10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

x           QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

¨           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to 

Commission file number 000-30219ame

Chancellor Group, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	87-0438647
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

216 South Price Road, Pampa, TX  79065	79065
(Address of Principal Executive Offices)	(Zip Code)

(806-688-9697)

(Registrant's Telephone Number, Including Area Code)

Check  whether the issuer (1) filed all reports  required to be filed by Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter period that the registrant was required to file such reports),  and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ¨    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company.  (Check One):

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer ¨	Smaller reporting company  x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨ Yes xNo

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding the issuer's common stock, $.001 par value, was 65,125,030 as of November 4, 2009.

Chancellor Group, Inc.

Table of Contents

		Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis or Plan of Operation	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	14
Item 4.	Controls and Procedures	14
PART II
Item 2.	Unreported Sales of Equity Securities and Use of Proceeds	15
Item 6.	Exhibits	16
EXHIBIT INDEX		17

ii

Item 1.  Financial Statements

Chancellor Group, Inc.

INDEX

	Page No.
Consolidated Balance Sheets as at September 30, 2009 and December 31, 2008 (Unaudited)	2
Consolidated Statements of Operations For the Three and Nine and Months Ended September 30, 2009 and 2008 (Unaudited)	3
Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2009 and 2008 (Unaudited)	4
Notes to Unaudited Consolidated Financial Statements	5-11

1

Chancellor Group, Inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2009			December 31, 2008
ASSETS
Current Assets:
Cash in Bank	$	1,500,646		$	2,531,525
Revenue Receivable		67,670			201,455
Prepaid Insurance		68,962			23,665
Deferred Tax Asset		49,502			0
Total Current Assets		1,686,780			2,756,645
Fixed Assets:
Leases and Lease Equipment		1,570,584			1,396,252
Office Building & Equipment		134,630			132,065
Auto / Transportation Equipment		202,723			218,661
Machinery & Equipment		450,179			442,746
Accumulated Depreciation		(455,745	)		( 262,478	)
Total Fixed Assets		1,902,371			1,927,246
Other Assets:
Unamortized Letter of Credit		0			833
Prepaid Long Term Hedge		0			11,100
Deposits		250			4,975
Total Other Assets		250			16,908
Total Assets	$	3,589,401		$	4,700,799
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Due to Related Party	$	0		$	36,500
Accounts Payable – Gryphon Production		46,598			224,598
Miscellaneous Accounts Payable & Suspense		5,174			5,949
Federal Income Tax Payable		0			52,229
State Income Tax Payable		0			64,674
Stock Subscription Payable		1,602			1,602
Total Current Liabilities		53,374			385,552
Long Term Liabilities:
Deferred Tax Liability		39,722			126,802
Total Long Term Liabilities		39,722			126,802
Stockholders’ Equity:
Common Stock:  $.001 par value, 250,000,000 shares authorized, 65,125,030 shares issued and outstanding		65,125			65,233
Paid in Capital		3,308,713			3,229,905
Retained Earnings		929,807			(4,045,659	)
Treasury Stock		0			(36,500	)
Net Income (Loss)		(807,340	)		4,975,466
Total Stockholders’ Equity		3,496,305			4,188,445
Total Liabilities and Stockholders’ Equity	$	3,589,401		$	4,700,799

See Notes to Unaudited Consolidated Financial Statements

2

Chancellor Group, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008

(Unaudited)

	For the three months  ended September 30,						For the nine months  ended September 30,
	2009			2008			2009			2008
Sales - Net of Royalties Paid:
Oil	$	169,600		$	331,665		$	424,441		$	1,852,948
Natural Gas		22,682			43,552			60,296			335,648
Hedge		250			0			71,160			0
Other Income		0			38,960			23,905			38,960
Gross Revenue		192,532			414,177			579,802			2,227,556
Severance Taxes		10,552			9,620			25,914			99,764
Marketing Fees		0			0			0			13,213
Royalties Paid		0			0			0			14
Net Revenue		181,980			404,557			553,888			2,114,565
Operating Expenses:
Lease Operating Expense		64,745			245,539			248,761			893,692
Other Operating Expense		150,389			30,216			678,560			617,797
General & Administrative Expense		152,332			149,458			378,350			214,256
Depreciation, Depletion & Amortization		64,980			71,989			197,830			302,664
Total Operating Expense		432,446			497,202			1,503,501			2,028,409
Income (loss) From Operations		(250,466	)		(92,645	)		(949,613	)		86,156
Other Income (Expenses):
Interest		6,260			1,836			14,320			1,836
Sale of Assets		0			6,409,927			(6,557	)		6,409,927
Organization Costs		0			0			0			0
Hedge Costs Amortization		0			(14,800	)		0			(33,300	)
Total Other Income (Expense)		6,260			6,396,963			7,763			6,458,081
Financing Charges:
Interest		0			340,574			375			588,521
Bank Fees Amortization		402			48,899			1,696			73,764
Total Financing Charges		402			389,473			2,071			662,285
Income (Loss) before provision for
Income Taxes		(244,608	)		5,914,845			(943,921	)		5,881,952
Provision for Income Taxes(Benefits)		(37,617	)		465,000			(136,581	)		465,000
Net Income (Loss)	$	(206,991	)	$	5,449,845		$	(807,340	)	$	5,416,952
Net Income (Loss) per Share (Basic and     Fully Diluted)	$	(	*)	$	0.0841		$	(	*)	$	0.0836
Weighted Average Number of Common Shares Outstanding		64,873,508			64,802,781			65,145,492			64,802,781

* Less than $.01 per Share

See Notes to Unaudited Consolidated Financial Statements

3

Chancellor Group, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008

(Unaudited)

	September 30, 2009			September 30, 2008
Cash Flows From Operating Activities:
Net Income (loss)	$	(807,340	)	$	87,992
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation, Depletion & Amortization		197,830			(185,142	)
Deferred Income Taxes		(136,581	)		0
Non-Cash Stock Compensation		78,700			0
(Increase) Decrease in Operating Assets		88,649			171,871
Increase (Decrease) in Operating Liabilities		(295,678	)		195,217
Net Cash Provided by (used for) Operating Activities		(874,420	)		269,938
Cash Flows From Investing Activities:
Sale of Assets Proceeds		28,000			9,824,890
Other Capital Expenditures		(184,459	)		(594,636	)
Net Cash Provided by (used for)
Investing Activities		(156,459	)		9,230,254
Cash Flows From Financing Activities:
Notes Payable Redemptions		0			(5,974,414	)
Issuances of Common Stock		0			200
Net Cash Provided by (used for)
Financing Activities		0			(5,974,214	)
Net Increase (Decrease) in Cash		(1,030,879	)		3,525,978
Cash at the Beginning of the Period		2,531,525			218,118
Cash at the End of the Period	$	1,500,646		$	3,744,096
Supplemental Disclosures of Cash Flows Information
Interest Paid	$	375		$	588,521
Income Taxes Paid	$	0		$	0

See Notes to Unaudited Consolidated Financial Statements

4

CHANCELLOR GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

NOTE 1.  ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization

Chancellor Group, Inc. (the "Company", “our”, “we”, “Chancellor” or the “Company” ) was incorporated in the state of Utah on May 2, 1986, and then, on December 30, 1993, dissolved as a Utah corporation and reincorporated as a Nevada corporation. The Company's primary business purpose is to engage in the exploration and production of oil and gas. On March 26, 1996 the Company's corporate name was changed from Nighthawk Capital, Inc. to Chancellor Group, Inc.  The Company’s headquarters is in Pampa, Texas.

Operations

The Company is licensed by the Texas Railroad Commission as oil and gas producers and operators. The Company and its wholly-owned subsidiaries, Gryphon Production Company, LLC and Gryphon Field Services, LLC, own 127 wells, of which 19 are water disposal wells and 2 are gas wells, although “associated” gas is also produced from some oil wells.  As of September 30, 2009, approximately 70 oil wells are actively producing.  We also own and operate our 15.9 acre property, with its shop, yard and office complex. Company equipment includes two work-over rigs as well as other oil field related equipment.

In addition, we own approximately 4,200 acres of production rights on six leases, which includes 500 acres of undrilled acreage, approximately 300 acres of which was previously owned by Mobil, and the balance of approximately 200 acres on the Worley Combs lease.  The six leases have the production rights for oil, casing-head gas and natural gas.

We produced a total of 9,116 barrels of oil and 10,273 mcf of gas in the nine months ended September 30, 2009. The oil is light sweet crude and the natural gas has very high heat content, 1600 to 2600 btu/scf.

Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Chancellor Group, Inc.; and its wholly owned subsidiaries: Gryphon Production Company, LLC, and Gryphon Field Services, LLC. These entities are collectively hereinafter referred to as "the Company". Any inter-company accounts and transactions have been eliminated.

Accounting Year

The Company employs a calendar accounting year. The Company recognizes income and expenses based on the accrual method of accounting under generally accepted accounting standards.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Products and Services, Geographic Areas and Major Customers

The Company plans to develop its domestic oil and gas properties, located in Gray county, Texas, and possibly to acquire additional producing oil and gas properties. The Company’s major customers, to which the majority of its oil and gas production is sold, are Plains Marketing and DCP Midstream.

5

Net Income (loss) per share

The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company's preferred stock (if any), are not included in the computation if the effect would be anti-dilutive and would increase the earnings or decrease loss per share.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.

Included in cash in bank at September 30, 2009 are deposits totaling $250,000 which are assigned and held as collateral for a letter of credit issued to the Railroad Commission of Texas as required for its oil and gas activities.

Accounts Receivable

The Company reviews accounts receivable periodically for collectibles and establishes an allowance for doubtful accounts and records bad debt expense when deemed necessary.

Property and Equipment

Property and equipment are recorded at cost and depreciated under the straight line method over the estimated useful life of the equipment. The estimated useful life of leasehold costs, equipment and tools ranges from five to seven years.  The useful life of the office building and warehouse is estimated to be twenty years.

Oil and Gas Properties

The Company follows the successful efforts method of accounting for its oil and gas activities. Under this accounting method, costs associated with the acquisition, drilling and equipping of successful exploratory and development wells are capitalized. Geological and geophysical costs, delay rentals and drilling costs of unsuccessful exploratory wells are charged to expense as incurred. The carrying value of mineral leases is depleted over the minimum estimated productive life of the leases, or ten years. Undeveloped properties are periodically assessed for possible impairment due to un-recoverability of costs invested.  Cash received for partial conveyances of property interests is treated as a recovery of cost and no gain or loss is recognized.

Depletion

The carrying value of the mineral leases is depleted over the minimum estimated productive life of the leases, or ten years.

Income Tax

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Revenue Recognition

The Company recognizes revenue when a product is sold to a customer, either for cash or as evidenced by an obligation on the part of the customer to pay.

Financial Instruments

The carrying value of the Company's financial instruments, including cash and cash equivalents, accounts receivable and accounts payable and long term debt, as reported in the accompanying balance sheet, approximates fair value.

Employee Stock-Based Compensation

The Company uses the intrinsic value method of accounting for employee stock-based compensation.

6

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements”, as amended in February 2008 by FASB Staff Position FAS 157-2, which was primarily codified into Topic 820 “Fair Value Measurements” of the FASB Accounting Standards Codification (“ASC”).  The guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  FSP FAS 157-2 defers the effective date of SFAS 157 for all nonfinancial assets and liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January 1, 2009. As such, management partially adopted the provisions of SFAS 157 effective January 1, 2008. The partial adoption of this statement did not have a material impact on the financial statements. Management adopted the remaining provisions of SFAS 157 beginning in 2009.  The adoption of the remaining provisions did not have a material impact on the consolidated financial statements.

Effective for the period ended September 30, 2009, the Company implemented Financial Accounting Standards Board (“FASB”) Staff Position FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”), which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” and Accounting Principles Board Opinion 28, “Interim Financial Reporting,”, which was primarily codified into Topic 820 “Fair Value Measurements” of the ASC.  This guidance requires disclosures about fair value of financial instruments effective for annual and interim reporting periods of publicly traded companies. This adoption did not have an impact on the Company’s financial position or results of operations.

In December 2007, the FASB issued SFAS 141R, “Business Combinations”, which was primarily codified into Topic 805 “Business Combinations” in the ASC.  This standard modifies certain aspects of how the acquiring entity recognizes and measures the identifiable assets, the liabilities assumed and the goodwill acquired in a business combination.  This guidance is effective for fiscal years beginning after December 15, 2008.  Although this guidance will impact the Company’s accounting for business combinations completed on or after January 1, 2009, it did not impact the Company’s financial statements, as the Company did not enter into any business combinations during the nine months ended September 30, 2009.

In December 2007, the FASB issued SFAS 160, “Non-controlling Interests in Consolidated Financial Statements”, which was primarily codified into Topic 810 “Consolidations” in the ASC.  This guidance established new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.  It clarifies that a non-controlling interest in a subsidiary (minority interest) is an ownership interest in the consolidated entity that should be reported as equity in the Consolidated Financial Statement and separate from the parent company’s equity. Among other requirements, this guidance requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the Consolidated Statement of Operations, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. This guidance became effective for us on January 1, 2009. The adoption did not have a material impact on the consolidated financial statements

In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 161, “Disclosures about Derivative Instruments and Hedging Activities” –an amendment of SFAS 133, which was primarily codified into Topic 815 “Derivatives and Hedging” in the ASC.  This guidance expands the disclosure requirements for derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items affect the entity’s financial position, financial performance, and cash flows.  This guidance is effective for fiscal years beginning after November 15, 2008.  This guidance became effective for the Company on January 1, 2009.  The adoption did not have a material impact on the consolidated financial statements.

In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, which was primarily codified into Topic 105 “Generally Accepted Accounting Standards” in the ASC.  This standard will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles ("GAAP"), superseding existing FASB, American Institute of Certified Public Accountants ("AICPA"), Emerging Issues Task Force ("EITF"), and related accounting literature.  This guidance reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections.  This guidance is effective for financial statements issued for reporting periods that end after September 15, 2009. Beginning in the third quarter of the Company’s 2009 fiscal year, this guidance impacts the Company’s financial statements and related disclosures as all references to authoritative accounting literature reflect the newly adopted codification.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” which was primarily codified into Topic 855 “Subsequent Events” in the ASC.  This guidance establishes principles and requirements for subsequent events.  Specifically, it sets forth guidance pertaining to the period after the balance sheet date during which management should consider events or transactions for potential recognition or disclosure, circumstances under which an event or transaction would be recognized after the balance sheet date and the required disclosures that should be made about events or transactions that occurred after the balance sheet date.  This guidance is effective for interim or annual financial periods ending after September 15, 2009, and as such became effective for the Company on September 30, 2009.  The Company’s adoption of the standard resulted in additional disclosures surrounding the Company’s subsequent events (See Note 10 below).

7

NOTE 2. INCOME TAXES

Deferred income taxes arise from temporary differences in recognition of certain revenues and expenses between financial statement and income tax basis of accounting, and also net operating loss carry-forwards and other tax credit carry-forwards.  Under IRC Section 382, net operating loss carryovers may be limited should a significant change in ownership occur. The Company accounts for income taxes pursuant to SFAS 109.

At September 30, 2009, the Company had a federal net operating loss of approximately $1,095,000.  A deferred tax asset of approximately $170,000 has been partially offset by a valuation allowance of approximately $52,000 due to federal NOL carry-back and carry-forward limitations.

At September 30, 2009, the Company had approximately $156,000 in deferred income tax liability attributable to timing differences between federal income tax depreciation, depletion and book depreciation.

NOTE 3. STOCKHOLDERS' EQUITY

Preferred Stock

The Company has provided for the issuance of 250,000 shares, par value $1,000 per share, of convertible Preferred Series B stock ("Series B"). Each Series B share is convertible into 166.667 shares of the Company's common stock upon election by the shareholder of the Series B Share, with dates and terms set by the Board. No shares of Series B preferred stock are outstanding.

Common Stock

The Company has 250,000,000 authorized shares of common stock, par value $.001, with 65,125,030 shares issued and outstanding as of September 30, 2009 (see footnotes regarding Treasury Stock, Sale of Assets and Related Party Transactions for additional information).

Treasury Stock

In early 2008, in the context of our prior bankruptcy proceeding, Koala Pictures Proprietary Ltd. ("Koala"), controlled by our Chairman and Chief Executive Officer, Maxwell Grant, had transferred 1,000,000 shares of our common stock to New Concept Energy, Inc. (“NCE”), which had entered into discussions with us.  Following dismissal of the bankruptcy proceeding in August 2008, we settled all matters with NCE for $110,000 pursuant to a Settlement Agreement and Release of All Claims, dated September 4, 2008, and repurchased the 1,000,000 shares of our common stock.  In May 2009, our Board of Directors authorized retransfer of the 1,000,000 shares of our common stock back to Koala,  to replace the shares that Koala had originally transferred to NCE for the benefit of the Company in connection with the Company's discussions with NCE.

Stock Options and Warrants

Non-employee Stock Options and Warrants

The Company accounts for non-employee stock options under SFAS 123 (as amended by SFAS 148), which was primarily codified into Topic 718 “Compensation-Stock Compensation” in the ASC, whereby options costs are recorded based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. During all quarters for the years ended December 31, 2007 and 2008, no options were issued, exercised or cancelled.  For the quarter ending September 30, 2009, no options were issued, exercised or cancelled.

The Company currently has outstanding warrants expiring December 31, 2014 to purchase an aggregate of 6,000,000 shares of common stock; these warrants consist of warrants to purchase 2,000,000 shares are at an exercise price of $.025 per share, and warrants to purchase 4,000,000 shares at an exercise price of $0.02 per share.  In July 2009, the Company issued additional warrants expiring June 30, 2014 to purchase an aggregate of 500,000 shares of common stock at an exercise price of $0.125 per share.

Employee Stock Options

The Company accounts for employee stock options under SFAS 123 (as amended by SFAS 148) which was primarily codified into Topic 718 “Compensation-Stock Compensation” in the ASC. The Company issued no employee stock options and had none outstanding as of the close of the year ending December 31, 2008. There were no stock options issued in the first three quarters of the Company’s 2009 fiscal year.

8

NOTE 4. FIXED ASSETS

A summary of fixed assets at September 30, 2009 follows:

	Balance						Balance
	December 31, 2008		Additions		Deletions		September 30, 2009
Auto/Transportation Equipment	$	218,661	$	23,183	$	39,121	$	202,723
Buildings & Improvements		125,280		0		0		125,280
Leases & Lease Equipment		1,396,252		174,333		0		1,570,585
Furniture, Fixtures & Office Equipment		6,785		2,565		0		9,350
Machinery & Equipment		442,747		9,932		2,500		450,179
	$	2,189,725	$	210,013	$	41,621	$	2,358,117
Less: Accumulated Depreciation								455,745
							$	1,902,372

NOTE 5. CONTINGENT LIABILITY

On August 4, 2007, the Company received a letter from David L. Kagel, a former attorney for the Company, indicating his intention to initiate an arbitration proceeding or to file a lawsuit for recovery of $50,489 (including interest) for services rendered over several years under prior management. The Company believes the claim is without merit and that it has a number of counterclaims against Mr. Kagel. No further action has occurred regarding this issue.

NOTE 6. LONG-TERM DEBT

To finance the acquisition of the assets purchased from Caldwell Production Company, Inc., on April 13, 2007, we closed on a Loan Agreement with Western National Bank of Midland, Texas (“WNB”) for a senior loan facility (the “WNB Loan Agreement”).  At the closing of the purchase of these assets, we drew down $2.3 million under the WNB Loan Agreement. The interest rate under the WNB Loan Agreement was a variable rate equal to the prime rate, as defined in the WNB Loan Agreement, plus 2%, but in no event to be less than 9.25%.

On April 13, 2007, we had also entered into a Loan Agreement with CapWest Resources, Inc. of Midland, Texas (“CapWest”) for an advancing line of credit/term loan facility (the “CapWest Loan Agreement”), under which we drew down at the closing of the purchase of the assets from Caldwell Production Company, Inc. $2,700,000 for the balance of the purchase price of the leases, $291,500 for the equipment, $111,000 for bank fees, legal expenses and associated costs, and $130,000 for initial working capital. The interest rate under the CapWest Loan Agreement was a variable rate equal to the prime rate, as defined in the CapWest Loan Agreement, plus 4%. Under the CapWest loan agreement, CapWest had a 2% overriding royalty interest in the leases purchased from Caldwell Production Company, Inc.

At the August 29, 2008 closing of the sale of certain assets of the Company (as described below in Note 8), the notes held by our lenders, WNB and Capwest, plus interest thereon to the date of closing, were paid in full with payments of $2,063,549.53 and $4,220,617.47, respectively.

The Company had no long-term debt at September 30, 2009.

At September 30, 2009, the Company has an irrevocable blanket letter of credit totaling $250,000 issued to the Railroad Commission of Texas as required for its oil and gas activities, which is secured by certain bank deposits totaling $250,000.

NOTE 7. ACCUMULATED COMPENSATED ABSENCES

It is the Company’s policy to permit employees to accumulate a limited amount of earned but unused vacation, which will be paid to employees upon separation from the Company’s service. The cost of vacation and sick leave is recognized when payments are made to employees. These amounts are immaterial and not accrued.

9

NOTE 8. SALE OF ASSETS

On April 16, 2007, the Company closed the acquisition of assets from Caldwell Production Company, Inc., consisting of 48 mineral leases with 631 wells, of which approximately 100 were producing wells, 531 inactive well bores equipped with necessary production equipment, and related operating facilities and equipment including an office warehouse facility, ten pickup trucks, two pulling rigs, a backhoe, a winch truck and a water truck. The purchase price for such oil field equipment was $291,500.  The purchase price for the mineral leases and an existing office building, including an attached warehouse/shop building valued at $81,630, was $5,000,000.  The oil and natural gas leases purchased are on approximately 14,000 acres in Gray and Carson Counties, Texas, with a well spacing of 10 acres, and are in the Panhandle Field, discovered in 1920. After closing this acquisition, the Company opened corporate offices for our production and oil field service subsidiaries at the purchased facilities in Pampa, Texas.

To finance the acquisition of the assets purchased from Caldwell Production Company, Inc., on April 13, 2007, we entered ito the WNB Loan Agreement.  At the closing of the purchase of these assets, we drew down $2.3 million under the WNB Loan Agreement. On April 13, 2007, we also entered into the CapWest Loan Agreement, under which we drew down at closing of the purchase of these assets $2,700,000 for the balance of the purchase price of the leases, $291,500 for the equipment, $111,000 for bank fees, legal expenses and associated costs, and $130,000 for initial working capital.

On October 30, 2007, we filed for reorganization under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court, Northern District of Texas.  We operated the Company in the bankruptcy proceeding until August 15, 2008, when the Court issued an order dismissing the bankruptcy cases of the Company and of its two operating subsidiaries, Gryphon Production Company, LLC and Gryphon Field Services, LLC.

On July 22, 2008, we entered into a Purchase and Sale Agreement, effective as of June 1, 2008 (the “Agreement”), by and among the Company, Gryphon Production Company, LLC and Gryphon Field Services, LLC, collectively acting as sellers, Legacy Reserves Operating LP, acting as buyer (“Legacy”), and WNB and CapWest, collectively acting as sellers’ lenders.  The Agreement provided for the sale of oil and gas wells accounting for approximately 80% of the Company’s oil and gas production (the “Oil and Gas Assets”) to Legacy for a purchase price of $13,250,000. At the August 29, 2008 closing under the Agreement, the notes held by our lenders, WNB and CapWest, plus interest thereon to the date of such closing, were paid in full.

The financial statements reflect the sale of the Oil and Gas Assets, effective retroactively as of June 1, 2008.  The following is a detailed list of the sale proceeds and the closing costs incurred with respect to such sale.

Sales Price				$	13,250,000
Adjustments to Sales Price
Estimated Liability for Well Plugging Expense	$	(160,000	)
Retention of HH Merten Lease		( 9,642	)
		(169,642	)
				$	(169,642	)
Closing Costs and Other Related Expenditures
Acquisition of Warrants	$	850,000
Acquisition of 2% ORRI		700,000
Acquisition of 6.25% ORRI		232,500
Acquisition of NCE Stock		110,000
Commissions		232,500
Legal		350,494
Other		1,599
Notes payable (including accrued interest)		6,284,167
Total Closing Costs		8,761,260
				$	(8,761,260	)
Net Proceeds Received from Sale				$	4,319,098

NOTE 9. RELATED PARTY TRANSACTIONS

Until April 2009, the Company used the services of a local accounting firm in Pampa, Texas to provide the disbursing of the payroll with related expense and accounts payable while maintaining the general ledger.  The Company’s former President was a 50% owner of that accounting firm, which was paid $11,512 for accounting services through April 2009.  Effective in late April 2009, the Company disengaged this firm and has engaged an unrelated accounting firm in Amarillo, Texas to provide these services.

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Axis Network Pty. Ltd. (“Axis”), a company controlled by the Chairman of the Company’s Board, through a prior arrangement had the rights to receive a 6.25% Overriding Royalty Interest (“ORRI”) in the leases owned by the Company.  Axis was to begin receiving the ORRI at the time the acquisition debt of the Company was retired.  The purchaser of the leases would not accept the sale with the burden of a 6.25% ORRI being implemented at the time of its taking control of the subject leases.  In lieu of receiving a 6.25% ORRI, Axis agreed to accept $232,500 and the 2% ORRI that was purchased from CapWest Resources, Inc.

The Company has used the services of a consulting company owned by the Chairman of the Board.  The Company has paid $72,000 for those services during the Company’s 2009 fiscal year.

In early 2008 in the context of our prior bankruptcy proceeding, Koala, controlled by our Chairman and Chief Executive Officer, Maxwell Grant, had transferred 1,000,000 shares of our common stock to NCE, which had entered into discussions with us.  Following dismissal of the bankruptcy proceeding in August 2008, we settled all matters with NCE for $110,000 pursuant to a Settlement Agreement and Release of All Claims, dated September 4, 2008, and repurchased the 1,000,000 shares of common stock.  In May 2009, our Board of Directors authorized issuance of 1,000,000 shares of common stock to Koala, which shares were issued on July 13, 2009, since Koala had originally transferred 1,000,000 shares to NCE for the benefit of the Company in the context of the Company's discussions with NCE.  On July 17, 2009, the 1,000,000 share certificate representing the shares repurchased from NCE and held as treasury stock was cancelled.

On July 13, 2009, the Company issued 150,000 shares of common stock to Koala on behalf of Maxwell Grant, our Chairman and Chief Executive Officer, 300,000 shares of common stock to Robert Gordon and 300,000 shares of common stock to Dudley Muth, both also members of our Board of Directors.  Such shares were issued to our directors for services rendered as directors over long periods of time, in some cases dating back to March 2006.  The Company recorded an expense for Director’s Fees in the amount of $30,000 in the third quarter of 2009 related to these stock issuances.

On August 10, 2009, the Company issued to Koala a warrant expiring December 31, 2014 to purchase 2,500,000 shares of common stock, at a purchase price of $.02 per share; the Company issued this warrant in replacement of a warrant held by Koala to purchase the same number of shares at the same per share exercise price, expiring December 31, 2009, which was originally issued for services rendered in a shareholder derivative action in Nevada some years ago.

On August 10, 2009, the Company issued to Dudley Muth, a member of our Board of Directors, a Warrant expiring December 31, 2014 to purchase 1,000,000 shares of common stock, at a purchase price of $.025 per share, issued in replacement of a warrant held by Mr. Muth to purchase the same number of shares at the same per share exercise price, expiring December 31, 2009, which was originally issued for services rendered in a shareholder derivative action in Nevada some years ago.

NOTE 10. SUBSEQUENT EVENTS

Events occurring after September 30, 2009 were evaluated as of November 4, 2009, the date this Quarterly Report was issued, in compliance with SFAS No. 165, which was primarily codified into Topic 855 “Subsequent Events” in the ASC, to ensure that any subsequent events that met the criteria for recognition and/or disclosure in this report have been included. No such events were noted.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Throughout this report, we make statements that may be deemed "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, that address activities, events, outcomes and other matters that Chancellor plans, expects, intends, assumes, believes, budgets, predicts, forecasts, projects, estimates or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements are based on management's current belief, based on currently available information, as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, many of which are beyond our control, incident to the exploration for and development, production and sale of oil and gas. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of goods and services, environmental risks,  operating risks, regulatory changes, the uncertainty inherent in estimating proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures and other risks described herein, the effects of existing or continued deterioration in economic conditions in the United States or the markets in which we operate; and acts of war or terrorism inside the United States or abroad.

BACKGROUND

We are in the business of acquisition, exploration, and development of natural gas and oil properties, and have completed an initial acquisition of oil and gas leases and related facilities and equipment as described below under “Plan of Operation.” This acquisition was financed with debt provided by two Texas financial institutions. On October 30, 2007, we filed for reorganization under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court, Northern District of Texas. We operated the Company in the bankruptcy proceeding until August 15, 2008, when the Court issued an order dismissing the bankruptcy cases of the Company and its two operating subsidiaries, Gryphon Production Company, LLC and Gryphon Field Services, LLC.

On July 22, 2008, we had entered into the Agreement, effective as of June 1, 2008 with Legacy for the sale of oil and gas wells accounting for approximately 84% of our oil and gas production to Legacy for a purchase price of $13,250,000. At the August 29, 2008 closing under this Agreement with Legacy, the notes held by the lenders that provided the financing for our initial acquisition of oil and gas leases, plus interest thereon to the date of closing, were paid in full.

Our common stock is quoted on the Over-The-Counter market and trades under the symbol CHAG.OB.  As of November 4, 2009, there were 65,125,030 shares of our common stock issued and outstanding.

Nine Months Ended September 30, 2009

Our oil production operations began April 16th, 2007 with an effective date of April 1st, 2007.  During the period ending December 31, 2007, we produced and sold 23,120 barrels of oil and produced and sold 55,831 mcf gas, generating $2,075,956 revenues after royalties, with a one month lag in receipt of revenues for the prior month’s sales, as compared with 24,114 barrels of oil and 48,759 mcf of gas, generating $2,351,433 in gross revenues, in 2008.  Effective June 1, 2008, we sold producing properties with 173 producing wells to Legacy Reserves Operating LP.  We had 84 wells actually producing oil and gas on December 31, 2008. In the nine month period ended September 30, 2009, we produced and sold 9,116 net barrels of oil and 11,223 mcf of gas, attributable to our net revenue interest in our producing properties, while generating revenues of $484,737, as compared with 18,565 net barrels of oil and 43,058 net mcf of gas, generating revenues of $2,188,597, in the comparable period of 2008. At September 30, 2009, we had approximately 70 oil wells and 2 gas wells producing with additional “associated” gas coming from some oil wells.

Three Months Ended September 30, 2009

In the three month period ended September 30, 2009, we produced a total of 2,644 barrels of oil and 3,853 mcf of gas, while generating revenues of $192,282. The oil is light sweet crude and the natural gas has very high heat content, 1600 to 2600 btu/scf.

RESULTS OF OPERATIONS

On April 16, 2007, we closed the acquisition of assets from Caldwell Production Company, Inc., consisting of 48 mineral leases with 621 wells, of which approximately 100 were considered to be producing wells, 531 inactive well bores equipped with necessary production equipment, and related operating facilities and equipment including an office warehouse facility, ten pickup trucks, two pulling rigs, a backhoe, a winch truck and a water truck. The purchase price for the mineral leases and an existing office building, including an attached warehouse/shop building valued at $81,630, was $5,000,000, and the purchase price for the equipment was $291,500.  The oil and natural gas leases purchased are on approximately 8,000 acres in Gray County, Texas, with a well spacing of 10 acres, and are in the Panhandle Field, discovered in 1920. After closing this acquisition, we have opened corporate offices for our production and oil field service subsidiaries at the purchased facilities in Pampa, Texas. After the initial acquisition, the Gryphon Production Company subsidiary acquired additional trucks, including an electrical repair “bucket” truck, which were needed to restore electric power to several previously non-producing wells.

Our near-term plans include continued maintenance of existing wells, our primary focus being to operate our properties and to enhance production by ongoing treatment.  Additionally, production is expected to increase by remedial repairs that improve and prolong the production life of existing wells.  The Company also has plans to reenter certain abandoned wells, which were taken out of production due to extremely low oil and gas prices, bringing oil and gas from these wells into the market.  Several of the leases need to studied and reviewed for the possibility of drilling the wells deeper to reach additional producing strata.  Feasibility studies are planned to consider drilling replacement wells in the locations of wells that were previously plugged and abandoned due to either low prices or integrity issues with the well bore casing.  There is approximately 500 acres of undeveloped leased property that needs to be reviewed and studied for the possibility of drilling for new production.

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The following table shows the approximate volumes and average sales prices for oil and gas we produced in the three months ended September 30, 2009, as compared with sales and price information for the comparable period in 2008:

	Nine Months Ended
	September 30, 2009		September 30, 2008
Oil and Gas Sales(1)
Oil Sales(Bbl)		2,644		2,521
Natural Gas Sales (Mcf)		3,853		1,539
Average Sales Price:
Oil, per Bbl:	$	64.15	$	131.57
Gas, per MMCF:	$	5.88	$	15.87

(1) Sales oil and gas are those attributable to our respective net revenue interests in our producing properties, and do not take account of severance taxes or other operating expenses.

There is no assurance that management will be able to continue to increase production, or to maintain current production levels.

Generally, in managing our business we must deal with many factors inherent to our industry. First and foremost is wide fluctuation of oil and gas prices. Oil and gas markets are cyclical and volatile, with future price movements difficult to predict. While our revenues are a function of both production and prices, wide swings in prices often have the greatest impact on our results of operations.

Our operations entail significant complexities. Advanced technologies requiring highly trained personnel are utilized in restoration of wells and production. The oil and gas industry is highly competitive. We compete with major and diversified energy companies, independent oil and gas companies, and individual operators. In addition, the industry as a whole competes with other businesses that supply energy to industrial, commercial, and residential end users. Our ability to recruit and retain experienced personnel is vital to the success of our endeavors.

LIQUIDITY & CAPTIAL RESOURCES

As of September 30, 2009 the Company had $1,500,646 of cash on hand.   We have retained earnings of $122,467 and have a stockholders' equity balance of $3,496,305 at September 30, 2009.

CONTRACTUAL OBLIGATIONS

In September 2009, the Company terminated its existing contract with Pacific Stock Transfer, effective immediately, and engaged Quicksilver Stock Transfer as Transfer Agent.

On July 1, 2009, the Company entered into a 24-month non-exclusive consultant agreement with PK Advisors, LLC (“PK”) in connection with the Company’s interest in creating a strategy for growing the core business, creating market awareness and providing general strategic corporate advice.  425,000 shares of unregistered common stock and five year warrants to purchase 250,000 shares of our common stock with a strike price of $.125, subject to adjustment in certain circumstances as set forth in the warrant, were issued to Patrick Kolenik (“Kolenik”) on behalf of PK upon execution of this agreement.  Kolenik may exercise the warrants either by paying the Company the aggregate exercise price for the shares of common stock underlying the warrant being exercised or by electing to exercise the warrant through cashless exercise as set forth in the warrant.  The Company recorded Professional Fees Expense of $17,000 related to the execution of this agreement in the quarter ending September 30, 2009.  The Company is further obligated to issue 40,000 shares of unregistered common stock and five year warrants to purchase 14,000 shares of our common stock with a strike price of $.125 to Kolenik on behalf of PK per month for the next 18 months beginning January 1, 2009, until the consulting agreement is terminated.  Additional cash consideration would be payable to PK for any future investment transactions for which PK provides assistance.

On July 1, 2009, the Company entered into a 24-month non-exclusive consultant agreement with Equity Source Partners, LLC (“ESP”) in connection with the Company’s interest in creating a strategy for growing the core business, creating market awareness and providing general strategic corporate advice. 292,500 shares of unregistered common stock and five year warrants to purchase 225,000 shares of our common stock with a strike price of $.125, subject to adjustment in certain circumstances as set forth in the warrant, were issued to Cary Sucoff (“Sucoff”) on behalf of ESP upon execution of this agreement.  Sucoff may exercise these warrants either by paying the Company the aggregate exercise price for the shares of common stock underlying the warrant being exercised or by electing to exercise the warrant through cashless exercise as set forth in the warrant.  32,500 shares of unregistered common stock and five year warrants to purchase 25,000 shares of our common stock with a strike price of $.125, subject to adjustment in certain circumstances as set forth in the warrant, were issued to Francis Anderson (“Anderson”) on behalf of ESP upon execution of this agreement.  Anderson may exercise these warrants either by paying the Company the aggregate exercise price for the shares of common stock underlying the warrant being exercised or by electing to exercise the warrant through cashless exercise as set forth in the warrant.  The Company recorded Professional Fees Expense of $13,000 related to the execution of this agreement in the quarter ending September 30, 2009. The Company is further obligated to issue 30,000 shares of unregistered common stock and five year warrants to purchase 14,000 shares of our common stock with a strike price of $.125 to ESP per month for the next 18 months beginning January 1, 2009, until this consulting agreement is terminated.  Additional cash consideration would be payable to ESP for any future investment transactions for which ESP provides assistance.

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On August 28, 2009, the Company engaged 2S Partners as a non-exclusive consultant and finder to assist the Company in identifying properties of interest for potential future acquisitions.  Consideration for the engagement is contingent upon contract closing for such services.

CRITICAL ACCOUNTING POLICIES

The Securities and Exchange Commission (the “SEC”) recently issued "Financial Reporting Release No.  60 Cautionary Advice Regarding Disclosure About Critical Accounting Policies" ("FRR 60"), suggesting companies provide additional disclosures, discussion and commentary on those accounting policies considered most critical to their business and financial reporting requirements.  The SEC suggests in FRR 60 that an accounting policy is critical if it is important to the Company's financial condition and results of operations, and requires significant judgment and estimates on the part of management in the application of the policy.  For a summary of the Company's significant accounting policies, including the critical accounting policies discussed below, please refer to the accompanying notes to the financial statements provided in this quarterly report on Form 10-Q.

The Company assesses potential impairment of its long-lived assets, which include its property and equipment and its identifiable intangibles such as deferred charges, under the guidance of SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets", which was primarily codified into Topic 360 “Property, Plant and Equipment” in the ASC.  The Company must continually determine if a permanent impairment of its long-lived assets has occurred and write down the assets to their fair values and charge current operations for the measured impairment.

The process of estimating quantities of oil and gas reserves is complex, requiring significant decisions in the evaluation of all available geological, geophysical, engineering and economic data. The data for a given field may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, material revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various fields make these estimates generally less precise than other estimates included in the financial statement disclosures.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2009, the Company had not entered into any off-balance sheet arrangements or third-party guarantees, nor does our business ordinarily require us to do so.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk - Interest rate risk refers to fluctuations in the value of a security resulting from changes in the general level of interest rates. Investments that are classified as cash and cash equivalents have original maturities of six months or less. Our interest income is sensitive to changes in the general level of U.S. interest rates.

Credit Risk - Our accounts receivables are subject, in the normal course of business, to collection risks. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of collection risks. As a result, we do not anticipate any material losses in this area.

Commodity Price Risk – We are exposed to market risks related to price volatility of crude oil and natural gas. The prices of crude oil and natural gas affect our revenues, since sales of crude oil and natural gas comprise all of the components of our revenues.  A decline in crude oil and natural gas prices will likely reduce our revenues, unless we implement offsetting production increases. We do not use derivative commodity instruments for trading purposes.

ITEM 4.  CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Principal Financial Officer is primarily responsible for the accuracy of the financial information that is presented in this quarterly Report.  This officer has, as of the close of the period covered by this Quarterly Report, evaluated the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based upon that evaluation, this officer concluded that our disclosure controls and procedures were effective as of that date to ensure that information required to be disclosed by us in our reports filed or submitted under the Exchange Act is (a) accumulated and communicated to our management, including our principal executive and financial officer, as appropriate to allow timely discussions regarding required disclosure and (b) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  There were no changes to the Company's internal controls in this period identified in connection with this evaluation that have materially affected, or are reasonably likely materially to affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth the sales of unregistered securities since the Company’s last report filed under this item.

	Principal   Total Offering Price/
Date	Title and Amount  (1)	Purchaser	Underwriter	Underwriting Discounts
July 13, 2009	425,000 shares of common stock.	Advisor	NA	$17,000/NA
July 13, 2009	292,500 shares of common stock.	Advisor	NA	$13,000/NA
July 13, 2009	32,500 shares of common stock.	Advisor	NA	$1,400/NA
July 13, 2009	280,000 shares of common stock.	Former Officer	NA	$11,200/NA
July 13, 2009	300,000 shares of common stock	Director	NA	$12,000/NA
July 13, 2009	300,000 shares of common stock	Director	NA	$12,000/NA
July 13, 2009	150,000 shares of common stock	Koala Pictures Proprietary Ltd.(2)	NA	$6,000/NA
July 13, 2009	Warrants expiring June 30, 2014 to purchase 25,000 shares of common stock at the purchase prices of $.125 per share.(3)	Advisor	NA	$0/NA
July 13, 2009	Warrants expiring June 30, 2014 to purchase 225,000 shares of common stock at the purchase prices of $.125 per share.(3)	Advisor	NA	$0/NA
July 13, 2009	Warrants expiring June 30, 2014 to purchase 250,000 shares of common stock at the purchase prices of $.125 per share.(3)	Advisor	NA	$0/NA
August 10, 2009	Warrant expiring December 31, 2014 to purchase 2,500,000 shares of common stock, at a purchase price of $.02 per share, issued in replacement of a warrant to purchase the same number of shares at the same per share exercise price expiring December 31, 2009.	Koala Pictures Proprietary Ltd.(2)	NA	$0/NA
August 10, 2009	Warrants expiring December 31, 2014 to purchase 1,000,000 shares and 1,500,000 shares of common stock, respectively, at the respective purchase prices of $.025 and $.02 per share, issued in replacement of two warrants to purchase the same numbers of shares at the same per share exercise prices expiring December 31, 2009.	Private Investor	NA	$0/NA
August 10, 2009	Warrant expiring December 31, 2014 to purchase 1,000,000 shares of common stock, at a purchase price of $.025 per share, issued in replacement of a warrant to purchase the same number of shares at the same per share exercise price expiring December 31, 2009.	Director.	NA	$0/NA

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(1) The issuances to five private investors and to three directors, one of whom is also an officer of the Company, are viewed by the Company as exempt from registration under the Securities Act of 1933, as amended (“Securities Act”), alternatively as transactions not involving any public offering or exempt under the provisions of Regulation D promulgated by the SEC under the Securities Act.

(2) Koala Pictures Proprietary Ltd is controlled by our Chairman and Chief Executive Officer, Maxwell Grant.

(3) See the disclosure provided in ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—CONTRACTUAL OBLIGATIONS for a description of additional terms of conversion and exercise of these warrants.

ITEM 6.  Exhibits.

2.1 Plan of Reorganization dated March 1, 2008, filed with the United States Bankruptcy Court for the Northern District of Texas, Amarillo Division, filed herewith.

2.2 Order dated August 15, 2008, of United States Bankruptcy Court, Northern District of Texas,  Dismissing the Company’s and its Subsidiaries’ Chapter 11 Cases (incorporated by reference to Exhibit No.2.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 19, 2008).

3.1 Certificate of Incorporation of Nighthawk Capital, Inc. (Utah) (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000).

3.2 Articles on Incorporation on Nighthawk Capital, Inc. (Nevada) (incorporated by reference to Exhibit 2.2 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000).

3.3 Articles of Merger of Nighthawk Capital, Inc. (Utah) into Nighthawk Capital, Inc. (Nevada) (incorporated by reference to Exhibit 2.3 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000).

3.4 By-Laws (incorporated by reference to Exhibit 2.4 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000.

10.1 Agreement and Plan of Reorganization, dated October 19, 2000, between Chacellor Group, Inc. and Southwin financial, Ltd. (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 21, 2000).

10.23 Warrant issued August 10, 2009 to Koala Pictures Proprietary Ltd. To purchase and aggregate of 2,500,000 shares of common stock on or before December 31, 2014.

10.24 Warrant issued August 10, 2009, to Dudley Muth to purchase an aggregate of 1,000,000 shares of common stock on or before December 31, 2014.

10.25 Warrant issued July 13, 2009, to Cary Sucoff to purchase an aggregate of 225,000 shares of common stock on or before June 30, 2014.

10.26 Warrant issued August 10, 2009, to Ernest P. Andrews to purchase an aggregate of 1,000,000 shares of common stock on or before December 31, 2014.

10.27 Warrant issued August 10, 2009, to Ernest P. Andrews to purchase an aggregate of 1,500,000 shares of common stock on or before December 31, 2014.

10.28 Warrant issued July 13, 2009, to Francis Anderson to purchase an aggregate of 25,000 shares of common stock on or before June 30, 2014.

10.29 Warrant issued July 13, 2009, to Patrick Kolenik to purchase an aggregate of 250,000 shares of common stock on or before June 30, 2014.

31 Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002.

32 Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Chancellor Group, Inc.
	(Registrant)
By:	/s/  Maxwell Grant
	Chief Executive Officer and
	Principal Financial Officer

Dated: November 4, 2009

EXHIBIT INDEX

Exhibit Number	Description
2.1	Plan of Reorganization dated March 1, 2008, filed with the United States Bankruptcy Court for the Northern District of Texas, Amarillo Division, filed herewith.
2.2	Order dated August 15, 2008, of United States Bankruptcy Court, Northern District of Texas,  Dismissing the Company’s and its Subsidiaries’ Chapter 11 Cases (incorporated by reference to Exhibit No.2.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 19, 2008).
3.1	Certificate of Incorporation of Nighthawk Capital, Inc. (Utah) (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000).
3.2	Articles on Incorporation on Nighthawk Capital, Inc. (Nevada) (incorporated by reference to Exhibit 2.2 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000).
3.3	Articles of Merger of Nighthawk Capital, Inc. (Utah) into Nighthawk Capital, Inc. (Nevada) (incorporated by reference to Exhibit 2.3 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000).
3.4	By-Laws (incorporated by reference to Exhibit 2.4 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000.
10.1	Agreement and Plan of Reorganization, dated October 19, 2000, between Chacellor Group, Inc. and Southwin financial, Ltd. (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 21, 2000).
10.23	Warrant issued August 10, 2009 to Koala Pictures Proprietary Ltd. to purchase an aggregate of 2,500,000 shares of common stock on or before December 31, 2014.
10.24	Warrant issued August 10, 2009, to Dudley Muth to purchase an aggregate of 1,000,000 shares of common stock on or before December 31, 2014.
10.25	Warrant issued July 13, 2009, to Cary Sucoff to purchase an aggregate of 225,000 shares of common stock on or before June 30, 2014.
10.26	Warrant issued August 10, 2009, to Ernest P. Andrews to purchase an aggregate of 1,000,000 shares of common stock on or before December 31, 2014.
10.27	Warrant issued August 10, 2009, to Ernest P. Andrews to purchase an aggregate of 1,500,000 shares of common stock on or before December 31, 2014.
10.28	Warrant issued July 13, 2009, to Francis Anderson to purchase an aggregate of 25,000 shares of common stock on or before June 30, 2014.
10.29	Warrant issued July 13, 2009, to Patrick Kolenik to purchase an aggregate of 250,000 shares of common stock on or before June 30, 2014.
31	Certification of Principal Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes  Oxley Act of 2002.
32	Certification of Principal Executive Officer and Chief Financial Officer Pursuant to 18  U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.

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EX-10.23

NEITHER THIS WARRANT NOR THE WARRANT SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.  NEITHER THIS WARRANT NOR THE SHARES OF WARRANT STOCK ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.

CHANCELLOR GROUP, INC.

Common Stock Purchase Warrant

(Expiring on December 31, 2014)

This is to certify that, for value received and subject to the conditions herein set forth,  Koala Pictures Proprietary Ltd. (the "Warrantholder") is entitled to purchase, at a price per share of Two Cents ($0.02) per share, Two Million Five Hundred Thousand (2,500,000) shares of common stock, par value $0.001 per share (the "Common Stock"), of Chancellor Group Inc., a Nevada corporation (the "Company"), subject to adjustment as provided below (such shares purchasable upon exercise of this Warrant are herein called the "Warrant Stock").  The amount per share specified above, as adjusted from time to time pursuant to the provisions hereinafter set forth, is herein called the "Purchase Price."  This Warrant will be immediately exercisable and may be exercised anytime after its issuance.   In the event of a exercise of this Warrant, the Warrantholder shall surrender this Warrant to the Company with payment of the Purchase Price, together with a notice of exercise (the date of such surrender being herein referred to as the “Date of Exercise”), in which event the Company shall issue to the Warrantholder the number of shares of Warrant Stock.

1.           By acceptance of this Warrant, the Warrantholder agrees, for itself and all subsequent holders, that prior to making any disposition of this Warrant or any shares of Warrant Stock, the Warrantholder shall give written notice to the Company describing briefly the manner in which any such proposed disposition is to be made; and no such disposition shall be made unless and until (i) the Company has received an opinion of counsel satisfactory to it to the effect that no registration under the Securities Act of 1933, as amended (the "Act"), is required with respect to such disposition; or (ii) a registration statement with respect to the Warrant or the Warrant Stock has been filed by the Company and declared effective by the Securities and Exchange Commission (the "Commission").

2.           (a)  If outstanding shares of the Company's Common Stock shall be subdivided into a greater number of shares thereof or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced and conversely, if outstanding shares of Common Stock shall be combined into a smaller number of shares thereof, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased.  When any adjustment is required to be made in the Purchase Price, the number of shares of Common Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable pursuant to the exercise of this Warrant immediately prior to such adjustment multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment.

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(b)  If there shall occur any capital reorganization or reclassification of the Company's Common Stock (other than a change in par value or a subdivision or combination as provided for in subparagraph (a) above), or any consolidation or merger of the Company with or into another corporation, or in the case of any sale, transfer or other disposition to another person, corporation or other entity of all or substantially all the property, assets, business and good will of the Company as an entirety, then, as part of any such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, as the case may be, lawful provision shall be made so that the registered owner of this Warrant shall have the right thereafter to receive upon the exercise hereof the kind and amount of shares of stock or other securities or property which said registered owner would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, as the case may be, said registered owner had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant.  In any such case, appropriate adjustment (as determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the registered owner of this Warrant such that the provisions set forth herein (including provisions with respect to adjustment of the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant.

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(c)  In case the Company shall declare a dividend upon shares of Common Stock payable otherwise than out of earnings or earned surplus and otherwise than in shares of Common Stock or in stock or obligations directly or indirectly convertible into or exchangeable for Common Stock, the Warrantholder shall, upon exercise of this Warrant in whole or in part, be entitled to purchase, in addition to the number of shares of Common Stock deliverable upon such exercise against payment of the Purchase Price therefor, but without further consideration, the cash, stock or other securities or property which the holder of Warrant would have received as dividends (otherwise than out of such earnings or earned surplus and otherwise than in shares of Common Stock or in such convertible or exchangeable stock or obligations), if continuously since the date set forth above such holder (i) had been the holder of record of the number of shares of Common Stock deliverable upon such exercise and (ii) had retained all dividends in stock or other securities (other than shares of Common Stock or such convertible or exchangeable stock or obligations) paid or payable in respect of said number of shares of Common Stock or in respect of any such stock or other securities so paid or payable as such dividends.  For purposes of this subparagraph (c), a dividend payable otherwise than in cash shall be considered to be payable out of earnings or earned surplus and shall be charged in an amount equal to the fair value of such dividend as determined by the Board of Directors of the Company.

(d)  In case at any time:

(i)  the Company shall pay any cash or stock dividend upon its Common Stock or make any distribution to the holders of its Common Stock; or

(ii)  the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any other rights; or

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(iii)  the Company shall effect any capital reorganization or any reclassification of or change in the outstanding capital stock of the Company (other than a stock split, a change in par value, or a change resulting solely from a subdivision or combination of outstanding shares of Common Stock), or any consolidation or merger, or any sale, transfer or other disposition of all or substantially all its property, assets, business and good will as an entirety, or the liquidation, dissolution or winding up of the Company; or

               (iv)  the Company shall declare a dividend upon shares of its Common Stock payable otherwise than out of earnings or earned surplus or otherwise than in shares of Common Stock or any stock or obligations directly or indirectly convertible into or exchangeable for Common Stock; then, in any such case, the Company shall cause at least fifteen (15) days' prior notice thereof to be furnished to the Warrantholder at the address of such holder shown on the books of the Company.  Such notice shall also specify the date on which the books of the Company shall close, or a record be taken, for such stock dividend, distribution or subscription rights, or the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, disposition, liquidation, dissolution, winding up, or dividend, as the case may be, shall take place, and the date of participation therein by the holders of Common Stock if any such date is to be fixed, and shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the rights of the Warrantholder.

(e)  When any adjustment is required to be made in the Purchase Price, the Company shall promptly mail to the Warrantholder a certificate setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.  Such certificate shall also set forth the kind and amount of stock or other securities or property into which this Warrant shall be exercisable following the occurrence of any of the events specified in subparagraphs (b) or (c) above.

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(f)  The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make any adjustment therefor on the basis of the mean between the closing low bid and closing high asked prices on the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotations System or the closing market price on a national securities exchange on the trading day immediately prior to exercise, whichever is applicable or, if neither is applicable, then on the basis of the market value of any such fractional interest as shall be reasonably determined by the Company.

(g)  The Company will, within 120 days after the end of each of its fiscal years, mail to the registered holder of this Warrant at the address of such holder shown on the books of the Company a certificate (if the Company has engaged independent public accountants, such certificate shall be prepared by such independent public accountants) (i) specifying the Purchase Price in effect as of the end of such fiscal year and the number of shares of Common Stock, or the kind and amount of any securities or property other than Common Stock purchasable by the holder of this Warrant and (ii) setting forth in reasonable detail the facts requiring any adjustments made during such fiscal year.

3.           The Company agrees that (i) a number of shares of Common Stock and other securities and property sufficient to provide for the exercise of this Warrant upon the basis hereinbefore set forth shall at all times during the term of Warrant be reserved for the exercise hereof, and (ii) during the term of this Warrant, it will keep current in filing any forms and other materials required to be filed with the Commission pursuant to the Act and the Securities Exchange Act of 1934, as amended.

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4.           (a) Exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the closing of the offering, and before the close of business on the Termination Date by the surrender of this Warrant and the Notice of Exercise Form or Notice of Cashless Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Warrantholder hereof at the address of such Warrantholder appearing on the books of the Company) and upon payment of the Exercise Price of the Warrant Stock as provided herein the Warrantholder shall be entitled to receive a certificate for the number of Warrant Stock so purchased.  Certificates for the shares of Warrant Stock purchased hereunder shall be delivered to the Warrantholder hereof within twenty (20) trading days after the date on which this Warrant shall have been exercised as aforesaid.  This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Warrantholder or any other person so designated to be named therein shall be deemed to have become a Warrantholder of record of such shares of Warrant Stock for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Warrantholder, if any, pursuant to Section 4 prior to the issuance of such shares of Warrant Stock, have been paid.

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(b)           Payment may be made either (i) in cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common Stock and/or shares of Warrant Stock receivable upon exercise of the Warrant in accordance with Section 3(c) below, or (iii) by a combination of any of the foregoing methods, for the number of shares of Warrant Stock specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares Warrant Stock issuable to the Warrantholder per the terms of this Warrant) and the Warrantholder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock determined as provided herein.

(c)           Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Warrantholder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Cashless Exercise Form in which event the Company shall issue to the Warrantholder a number of shares of Warrant Stock computed using the following formula:

X=Y(	A-B)
(	A)

Where:
X =	the number of shares of Warrant Stock to be issued to the Warrantholder on such exercise
Y =	the number of shares of Warrant Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)
A =	the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation)
B =	Exercise Price (as adjusted to the date of such calculation)

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(d)           “Fair Market Value” shall mean the average 4:00 PM Eastern Standard Time closing bid price of the Company’s Common Stock as quoted on the Nasdaq OTC:BB, Pink Sheets or other national market or exchange as reflected on the Bloomberg quotation system (“Closing Bid”) on the three (3) trading days immediately following the date of receipt of the Notice of Cashless Exercise Form.

(e)           Notwithstanding anything herein to the contrary, each certificate for Warrant Stock issued hereunder shall bear a legend reading substantially as follows (unless the Company receives an opinion of counsel satisfactory to it that such a legend is not required in order to assure compliance with the Act).

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  THESE SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SHARES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SHARES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND FROM REGISTRATION OR QUALIFICATION REQUIREMENTS OF APPLICABLE STATE SECURITIES LAWS.

5.           All shares of Common Stock or other securities delivered upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable and the Company will pay all taxes, if any, in respect of the issuance thereof upon exercise of this Warrant.

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6.           (a)  Subject to the provisions of Paragraph 1 hereof, this Warrant and all rights hereunder are transferable on the books of the Company, upon surrender of this Warrant, with the form of assignment attached hereto duly executed by the registered holder hereof or by his attorney duly authorized in writing, to the Company at its principal office hereinabove referred to, and thereupon there shall be issued in the name of the transferee or transferees, in exchange for this Warrant, a new warrant or warrants or like tenor and date, representing in the aggregate the right to subscribe for and purchase the number of shares which may be subscribed for and purchased hereunder.

(b)  If this Warrant shall be lost, stolen, mutilated or destroyed, the Company, on such terms as to indemnify or otherwise as it may in its discretion reasonably impose, shall issue a new warrant of like denomination, tenor and date as this Warrant so lost, stolen, mutilated or destroyed.  Any such new warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed warrant shall be at any time enforceable by anyone.

(c)  The Company may deem and treat the registered holder of this Warrant as the absolute owner of this Warrant for all purposes and shall not be affected by any notice to the contrary.

(d)  This Warrant, including all the rights and obligations granted to the Warrantholder hereunder, shall be specifically enforceable against the Company by the Warrantholder, in addition to and not by way of substitution for, any other remedies available to the Warrantholder, at law or in equity.

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(e)  This Warrant, in all events, shall be wholly void and of no effect after December 31, 2014.

7.           The Warrantholder shall not, by virtue of ownership of this Warrant, be entitled to any rights whatsoever of a shareholder of the Company, but shall, upon written request to the Company, be entitled to receive quarterly or annual reports, or any other reports to shareholders of the Company.

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of August   , 2009, as a replacement Warrant for a warrant originally issued to Warrantholder as of July 10, 2006, expiring December 31, 2009, covering the same number of shares of Warrant Stock and exercisable at the same Purchase Price.

CHANCELLOR GROUP, INC.

By:

Chairman

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NOTICE OF EXERCISE

To:           Chancellor Group, Inc.

The undersigned hereby elects to purchase ________ shares of Common Stock (the “Warrant Stock”), of Chancellor Group, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

Social Security or Tax Identification Number

Dated:

Signature

Print Name

NOTICE OF CASHLESS EXERCISE

To:           Chancellor Group, Inc.

(1)           The undersigned hereby elects to purchase the number of shares of Common Stock (the “Warrant Stock”), of Chancellor Group, Inc. as are purchasable pursuant to the terms the formula set forth in Section 4 of the attached Warrant, and makes payment therefore in full by surrender and delivery of this Warrant.

(2)           Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

Social Security or Tax Identification Number

Dated:

Signature

Print Name

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to _______________________________________________________________

whose address is ________________________________________________________________

______________________________________________________________________________

Dated:

Holder's Signature:

Holder's Address:

Signature Guaranteed:

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

EX-10.24

NEITHER THIS WARRANT NOR THE WARRANT SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.  NEITHER THIS WARRANT NOR THE SHARES OF WARRANT STOCK ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.

CHANCELLOR GROUP, INC.

Common Stock Purchase Warrant

(Expiring on December 31, 2014)

This is to certify that, for value received and subject to the conditions herein set forth,  Dudley Muth (the "Warrantholder") is entitled to purchase, at a price per share of Two and One Half Cents ($0.025) per share, One Million (1,000,000) shares of common stock, par value $0.001 per share (the "Common Stock"), of Chancellor Group Inc., a Nevada corporation (the "Company"), subject to adjustment as provided below (such shares purchasable upon exercise of this Warrant are herein called the "Warrant Stock").  The amount per share specified above, as adjusted from time to time pursuant to the provisions hereinafter set forth, is herein called the "Purchase Price."  This Warrant will be immediately exercisable and may be exercised anytime after its issuance.   In the event of a exercise of this Warrant, the Warrantholder shall surrender this Warrant to the Company with payment of the Purchase Price, together with a notice of exercise (the date of such surrender being herein referred to as the “Date of Exercise”), in which event the Company shall issue to the Warrantholder the number of shares of Warrant Stock.

1.           By acceptance of this Warrant, the Warrantholder agrees, for itself and all subsequent holders, that prior to making any disposition of this Warrant or any shares of Warrant Stock, the Warrantholder shall give written notice to the Company describing briefly the manner in which any such proposed disposition is to be made; and no such disposition shall be made unless and until (i) the Company has received an opinion of counsel satisfactory to it to the effect that no registration under the Securities Act of 1933, as amended (the "Act"), is required with respect to such disposition; or (ii) a registration statement with respect to the Warrant or the Warrant Stock has been filed by the Company and declared effective by the Securities and Exchange Commission (the "Commission").

2.           (a)  If outstanding shares of the Company's Common Stock shall be subdivided into a greater number of shares thereof or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced and conversely, if outstanding shares of Common Stock shall be combined into a smaller number of shares thereof, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased.  When any adjustment is required to be made in the Purchase Price, the number of shares of Common Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable pursuant to the exercise of this Warrant immediately prior to such adjustment multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment.

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(b)  If there shall occur any capital reorganization or reclassification of the Company's Common Stock (other than a change in par value or a subdivision or combination as provided for in subparagraph (a) above), or any consolidation or merger of the Company with or into another corporation, or in the case of any sale, transfer or other disposition to another person, corporation or other entity of all or substantially all the property, assets, business and good will of the Company as an entirety, then, as part of any such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, as the case may be, lawful provision shall be made so that the registered owner of this Warrant shall have the right thereafter to receive upon the exercise hereof the kind and amount of shares of stock or other securities or property which said registered owner would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, as the case may be, said registered owner had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant.  In any such case, appropriate adjustment (as determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the registered owner of this Warrant such that the provisions set forth herein (including provisions with respect to adjustment of the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant.

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(c)  In case the Company shall declare a dividend upon shares of Common Stock payable otherwise than out of earnings or earned surplus and otherwise than in shares of Common Stock or in stock or obligations directly or indirectly convertible into or exchangeable for Common Stock, the Warrantholder shall, upon exercise of this Warrant in whole or in part, be entitled to purchase, in addition to the number of shares of Common Stock deliverable upon such exercise against payment of the Purchase Price therefor, but without further consideration, the cash, stock or other securities or property which the holder of Warrant would have received as dividends (otherwise than out of such earnings or earned surplus and otherwise than in shares of Common Stock or in such convertible or exchangeable stock or obligations), if continuously since the date set forth above such holder (i) had been the holder of record of the number of shares of Common Stock deliverable upon such exercise and (ii) had retained all dividends in stock or other securities (other than shares of Common Stock or such convertible or exchangeable stock or obligations) paid or payable in respect of said number of shares of Common Stock or in respect of any such stock or other securities so paid or payable as such dividends.  For purposes of this subparagraph (c), a dividend payable otherwise than in cash shall be considered to be payable out of earnings or earned surplus and shall be charged in an amount equal to the fair value of such dividend as determined by the Board of Directors of the Company.

(d)  In case at any time:

(i)  the Company shall pay any cash or stock dividend upon its Common Stock or make any distribution to the holders of its Common Stock; or

           (ii)  the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any other rights; or

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           (iii)  the Company shall effect any capital reorganization or any reclassification of or change in the outstanding capital stock of the Company (other than a stock split, a change in par value, or a change resulting solely from a subdivision or combination of outstanding shares of Common Stock), or any consolidation or merger, or any sale, transfer or other disposition of all or substantially all its property, assets, business and good will as an entirety, or the liquidation, dissolution or winding up of the Company; or

               (iv)  the Company shall declare a dividend upon shares of its Common Stock payable otherwise than out of earnings or earned surplus or otherwise than in shares of Common Stock or any stock or obligations directly or indirectly convertible into or exchangeable for Common Stock; then, in any such case, the Company shall cause at least fifteen (15) days' prior notice thereof to be furnished to the Warrantholder at the address of such holder shown on the books of the Company.  Such notice shall also specify the date on which the books of the Company shall close, or a record be taken, for such stock dividend, distribution or subscription rights, or the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, disposition, liquidation, dissolution, winding up, or dividend, as the case may be, shall take place, and the date of participation therein by the holders of Common Stock if any such date is to be fixed, and shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the rights of the Warrantholder.

(e)  When any adjustment is required to be made in the Purchase Price, the Company shall promptly mail to the Warrantholder a certificate setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.  Such certificate shall also set forth the kind and amount of stock or other securities or property into which this Warrant shall be exercisable following the occurrence of any of the events specified in subparagraphs (b) or (c) above.

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(f)  The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make any adjustment therefor on the basis of the mean between the closing low bid and closing high asked prices on the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotations System or the closing market price on a national securities exchange on the trading day immediately prior to exercise, whichever is applicable or, if neither is applicable, then on the basis of the market value of any such fractional interest as shall be reasonably determined by the Company.

(g)  The Company will, within 120 days after the end of each of its fiscal years, mail to the registered holder of this Warrant at the address of such holder shown on the books of the Company a certificate (if the Company has engaged independent public accountants, such certificate shall be prepared by such independent public accountants) (i) specifying the Purchase Price in effect as of the end of such fiscal year and the number of shares of Common Stock, or the kind and amount of any securities or property other than Common Stock purchasable by the holder of this Warrant and (ii) setting forth in reasonable detail the facts requiring any adjustments made during such fiscal year.

3.           The Company agrees that (i) a number of shares of Common Stock and other securities and property sufficient to provide for the exercise of this Warrant upon the basis hereinbefore set forth shall at all times during the term of Warrant be reserved for the exercise hereof, and (ii) during the term of this Warrant, it will keep current in filing any forms and other materials required to be filed with the Commission pursuant to the Act and the Securities Exchange Act of 1934, as amended.

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4.           (a) Exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the closing of the offering, and before the close of business on the Termination Date by the surrender of this Warrant and the Notice of Exercise Form or Notice of Cashless Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Warrantholder hereof at the address of such Warrantholder appearing on the books of the Company) and upon payment of the Exercise Price of the Warrant Stock as provided herein the Warrantholder shall be entitled to receive a certificate for the number of Warrant Stock so purchased.  Certificates for the shares of Warrant Stock purchased hereunder shall be delivered to the Warrantholder hereof within twenty (20) trading days after the date on which this Warrant shall have been exercised as aforesaid.  This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Warrantholder or any other person so designated to be named therein shall be deemed to have become a Warrantholder of record of such shares of Warrant Stock for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Warrantholder, if any, pursuant to Section 4 prior to the issuance of such shares of Warrant Stock, have been paid.

(b)    Payment may be made either (i) in cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common Stock and/or shares of Warrant Stock receivable upon exercise of the Warrant in accordance with Section 3(c) below, or (iii) by a combination of any of the foregoing methods, for the number of shares of Warrant Stock specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares Warrant Stock issuable to the Warrantholder per the terms of this Warrant) and the Warrantholder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock determined as provided herein.

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(c)     Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Warrantholder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Cashless Exercise Form in which event the Company shall issue to the Warrantholder a number of shares of Warrant Stock computed using the following formula:

X=Y(	A-B)
(	A)

Where:

X = the number of shares of Warrant Stock to be issued to the Warrantholder on such exercise

Y = the number of shares of Warrant Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)

A = the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation)

B = Exercise Price (as adjusted to the date of such calculation)

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(d)           “Fair Market Value” shall mean the average 4:00 PM Eastern Standard Time closing bid price of the Company’s Common Stock as quoted on the Nasdaq OTC:BB, Pink Sheets or other national market or exchange as reflected on the Bloomberg quotation system (“Closing Bid”) on the three (3) trading days immediately following the date of receipt of the Notice of Cashless Exercise Form.

(e)           Notwithstanding anything herein to the contrary, each certificate for Warrant Stock issued hereunder shall bear a legend reading substantially as follows (unless the Company receives an opinion of counsel satisfactory to it that such a legend is not required in order to assure compliance with the Act).

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  THESE SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SHARES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SHARES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND FROM REGISTRATION OR QUALIFICATION REQUIREMENTS OF APPLICABLE STATE SECURITIES LAWS.

5.           All shares of Common Stock or other securities delivered upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable and the Company will pay all taxes, if any, in respect of the issuance thereof upon exercise of this Warrant.

9

6.           (a)  Subject to the provisions of Paragraph 1 hereof, this Warrant and all rights hereunder are transferable on the books of the Company, upon surrender of this Warrant, with the form of assignment attached hereto duly executed by the registered holder hereof or by his attorney duly authorized in writing, to the Company at its principal office hereinabove referred to, and thereupon there shall be issued in the name of the transferee or transferees, in exchange for this Warrant, a new warrant or warrants or like tenor and date, representing in the aggregate the right to subscribe for and purchase the number of shares which may be subscribed for and purchased hereunder.

(b)  If this Warrant shall be lost, stolen, mutilated or destroyed, the Company, on such terms as to indemnify or otherwise as it may in its discretion reasonably impose, shall issue a new warrant of like denomination, tenor and date as this Warrant so lost, stolen, mutilated or destroyed.  Any such new warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed warrant shall be at any time enforceable by anyone.

(c)  The Company may deem and treat the registered holder of this Warrant as the absolute owner of this Warrant for all purposes and shall not be affected by any notice to the contrary.

(d)  This Warrant, including all the rights and obligations granted to the Warrantholder hereunder, shall be specifically enforceable against the Company by the Warrantholder, in addition to and not by way of substitution for, any other remedies available to the Warrantholder, at law or in equity.

10

(e)  This Warrant, in all events, shall be wholly void and of no effect after December 31, 2014.

7.           The Warrantholder shall not, by virtue of ownership of this Warrant, be entitled to any rights whatsoever of a shareholder of the Company, but shall, upon written request to the Company, be entitled to receive quarterly or annual reports, or any other reports to shareholders of the Company.

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of August   , 2009, as a replacement Warrant for a warrant originally issued to Warrantholder as of July 10, 2006, expiring December 31, 2009, covering the same number of shares of Warrant Stock and exercisable at the same Purchase Price.

CHANCELLOR GROUP, INC.

 By:

Chairman

11

NOTICE OF EXERCISE

To:         Chancellor Group, Inc.

The undersigned hereby elects to purchase ________ shares of Common Stock (the “Warrant Stock”), of Chancellor Group, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

Social Security or Tax Identification Number

Dated:  _________________________
	Signature
	Print Name

NOTICE OF CASHLESS EXERCISE

To:         Chancellor Group, Inc.

(1)           The undersigned hereby elects to purchase the number of shares of Common Stock (the “Warrant Stock”), of Chancellor Group, Inc. as are purchasable pursuant to the terms the formula set forth in Section 4 of the attached Warrant, and makes payment therefore in full by surrender and delivery of this Warrant.

(2)           Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

Social Security or Tax Identification Number

Dated:  _________________________
	Signature
	Print Name

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to _______________________________________________________________

whose address is ________________________________________________________________

______________________________________________________________________________

Dated: ________________________

Holder's Signature:

Holder's Address:

Signature Guaranteed:

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

EX-10.25

THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (1I) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (11I) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

SUBJECT TO THE PROVISIONS OF SECTION 8(a) HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME ON June 30, 2014 (the "EXPIRATION DATE").

No. 6.

CHANCELLOR GROUP, INC.

WARRANT TO PURCHASE 225,000 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE

For VALUE RECEIVED, Cary Sucoff ("Warrant holder"),is entitled to purchase, subject to the provisions of this Warrant, from Chancellor Group, Inc., a Nevada corporation (the "Company"),at any time after the date hereof (the "Initial Exercise Date")and not later than 5:00 P.M., Eastern time, on the Expiration Date (as defined above), at an exercise price per share equal to $0.125 (the exercise price in effect being herein called the "Warrant Price"),225,000 shares ("Warrant Shares")of the Company's Common Stock, par value $0.01 per share ("Common Stock").The number of Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as described herein.

This Warrant has been issued as consideration to the Warrant holder for its services provided to the Company, pursuant to an Agreement, dated as of July 1, 2009.

Section 1. Registration. The Company shall maintain books for the transfer and registration of the Warrant. Upon the initial issuance of this Warrant, the Company shall issue and register the Warrant in the name of the Warrant holder.

Transfer of Warrant. This Warrant may be transferred or assigned by the Holder hereof in whole or in part, provided that the transferor provides, at the Company's request, an opinion of counsel satisfactory to the Company that such transfer does not require registration under the Securities Act and the securities laws applicable with respect to any other applicable jurisdiction.

Section 2. Exercise of Warrant. (a) Exercise. Subject to the provisions hereof, the Warrant holder may exercise this Warrant in whole or in part at any time commencing on the Initial Exercise Date and not later than 5:00 P.M., Eastern time, on the Expiration Date upon surrender of the Warrant, together with delivery of the duly executed Warrant Exercise Form attached hereto as Appendix A and payment by cash, certified check or wire transfer of funds or, in certain circumstances, by cashless exercise as provided in subsection (b) below, for the aggregate Warrant Price for that number of Warrant Shares then being purchased, to the Company during normal business hours on any business day at the Company's principal executive offices. The Warrant Shares so purchased shall be deemed to be issued to the Warrant holder or the Warrant holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been duly surrendered, the Warrant Price shall have been paid and the completed Warrant Exercise Form shall have been delivered. Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Warrant Exercise Form, shall be delivered to the Warrant holder within a reasonable time, not exceeding three (3) business days, after this Warrant shall have been so exercised (the "Warrant Share  Delivery Date"). The certificates so delivered shall be in such denominations as may be requested by the Warrant holder and shall be registered in the name of the Warrant holder or such other name as shall be designated by the Warrant holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, within four (4) business days of exercise, deliver to the Warrant holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. As used herein, "business day" means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business. Each exercise hereof shall constitute the re-affirmation by the Warrant holder that the representations and warranties contained in Section 5 of the Purchase Agreement (as defined below) are true and correct in all material respects with respect to the Warrant holder as of the time of such exercise.

(b) Cashless Exercise. (i) Notwithstanding any other provision contained herein to the contrary, the Warrant holder may elect to receive, without the payment by the Warrant holder of the aggregate Warrant Price in respect of the shares of Common Stock to be acquired, shares of Common Stock equal to the value of this Warrant or any portion hereof by the surrender of this Warrant (or such portion of this Warrant being so exercised) together with the Net Issue Election Notice annexed hereto as Appendix B duly executed, at the office of the Company. The Net Issue Election Notice must be received by the Company not more than five (5) business days after the date the election is made. Thereupon, the Company shall issue to the Warrant holder such number of fully paid, validly issued and nonassessable shares of Common Stock as is computed using the following formula:

X=Y (A-B)

A

where

X = the number of shares of Common Stock which the Warrant holder has then requested be issued to the Warrant holder;

Y = the total number of shares of Common Stock covered by this Warrant which the Warrant holder has surrendered at such time for cashless exercise (including both shares to be issued to the Warrant holder and shares to be canceled as payment therefor);

A = the average closing "Market Price" of one share of Common Stock for the five (5) consecutive business days preceding the date the net issue election is made; and

B = the Warrant Price in effect under this Warrant at the time the net issue election is made.

(ii) For the purposes of this Agreement, "Market Price"as of a particular date (the "Valuation Date")shall mean the following: (a) if the Common Stock is then listed on a national stock exchange, the closing sale price of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq Stock Market, Inc. ("Nasdaq"),the National Association of Securities Dealers, Inc. OTC Bulletin Board (the "Bulletin Board")or such similar exchange or association, the closing sale price of one share of Common Stock on Nasdaq, the Bulletin Board or such other exchange or association on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low asked price quoted thereon on the last trading day prior to the Valuation Date; or (c) if the Common Stock is not then listed on a national stock exchange or quoted on Nasdaq, the Bulletin Board or such other exchange or association, the fair market value of one share of Common Stock as of the Valuation Date, shall be determined in good faith by the Board of Directors of the Company and the Warrant holder. If the Common Stock is not then listed on a national securities exchange, the Bulletin Board or such other exchange or association, the Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrant holder prior to the exercise hereunder as to the fair market value of a share of Common Stock as determined by the Board of Directors of the Company. In the event that the Board of Directors of the Company and the Warrant holder are unable to agree upon the fair market value, the Company and the Warrant holder shall jointly select an appraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne equally by the Company and the Warrant holder.

Section 3. Compliance with the Securities Act of 1933.Except as provided in the Purchase Agreement, the Company may cause the legend set forth on the first page of this Warrant to be set forth on each Warrant or similar legend on any security issued or issuable upon exercise of this Warrant, unless counsel for the Company is of the opinion as to any such security that such legend is unnecessary.

Section 4. Payment of Taxes. The Company will pay any documentary stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of the Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the Warrant holder in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's reasonable satisfaction that such tax has been paid. The Warrant holder shall be responsible for income taxes due under federal, state or other law, if any such tax is due.

Section 5. Mutilated or Missing Warrants. In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Company.

Section 6. Reservation of Common Stock. The Company hereby represents and warrants that there have been reserved, and the Company shall at all applicable times keep reserved until issued (if necessary) as contemplated by this Section 7, out of the authorized and unissued shares of Common Stock, sufficient shares to provide for the exercise of the rights of purchase represented by this Warrant. The Company agrees that all Warrant Shares issued upon due exercise of the Warrant shall be, at the time of delivery of the certificates for such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company.

Section 7. Adjustments. Subject and pursuant to the provisions of this Section 8, the Warrant Price and number of Warrant Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter.

(a) If the Company shall, at any time or from time to time while this Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then the number of Warrant Shares purchasable upon exercise of the Warrant and the Warrant Price in effect immediately prior to the date upon which such change shall become effective, shall be adjusted by the Company so that the Warrant holder thereafter exercising the Warrant shall be entitled to receive the number of shares of Common Stock or other capital stock which the Warrant holder would have received if the Warrant had been exercised immediately prior to such event upon payment of a Warrant Price that is equal to an amount determined by multiplying the Warrant Price in effect immediately prior to such change by the number of shares of Common Stock or other capital stock issuable upon exercise of this Warrant immediately prior to such change and dividing the product so obtained by the adjusted number of shares of Common Stock or other capital stock issuable upon the exercise of this Warrant as the result of such change. Such adjustments shall be made successively whenever any event listed above shall occur.

(b) If any consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company's assets to another corporation shall be effected, then, as a condition of such consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrant holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant, had such consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrant holder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Warrant holder, at the last address of the Warrant holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Warrant holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this subsection (b) shall similarly apply to successive consolidations, mergers, sales, transfers or other dispositions. Notwithstanding the provisions of this subsection (b), in the event that (i) holders of Common Stock receive only cash for their shares of Common Stock as a result of any such consolidation, merger, sale, transfer or other disposition, or (ii) the surviving entity's common stock is not registered under the Securities Exchange Act of 1934, as amended, not later than one (1) business day after the effective date of such consolidation, merger, sale, transfer or other disposition or transaction, the Warrant holder shall be entitled to receive in full satisfaction of its rights under this Warrant an amount in cash (the "Spread") equal to (x) the difference between (A) the per share cash to be received by holders of Common Stock in connection with such consolidation, merger, sale, transfer or other disposition and (B) the Warrant Price in effect immediately prior to the effective date of such consolidation, merger, sale, transfer or other disposition, multiplied by (y) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the effective date of such consolidation, merger, sale, transfer or other disposition. Upon payment in full of the Spread to the Warrant holder as provided above, this Warrant shall expire and be of no further force and effect. In the event that the Spread is not a positive number, no amount shall be payable to the Warrant holder as a result of such consolidation, merger, sale, transfer or other disposition or transaction, and this Warrant shall expire and be of no further force and effect as of the effective date of such consolidation, merger, sale, transfer or other disposition.

(c) In case the Company shall fix a record date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 8(a)), or subscription rights or warrants, the Warrant Price to be in effect after such record date shall be determined by multiplying the Warrant Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company's Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stock immediately prior to such payment date.

(d) An adjustment to the Warrant Price shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment.

(e) In the event that, as a result of an adjustment made pursuant to this Section 8, the Warrant holder shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant.

(f) No adjustment of the number of shares issued upon exercise of this Warrant shall be made if the amount of such adjustment shall be less than 0.10% of the number of shares issuable before such adjustment, and no adjustment of the Warrant Price shall be made if the amount of such adjustment shall be less than $0.01 per Warrant Share; provided, however that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment that, together with any adjustment so carried forward, shall amount to at least $0.10% of the number of shares issuable before such adjustment or $0.01 per Warrant Share, as applicable.

Section 8. Fractional Interest. The Company shall not be required to issue fractions of Warrant Shares upon the exercise of this Warrant. If any fractional share of Common Stock would, except for the provisions of the first sentence of this Section 9, be deliverable upon such exercise, the Company, in lieu of delivering such fractional share, shall pay to the exercising Warrant holder an amount in cash equal to the Market Price of such fractional share of Common Stock on the date of exercise.

Section 9. Benefits. Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Warrant holder) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Warrant holder.

Section 10. Notices to Warrant holder.Upon the happening of any event requiring an adjustment of the Warrant Price and/or the Warrant Shares, the Company shall promptly give written notice thereof to the Warrant holder at the address appearing in the records of the Company, stating the adjusted Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Failure to give such notice to the Warrant holder or any defect therein shall not affect the legality or validity of the subject adjustment..

Section 11. Identity of Transfer Agent.The Transfer Agent for the Common Stock is Quicksilver Stock Transfer Company. Upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrant, the Company will mail to the Warrant holder a statement setting forth the name and address of such transfer agent.

Section 12. Notices.Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or facsimile, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three (3) days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one (1) business day after delivery to such carrier. All notices shall be addressed as follows: if to the Warrant holder, at its address as set forth in the Company's books and records and, if to the Company, at the address as follows, or at such other address as the Warrant holder or the Company may designate by ten (10) days' advance written notice to the other:

If to the Company:

Chancellor Group, Inc.

216 South Price Road, Pampa TX, 79065.

Section 13. Piggy-Back Rights.If at any time prior to the Expiration Date when the Holder is unable to sell the Shares without restriction as to amount under Rule 144 the Company proposes to register shares of its Common Stock under the Securities Act on any form for the registration of its Common Stock under the Securities Act (the "Registration Statement")for the account of stockholders in a manner which would permit registration of the Shares for sale to the public under the Securities Act (a "Piggyback Registration"),it will at such time give prompt written notice to the Holder of its intention to do so and of the Holder's rights under this Section 8.1. Such rights are referred to hereinafter as "Piggyback Registration Rights".Upon the written request of the Holder to the Company made within ten (10) days after the giving of any such notice (which request shall specify the number of Shares intended to be disposed of by the Holder and the intended method of disposition thereof), the Company will include in the Registration Statement the Shares (the "Registrable Shares") which the Company has been so requested to register by the Holder, provided that the Company's obligation shall continue after exercise of the Warrants, but it need not include any Shares in a Registration Statement filed after the Expiration Date and it need not include any Shares prior to the Expiration Date that may be sold by the Holder without restriction as to amount under Rule 144. And provided also, if the underwriter in a Company underwritten offering determines in good faith that marketing factors require a limitation of the number of shares to be underwritten or sold pursuant to the Registration Statement, the number of shares that may be included in the Registration Statement shall be allocated, first, to the Company, and second to the Warrant holder on a pro-rata basis based on the total number of shares held by persons with similar "piggyback" registration rights.

If the securities covered by the Registration Statement are to be underwritten, the Company shall not be required to include therein any of the Registrable Shares unless the Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it.

The Company is obligated to file only one Registration Statement pursuant to this Section 8 which is declared effective under the Securities Act. The Piggyback Registration Rights under this Section 8 are the only rights granted by the Company to the Holder to include its Shares in a Registration Statement.

Section 14. Successors. All the covenants and provisions hereof by or for the benefit of the Warrant holder shall bind and inure to the benefit of its respective successors and assigns hereunder.

Section 15. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of New York, without reference to the choice of law provisions thereof. The Company and, by accepting this Warrant, the Warrant holder, each irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant. The Company and, by accepting this Warrant, the Warrant holder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Company and, by accepting this Warrant, the Warrant holder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE WARRANT HOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER

Section 16. No Rights as Stockholder.Prior to the exercise of this Warrant in accordance with Section 3 hereof, the Warrant holder shall not have or exercise any rights as a stockholder of the Company by virtue of its ownership of this Warrant.

Section 17. Amendment: Waiver; Reduction of Warrant Price.Any term of this Warrant may be amended or waived (including the adjustment provisions included in Section 8 of this Warrant) upon the written consent of the Company and the Warrant holder. Notwithstanding the immediately preceding sentence, to the extent permitted by applicable law, the Company from time to time may unilaterally reduce the Warrant Price by any amount so long as (i) the period during which such reduction is in effect is at least twenty (20) days, (ii) the reduction is irrevocable during such period and (iii) the Company's Board of Directors shall have made a determination that such reduction would be in the best interests of the Company. Whenever the Warrant Price is reduced pursuant to the preceding sentence, the Company shall mail or cause to be mailed to the Warrant holder a notice of the reduction at least five (5) days prior to the date the reduced Warrant Price is to take effect, which notice shall state the reduced Warrant Price and the period during which it will be in effect.

Section 18. Section Headings.The section headings in this Warrant are for the convenience of the Company and the Warrant holder and in no way alter, modify, amend, limit or restrict the provisions hereof.

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as of the 1st day of July, 2009.

CHANCELLOR GROUP, INC.

By:

Maxwell Grant

Chief Executive Officer

APPENDIX A

_____, INC.

WARRANT EXERCISE FORM

To___________, Inc.:

The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant ("Warrant") for, and to purchase thereunder by the payment of the Warrant Price and surrender of the Warrant, shares of Common Stock ("Warrant Shares") provided for therein, and requests that certificates for the Warrant Shares be issued as follows:

Name

Address

Federal Tax ID or Social Security No.

and delivered by     (certified mail to the above address, or

(electronically          (provide      DWAC

Instructions:), or

(other                       (specify):

____________________

and, if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares purchasable upon exercise of this Warrant be registered in the name of the undersigned Warrant holder or the undersigned's Assignee as below indicated and delivered to the address stated below.

Dated:__________________, ________

Note: The signature must correspond with
the name of the Warrant holder as written
on the first page of the Warrant in every	Signature:
particular, without alteration or enlargement	Name (please print)
or any change whatever, unless the Warrant
has been assigned.
	Address
	Federal Tax Identification or
	Social Security No.
	Assignee:

APPENDIX B

_______INC.

NET ISSUE ELECTION NOTICE

To: _________, Inc.

Date: ____________________

The undersigned hereby elects under Section 3(b) of this Warrant to surrender the right to purchase _____________ shares of Common Stock pursuant to this Warrant and hereby requests the issuance of _________ shares of Common Stock. The certificate(s) for the shares issuable upon such net issue election shall be issued in the name of the undersigned or as otherwise indicated below. 

Signature

Name for Registration

Mailing Address

 

EX-10.26

NEITHER THIS WARRANT NOR THE WARRANT SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.  NEITHER THIS WARRANT NOR THE SHARES OF WARRANT STOCK ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.

CHANCELLOR GROUP, INC.

Common Stock Purchase Warrant

(Expiring on December 31, 2014)

This is to certify that, for value received and subject to the conditions herein set forth, Ernest P. Andrews (the "Warrantholder") is entitled to purchase, at a price per share of Two and One Half Cents ($0.025) per share, One Million (1,000,000) shares of common stock, par value $0.001 per share (the "Common Stock"), of Chancellor Group Inc., a Nevada corporation (the "Company"), subject to adjustment as provided below (such shares purchasable upon exercise of this Warrant are herein called the "Warrant Stock").  The amount per share specified above, as adjusted from time to time pursuant to the provisions hereinafter set forth, is herein called the "Purchase Price."  This Warrant will be immediately exercisable and may be exercised anytime after its issuance.   In the event of a exercise of this Warrant, the Warrantholder shall surrender this Warrant to the Company with payment of the Purchase Price, together with a notice of exercise (the date of such surrender being herein referred to as the “Date of Exercise”), in which event the Company shall issue to the Warrantholder the number of shares of Warrant Stock.

1.           By acceptance of this Warrant, the Warrantholder agrees, for itself and all subsequent holders, that prior to making any disposition of this Warrant or any shares of Warrant Stock, the Warrantholder shall give written notice to the Company describing briefly the manner in which any such proposed disposition is to be made; and no such disposition shall be made unless and until (i) the Company has received an opinion of counsel satisfactory to it to the effect that no registration under the Securities Act of 1933, as amended (the "Act"), is required with respect to such disposition; or (ii) a registration statement with respect to the Warrant or the Warrant Stock has been filed by the Company and declared effective by the Securities and Exchange Commission (the "Commission").

2.           (a)  If outstanding shares of the Company's Common Stock shall be subdivided into a greater number of shares thereof or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced and conversely, if outstanding shares of Common Stock shall be combined into a smaller number of shares thereof, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased.  When any adjustment is required to be made in the Purchase Price, the number of shares of Common Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable pursuant to the exercise of this Warrant immediately prior to such adjustment multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment.

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(b)  If there shall occur any capital reorganization or reclassification of the Company's Common Stock (other than a change in par value or a subdivision or combination as provided for in subparagraph (a) above), or any consolidation or merger of the Company with or into another corporation, or in the case of any sale, transfer or other disposition to another person, corporation or other entity of all or substantially all the property, assets, business and good will of the Company as an entirety, then, as part of any such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, as the case may be, lawful provision shall be made so that the registered owner of this Warrant shall have the right thereafter to receive upon the exercise hereof the kind and amount of shares of stock or other securities or property which said registered owner would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, as the case may be, said registered owner had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant.  In any such case, appropriate adjustment (as determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the registered owner of this Warrant such that the provisions set forth herein (including provisions with respect to adjustment of the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant.

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(c)  In case the Company shall declare a dividend upon shares of Common Stock payable otherwise than out of earnings or earned surplus and otherwise than in shares of Common Stock or in stock or obligations directly or indirectly convertible into or exchangeable for Common Stock, the Warrantholder shall, upon exercise of this Warrant in whole or in part, be entitled to purchase, in addition to the number of shares of Common Stock deliverable upon such exercise against payment of the Purchase Price therefor, but without further consideration, the cash, stock or other securities or property which the holder of Warrant would have received as dividends (otherwise than out of such earnings or earned surplus and otherwise than in shares of Common Stock or in such convertible or exchangeable stock or obligations), if continuously since the date set forth above such holder (i) had been the holder of record of the number of shares of Common Stock deliverable upon such exercise and (ii) had retained all dividends in stock or other securities (other than shares of Common Stock or such convertible or exchangeable stock or obligations) paid or payable in respect of said number of shares of Common Stock or in respect of any such stock or other securities so paid or payable as such dividends.  For purposes of this subparagraph (c), a dividend payable otherwise than in cash shall be considered to be payable out of earnings or earned surplus and shall be charged in an amount equal to the fair value of such dividend as determined by the Board of Directors of the Company.

(d)  In case at any time:

(i)  the Company shall pay any cash or stock dividend upon its Common Stock or make any distribution to the holders of its Common Stock; or

(ii)  the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any other rights; or

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(iii)  the Company shall effect any capital reorganization or any reclassification of or change in the outstanding capital stock of the Company (other than a stock split, a change in par value, or a change resulting solely from a subdivision or combination of outstanding shares of Common Stock), or any consolidation or merger, or any sale, transfer or other disposition of all or substantially all its property, assets, business and good will as an entirety, or the liquidation, dissolution or winding up of the Company; or

(iv) the Company shall declare a dividend upon shares of its Common Stock payable otherwise than out of earnings or earned surplus or otherwise than in shares of Common Stock or any stock or obligations directly or indirectly convertible into or exchangeable for Common Stock; then, in any such case, the Company shall cause at least fifteen (15) days' prior notice thereof to be furnished to the Warrantholder at the address of such holder shown on the books of the Company.  Such notice shall also specify the date on which the books of the Company shall close, or a record be taken, for such stock dividend, distribution or subscription rights, or the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, disposition, liquidation, dissolution, winding up, or dividend, as the case may be, shall take place, and the date of participation therein by the holders of Common Stock if any such date is to be fixed, and shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the rights of the Warrantholder.

(e)  When any adjustment is required to be made in the Purchase Price, the Company shall promptly mail to the Warrantholder a certificate setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.  Such certificate shall also set forth the kind and amount of stock or other securities or property into which this Warrant shall be exercisable following the occurrence of any of the events specified in subparagraphs (b) or (c) above.

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(f)  The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make any adjustment therefor on the basis of the mean between the closing low bid and closing high asked prices on the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotations System or the closing market price on a national securities exchange on the trading day immediately prior to exercise, whichever is applicable or, if neither is applicable, then on the basis of the market value of any such fractional interest as shall be reasonably determined by the Company.

(g)  The Company will, within 120 days after the end of each of its fiscal years, mail to the registered holder of this Warrant at the address of such holder shown on the books of the Company a certificate (if the Company has engaged independent public accountants, such certificate shall be prepared by such independent public accountants) (i) specifying the Purchase Price in effect as of the end of such fiscal year and the number of shares of Common Stock, or the kind and amount of any securities or property other than Common Stock purchasable by the holder of this Warrant and (ii) setting forth in reasonable detail the facts requiring any adjustments made during such fiscal year.

3.           The Company agrees that (i) a number of shares of Common Stock and other securities and property sufficient to provide for the exercise of this Warrant upon the basis hereinbefore set forth shall at all times during the term of Warrant be reserved for the exercise hereof, and (ii) during the term of this Warrant, it will keep current in filing any forms and other materials required to be filed with the Commission pursuant to the Act and the Securities Exchange Act of 1934, as amended.

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4.           (a) Exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the closing of the offering, and before the close of business on the Termination Date by the surrender of this Warrant and the Notice of Exercise Form or Notice of Cashless Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Warrantholder hereof at the address of such Warrantholder appearing on the books of the Company) and upon payment of the Exercise Price of the Warrant Stock as provided herein the Warrantholder shall be entitled to receive a certificate for the number of Warrant Stock so purchased.  Certificates for the shares of Warrant Stock purchased hereunder shall be delivered to the Warrantholder hereof within twenty (20) trading days after the date on which this Warrant shall have been exercised as aforesaid.  This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Warrantholder or any other person so designated to be named therein shall be deemed to have become a Warrantholder of record of such shares of Warrant Stock for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Warrantholder, if any, pursuant to Section 4 prior to the issuance of such shares of Warrant Stock, have been paid.

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(b)           Payment may be made either (i) in cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common Stock and/or shares of Warrant Stock receivable upon exercise of the Warrant in accordance with Section 3(c) below, or (iii) by a combination of any of the foregoing methods, for the number of shares of Warrant Stock specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares Warrant Stock issuable to the Warrantholder per the terms of this Warrant) and the Warrantholder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock determined as provided herein.

(c)           Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Warrantholder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Cashless Exercise Form in which event the Company shall issue to the Warrantholder a number of shares of Warrant Stock computed using the following formula:

X=Y	(A-B)
	(A)

Where:

X = the number of shares of Warrant Stock to be issued to the Warrantholder on such exercise

Y = the number of shares of Warrant Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)

A = the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation)

B = Exercise Price (as adjusted to the date of such calculation)

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(d)           “Fair Market Value” shall mean the average 4:00 PM Eastern Standard Time closing bid price of the Company’s Common Stock as quoted on the Nasdaq OTC:BB, Pink Sheets or other national market or exchange as reflected on the Bloomberg quotation system (“Closing Bid”) on the three (3) trading days immediately following the date of receipt of the Notice of Cashless Exercise Form.

(e)           Notwithstanding anything herein to the contrary, each certificate for Warrant Stock issued hereunder shall bear a legend reading substantially as follows (unless the Company receives an opinion of counsel satisfactory to it that such a legend is not required in order to assure compliance with the Act).

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  THESE SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SHARES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SHARES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND FROM REGISTRATION OR QUALIFICATION REQUIREMENTS OF APPLICABLE STATE SECURITIES LAWS.

5.           All shares of Common Stock or other securities delivered upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable and the Company will pay all taxes, if any, in respect of the issuance thereof upon exercise of this Warrant.

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6.            (a)  Subject to the provisions of Paragraph 1 hereof, this Warrant and all rights hereunder are transferable on the books of the Company, upon surrender of this Warrant, with the form of assignment attached hereto duly executed by the registered holder hereof or by his attorney duly authorized in writing, to the Company at its principal office hereinabove referred to, and thereupon there shall be issued in the name of the transferee or transferees, in exchange for this Warrant, a new warrant or warrants or like tenor and date, representing in the aggregate the right to subscribe for and purchase the number of shares which may be subscribed for and purchased hereunder.

(b)  If this Warrant shall be lost, stolen, mutilated or destroyed, the Company, on such terms as to indemnify or otherwise as it may in its discretion reasonably impose, shall issue a new warrant of like denomination, tenor and date as this Warrant so lost, stolen, mutilated or destroyed.  Any such new warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed warrant shall be at any time enforceable by anyone.

(c)  The Company may deem and treat the registered holder of this Warrant as the absolute owner of this Warrant for all purposes and shall not be affected by any notice to the contrary.

(d)  This Warrant, including all the rights and obligations granted to the Warrantholder hereunder, shall be specifically enforceable against the Company by the Warrantholder, in addition to and not by way of substitution for, any other remedies available to the Warrantholder, at law or in equity.

(e)  This Warrant, in all events, shall be wholly void and of no effect after December 31, 2014.

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7.           The Warrantholder shall not, by virtue of ownership of this Warrant, be entitled to any rights whatsoever of a shareholder of the Company, but shall, upon written request to the Company, be entitled to receive quarterly or annual reports, or any other reports to shareholders of the Company.

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of August   , 2009, as a replacement Warrant for a warrant originally issued to Warrantholder as of July 10, 2006, expiring December 31, 2009, covering the same number of shares of Warrant Stock and exercisable at the same Purchase Price.

CHANCELLOR GROUP, INC.
By:
	Chairman

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NOTICE OF EXERCISE

To:         Chancellor Group, Inc.

The undersigned hereby elects to purchase ________ shares of Common Stock (the “Warrant Stock”), of Chancellor Group, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

Social Security or Tax Identification Number

Dated:  _________________________

Signature

Print Name

NOTICE OF CASHLESS EXERCISE

To:         Chancellor Group, Inc.

(1)           The undersigned hereby elects to purchase the number of shares of Common Stock (the “Warrant Stock”), of Chancellor Group, Inc. as are purchasable pursuant to the terms the formula set forth in Section 4 of the attached Warrant, and makes payment therefore in full by surrender and delivery of this Warrant.

(2)           Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

Social Security or Tax Identification Number

Dated:  _________________________

Signature

Print Name

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to __________________________________________________________________________

whose address is ______________________________________________________________________________________

____________________________________________________________________________________________________

Dated: ________________________

Holder's Signature:

Holder's Address:

Signature Guaranteed:

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

EX-10.27

NEITHER THIS WARRANT NOR THE WARRANT SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.  NEITHER THIS WARRANT NOR THE SHARES OF WARRANT STOCK ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.

CHANCELLOR GROUP, INC.

Common Stock Purchase Warrant

(Expiring on December 31, 2014)

This is to certify that, for value received and subject to the conditions herein set forth, Ernest P. Andrews (the "Warrantholder") is entitled to purchase, at a price per share of Two Cents ($0.02) per share, One Million Five Hundred Thousand (1,500,000) shares of common stock, par value $0.001 per share (the "Common Stock"), of Chancellor Group Inc., a Nevada corporation (the "Company"), subject to adjustment as provided below (such shares purchasable upon exercise of this Warrant are herein called the "Warrant Stock").  The amount per share specified above, as adjusted from time to time pursuant to the provisions hereinafter set forth, is herein called the "Purchase Price."  This Warrant will be immediately exercisable and may be exercised anytime after its issuance.   In the event of a exercise of this Warrant, the Warrantholder shall surrender this Warrant to the Company with payment of the Purchase Price, together with a notice of exercise (the date of such surrender being herein referred to as the “Date of Exercise”), in which event the Company shall issue to the Warrantholder the number of shares of Warrant Stock.

1.           By acceptance of this Warrant, the Warrantholder agrees, for itself and all subsequent holders, that prior to making any disposition of this Warrant or any shares of Warrant Stock, the Warrantholder shall give written notice to the Company describing briefly the manner in which any such proposed disposition is to be made; and no such disposition shall be made unless and until (i) the Company has received an opinion of counsel satisfactory to it to the effect that no registration under the Securities Act of 1933, as amended (the "Act"), is required with respect to such disposition; or (ii) a registration statement with respect to the Warrant or the Warrant Stock has been filed by the Company and declared effective by the Securities and Exchange Commission (the "Commission").

2.           (a)  If outstanding shares of the Company's Common Stock shall be subdivided into a greater number of shares thereof or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced and conversely, if outstanding shares of Common Stock shall be combined into a smaller number of shares thereof, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased.  When any adjustment is required to be made in the Purchase Price, the number of shares of Common Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable pursuant to the exercise of this Warrant immediately prior to such adjustment multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment.

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(b)  If there shall occur any capital reorganization or reclassification of the Company's Common Stock (other than a change in par value or a subdivision or combination as provided for in subparagraph (a) above), or any consolidation or merger of the Company with or into another corporation, or in the case of any sale, transfer or other disposition to another person, corporation or other entity of all or substantially all the property, assets, business and good will of the Company as an entirety, then, as part of any such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, as the case may be, lawful provision shall be made so that the registered owner of this Warrant shall have the right thereafter to receive upon the exercise hereof the kind and amount of shares of stock or other securities or property which said registered owner would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, as the case may be, said registered owner had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant.  In any such case, appropriate adjustment (as determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the registered owner of this Warrant such that the provisions set forth herein (including provisions with respect to adjustment of the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant.

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(c)  In case the Company shall declare a dividend upon shares of Common Stock payable otherwise than out of earnings or earned surplus and otherwise than in shares of Common Stock or in stock or obligations directly or indirectly convertible into or exchangeable for Common Stock, the Warrantholder shall, upon exercise of this Warrant in whole or in part, be entitled to purchase, in addition to the number of shares of Common Stock deliverable upon such exercise against payment of the Purchase Price therefor, but without further consideration, the cash, stock or other securities or property which the holder of Warrant would have received as dividends (otherwise than out of such earnings or earned surplus and otherwise than in shares of Common Stock or in such convertible or exchangeable stock or obligations), if continuously since the date set forth above such holder (i) had been the holder of record of the number of shares of Common Stock deliverable upon such exercise and (ii) had retained all dividends in stock or other securities (other than shares of Common Stock or such convertible or exchangeable stock or obligations) paid or payable in respect of said number of shares of Common Stock or in respect of any such stock or other securities so paid or payable as such dividends.  For purposes of this subparagraph (c), a dividend payable otherwise than in cash shall be considered to be payable out of earnings or earned surplus and shall be charged in an amount equal to the fair value of such dividend as determined by the Board of Directors of the Company.

(d)  In case at any time:

(i)  the Company shall pay any cash or stock dividend upon its Common Stock or make any distribution to the holders of its Common Stock; or

           (ii)  the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any other rights; or

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           (iii)  the Company shall effect any capital reorganization or any reclassification of or change in the outstanding capital stock of the Company (other than a stock split, a change in par value, or a change resulting solely from a subdivision or combination of outstanding shares of Common Stock), or any consolidation or merger, or any sale, transfer or other disposition of all or substantially all its property, assets, business and good will as an entirety, or the liquidation, dissolution or winding up of the Company; or

               (iv)  the Company shall declare a dividend upon shares of its Common Stock payable otherwise than out of earnings or earned surplus or otherwise than in shares of Common Stock or any stock or obligations directly or indirectly convertible into or exchangeable for Common Stock; then, in any such case, the Company shall cause at least fifteen (15) days' prior notice thereof to be furnished to the Warrantholder at the address of such holder shown on the books of the Company.  Such notice shall also specify the date on which the books of the Company shall close, or a record be taken, for such stock dividend, distribution or subscription rights, or the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, disposition, liquidation, dissolution, winding up, or dividend, as the case may be, shall take place, and the date of participation therein by the holders of Common Stock if any such date is to be fixed, and shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the rights of the Warrantholder.

(e)  When any adjustment is required to be made in the Purchase Price, the Company shall promptly mail to the Warrantholder a certificate setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.  Such certificate shall also set forth the kind and amount of stock or other securities or property into which this Warrant shall be exercisable following the occurrence of any of the events specified in subparagraphs (b) or (c) above.

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(f)  The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make any adjustment therefor on the basis of the mean between the closing low bid and closing high asked prices on the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotations System or the closing market price on a national securities exchange on the trading day immediately prior to exercise, whichever is applicable or, if neither is applicable, then on the basis of the market value of any such fractional interest as shall be reasonably determined by the Company.

(g)  The Company will, within 120 days after the end of each of its fiscal years, mail to the registered holder of this Warrant at the address of such holder shown on the books of the Company a certificate (if the Company has engaged independent public accountants, such certificate shall be prepared by such independent public accountants) (i) specifying the Purchase Price in effect as of the end of such fiscal year and the number of shares of Common Stock, or the kind and amount of any securities or property other than Common Stock purchasable by the holder of this Warrant and (ii) setting forth in reasonable detail the facts requiring any adjustments made during such fiscal year.

3.           The Company agrees that (i) a number of shares of Common Stock and other securities and property sufficient to provide for the exercise of this Warrant upon the basis hereinbefore set forth shall at all times during the term of Warrant be reserved for the exercise hereof, and (ii) during the term of this Warrant, it will keep current in filing any forms and other materials required to be filed with the Commission pursuant to the Act and the Securities Exchange Act of 1934, as amended.

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4.           (a) Exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the closing of the offering, and before the close of business on the Termination Date by the surrender of this Warrant and the Notice of Exercise Form or Notice of Cashless Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Warrantholder hereof at the address of such Warrantholder appearing on the books of the Company) and upon payment of the Exercise Price of the Warrant Stock as provided herein the Warrantholder shall be entitled to receive a certificate for the number of Warrant Stock so purchased.  Certificates for the shares of Warrant Stock purchased hereunder shall be delivered to the Warrantholder hereof within twenty (20) trading days after the date on which this Warrant shall have been exercised as aforesaid.  This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Warrantholder or any other person so designated to be named therein shall be deemed to have become a Warrantholder of record of such shares of Warrant Stock for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Warrantholder, if any, pursuant to Section 4 prior to the issuance of such shares of Warrant Stock, have been paid.

(b)    Payment may be made either (i) in cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common Stock and/or shares of Warrant Stock receivable upon exercise of the Warrant in accordance with Section 3(c) below, or (iii) by a combination of any of the foregoing methods, for the number of shares of Warrant Stock specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares Warrant Stock issuable to the Warrantholder per the terms of this Warrant) and the Warrantholder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock determined as provided herein.

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(c)     Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Warrantholder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Cashless Exercise Form in which event the Company shall issue to the Warrantholder a number of shares of Warrant Stock computed using the following formula:

X=Y(	A-B)
(	A)

Where:

X = the number of shares of Warrant Stock to be issued to the Warrantholder on such exercise

Y = the number of shares of Warrant Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)

A = the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation)

B = Exercise Price (as adjusted to the date of such calculation)

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(d)           “Fair Market Value” shall mean the average 4:00 PM Eastern Standard Time closing bid price of the Company’s Common Stock as quoted on the Nasdaq OTC:BB, Pink Sheets or other national market or exchange as reflected on the Bloomberg quotation system (“Closing Bid”) on the three (3) trading days immediately following the date of receipt of the Notice of Cashless Exercise Form.

(e)           Notwithstanding anything herein to the contrary, each certificate for Warrant Stock issued hereunder shall bear a legend reading substantially as follows (unless the Company receives an opinion of counsel satisfactory to it that such a legend is not required in order to assure compliance with the Act).

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  THESE SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SHARES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SHARES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND FROM REGISTRATION OR QUALIFICATION REQUIREMENTS OF APPLICABLE STATE SECURITIES LAWS.

5.           All shares of Common Stock or other securities delivered upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable and the Company will pay all taxes, if any, in respect of the issuance thereof upon exercise of this Warrant.

9

6.           (a)  Subject to the provisions of Paragraph 1 hereof, this Warrant and all rights hereunder are transferable on the books of the Company, upon surrender of this Warrant, with the form of assignment attached hereto duly executed by the registered holder hereof or by his attorney duly authorized in writing, to the Company at its principal office hereinabove referred to, and thereupon there shall be issued in the name of the transferee or transferees, in exchange for this Warrant, a new warrant or warrants or like tenor and date, representing in the aggregate the right to subscribe for and purchase the number of shares which may be subscribed for and purchased hereunder.

(b)  If this Warrant shall be lost, stolen, mutilated or destroyed, the Company, on such terms as to indemnify or otherwise as it may in its discretion reasonably impose, shall issue a new warrant of like denomination, tenor and date as this Warrant so lost, stolen, mutilated or destroyed.  Any such new warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed warrant shall be at any time enforceable by anyone.

(c)  The Company may deem and treat the registered holder of this Warrant as the absolute owner of this Warrant for all purposes and shall not be affected by any notice to the contrary.

(d)  This Warrant, including all the rights and obligations granted to the Warrantholder hereunder, shall be specifically enforceable against the Company by the Warrantholder, in addition to and not by way of substitution for, any other remedies available to the Warrantholder, at law or in equity.

10

(e)  This Warrant, in all events, shall be wholly void and of no effect after December 31, 2014.

7.           The Warrantholder shall not, by virtue of ownership of this Warrant, be entitled to any rights whatsoever of a shareholder of the Company, but shall, upon written request to the Company, be entitled to receive quarterly or annual reports, or any other reports to shareholders of the Company.

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of August   , 2009, as a replacement Warrant for a warrant originally issued to Warrantholder as of July 10, 2006, expiring December 31, 2009, covering the same number of shares of Warrant Stock and exercisable at the same Purchase Price.

CHANCELLOR GROUP, INC.

 By:

Chairman

11

NOTICE OF EXERCISE

To:         Chancellor Group, Inc.

The undersigned hereby elects to purchase ________ shares of Common Stock (the “Warrant Stock”), of Chancellor Group, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

Social Security or Tax Identification Number

Dated:  _________________________
	Signature
	Print Name

NOTICE OF CASHLESS EXERCISE

To:         Chancellor Group, Inc.

(1)           The undersigned hereby elects to purchase the number of shares of Common Stock (the “Warrant Stock”), of Chancellor Group, Inc. as are purchasable pursuant to the terms the formula set forth in Section 4 of the attached Warrant, and makes payment therefore in full by surrender and delivery of this Warrant.

(2)           Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

Social Security or Tax Identification Number

Dated:  _________________________
	Signature
	Print Name

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to _______________________________________________________________

whose address is ________________________________________________________________

______________________________________________________________________________

Dated: ________________________

Holder's Signature:

Holder's Address:

Signature Guaranteed:

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

EX-10.28

THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (111) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

SUBJECT TO THE PROVISIONS OF SECTION 8(a) HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME ON June 30, 2014 (the "EXPIRATION DATE").

No. 7.

CHANCELLOR GROUP, INC.

WARRANT TO PURCHASE 25,000 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE

For VALUE RECEIVED, Francis Anderson ("Warrant holder"), is entitled to purchase, subject to the provisions of this Warrant, from Chancellor Group, Inc., a Nevada corporation (the "Company"),at any time after the date hereof (the `Initial Exercise Date")and not later than 5:00 P.M., Eastern time, on the Expiration Date (as defined above), at an exercise price per share equal to $0.125 (the exercise price in effect being herein called the "Warrant Price"),25,000 shares ("Warrant Shares")of the Company's Common Stock, par value $0.01 per share ("Common Stock").The number of Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as described herein.

This Warrant has been issued as consideration to the Warrant holder for its services provided to the Company, pursuant to an Agreement, dated as of July 1, 2009.

Section 1. Registration. The Company shall maintain books for the transfer and registration of the Warrant. Upon the initial issuance of this Warrant, the Company shall issue and register the Warrant in the name of the Warrant holder.

Transfer of Warrant. This Warrant may be transferred or assigned by the Holder hereof in whole or in part, provided that the transferor provides, at the Company's request, an opinion of counsel satisfactory to the Company that such transfer does not require registration under the Securities Act and the securities laws applicable with respect to any other applicable jurisdiction.

Section 2. Exercise of Warrant. (a) Exercise. Subject to the provisions hereof, the Warrant holder may exercise this Warrant in whole or in part at any time commencing on the Initial Exercise Date and not later than 5:00 P.M., Eastern time, on the Expiration Date upon surrender of the Warrant, together with delivery of the duly executed Warrant Exercise Form attached hereto as Appendix A and payment by cash, certified check or wire transfer of funds or, in certain circumstances, by cashless exercise as provided in subsection (b) below the aggregate Warrant Price for that number of Warrant Shares then being purchased, to the Company during normal business hours on any business day at the Company's principal executive offices. The Warrant Shares so purchased shall be deemed to be issued to the Warrant holder or the Warrant holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been duly surrendered, the Warrant Price shall have been paid and the completed Warrant Exercise Form shall have been delivered. Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Warrant Exercise Form, shall be delivered to the Warrant holder within a reasonable time, not exceeding three (3) business days, after this Warrant shall have been so exercised (the "Warrant Share Delivery Date"). The certificates so delivered shall be in such denominations as may be requested by the Warrant holder and shall be registered in the name of the Warrant holder or such other name as shall be designated by the Warrant holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, within four (4) business days of exercise, deliver to the Warrant holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. As used herein, "business day" means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business. Each exercise hereof shall constitute the re-affirmation by the Warrant holder that the representations and warranties contained in Section 5 of the Purchase Agreement (as defined below) are true and correct in all material respects with respect to the Warrant holder as of the time of such exercise.

(b) Cashless Exercise. (i) Notwithstanding any other provision contained herein to the contrary, the Warrant holder may elect to receive, without the payment by the Warrant holder of the aggregate Warrant Price in respect of the shares of Common Stock to be acquired, shares of Common Stock equal to the value of this Warrant or any portion hereof by the surrender of this Warrant (or such portion of this Warrant being so exercised) together with the Net Issue Election Notice annexed hereto as Appendix B duly executed, at the office of the Company. The Net Issue Election Notice must be received by the Company not more than five (5) business days after the date the election is made. Thereupon, the Company shall issue to the Warrant holder such number of fully paid, validly issued and nonassessable shares of Common Stock as is computed using the following formula:

X=Y (A-B)

A

where

X = the number of shares of Common Stock which the Warrant holder has then requested be issued to the Warrant holder;

Y = the total number of shares of Common Stock covered by this Warrant which the Warrant holder has surrendered at such time for cashless exercise (including both shares to be issued to the Warrant holder and shares to be canceled as payment therefor);

A = the average closing "Market Price" of one share of Common Stock for the five (5) consecutive business days preceding the date the net issue election is made; and

B = the Warrant Price in effect under this Warrant at the time the net issue election is made.

(ii) For the purposes of this Agreement, "Market Price" as of a particular date (the "Valuation Date") shall mean the following: (a) if the Common Stock is then listed on a national stock exchange, the closing sale price of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq Stock Market, Inc. ("Nasdaq"), the National Association of Securities Dealers, Inc. OTC Bulletin Board (the "Bulletin Board") or such similar exchange or association, the closing sale price of one share of Common Stock on Nasdaq, the Bulletin Board or such other exchange or association on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low asked price quoted thereon on the last trading day prior to the Valuation Date; or (c) if the Common Stock is not then listed on a national stock exchange or quoted on Nasdaq, the Bulletin Board or such other exchange or association, the fair market value of one share of Common Stock as of the Valuation Date, shall be determined in good faith by the Board of Directors of the Company and the Warrant holder. if the Common Stock is not then listed on a national securities exchange, the Bulletin Board or such other exchange or association, the Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrant holder prior to the exercise hereunder as to the fair market value of a share of Common Stock as determined by the Board of Directors of the Company. In the event that the Board of Directors of the Company and the Warrant holder are unable to agree upon the fair market value, the Company and the Warrant holder shall jointly select an appraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne equally by the Company and the Warrant holder.

Section 3. Compliance with the Securities Act of 1933.Except as provided in the Purchase Agreement, the Company may cause the legend set forth on the first page of this Warrant to be set forth on each Warrant or similar legend on any security issued or issuable upon exercise of this Warrant, unless counsel for the Company is of the opinion as to any such security that such legend is unnecessary.

Section 4. Payment of Taxes. The Company will pay any documentary stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of the Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the Warrant holder in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's reasonable satisfaction that such tax has been paid. The Warrant holder shall be responsible for income taxes due under federal, state or other law, if any such tax is due.

Section 5. Mutilated or Missing Warrants. In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Company.

Section 6. Reservation of Common Stock. The Company hereby represents and warrants that there have been reserved, and the Company shall at all applicable times keep reserved until issued (if necessary) as contemplated by this Section 7, out of the authorized and unissued shares of Common Stock, sufficient shares to provide for the exercise of the rights of purchase represented by this Warrant. The Company agrees that all Warrant Shares issued upon due exercise of the Warrant shall be, at the time of delivery of the certificates for such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company.

Section 7. Adjustments. Subject and pursuant to the provisions of this Section 8, the Warrant Price and number of Warrant Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter.

(a) If the Company shall, at any time or from time to time while this Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then the number of Warrant Shares purchasable upon exercise of the Warrant and the Warrant Price in effect immediately prior to the date upon which such change shall become effective, shall be adjusted by the Company so that the Warrant holder thereafter exercising the Warrant shall be entitled to receive the number of shares of Common Stock or other capital stock which the Warrant holder would have received if the Warrant had been exercised immediately prior to such event upon payment of a Warrant Price that is equal to an amount determined by multiplying the Warrant Price in effect immediately prior to such change by the number of shares of Common Stock or other capital stock issuable upon exercise of this Warrant immediately prior to such change and dividing the product so obtained by the adjusted number of shares of Common Stock or other capital stock issuable upon the exercise of this Warrant as the result of such change. Such adjustments shall be made successively whenever any event listed above shall occur.

(b) If any consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company's assets to another corporation shall be effected, then, as a condition of such consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrant holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant, had such consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrant holder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Warrant holder, at the last address of the Warrant holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Warrant holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this subsection (b) shall similarly apply to successive consolidations, mergers, sales, transfers or other dispositions. Notwithstanding the provisions of this subsection (b), in the event that (i) holders of Common Stock receive only cash for their shares of Common Stock as a result of any such consolidation, merger, sale, transfer or other disposition, or (ii) the surviving entity's common stock is not registered under the Securities Exchange Act of 1934, as amended, not later than one (1) business day after the effective date of such consolidation, merger, sale, transfer or other disposition or transaction, the Warrant holder shall be entitled to receive in full satisfaction of its rights under this Warrant an amount in cash (the "Spread") equal to (x) the difference between (A) the per share cash to be received by holders of Common Stock in connection with such consolidation, merger, sale, transfer or other disposition and (B) the Warrant Price in effect immediately prior to the effective date of such consolidation, merger, sale, transfer or other disposition, multiplied by (y) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the effective date of such consolidation, merger, sale, transfer or other disposition. Upon payment in full of the Spread to the Warrant holder as provided above, this Warrant shall expire and be of no further force and effect. In the event that the Spread is not a positive number, no amount shall be payable to the Warrant holder as a result of such consolidation, merger, sale, transfer or other disposition or transaction, and this Warrant shall expire and be of no further force and effect as of the effective date of such consolidation, merger, sale, transfer or other disposition.

(c) In case the Company shall fix a record date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 8(a)), or subscription rights or warrants, the Warrant Price to be in effect after such record date shall be determined by multiplying the Warrant Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company's Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stock immediately prior to such payment date.

(d) An adjustment to the Warrant Price shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment.

(e) In the event that, as a result of an adjustment made pursuant to this Section 8, the Warrant holder shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant.

(f) No adjustment of the number of shares issued upon exercise of this Warrant shall be made if the amount of such adjustment shall be less than 0.10% of the number of shares issuable before such adjustment, and no adjustment of the Warrant Price shall be made if the amount of such adjustment shall be less than $0.01 per Warrant Share; provided, however that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment that, together with any adjustment so carried forward, shall amount to at least $0.10% of the number of shares issuable before such adjustment or $0.01 per Warrant Share, as applicable.

Section 8. Fractional Interest. The Company shall not be required to issue fractions of Warrant Shares upon the exercise of this Warrant. If any fractional share of Common Stock would, except for the provisions of the first sentence of this Section 9, be deliverable upon such exercise, the Company, in lieu of delivering such fractional share, shall pay to the exercising Warrant holder an amount in cash equal to the Market Price of such fractional share of Common Stock on the date of exercise.

Section 9. Benefits. Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Warrant holder) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Warrant holder.

Section 10. Notices to Warrant holder.Upon the happening of any event requiring an adjustment of the Warrant Price and/or the Warrant Shares, the Company shall promptly give written notice thereof to the Warrant holder at the address appearing in the records of the Company, stating the adjusted Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Failure to give such notice to the Warrant holder or any defect therein shall not affect the legality or validity of the subject adjustment.

Section 11. Identity of Transfer Agent.The Transfer Agent for the Common Stock is Quicksilver Stock Transfer Company. Upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrant, the Company will mail to the Warrant holder a statement setting forth the name and address of such transfer agent.

Section 12. Notices.Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or facsimile, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three (3) days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one (1) business day after delivery to such carrier. All notices shall be addressed as follows: if to the Warrant holder, at its address as set forth in the Company's books and records and, if to the Company, at the address as follows, or at such other address as the Warrant holder or the Company may designate by ten (10) days' advance written notice to the other:

If to the Company:

Chancellor Group, Inc.

216 South Price Road, Pampa TX, 79065.

Section 13. Piggy-Back Rights.If at any time prior to the Expiration Date when the Holder is unable to sell the Shares without restriction as to amount under Rule 144 the Company proposes to register shares of its Common Stock under the Securities Act on any form for the registration of its Common Stock under the Securities Act (the "Registration Statement")for the account of stockholders in a manner which would permit registration of the Shares for sale to the public under the Securities Act (a "Piggyback Registration"),it will at such time give prompt written notice to the Holder of its intention to do so and of the Holder's rights under this Section 8.1. Such rights are referred to hereinafter as "Piggyback Registration Rights".Upon the written request of the Holder to the Company made within ten (10) days after the giving of any such notice (which request shall specify the number of Shares intended to be disposed of by the Holder and the intended method of disposition thereof), the Company will include in the Registration Statement the Shares (the "Registrable Shares") which the Company has been so requested to register by the Holder, provided that the Company's obligation shall continue after exercise of the Warrants, but it need not include any Shares in a Registration Statement filed after the Expiration Date and it need not include any Shares prior to the Expiration Date that may be sold by the Holder without restriction as to amount under Rule 144. And provided also, if the underwriter in a Company underwritten offering determines in good faith that marketing factors require a limitation of the number of shares to be underwritten or sold pursuant to the Registration Statement, the number of shares that may be included in the Registration Statement shall be allocated, first, to the Company, and second to the Warrant holder on a pro-rata basis based on the total number of shares held by persons with similar "piggyback" registration rights.

If the securities covered by the Registration Statement are to be underwritten, the Company shall not be required to include therein any of the Registrable Shares unless the Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it.

The Company is obligated to file only one Registration Statement pursuant to this Section 8 which is declared effective under the Securities Act. The Piggyback Registration Rights under this Section 8 are the only rights granted by the Company to the Holder to include its Shares in a Registration Statement.

Section 14. Successors. All the covenants and provisions hereof by or for the benefit of the Warrant holder shall bind and inure to the benefit of its respective successors and assigns hereunder.

Section 15. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of New York, without reference to the choice of law provisions thereof. The Company and, by accepting this Warrant, the Warrant holder, each irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant. The Company and, by accepting this Warrant, the Warrant holder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Company and, by accepting this Warrant, the Warrant holder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE WARRANT HOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

Section 16. No Rights as Stockholder.Prior to the exercise of this Warrant in accordance with Section 3 hereof, the Warrant holder shall not have or exercise any rights as a stockholder of the Company by virtue of its ownership of this Warrant.

Section 17. Amendment: Waiver; Reduction of Warrant Price.Any term of this Warrant may be amended or waived (including the adjustment provisions included in Section 8 of this Warrant) upon the written consent of the Company and the Warrant holder. Notwithstanding the immediately preceding sentence, to the extent permitted by applicable law, the Company from time to time may unilaterally reduce the Warrant Price by any amount so long as (i) the period during which such reduction is in effect is at least twenty (20) days, (ii) the reduction is irrevocable during such period and (iii) the Company's Board of Directors shall have made a determination that such reduction would be in the best interests of the Company. Whenever the Warrant Price is reduced pursuant to the preceding sentence, the Company shall mail or cause to be mailed to the Warrant holder a notice of the reduction at least five (5) days prior to the date the reduced Warrant Price is to take effect, which notice shall state the reduced Warrant Price and the period during which it will be in effect.

Section 18. Section Headings.The section headings in this Warrant are for the convenience of the Company and the Warrant holder and in no way alter, modify, amend, limit or restrict the provisions hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as of the 1st day of July, 2009.

CHANCELLOR GROUP, INC.

By:

Maxwell Grant

Chief Executive Officer

APPENDIX A

_____, INC.

WARRANT EXERCISE FORM

To___________, Inc.:

The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant ("Warrant") for, and to purchase thereunder by the payment of the Warrant Price and surrender of the Warrant,__________ shares of Common Stock ("Warrant Shares") provided for therein, and requests that certificates for the Warrant Shares be issued as follows:

Name

Address

Federal Tax ID or Social Security No.

and delivered by     (certified mail to the above address, or

(electronically          (provide      DWAC

Instructions:), or

(other                       (specify):

____________________

and, if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares purchasable upon exercise of this Warrant be registered in the name of the undersigned Warrant holder or the undersigned's Assignee as below indicated and delivered to the address stated below.

Dated:__________________, ________

Note: The signature must correspond with
the name of the Warrant holder as written
on the first page of the Warrant in every	Signature:
particular, without alteration or enlargement	Name (please print)
or any change whatever, unless the Warrant
has been assigned.
	Address
	Federal Tax Identification or
	Social Security No.
	Assignee:

APPENDIX B

_______,INC.

NET ISSUE ELECTION NOTICE

To: _________, Inc.

Date: ____________________

The undersigned hereby elects under Section 3(b) of this Warrant to surrender the right to purchase _____________ shares of Common Stock pursuant to this Warrant and hereby requests the issuance of _________ shares of Common Stock. The certificate(s) for the shares issuable upon such net issue election shall be issued in the name of the undersigned or as otherwise indicated below. 

Signature

Name for Registration

Mailing Address

 

EX-10.29

THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (11) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (I11) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

SUBJECT TO THE PROVISIONS OF SECTION 8(a) HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME ON June 30, 2014 (the "EXPIRATION DATE").

No. 5.

CHANCELLOR GROUP, INC.

WARRANT TO PURCHASE 250,000 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE

For VALUE RECEIVED, Patrick Kolenik ("Warrant holder"), is entitled to purchase, subject to the provisions of this Warrant, from Chancellor Group, Inc., a Nevada corporation (the "Company"),at any time after the date hereof (the "Initial Exercise Date")and not later than 5:00 P.M., Eastern time, on the Expiration Date (as defined above), at an exercise price per share equal to $0.125 (the exercise price in effect being herein called the "Warrant Price"),250,000 shares ("Warrant Shares")of the Company's Common Stock, par value $0.01 per share ("Common Stock").The number of Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as described herein.

This Warrant has been issued as consideration to the Warrant holder for its services provided to the Company, pursuant to an Agreement, dated as of July 1, 2009.

Section 1. Registration. The Company shall maintain books for the transfer and registration of the Warrant. Upon the initial issuance of this Warrant, the Company shall issue and register the Warrant in the name of the Warrant holder.

Transfer of Warrant. This Warrant may be transferred or assigned by the Holder hereof in whole or in part, provided that the transferor provides, at the Company's request, an opinion of counsel satisfactory to the Company that such transfer does not require registration under the Securities Act and the securities laws applicable with respect to any other applicable jurisdiction.

Section 2. Exercise of Warrant. (a) Exercise. Subject to the provisions hereof, the Warrant holder may exercise this Warrant in whole or in part at any time commencing on the Initial Exercise Date and not later than 5:00 P.M., Eastern time, on the Expiration Date upon surrender of the Warrant, together with delivery of the duly executed Warrant Exercise Form attached hereto as Appendix A and payment by cash, certified check or wire transfer of funds or, in certain circumstances, by cashless exercise as provided in subsection (b) below, for the aggregate Warrant Price for that number of Warrant Shares then being purchased, to the Company during normal business hours on any business day at the Company's principal executive offices. The Warrant Shares so purchased shall be deemed to be issued to the Warrant holder or the Warrant holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been duly surrendered, the Warrant Price shall have been paid and the completed Warrant Exercise Form shall have been delivered. Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Warrant Exercise Form, shall be delivered to the Warrant holder within a reasonable time, not exceeding three (3) business days, after this Warrant shall have been so exercised (the "Warrant Share  Delivery Date"). The certificates so delivered shall be in such denominations as may be requested by the Warrant holder and shall be registered in the name of the Warrant holder or such other name as shall be designated by the Warrant holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, within four (4) business days of exercise, deliver to the Warrant holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. As used herein, "business day" means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business. Each exercise hereof shall constitute the re-affirmation by the Warrant holder that the representations and warranties contained in Section 5 of the Purchase Agreement (as defined below) are true and correct in all material respects with respect to the Warrant holder as of the time of such exercise.

(b) Cashless Exercise. (i) Notwithstanding any other provision contained herein to the contrary, the Warrant holder may elect to receive, without the payment by the Warrant holder of the aggregate Warrant Price in respect of the shares of Common Stock to be acquired, shares of Common Stock equal to the value of this Warrant or any portion hereof by the surrender of this Warrant (or such portion of this Warrant being so exercised) together with the Net Issue Election Notice annexed hereto as Appendix B duly executed, at the office of the Company. The Net Issue Election Notice must be received by the Company not more than five (5) business days after the date the election is made. Thereupon, the Company shall issue to the Warrant holder such number of fully paid, validly issued and nonassessable shares of Common Stock as is computed using the following formula:

X = Y (A-B)

   A

where

X = the number of shares of Common Stock which the Warrant holder has then requested be issued to the Warrant holder;

Y = the total number of shares of Common Stock covered by this Warrant which the Warrant holder has surrendered at such time for cashless exercise (including both shares to be issued to the Warrant holder and shares to be canceled as payment therefor);

A = the average closing "Market Price" of one share of Common Stock for the five (5) consecutive business days preceding the date the net issue election is made; and

B = the Warrant Price in effect under this Warrant at the time the net issue election is made.

(ii) For the purposes of this Agreement, "Market Price"as of a particular date (the "Valuation Date")shall mean the following: (a) if the Common Stock is then listed on a national stock exchange, the closing sale price of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq Stock Market, Inc. ("Nasdaq"),the National Association of Securities Dealers, Inc. OTC Bulletin Board (the "Bulletin Board")or such similar exchange or association, the closing sale price of one share of Common Stock on Nasdaq, the Bulletin Board or such other exchange or association on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low asked price quoted thereon on the last trading day prior to the Valuation Date; or (c) if the Common Stock is not then listed on a national stock exchange or quoted on Nasdaq, the Bulletin Board or such other exchange or association, the fair market value of one share of Common Stock as of the Valuation Date, shall be determined in good faith by the Board of Directors of the Company and the Warrant holder. If the Common Stock is not then listed on a national securities exchange, the Bulletin Board or such other exchange or association, the Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrant holder prior to the exercise hereunder as to the fair market value of a share of Common Stock as determined by the Board of Directors of the Company. In the event that the Board of Directors of the Company and the Warrant holder are unable to agree upon the fair market value, the Company and the Warrant holder shall jointly select an appraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne equally by the Company and the Warrant holder.

Section 3. Compliance with the Securities Act of 1933.Except as provided in the Purchase Agreement, the Company may cause the legend set forth on the first page of this Warrant to be set forth on each Warrant or similar legend on any security issued or issuable upon exercise of this Warrant, unless counsel for the Company is of the opinion as to any such security that such legend is unnecessary.

Section 4. Payment of Taxes. The Company will pay any documentary stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of the Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the Warrant holder in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's reasonable satisfaction that such tax has been paid. The Warrant holder shall be responsible for income taxes due under federal, state or other law, if any such tax is due.

Section 5. Mutilated or Missing Warrants. In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Company.

Section 6. Reservation of Common Stock. The Company hereby represents and warrants that there have been reserved, and the Company shall at all applicable times keep reserved until issued (if necessary) as contemplated by this Section 7, out of the authorized and unissued shares of Common Stock, sufficient shares to provide for the exercise of the rights of purchase represented by this Warrant. The Company agrees that all Warrant Shares issued upon due exercise of the Warrant shall be, at the time of delivery of the certificates for such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company.

Section 7. Adjustments. Subject and pursuant to the provisions of this Section 8, the Warrant Price and number of Warrant Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter.

(a) If the Company shall, at any time or from time to time while this Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then the number of Warrant Shares purchasable upon exercise of the Warrant and the Warrant Price in effect immediately prior to the date upon which such change shall become effective, shall be adjusted by the Company so that the Warrant holder thereafter exercising the Warrant shall be entitled to receive the number of shares of Common Stock or other capital stock which the Warrant holder would have received if the Warrant had been exercised immediately prior to such event upon payment of a Warrant Price that is equal to an amount determined by multiplying the Warrant Price in effect immediately prior to such change by the number of shares of Common Stock or other capital stock issuable upon exercise of this Warrant immediately prior to such change and dividing the product so obtained by the adjusted number of shares of Common Stock or other capital stock issuable upon the exercise of this Warrant as the result of such change. Such adjustments shall be made successively whenever any event listed above shall occur.

  (b) If any consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company's assets to another corporation shall be effected, then, as a condition of such consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrant holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant, had such consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrant holder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Warrant holder, at the last address of the Warrant holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Warrant holder may be entitled to purchase, and the other obligations under this Warrant. The provisions of this subsection (b) shall similarly apply to successive consolidations, mergers, sales, transfers or other dispositions. Notwithstanding the provisions of this subsection (b), in the event that (i) holders of Common Stock receive only cash for their shares of Common Stock as a result of any such consolidation, merger, sale, transfer or other disposition, or (ii) the surviving entity's common stock is not registered under the Securities Exchange Act of 1934, as amended, not later than one (1) business day after the effective date of such consolidation, merger, sale, transfer or other disposition or transaction, the Warrant holder shall be entitled to receive in full satisfaction of its rights under this Warrant an amount in cash (the "Spread") equal to (x) the difference between (A) the per share cash to be received by holders of Common Stock in connection with such consolidation, merger, sale, transfer or other disposition and (B) the Warrant Price in effect immediately prior to the effective date of such consolidation, merger, sale, transfer or other disposition, multiplied by (y) the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the effective date of such consolidation, merger, sale, transfer or other disposition. Upon payment in full of the Spread to the Warrant holder as provided above, this Warrant shall expire and be of no further force and effect. In the event that the Spread is not a positive number, no amount shall be payable to the Warrant holder as a result of such consolidation, merger, sale, transfer or other disposition or transaction, and this Warrant shall expire and be of no further force and effect as of the effective date of such consolidation, merger, sale, transfer or other disposition.

(c) In case the Company shall fix a record date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 8(a)), or subscription rights or warrants, the Warrant Price to be in effect after such record date shall be determined by multiplying the Warrant Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company's Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stock immediately prior to such payment date.

  (d) An adjustment to the Warrant Price shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment.

  (e) In the event that, as a result of an adjustment made pursuant to this Section 8, the Warrant holder shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant.

  (f) No adjustment of the number of shares issued upon exercise of this Warrant shall be made if the amount of such adjustment shall be less than 0.10% of the number of shares issuable before such adjustment, and no adjustment of the Warrant Price shall be made if the amount of such adjustment shall be less than $0.01 per Warrant Share; provided, however that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment that, together with any adjustment so carried forward, shall amount to at least $0.10% of the number of shares issuable before such adjustment or $0.01 per Warrant Share, as applicable.

Section 8. Fractional Interest. The Company shall not be required to issue fractions of Warrant Shares upon the exercise of this Warrant. If any fractional share of Common Stock would, except for the provisions of the first sentence of this Section 9, be deliverable upon such exercise, the Company, in lieu of delivering such fractional share, shall pay to the exercising Warrant holder an amount in cash equal to the Market Price of such fractional share of Common Stock on the date of exercise.

Section 9. Benefits. Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Warrant holder) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Warrant holder.

Section 10. Notices to Warrant holder.Upon the happening of any event requiring an adjustment of the Warrant Price and/or the Warrant Shares, the Company shall promptly give written notice thereof to the Warrant holder at the address appearing in the records of the Company, stating the adjusted Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Failure to give such notice to the Warrant holder or any defect therein shall not affect the legality or validity of the subject adjustment.

Section 11. Identity of Transfer Agent.The Transfer Agent for the Common Stock is Quicksilver Stock Transfer Company. Upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrant, the Company will mail to the Warrant holder a statement setting forth the name and address of such transfer agent.

Section 12. Notices.Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or facsimile, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three (3) days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one (1) business day after delivery to such carrier. All notices shall be addressed as follows: if to the Warrant holder, at its address as set forth in the Company's books and records and, if to the Company, at the address as follows, or at such other address as the Warrant holder or the Company may designate by ten (10) days' advance written notice to the other:

If to the Company:

Chancellor Group, Inc.

216 South Price Road, Pampa TX, 79065.

Section 13. Piggy-Back Rights.If at any time prior to the Expiration Date when the Holder is unable to sell the Shares without restriction as to amount under Rule 144 the Company proposes to register shares of its Common Stock under the Securities Act on any form for the registration of its Common Stock under the Securities Act (the "Registration Statement")for the account of stockholders in a manner which would permit registration of the Shares for sale to the public under the Securities Act (a "Piggyback Registration"),it will at such time give prompt written notice to the Holder of its intention to do so and of the Holder's rights under this Section 8.1. Such rights are referred to hereinafter as "Piggyback Registration Rights".Upon the written request of the Holder to the Company made within ten (10) days after the giving of any such notice (which request shall specify the number of Shares intended to be disposed of by the Holder and the intended method of disposition thereof), the Company will include in the Registration Statement the Shares (the "Registrable Shares") which the Company has been so requested to register by the Holder, provided that the Company's obligation shall continue after exercise of the Warrants, but it need not include any Shares in a Registration Statement filed after the Expiration Date and it need not include any Shares prior to the Expiration Date that may be sold by the Holder without restriction as to amount under Rule 144. And provided also, if the underwriter in a Company underwritten offering determines in good faith that marketing factors require a limitation of the number of shares to be underwritten or sold pursuant to the Registration Statement, the number of shares that may be included in the Registration Statement shall be allocated, first, to the Company, and second to the Warrant holder on a pro-rata basis based on the total number of shares held by persons with similar "piggyback" registration rights.

If the securities covered by the Registration Statement are to be underwritten, the Company shall not be required to include therein any of the Registrable Shares unless the Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it.

The Company is obligated to file only one Registration Statement pursuant to this Section 8 which is declared effective under the Securities Act. The Piggyback Registration Rights under this Section 8 are the only rights granted by the Company to the Holder to include its Shares in a Registration Statement.

Section 14. Successors. All the covenants and provisions hereof by or for the benefit of the Warrant holder shall bind and inure to the benefit of its respective successors and assigns hereunder.

Section 15. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of New York, without reference to the choice of law provisions thereof. The Company and, by accepting this Warrant, the Warrant holder, each irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant. The Company and, by accepting this Warrant, the Warrant holder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Company and, by accepting this Warrant, the Warrant holder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE WARRANT HOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER,

Section 16. No Rights as Stockholder.Prior to the exercise of this Warrant in accordance with Section 3 hereof, the Warrant holder shall not have or exercise any rights as a stockholder of the Company by virtue of its ownership of this Warrant.

Section 17. Amendment; Waiver; Reduction of Warrant Price.Any term of this Warrant may be amended or waived (including the adjustment provisions included in Section 8 of this Warrant) upon the written consent of the Company and the Warrant holder. Notwithstanding the immediately preceding sentence, to the extent permitted by applicable law, the Company from time to time may unilaterally reduce the Warrant Price by any amount so long as (i) the period during which such reduction is in effect is at least twenty (20) days, (ii) the reduction is irrevocable during such period and (iii) the Company's Board of Directors shall have made a determination that such reduction would be in the best interests of the Company. Whenever the Warrant Price is reduced pursuant to the preceding sentence, the Company shall mail or cause to be mailed to the Warrant holder a notice of the reduction at least five (5) days prior to the date the reduced Warrant Price is to take effect, which notice shall state the reduced Warrant Price and the period during which it will be in effect.

Section 18. Section Headings.The section headings in this Warrant are for the convenience of the Company and the Warrant holder and in no way alter, modify, amend, limit or restrict the provisions hereof.

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as of the 1st day of July, 2009.

CHANCELLOR GROUP, INC.

By:

Maxwell Grant

Chief Executive Officer

APPENDIX A

_____, INC.

WARRANT EXERCISE FORM

To___________, Inc.:

The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant ("Warrant") for, and to purchase thereunder by the payment of the Warrant Price and surrender of the Warrant, _____________ shares of Common Stock ("Warrant Shares") provided for therein, and requests that certificates for the Warrant Shares be issued as follows:

Name

Address

Federal Tax ID or Social Security No.

and delivered by     (certified mail to the above address, or

(electronically          (provide      DWAC

Instructions:), or

(other                       (specify):

____________________

and, if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares purchasable upon exercise of this Warrant be registered in the name of the undersigned Warrant holder or the undersigned's Assignee as below indicated and delivered to the address stated below.

Dated:__________________, ________

Note: The signature must correspond with
the name of the Warrant holder as written
on the first page of the Warrant in every	Signature:
particular, without alteration or enlargement	Name (please print)
or any change whatever, unless the Warrant
has been assigned.
	Address
	Federal Tax Identification or
	Social Security No.
	Assignee:

APPENDIX B

_______, INC.

NET ISSUE ELECTION NOTICE

To: _________, Inc.

Date: ____________________

The undersigned hereby elects under Section 3(b) of this Warrant to surrender the right to purchase _____________ shares of Common Stock pursuant to this Warrant and hereby requests the issuance of _________ shares of Common Stock. The certificate(s) for the shares issuable upon such net issue election shall be issued in the name of the undersigned or as otherwise indicated below. 

Signature

Name for Registration

Mailing Address

 

EX-31

EXHIBIT 31

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES OXLEY ACT OF 2002

CERTIFICATION

I, Maxwell Grant, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of Chancellor Group, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.   I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting;

DATE: November 4, 2009	/s/ Maxwell Grant
	Maxwell Grant, Chief Executive Officer and Principal Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C.  SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Chancellor Group, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Maxwell Grant, Chief Executive Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C.  section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Maxwell Grant

Maxwell Grant

Chief Executive Officer

and Principal Financial Officer

November 4, 2009