor or purchaser shall be substituted for Company
under this Trust Agreement.

IV-11. Action by Company. Any action required or permitted to be taken by
the Company under this Trust Agreement shall be by resolution of its Board of
Directors or by a person or persons authorized by resolution of its Board of
Directors.

ARTICLE V - No Reversion to Company

No part of the corpus or income of the Trust Fund shall revert to the
Company or be used for, or diverted to, purposes other than for the exclusive
benefit of Participants and other persons entitled to benefits under the Plan,
except as provided below:

(a) Employer Contributions under the Plan for the first Plan Year are
conditioned on the initial qualification of the Plan under Section 401(a) of the
Code for that year, and, if the Plan does not so qualify, the Trustee shall,
upon written request of the Company, return to the Company the amount of any
contribution made by Company under the Plan for such year, reduced by the amount
of any losses thereon, increased by the amount of any increment thereon, within
one year after the date that qualification of the Plan is denied, but only if an
application for qualification is submitted within the time prescribed by law;

(b) if a contribution or any portion thereof is made by the Company by a
mistake of fact, the Trustee shall, upon written request of the Company, return
the contribution or such portion, reduced by the amount of any losses thereon,
to the Company within one year after the date of payment to the Trustee;

(c) the contributions of the Company under the Plan are conditioned upon
the deductibility thereof under Section 404 of the Code, and, to the extent any
such deduction is disallowed, the Trustee shall, upon written request of the
Company, return the amount of the contribution (to the extent disallowed),
reduced by the amount of any losses thereon, to the Company within one year
after the date the deduction is disallowed; and

(d) if, upon termination of the Plan with respect to the Company, any
amounts are held in a Suspense Account which are attributable to the
contributions of the Company, and such amounts may
7

<PAGE>

not be credited to the Accounts of Participants, such amounts will be
returned to the Company as soon as practicable after the termination of the Plan
with respect to the Employer.
ARTICLE VI - Change of Trustee

VI-1. Resignation. The Trustee may resign at any time by giving thirty (30)
days advance written notice to the Company.

VI-2. Removal of the Trustee. The Company may, at its discretion, remove a
Trustee by giving thirty (30) days advance written notice to the Trustee,
subject to providing the removed Trustee with satisfactory written evidence of
the appointment of a successor Trustee and of the successor Trustee's acceptance
of the trusteeship.

VI-3. Duties of Resigning or Removed Trustee and of Successor Trustee. If
the Trustee resigns or is removed, it shall promptly transfer and deliver the
assets of the Trust Fund to the successor Trustee, after reserving such
reasonable amount as it shall deem necessary to provide for expenses and any
sums chargeable against the Trust Fund for which it may be liable. Within 120
days, the resigned or removed Trustee shall furnish to the Company and the
successor Trustee an accounting of its administration of the Trust from the date
of its last accounting. Each successor Trustee shall succeed to the title to the
Trust Fund vested in his predecessor without the signing or filing of any
further instrument, but any resigning or removed Trustee shall execute all
documents and do all acts necessary to vest such title or record in any
successor Trustee. Each successor shall have all the powers, rights and duties
conferred by this Trust Agreement as if originally named Trustee. No successor
trustee shall be personally liable for any act or failure to act of a
predecessor Trustee.

VI-4. Filling Trustee Vacancy. The Company may fill a vacancy in the office
of trustee as soon as practicable by writing filed with the person or entity
appointed to fill the vacancy.

ARTICLE VII - Amendment and Termination

VII-1. Amendment. Subject to the provisions of Article V, the Company
reserves the right to amend the Trust Agreement at any time, except that no
amendment shall substantially change the rights, duties and liabilities of the
Trustee under this Trust Agreement without its consent.

VII-2. Termination. If the Plan, as applied to the Employer, is terminated,
all of the provisions of the Trust evidenced by this Trust Agreement
nevertheless shall continue in effect until the entire Trust Fund has been
distributed by the Trustee in accordance with the provisions of the Plan. If the
Plan, as applied to the Company, is terminated, all of the provisions of the
Trust evidenced by this Trust Agreement, as applied to the Company, nevertheless
shall continue in effect until the portion of the Trust Fund attributable to
employees and former employees of Company has been distributed in its entirety
by the Trustee in accordance with the provisions of the Plan.

<PAGE>

IN WITNESS WHEREOF, the Company and Trustee have caused these presents
to be signed and their seals to be hereunto affixed and attested by their duly
authorized officers all as of the day and year first above written.

PANACO, INC.

ATTEST:
By:_____________________________________
_________________________ H. James Maxwell, President
Secretary

UMB BANK, N.A.

ATTEST:
By:_____________________________________
- - -------------------------
Secretary
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has
duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Kansas
City, State of Missouri on June 13, 1996.

PANACO, INC.

By: \s\ H. James Maxwell
H. James Maxwell, President & CEO

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>

Signature Title Date

<S> <C> <C>
\s\ H. James Maxwell Chairman of the Board, Chief Executive Officer, 06/13/96
H. James Maxwell, President, and Director (principal executive officer)

\s\ Bob F. Mallory Chief Operating Officer, Executive Vice President, 06/13/96
Bob F. Mallory and Director

\s\ Todd R. Bart Chief Financial Officer, Secretary, and 06/13/96
Todd R. Bart Treasurer

* Executive Vice President and Director 06/13/96
Larry M. Wright

* Director 06/13/96
N. Lynn Sieverling

* Director 06/13/96
A. Theodore Stautberg

*By: \s\ H. James Maxwell
H. James Maxwell
Attorney-in-Fact
</TABLE>