EXHIBIT 2

                                  PANACO, INC.
                              1100 Louisiana Street
                                   Suite 5100
                              Houston, Texas 77002


August 21, 2000


High River Limited Partnership
767 Fifth Avenue, 47th Floor
New York, NY  10153

Gentlemen:

You have  advised  us that High  River  Limited  Partnership  ("High  River") is
entering into an agreement (the "Agreement")  with New Valley  Corporation ("New
Valley")  pursuant to which High River is purchasing  from New Valley  1,960,479
shares  of common  stock of  Panaco,  Inc.  ("Panaco")  at $1.73 per share  (the
"Transaction").

In connection with the Transaction,  Panaco hereby represents,  acknowledges and
agrees as follows:

(i)                   that  Mr.  Richard  Lampen  resigned  from  the  board  of
                      directors of Panaco,  and effective  August 21, 2000,  Mr.
                      George  Hebard  has been  elected to the board to fill the
                      seat  vacated  by  Mr.  Lampen,  all  in  accordance  with
                      applicable  law and the By-Laws of Panaco and  pursuant to
                      appropriate   corporate   action  duly  reflected  in  the
                      corporate records of Panaco;

(ii)                  that the  assignment by New Valley to High River of all of
                      New Valley's  rights  under (x) that certain  Registration
                      Rights   Agreement   dated  as  of  July, 1997  (the
                      "Registration  Rights  Agreement"),  among Panaco, Marc C.
                      Licata  ("Licata") and Leonard C. Tallerine,  Jr., and (y)
                      the acknowledgement set forth on the signature page of the
                      Stock  Purchase  Agreement  dated January 25, 1999 between
                      Licata  and New  Valley,  are  consented  and agreed to by
                      Panaco; and

(iii)                 that the  transfer  of the shares  from New Valley to High
                      River is in compliance with applicable securities laws and
                      that Panaco shall  instruct its transfer agent to transfer
                      to High  River the  shares of  Panaco  stock  owned by New
                      Valley.







High River agrees that, at the request of Panaco,  High River shall  purchase in
place of or from  Panaco  all  10-5/8%  Senior  Notes  due 2004  required  to be
purchased (the "Required

Purchase")  by Panaco  pursuant to Section  4.15 of the  Indenture,  dated as of
October 9, 1997,  among Panaco and UBM Bank,  N.A., as the Trustee (Section 4.15
of which is  triggered  by High  River's  acquisition  of Panaco's  common stock
pursuant to the Agreement).  Such purchase shall be made only on the date of the
Required  Purchase as  specified  in such  Indenture  or on a date  specified by
Panaco  which shall not be more than ten (10) days from the date of the Required
Purchase.

Agreed and Accepted:

PANACO, INC.


By: __________________________
Name:
Title:



HIGH RIVER LIMITED PARTNERSHIP
By: Riverdale LLC, its general partner


By: __________________________
Name:  Robert Mitchell
Title:    Manager


       [Agreement regarding transfer of stock from New Valley and related
                           Note Purchase Obligation.]