SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant |X|
Filed by a Party other than the Registrant | |

Check the appropriate box:

PANACO, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

|X| No fee required.
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction
applies: _____________________________________________________________
2) Aggregate number of securities to which transaction
applies:______________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was
determined):__________________________________________________________
4) Proposed maximum aggregate value of transaction: __________________
5) Total fee paid:____________________________________________________

| | Fee paid previously with preliminary materials.
| | Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11 (a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ___________________________________________
2) Form, Schedule or Registration Statement No.: _____________________
3) Filing Party: _____________________________________________________
4) Dated Filed: ______________________________________________________

PANACO, INC.

1100 Louisiana
Suite 5100
Houston, Texas 77002

Annual Meeting - June 12, 2001

May 8, 2001
Dear Fellow Stockholder:

You are cordially invited to attend the 2001 Annual Meeting of Stockholders
of PANACO, Inc. to be held at 9:00 a.m., Tuesday, June 12, 2001, in the lobby
meeting room of the Company's headquarters, 1100 Louisiana, Houston, Texas
77002. A complimentary breakfast will be available to all Stockholders beginning
at 8:30 a.m. CST. Your Board of Directors and management look forward to
greeting personally those stockholders able to attend.

At this Annual Meeting, as more fully set forth in the accompanying Notice
of Annual Meeting and Proxy Statement, stockholders are being asked to elect
three Directors to serve for three-year terms.

Please take a few minutes today to review this proxy statement and record
your vote. To make voting easier, you may vote by telephone or on the Internet
by following the instructions that appear on the enclosed proxy insert or you
may sign and return the enclosed proxy card.

On behalf of your Board of Directors.

Sincerely,

/s/ Robert G. Wonish
-------------------------------------
Robert G. Wonish
Chief Operating Officer and President

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

PLEASE SIGN, DATE AND MAIL PROMPTLY
THE ENCLOSED WHITE PROXY CARD

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

PANACO, INC.

1100 Louisiana
Suite 5100
Houston, Texas 77002

NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS

To the Stockholders:

The 2001 Annual Meeting of Stockholders (the "Annual Meeting") of PANACO,
Inc. (the "Company") will be held in the lobby meeting room of the Company's
headquarters, 1100 Louisiana, Houston, Texas 77002, on Tuesday, June 12, 2001,
at 9:00 a.m. for the following purposes:

1. To elect three Class III Directors for three-year terms ending at the
annual meeting of stockholders in the year 2004;

2. To act upon such other matters as may properly come before the Annual
Meeting.

Only stockholders of record at the close of business on May 1, 2001 will be
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof. Please note that attendance at the Annual Meeting will be limited to
stockholders (or their authorized representatives) as of May 1, 2001, the record
date, and to guests of the Company.

YOUR VOTE IS IMPORTANT

The vote of each stockholder is important, regardless of the number of
shares held. Whether or not you plan to attend the Annual Meeting, please sign,
date and mail the accompanying proxy card promptly in the enclosed postage-paid
envelope. You can also vote by telephone or on the Internet by following the
instructions on the enclosed proxy card. You may also attend the annual meeting
and cast your vote there.

Thank you for your cooperation and support.

/s/ Todd R. Bart
-----------------------------------
Todd R. Bart
Secretary

PANACO, INC.

1100 Louisiana
Suite 5100
Houston, Texas 77002

PROXY STATEMENT

This Proxy Statement and the accompanying form of proxy are being mailed to
stockholders on or about May 8, 2001 in connection with the solicitation of
proxies by the Board of Directors of PANACO, Inc. (the "Company") for use at the
2001 Annual Meeting of the Stockholders to be held at 9:00 a.m. on Tuesday, June
12, 2001, and at any postponement or adjournment thereof (the "Annual Meeting").

At the Annual Meeting, stockholders will be asked to:

1. To elect three Class III Directors for three-year terms ending at the
annual meeting of stockholders in the year 2004;

2. To act upon such other matters as may properly come before the Annual
Meeting.

On the record date, May 1, 2001, the outstanding voting securities of the
Company consisted of 24,359,695 shares of the Company's Common Stock, par value
$.01 per share ("Common Stock"), all of one class. Each share of Common Stock
has one vote on each matter presented for action at the Annual Meeting.

The cost of soliciting proxies will be borne by the Company. Copies of
solicitation material may be furnished to brokers, custodians, nominees and
other fiduciaries for forwarding to beneficial owners of shares of the Company's
Common Stock, and normal handling charges may be paid for such forwarding
service. Solicitation of proxies may be made by mail, personal interview,
telephone and facsimile by Officers and other management employees of the
Company, who will receive no additional compensation for their services.

Voting

Shares of Common Stock can be voted at the Annual Meeting only if the
stockholder is represented by proxy or is present in person. A stockholder
giving a proxy in the accompanying form retains the power to revoke it by a
later dated appointment or by giving notice of revocation to the Company in
writing or by voting in open meeting. Any such notices should be directed to
Todd R. Bart, Secretary of the Company, at the address set forth above. Shares
of Common Stock for which proxies are properly executed and returned prior to
the Annual Meeting will be voted in accordance with the instructions contained
therein or, in the absence of contrary instructions, such shares will be voted:
(1) to elect three Class III Directors for three-year terms ending at the annual
meeting of stockholders in the year 2004, and (2) to act in the proxies'
discretion upon such other matters as may properly come before the Annual
Meeting.

Abstentions and broker non-votes are each included in the determination of
the number of shares present and voting for the purposes of determining the
presence of a quorum. A proxy submitted by a stockholder may indicate that all
or a portion of the shares represented by such proxy have not been voted by such
stockholder with respect to a particular matter. This may occur, for example,
when a broker is not permitted to vote stock held in street name on certain
matters in the absence of instruction from the beneficial owner of the stock.
The shares subject to any such proxy which have not been voted with respect to a
particular matter (the "Non-Voted Shares") will be treated as shares not present
and entitled to vote on such matter, although such shares may be considered
present and entitled to vote for other purposes and will count for purposes of

determining the presence of a quorum. Shares voted to abstain as to a particular
matter will not be considered Non-Voting Shares.

The election of Directors requires a plurality of the votes. Thus,
abstentions and Non-Voted Shares will not affect the outcome of the election of
Directors.

YOUR VOTE IS IMPORTANT. Please sign, date and promptly mail your proxy card
so that a quorum may be represented at the Annual Meeting or vote by telephone
or Internet by following the instructions on the enclosed proxy insert.

BOARD OF DIRECTORS

General Information

The Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance and governance of the
Company, although it is not involved in day-to-day operating details. Directors
are kept informed of the Company's business by various reports and documents, as
well as by operating and financial reports presented at Board and committee
meetings by the Company's Executive Officers.

Meetings of the Board of Directors are regularly held each quarter.
Additional meetings of the Board, including meetings by telephone conference
call, may be called whenever needed. The Board of Directors of the Company held
six (6) meetings in 2000, two (2) of which were by telephone conference call.
During that period, each incumbent director attended at least 75% of the total
number of meetings of the Board of Directors that were held after his election
to the Board.

ELECTION OF DIRECTORS
(Item 1 on Proxy Card)

The Board of Directors of the Company presently consists of seven members,
six of whom are independent non-employees of the Company. The Company's
Certificate of Incorporation requires that the Directors be divided into three
classes, with an equal number of Directors in each class when possible. At each
annual meeting of stockholders, Directors constituting a class are elected to
hold office until the third annual meeting of stockholders following their
election. The term of the present Class III Directors expires in 2001. The Board
of Directors has nominated Messrs. Kreamer, Wonish and Hebard, III for election
as Directors in Class III. The two Directors in Class I continue to serve until
the 2002 annual meeting of stockholders and the two Directors in Class II
continue to serve until the 2003 annual meeting of stockholders, and until their
respective successors are elected and qualified.

It is intended that shares of Common Stock represented by the accompanying
form of proxy will be voted for the election of the nominees, unless contrary
instructions are indicated as provided on the proxy card. If you do not wish
your shares to be voted for a particular nominee, you may so indicate on the
proxy card. The shares of Common Stock vote as a single class for the election
of Directors. If one or more of the nominees should at the time of the meeting,
be unavailable or unable to serve as a candidate, the shares represented by the
proxies will be voted to elect the remaining nominees and any substitute nominee
or nominees designated by the Board of Directors. The Board of Directors knows
of no reason why any of the nominees will be unavailable or unable to serve.

For each Director of the Company, including those nominated for election,
following is a brief description of each nominee or Director's principal
occupation and business experience during the last five years, directorships of
publicly held companies presently held by any nominee or Director, age and
certain other information. When indicating the tenure with the Company of each

Director, the "Company" means the present corporation (post-August 1992) and Pan
Petroleum MLP ("PAN") (pre- September 1992).

Class III Directors and Nominees

James B. Kreamer, age 62. Mr. Kreamer, a Director of the Company since
1993, 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. He serves on the Compensation Committee.

Robert G. Wonish, age 47. Mr. Wonish began his affiliation with the Company
in January 1992 as a consulting engineer. During his tenure with the Company his
duties have expanded and developed, culminating with his current position of
President and Chief Operating Officer. Mr. Wonish began his career with Amoco in
1975, after receiving his B.S. Degree in Mechanical Engineering from the
University of Missouri-Rolla. He left Amoco and went to work for Texas
International Petroleum in Oklahoma City as a Field Project Manager. In 1984,
Mr. Wonish went to work for Ladd Petroleum where he assumed numerous operational
duties leading to the position of District Superintendent for the Gulf Coast
Region. After the sale of Ladd Petroleum in December, 1990, Mr. Wonish then
provided consulting services for drilling, completion and production operations
to various oil and gas exploration and production companies.

George W. Hebard, III, age 28. The Board appointed Mr. Hebard as a Director
in August 2000. Since August 1998, Mr. Hebard has been an Associate at Icahn
Associates Corp., a diversified investment firm. From 1995 to June 1998, Mr.
Hebard was an analyst at J.P. Morgan & Co., Inc., a global financial services
firm. From April 1999 to September 1999, Mr. Hebard served as a Director of
Delicious Brands, Inc. Mr. Hebard holds a B.A. in economics from Princeton
University.

Class I Directors

A. Theodore Stautberg, Jr., age 54. Mr. Stautberg, a Director of the
Company since 1993 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 natural gas business, assists others in
financing energy and other transactions, and serves as general partner of
Triumph Production L.P. Mr. Stautberg is also the Chairman and a Director of
Triumph Securities Corporation and President of 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 1972 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. He serves on the Audit and Executive Committees.

Felix Pardo, age 63. Mr. Pardo, a Director of the Company since 1999,
received an MBA degree from the Wharton Business School of the University of
Pennsylvania in 1963 and a B. A. in economics from Brown University in 1960. Mr.
Pardo serves as a member of the Board of Directors of Dyckerhoff, Inc, a cement
production and distribution company, Newalta Corp., an oil field waste company,
and Philip Services Corp., a metals recycling and industrial services company.
From July 1998 to the present, he has been Chairman and Chief Executive Officer
of Dyckerhoff, Inc. He is also Chairman and a Director of Lonestar Industries,
Inc. and Glens Falls Lehigh Cement, both of which are subsidiaries of
Dyckerhoff, Inc. He was President of Philip Services Corp. from March 1998
through November 1998. From May 1992 through March 1998, he served as President
of Ruhr American Coal Corporation and Chairman of Newalta Corp. Mr. Pardo was
elected to fill a vacancy on the Board of Directors pursuant to an agreement
between High River Limited Partnership and the Company in connection with the
purchase of Common Stock by High River Limited Partnership from Leonard
Tallerine, formerly a member of the Board of Directors. He serves on the Audit
Committee.

Class II Directors

Stanley N. Nortman, age 61. The Board appointed Mr. Nortman as a Director
in September 1999. Mr. Nortman has been the President of Nortman Associates, a
marketing and consulting company from 1988 to the present. From 1988 to 1992 Mr.
Nortman was the Chairman of the Galaxy Group, a completion and bonding company.
Mr. Nortman was also the President of the Travel Channel from 1991 until its
sale in 1992. In 1968 Mr. Nortman founded Nortman Metals, a metal fabrication
company, for which he served as its President and CEO until 1983. Mr. Nortman
received a BBA degree from Hofstra University in 1963. He serves on the
Compensation Committee.

Harold First, age 64. Mr. First has been a Director of the Company since
September 1997. Since January 1993 he has been an independent financial
consultant. From December 1990 through January 1993, Mr. First served as Chief
Financial Officer of Icahn Holding Corp., a privately held holding company, and
related entities. He has been a Director of Taj Mahal Holding Corporation, a
public casino and gaming corporation, and a Director of Trump Taj Mahal Realty
Corporation, a privately held real estate company, from October 1991 until
September 1996. Mr. First was a member of the Supervisory Board of Directors of
Memorex Telex N.V., a public technology company, from February 1992 until
February 1997. He served as a Director of TALK.com, a public long distance
telephone service company, from September 1995 to November 1999. From April 1995
to November 1999 Mr. First served as a Director of Cadus Pharmaceutical
Corporation, a biotech research company. He was a director of Trans World
Airlines, Inc., a public airline company from December 1990 through January
1993; a Director of ACF Industries, Inc., a privately held railcar leasing and
manufacturing company, from February 1991 through December 1992; Vice Chairman
of the Board of Directors of American Property Investors, Inc.; the general
partner of American Real Estate Partners, L.P., a public limited partnership
that invests in real estate, from March 1991 through December 1992; and a
Director of both Marvel Entertainment Group, Inc., a public company that
publishes comic books and develops, sells and licenses comic books and comic
book characters, and Toy Biz, Inc., a public company that markets and sells
toys, from June 1997 through April 1998. Mr. First has been a Director of Philip
Services Corporation, a leading integrated provider of industrial and metals
service, since November 1998. Mr. First is a Certified Public Accountant and
holds a B.S. from Brooklyn College.

Committees of the Board

The committees established by the Board of Directors to assist it, in the
discharge of its responsibilities are described below.

Audit Committee. The Audit Committee meets with management to consider the
adequacy the internal controls of the Company and the objectivity of its
financial reporting. The Audit Committee recommends to the Board the appointment
of the independent accountants. The independent accountants periodically meet
alone with the Committee and have unrestricted access to the Committee. Members
of the Audit Committee are A. Theodore Stautberg, Jr., Felix Pardo and Harold
First. The Audit Committee met five (5) times in 2000.

Compensation Committee. The Compensation Committee makes recommendations to
the Board with respect to the compensation of senior management of the Company
and the PANACO, Inc. Long Term Incentive Plan (the "Long Term Incentive Plan").
Members of the Compensation Committee are James B. Kreamer and Stanley N.
Nortman. The Compensation Committee met one (1) time in 2000.

Executive Committee. The Board established an Executive Committee in August
1998 and restated its Charter in February 1999. The Executive Committee consists
of two members. Members of the Executive Committee are A. Theodore Stautberg,
Jr. and Harold First. The Executive Committee has the authority to approve all
checks in excess of $10,000, expense reports of the Executive Officers of the

Company, and review all acquisitions or draws on the Company's line of credit
and all press releases. In addition, the Committee reviews all financial
statements, budgets, and other financial matters including hedging, drilling and
exploration costs and preparation of reserve reports. The Executive Committee
met twenty-three (23) times in 2000.

The Company does not have a standing nominating committee.

Compensation of Directors

Non-employee Directors are compensated for their services by receiving
$2,000 for attending Board of Directors meetings, $500 for attending committee
meetings (not including Executive Committee meetings) and $500 for participating
in telephone meetings. Officers of the Company who serve as Directors do not
receive additional compensation for serving on the Board of Directors or a
committee thereof. Directors are reimbursed for travel expenses incurred in
attending Board of Directors or committee meetings.

Each Director also receives $500 per month for reimbursement of expenses.
Non-employee members of the Executive Committee are paid $3,750 per month plus
reimbursement of reasonable out-of-pocket expenses for their services on such
committee.

EXECUTIVE OFFICERS

The following table provides information regarding the Executive Officers
of the Company. The Officers of the Company serve at the discretion of the Board
of Directors of the Company.

Name Age Since Position
---- --- ----- --------

Robert G. Wonish 47 1994 President and Chief Operating Officer
Todd R. Bart 36 1995 Chief Financial Officer, Secretary
and Treasurer

Mr. Wonish began his affiliation with the Company in January 1992 as a
consulting engineer. During his tenure with the Company his duties have expanded
and developed, culminating with his current position of President and Chief
Operating Officer. Mr. Wonish began his career with Amoco in 1975, after
receiving his B.S. Degree in Mechanical Engineering from the University of
Missouri-Rolla. He left Amoco and went to work for Texas International Petroleum
in Oklahoma City as a Field Project Manager. In 1984, Mr. Wonish went to work
for Ladd Petroleum where he assumed numerous operational duties leading to the
position of District Superintendent for the Gulf Coast Region. After the sale of
Ladd Petroleum in December, 1990, Mr. Wonish then provided consulting services
for drilling, completion and production operations to various oil and gas
exploration and production companies.

Mr. Bart joined the Company as Controller in 1995 and was elected Chief
Financial Officer, Treasurer and Secretary in 1996. From 1992 until 1995 he
worked for Yellow Freight System, Inc., a trucking company, in financial
accounting and reporting. Mr. Bart is a Certified Public Accountant.

None of the companies mentioned in the descriptions of the business
backgrounds above is a parent, subsidiary, or other affiliate of the Company.

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables set forth information with respect to beneficial
ownership of the Company's Common Stock by (a) each Executive officer of the
Company listed in the Summary Compensation Table and each Director of the
Company, (b) all Executive Officers and Directors of the Company as a group, and
(c) each person who beneficially owns 5% or more of the Common Stock as of the

Record Date. Except as set forth below, each stockholder has sole voting and
sole investment power over all shares.

Shares Owned Beneficially
Directors and Executive Officers Number Percent
- -------------------------------- ------ -------

Robert G. Wonish; President, Chief Operating Officer (a) 103,929 *
Todd R. Bart; Chief Financial Officer, Treasurer and Secretary (b) 42,765 *
Harold First; Director 12,290 *
George W. Hebard, III; Director 0 *
James B. Kreamer; Director (c) 410,102 1.69%
Stanley N. Nortman; Director 0 *
Felix Pardo; Director 0 *
A. Theodore Stautberg, Jr.; Director 13,298 *
All Directors and Executive Officers as a group (8 persons) 582,384 2.39%

Shares Owned Beneficially
Beneficial Owners of 5% or more (excluding persons named above) Number Percent
- --------------------------------------------------------------- ------ -------

Carl C. Icahn (d) 6,545,400 26.91%
c/o Icahn Associates Corp.
767 Fifth Avenue, 47th Floor
New York, NY 10153

Dolphin Offshore Partners (e) 1,590,800 6.54%
c/o Dolphin Management
129 East l7th Street
New York, NY 10003

- ----------------
* Less than 1%

(a) Does not include 200,000 unexercisable options granted to Mr. Wonish on
August 16, 2000 to purchase shares at $1.92 per share, of which 20% become
exercisable on August 16, 2001. Also Includes 68,454 shares allocated to
Mr. Wonish's account under the PANACO, Inc. Employee Stock Ownership Plan
("ESOP"). UMB Bank is the sole trustee of the ESOP and as such has sole
voting and investment power with respect to such shares. Also includes
34,300 shares held by Mr. Wonish directly, as to which Mr. Wonish has sole
voting and investment power. Also includes 1,175 shares held in the
individual retirement account of Mr. Wonish's spouse.

(b) Does not include 100,000 unexercisable options granted to Mr. Bart to
purchase shares at $1.92 per share, of which 20% become exercisable on
August 16, 2001. Also includes 40,265 shares allocated to Mr. Bart's
account in the ESOP. See footnote (a) above. Mr. Bart owns directly and has
sole voting and investment power over the remaining 2,500 shares.

(c) Includes 152,000 shares held by Mr. Kreamer's children and sister. Mr.
Kreamer disclaims beneficial ownership of these shares.

(d) 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. Based on information filed with the Securities and Exchange
Commission on August 21, 2000.

(e) Based on information filed with the Securities and Exchange Commission on
March 22, 1999.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's Officers and Directors and persons who
own more than ten percent of a registered class of the Company's equity
securities to file initial statements of beneficial ownership (Form 3) and
statements of changes in beneficial ownership (Forms 4 or 5) of Common Stock
with the Securities and Exchange Commission ("SEC"). Officers, Directors and
greater than ten-percent stockholders are required by SEC regulation to furnish
the Company with copies of all such forms they file.

Based solely on a review of the copies of the forms that it received, and
on written representations from certain reporting persons that no additional
forms were required, the Company believes that its Officers, Directors and
greater than ten-percent beneficial owners complied with all of these filing
requirements in 2000.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth certain information concerning the annual
compensation paid to each person who served as an Executive Officer of the
Company during 2000 and each other Executive Officer serving at the end of 2000
whose compensation exceeded $100,000 during 2000.

Long-Term
Annual Compensation Compensation Awards
------------------------------------- --------------------------------
Other
Annual Restricted Securities All Other
Name and Principal Compensa- Stock Underlying Compensa-
Position Year Salary($) Bonus($) tion($) Awards($) Options(#) tion($)
- -----------------------------------------------------------------------------------------------------------------

Robert G. Wonish, 2000 228,500 80,000 28,000(1) 0 200,000 0
President and 1999 193,700 0 24,000 0 0 0
Chief Operating 1998 164,800 21,400 19,500 0 0 0
Officer
Todd R. Bart, 2000 120,600 42,500 15,800(1) 0 100,000 0
Chief Financial 1999 110,100 0 15,600 0 0 0
Officer, Treasurer 1998 90,600 13,200 10,100 0 0 20,000(2)
and Secretary
Larry M. Wright, 2000 270,300 0 37,800(1) 0 0 729,900(3)
Former Chief 1999 318,900 0 24,000 0 0 0
Executive Officer 1998 271,200 35,600 24,000 0 0 0
and President

- --------------------
(1) Includes contribution to the accounts of the employees under the ESOP.

(2) Moving expense allowance paid to Mr. Bart for his move from Kansas City to
Houston in connection with the relocation of the Company's principal
office.

(3) Effective September 30, 2000, Larry M. Wright resigned as President and
Chief Executive Officer of the Company. This represents amounts due to him
under a Separation Agreement.

Option Grants in Fiscal 2000

The following table provides information relating to options granted to the
persons listed in the Summary Compensation table in Fiscal 2000.

Potential Realizable
Individual Grants Value at Assumed
------------------------------------------------------------------- Annual Rates of
Number Stock Price
of Shares Percent of Total Appreciation for
Underlying Options Granted Option Term (a)
Options to Employees in Exercise Expiration -------------------------
Name Granted Fiscal Year Price Date 5% 10%
- ------------ ---------- --------------- -------- ---------- ------ ------

Robert G. Wonish 200,000 40% $ 1.92 08/16/06 $106,000 $234,435

Todd R. Bart 100,000 20% $ 1.92 08/16/06 $ 53,046 $117,218

- ----------------
(a) The amounts in these columns are required to be disclosed by the SEC at
rates set by regulation and are not intended to forecast possible future
appreciation of our stock or amounts that may ultimately be realized upon
exercise.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values

The following table provides information relating to the number and value
of Common Stock subject to options exercised during 2000 or held by the named
Executive Officers as of December 31, 2000.

Number of Securities
Underlying Unexercised
Shares Acquired Value Options At Fiscal Year End (#)
Name Upon Exercise (#) Realized ($) Exercisable/Unexercisable
- ----------------------- ------------------------ ----------------- -----------------------------------

Robert G. Wonish - - - /200,000

Todd R. Bart - - - /100,000

Employment Agreements and Change-in-Control Arrangements

Effective September 15, 2000, the Company entered into an Employment
Agreement with Robert G. Wonish pursuant to which Mr. Wonish serves as President
and Chief Operating Officer of the Company. The Agreement is for a term of one
year and automatically renews for a consecutive term of one year unless
terminated by either party. The Employment Agreement provides that Mr. Wonish
will receive a base salary of $250,000, and a year-end bonus subject to the
discretion of the Board of Directors. Mr. Wonish is also entitled to participate
in the Company's employee benefit plans, to receive life and disability
insurance coverage, and to reimbursement of reasonable expenses in connection
with his duties. As partial consideration for the Agreement, Mr. Wonish has
agreed to keep confidential all information he receives in connection with his
duties and has further agreed not to solicit any employees of the Company for a
period of two years following such employment. Pursuant to the Agreement, Mr.
Wonish may be terminated for Cause, as defined in the Agreement, in which case
he would not be entitled to any further payments. He may also be terminated
other than for Cause or upon his death or disability. Mr. Wonish is required to
give 90 days prior written notice of any voluntary termination. Upon termination
by the Company other than for Cause or upon death or disability, he is entitled

to receive his base salary for a period of 12 months and all options held by Mr.
Wonish become immediately vested.

The Company has entered into an agreement with Todd R. Bart, providing that
Mr. Bart will be entitled to receive severance payments equal to his base salary
and insurance coverage for a period of one year upon his termination other than
for cause or upon a change in control of the Company.

Compensation Committee Interlocks and Insider Participation

During the last fiscal year, James B. Kreamer and Stanley N. Nortman served
on the Compensation Committee of the Board of Directors of the Company. Neither
of them has ever served as an Officer of the Company.

Compensation Committee Report on Executive Compensation

Objectives and Approach
- -----------------------

The overall goals of the Company's executive compensation program are: (i)
to encourage and provide an incentive to its Executive Officers to achieve the
Company's strategic business and financial goals, both short-term and long-term,
and thereby enhance stockholder value, (ii) to attract and retain well-qualified
Executive Officers, and (iii) to reward individuals for outstanding job
performance in a fair and equitable manner when measured not only with respect
to the Company's internal performance goals but also the Company's performance
in comparison to its peers. The components of the Company's executive
compensation are salary, incentive bonuses and awards under its Long-Term
Incentive Plan and Employee Stock Ownership Plan, each of which assists in
achieving the program's goals.

Long-Term Incentive Plan
- ------------------------

The Company's Long-Term Incentive Plan provides for the granting, to
certain Officers and key employees of the Company and its participating
subsidiaries, of 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 (the "Plan Committee") 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. 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 of the option price may
be made with (i) cash, (ii) other Common Stock presently owned by the optionee
valued at the then current market price, or (iii) a combination of both. Options
are exercisable at the time and on the term that the Plan Committee determines.
SARS are rights to receive a payment, in cash or Common Stock or both, based on
the value of the Common Stock. A stock award is an award of Common Stock or
denominated in Common Stock. 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. The Plan Committee determines performance objectives and award
levels before the beginning of each plan year.

The Long-Term Incentive Plan allows for the satisfaction of a participant's
tax withholding with respect to an award by the withholding of Common Stock
issuable pursuant to the award or the delivery by the participant of previously

owned 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.

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 subsidiary at the time of
exercise or lapse or, in certain circumstance, if the exercise or lapse occurs
within 180 days after employment is terminated.

The Long-Term Incentive Plan may be amended by the Board of Directors. No
grants or awards may be made under the Long-Term Incentive Plan after the tenth
anniversary of the Plan. No stockholder approval will be sought for amendments
to the Long-Term Incentive Plan except as required by law (including Rule l6b-3
under the Exchange Act) or the rules of any national securities exchange on
which the Common Stock is then listed.

Employee Stock Ownership Plan
- -----------------------------

In 1994, the Company adopted the PANACO, Inc. Employee Stock Ownership Plan
("ESOP"). Pursuant to the terms of the ESOP, the Company may contribute up to
15% of the participant's annual compensation to the ESOP. ESOP assets are
allocated in accordance with a formula based on participant compensation. In
order to participate in the ESOP, a participant must complete at least 1,000
hours of service to the Company within twelve consecutive months. A
participant's interest in the ESOP becomes 100% vested after three years of
service to the Company. The ESOP allows employees who are over 60 years old and
fully vested to withdraw 50% of their investment and still be considered an
"employee" for purposes of the ESOP. Benefits are distributed from the ESOP at
such time as a participant retires, dies or terminates service with the Company
in accordance with the terms and conditions of the ESOP. Benefits may be
distributed in cash or in shares of Common Stock. No participant contributions
are allowed to be made to the ESOP.

Company contributions to the ESOP may be in the form of Common Stock or
cash. Cash contributions may be used, at the discretion of the Board of
Directors, to purchase Common Stock in the open market or from the Company at
prevailing prices. 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. As of December 31, 2000, the ESOP owned of record
700,000 shares of Common Stock. Such Common Stock is owned beneficially by the
employees of the Company.

President and COO Compensation
- ------------------------------

In establishing the annual compensation of the President and Chief
Operating Officer, the Compensation Committee considers the performance of the
Company and the Chief Operating Officer, including his leadership and
effectiveness in identifying opportunities for growth and increased
profitability and implementing the Company's strategic plan. While overall
corporate performance is considered, the President and COO's compensation is
determined by a subjective evaluation of his individual performance.

In establishing the annual compensation of the current President and COO,
Robert G. Wonish, in 2000, the Compensation Committee took into account Mr.
Wonish's contribution to the growth of the Company, and the Company's current
financial position and situation.

COMPENSATION COMMITTEE
James B. Kreamer
Stanley N. Nortman

Performance Graphs

The following performance graph compares the annual change of the
cumulative total stockholder return, assuming reinvestment of dividends, of an
assumed $100 investment on January 1, 1995 in (1) Common Stock, (2) the NASDAQ
Market Index, and (3) a peer group of all crude petroleum and natural gas
exploration and production companies (SIC Code 1311) listed on NASDAQ.

Fiscal Year Ending
--------------------------------------------------------------------------------------------
Company/Index/Market 12/29/1995 12/31/1996 12/31/1997 12/31/1998 12/31/999 12/29/2000
- -------------------- ---------- ---------- ---------- ---------- --------- ----------

PANACO, Inc. 100.00 109.86 90.14 20.42 7.75 70.42
Peer Group Index 100.00 132.97 134.78 107.96 131.87 167.53
NASDAQ Market Index 100.00 124.27 152.00 214.39 378.12 237.66

Audit Committee Report

The Audit Committee of the Board of Directors (the "Audit Committee") is
composed of Harold First, A. Theodore Stautberg, Jr. and Felix Pardo, each of
whom is an independent non-employee director as defined in Section 121(A) of
AMEX's listing standards. The Audit Committee operates under a written charter
adopted by the Board of Directors in March, 2000 (a copy of which is attached to
this Proxy Statement as Appendix A).

Management is responsible for the Company's internal controls and the
financial reporting process. The independent public accountants are responsible
for performing an independent audit of the Company's consolidated financial
statements in accordance with auditing standards generally accepted in the
United States of America and to issue a report thereon. The role of the Audit
Committee is to monitor and oversee these processes.

The Audit Committee has reviewed and discussed the consolidated financial
statements for the year ended December 31, 2000 with both management and the
independent public accountants. The Audit Committee also discussed with the
independent public accountants matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees) and other
non-audit services provided by the independent public accountants. The Company's
independent public accountants also provided to the Audit Committee the written
disclosures required by Independent Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and the Audit Committee discussed with the
independent public accountants their independence. The Audit Committee has
considered whether the other non-audit services by the independent auditors to
the Company are compatible with maintaining the auditor's independence.

Based upon the reports and discussions described in this report and the
Audit Committee's review of the representations of management and the
independent public accountants, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000 to be filed with
the Securities and Exchange Commission.

This report is submitted by the following members of the Audit Committee of
the Board of Directors:

AUDIT COMMITTEE
Harold First
A. Theodore Stautberg, Jr.
Felix Pardo

Audit Fees

The aggregate fees billed by KPMG LLP for professional services rendered
for the audit of the Company's financial statements for the year ended December
31, 2000 and the interim reviews of the financial statements included in the
Company's Forms 10-K and 10-Q for its fiscal year 2000 were approximately
$174,986.

All Other Fees

The aggregate fees billed by KPMG for non-audit services totaled $39,020.
These fees were for tax compliance and consulting services.

The Audit Committee has advised the Company that it has determined that the
non-audit services rendered by the Company's independent auditors during the
Company's most recent fiscal year are compatible with maintaining the
independence of such auditors.

Certain Relationships and Related Transactions

On August 21, 2000, the Company was informed that High River Limited
Partnership, a Delaware limited partnership ("High River") and affiliate of Carl
C. Icahn, had purchased additional shares of the Company's common stock. In a
Schedule 13D filed on such date, Mr. Icahn and his affiliates reported that this
purchase, when combined with shares already owned, increased their aggregate
ownership to 6,545,400 shares or 26.9% of the Company's outstanding common
stock.

This purchase constituted a "Change of Control," as defined in the
Indenture governing the PANACO 10 5/8% Senior Notes due 2004 (the "Notes"). The
purchase by High River required the Company to make a "Change of Control Offer"
to purchase all outstanding Notes at 101% of the principal amount thereof plus
accrued interest. On August 21, 2000, the Company reached an agreement with High
River that High River would purchase all Notes tendered pursuant to the Change
of Control Offer. The Change of Control Notice and Offer required by the terms
of the Indenture was sent to all holders of Notes on September 18, 2000.

On October 20, 2000, High River purchased all the Notes tendered pursuant
to the Change of Control Offer. This purchase increased High River's ownership
in the Notes to approximately 99% of the $100 million principal amount of Notes
outstanding.

OTHER MATTERS

Accountants

One or more members of the firm KPMG LLP, the Company's independent
accountants, will attend the Annual Meeting. They will have an opportunity to
make a statement and will be available to answer questions as appropriate.

Other

As of the date of this Proxy Statement, the Company knew of no other
matters which might be presented for action at the meeting. If any other matters
properly come before the meeting, it is intended that the Common Stock
represented by proxies solicited hereby will be voted with respect thereto in
accordance with the judgment of the persons voting them.

STOCKHOLDER PROPOSALS FOR THE 2002 ANNUAL MEETING

The Board of Directors has set the date for the Company's 2002 Annual
Meeting of Stockholders for June 14, 2002. Stockholder proposals intended to be
considered for inclusion in next year's proxy statement should be sent to
Investor Relations, PANACO, Inc., 1100 Louisiana, Suite 5100, Houston, Texas
77002, and must be received by December 31, 2001. Any such proposal, must comply
with Rule l4a-8 promulgated by the SEC pursuant to the Exchange Act.

FINANCIAL STATEMENTS AVAILABLE

Financial statements for the Company were included in the Company's Annual
Report or Form 10-K ("Form 10-K") as filed with the SEC for the year 2000. A
copy of the Form 10-K is being provided to all stockholders as of the record
date together with the Company's proxy materials. Additional copies of the Form
10-K will be furnished without charge and without exhibits, on request directed
to Investor Relations, PANACO, Inc., 1100 Louisiana, Suite 5100, Houston, Texas
77002. The Form 10-K does not form any part of the material for solicitation of
proxies.

By order of the Board of Directors

/s/ Todd R. Bart
----------------------------------
Todd R. Bart
Secretary

May 8, 2001

APPENDIX A

PANACO, INC.
Audit Committee Charter

Organization

There shall be a committee of the Board of Directors to be known as the
Audit Committee (the "Committee"). The Committee shall be composed of three
Directors who are independent of the management of the Company and are free of
any relationship that, in the opinion of the Board of Directors, would interfere
with their exercise of independent judgment as Committee members.

All members of the Committee shall have a working familiarity with basic
finance and accounting practices, and at least one member of the Committee shall
have accounting or related financial management expertise.

Unless a chairman of the Committee is elected by the Board of Directors, a
majority of the members of the Committee may designate a chairman.

Statement of Policy

The Committee shall provide assistance to the Board of Directors in
fulfilling its responsibility to the stockholders, potential stockholders and
the investment community relating to corporate accounting, reporting practices
of the Company and the quality and integrity of the financial reports of the
Company. In so doing, the Committee should maintain free and open means of
communication between the Directors, the independent accountants and the
financial management of the Company.

The independent accountants are accountable to the Board of Directors and
the Committee who have the ultimate authority and responsibility to select,
evaluate and, where appropriate, replace the independent accountants.

Meetings

The Committee shall meet in person or telephonically with management at
least four times annually as described below, or more frequently as
circumstances dictate. As part of its objective to foster open communication,
the entire Committee should meet at least annually with management and the
independent accountants at the conclusion of the final audit.

The Committee should meet with the independent accountants and management
quarterly, prior to the release of earnings and the filing of the Forms 10-Q and
10-K. The chairman may represent the entire Committee for this purpose.

Responsibilities

In carrying out its responsibilities, the Committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to help ensure to the Directors and stockholders that the
corporate accounting and reporting practices of the Company are in accordance
with all requirements and are of high quality.

In carrying out these responsibilities, the Committee will:

o Review the financial statements contained in the annual report to
stockholders with management and the independent accountants to
determine that the independent accountants are satisfied with the

disclosure and content of the financial statements to be presented to
the stockholders. Any significant changes in accounting principles
should be reviewed.

o Consider the independent accountants' judgments about the quality and
appropriateness of the company's accounting principles as applied in
its financial reporting.

o Inquire of management and the independent accountants about
significant risks or exposures and consider the steps management has
taken to minimize such risk to the Company.

o Consider the independent accountants and financial accounting
personnel, the adequacy and effectiveness of the accounting and
financial controls of the Company, and elicit any recommendations for
the improvement of such internal control procedures or particular
areas where new or more detailed controls or procedures are desirable.
Particular emphasis should be given to the adequacy of such internal
controls to expose any payments, transactions or procedures that are
illegal or otherwise improper. The Committee should consider and
review any related significant findings and recommendations of the
independent accountants and management's responses thereto.

o Provide sufficient opportunity for the independent accountants to meet
with the members of the Committee without members of management
present. Among the items to be discussed in these meetings are the
independent accountants' evaluation of the Company's financial,
accounting and auditing personnel and the cooperation that the
independent accountants received during the course of the audit.

o Recommend to the Board of Directors the selection of the independent
accountants, considering independence and effectiveness, and approve
the fees and other compensation to be paid to the independent
accountants. The Committee shall obtain a formal written statement on
a periodic basis from the independent accountants delineating all
relationships the independent accountants have with the Company,
consistent with Independence Board Standard 1. The Committee shall
review and discuss with the independent accountants any disclosed
relationships or services that may impact the objectivity and
independence of the independent accountants and recommend that the
Board of Directors take appropriate action to oversee the independence
of the independent accountants.

o Review, with the Company's counsel, any legal matter that could have a
significant impact on the Company's financial statements.

o Review and reassess the adequacy of the Committee's charter annually.

o Submit the minutes of all meetings of the Committee to, or discuss the
matters discussed at each Committee meeting with, the Board of
Directors.

o Conduct or authorize investigations into any matters brought to its
attention within the scope of its duties, with the power to retain
outside counsel and other professionals for this purpose if, in its
judgment, that is appropriate.

o Prepare a report for inclusion in the annual Proxy Statement that
describes the Committee's composition and responsibilities and how
they were discharged.