Panaco Reports on Successful Test Wells

PANACO, Inc. announced that the East Breaks Block 205 #1 well, drilled in 1,080 feet of water to a total vertical depth of 9,782 feet, has been tested by the operator, Unocal, in the GA-1-1 zone. Prior to temporarily shutting the well in, the well tested at a rate of 17,800 Mcf of natural gas and 1,260 barrels of condensate per day on a 25/64" choke with 4,800 psi flowing tubing pressure. PANACO owns a 25% working interest in this new well and anticipates production to begin during the fourth quarter of this year, after necessary facility modifications.

The Ocean Ambassador which was used to drill this well will be moved to East Breaks Block 161 to spud the next well in this drilling program within the next few days. PANACO will also own a 25% working interest in this new well.

At East Breaks Block 110, the #A-13 well was put on production on May 30th. The current production rate is 8,425 Mcf of natural gas and 105 barrels of condensate per day on a 24/64" choke with 2,880 psi flowing tubing pressure. The Company owns 100% of the A-13 well which was drilled to a measured depth of 8,429 feet. The Parker rig, 41P, is currently being rigged down and will be moved to East Breaks Block 165 (Snapper Platform) to perform several mandated workovers as required by the MMS.

In the recently acquired West Delta Block 52 Field, combined gas sales have been averaging 1,500 Mcf per day from the three recently recompleted gas wells. Prior to these recompletions, the former operator of the field often purchased gas to maintain operations of the oil wells. PANACO has a 100% working interest in all wells in the field.

As all three of these gas wells were initially completed in 1960 in the 7,600' oil sand, the completions will be monitored for pressure decline and water encroachment. New cement bond log results were not definitive across the new zones of interest due to the age of the original completion. It was anticipated that we would be able to increase the flow rates on the three wells by 25-50% during the next few weeks, however, one of the wells has started to produce salt water. Based on this information, the production rates from these wells will most likely not be increased.

Diagnostic work continues on the oil wells in West Delta Block 52 Field to repair tubing, gas lift equipment and gravel packs. Current oil production is averaging 250 barrels per day.

Robert G. Wonish, President and COO, commented, "Based on the limited flow time that the EB 110 well # A-13 has been on production, we are extremely pleased. The well has continued to clean up with increased flow time as evidenced by the increasing flowing pressure. Likewise, we are especially excited about the prospect of bringing on the EB 205 well #1 during the fourth quarter. These two wells will certainly help the bottom line as we continue our focus and commitment on increasing PANACO's daily production and reserve base."