- Annual Report (10-K)

PART I	1

Item 1. Business.	1

Item 1A. Risk Factors.	2

Item 1B. Unresolved Staff Comments.	5

Item 2. Properties.	5

Item 3. Legal Proceedings.	5

Item 4. Submission of Matters to a Vote of Security Holders.	5

PART II	6

Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.	6

Item 6. Selected Financial Data.	6

Item 7. Management's Discussion and Analysis or Plan of Operations.	6

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.	9

Item 8. Financial Statements and Supplementary Data.	10

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.	24

Item 9A (T). Controls and Procedures.	24

Item 9B. Other Information.	24

PART III	25

Item 10. Directors, Executive Officers, and Corporate Governance.	25

Item 11. Executive Compensation.	26

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	28

Item 13. Certain Relationships and Related Transactions, and Director Independence.	28

Item 14. Principal Accountant Fees and Services	30

Item 15. Exhibits and Financial Statement Schedules.	30

SIGNATURES	33

PART I

Item 1. Business.

Chancellor Group, Inc., a Nevada corporation (“we”, “us”, “Chancellor” or the “Company”), was organized under the laws of the state of Utah in 1986 and subsequently reorganized under the laws of Nevada in 1993. We are an independent oil and gas exploration and development company focused on building and revitalizing our oil and gas properties located in the State of Texas. We are in the business of acquisition, exploration, and development of natural gas and oil properties, and in April 2007 completed an initial acquisition of oil and gas leases and related facilities and equipment through the acquisition of assets from Caldwell Production Company, Inc., consisting of 48 mineral leases with 631 wells, and in addition purchased an office warehouse facility and equipment. The purchase price for the oil and gas properties was $5,000,000, and for the equipment $291,500. This acquisition was financed with debt provided by two Texas financial institutions.

Our common stock is quoted on the Over-The-Counter Bulletin Board market and trades under the symbol CHAG.OB. As of December 31, 2008, there were 64,232,781 shares of our common stock issued and outstanding.

Recent Developments

On October 30, 2007, we had filed for reorganization under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court, Northern District of Texas. On July 22, 2008, we had entered into an Agreement, effective as of June 1, 2008 with Legacy Reserves Operating LP (“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. We operated the Company in the bankruptcy proceeding until August 15, 2008, when the Court, based on the Agreement with Legacy, 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. At the August 29, 2008 closing under this Agreement with Legacy, all of the debt held by our lenders, plus interest thereon to the date of closing, was paid in full.

Description of Properties

The Company, and its wholly owned subsidiaries, Gryphon Production Company, LLC and Gryphon Field Services, LLC, owns 127 wells, of which some 84 are actively producing (two of which are natural gas wells). The Company owns and operates from a 15.9 acres property, with its shop, service yard and office complex. The Company owns and operates two work-over rigs as well as various other oil field related equipment. In addition, the Company owns approximately 4,200 acres of production rights on six leases which includes 500 acres of undrilled acreage. The six leases have all of the production rights for oil, casing-head gas and natural gas. The Company is organized as a producing oil and gas company, licensed as an operator by the Texas Railroad Commission.

We commenced operations on April 16, 2007 with what were 84 actually producing wells. Following the sale to Legacy as of June 1, 2008 of approximately 45 producing oil and gas wells, productive capacity on December 31, 2008 is estimated to be approximately 60 bopd and 33 mcfd gas. The oil is light sweet crude and the natural gas has very high heat content, 1600 to 2600 btu/scf.

The current production levels are approximately 1,200 barrels of oil per month and are anticipated to expand to 2,500 barrels per month within the next month to six months. With additional developments and improvements to the current lease-holdings, production could be expanded to as much as 4,500 barrels per month within the next year, although there is no assurance that we will be able to accomplish this level of production increase. Current equipment and staffing levels are adequate for the Company to acquire additional producing wells in the numbers of 75 to 150 wells without purchasing additional maintenance or repair equipment.

Our near-term plans include continued maintenance of existing wells, our primary focus being to operate our properties and to restore 5-10 wells per month to production. Of primary importance are approximately 10 to 20 wells that have been temporarily abandoned that need to be repaired and brought on line as producing wells, which should be accomplished within the next 60 to 90 days. A typical well restoration has cost us $2,500 to $5,000. In some circumstances enhanced production is expected to be achieved by an ongoing treatment plan to reduce paraffin down-hole, in flow lines, treatment equipment, and salt water disposal wells. 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 that oil and gas 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.

The Company has begun to enter into contracts with other local producers to provide well and roustabout services to increase cash flows.

We expect to generate future growth in reserves and production both through development and possibly seeking to acquire properties that complement and enhance our inventory of development, exploitation and exploration projects. We plan to focus on evaluating purchases of underdeveloped properties in our core areas of expertise either through negotiated property acquisitions or acquisitions of companies with oil and natural gas properties.

Industry and economic factors

In managing our business we must deal with many factors inherent in 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.

In addition, the condition of the general economy of the local area is beginning to show some of the strain from the national economic morass, as is the general economy in the State of Texas. The national and international economic environment is unsettled and will present challenges to any form of business operations.

It is uncertain what structural changes in the industry (mining for oil and gas) may need to be modified due to political changes in the national government, availability of financing, and concerns created by expectations that evolve around the concepts of carbon credits. In general it is a buyers market if financing were available. The Company does not anticipate any severe effects upon its structure in the short-term due to any of the above because of the size and nature of the Company’s 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.

Approach to our business

Implementation of our business approach relies on our ability to fund ongoing development projects with cash flow provided by operating activities and external sources of capital.

Item 1A. Risk Factors.

Crude oil and natural gas prices are volatile and a substantial reduction in these prices could adversely affect our results and the price of our common stock.

Our revenues, operating results and future rate of growth depend highly upon the prices we receive for our crude oil and natural gas production. Historically, the markets for crude oil and natural gas have been volatile and are likely to continue to be volatile in the future. For example, the NYMEX daily settlement price for the prompt month oil contract in 2008 ranged from a high of $145.29 per barrel to a low of $33.87 per barrel. The NYMEX daily settlement price for the prompt month natural gas contract in 2008 ranged from a high of $13.58 per MMBtu to a low of $5.29 per MMBtu. The markets and prices for crude oil and natural gas depend on factors beyond our control. These factors include demand for crude oil and natural gas, which fluctuates with changes in market and economic conditions, and other factors, including:


	•	worldwide and domestic supplies of crude oil and natural gas;
	•	actions taken by foreign oil and gas producing nations;
	•	political conditions and events (including instability or armed conflict) in crude oil or natural gas producing regions;
	•	the level of global crude oil and natural gas inventories;
	•	the price and level of foreign imports;
	•	the price and availability of alternative fuels;
	•	the availability of pipeline capacity and infrastructure;
	•	the availability of crude oil transportation and refining capacity;
	•	weather conditions;
	•	electricity dispatch;
	•	domestic and foreign governmental regulations and taxes; and
	•	the overall economic environment.

Significant declines in crude oil and natural gas prices for an extended period may have the following effects on our business:


	•	limiting our financial condition, liquidity, ability to finance planned capital expenditures and results of operations;
	•	reducing the amount of crude oil and natural gas that we can produce economically;
	•	causing us to delay or postpone some of our capital projects;
	•	reducing our revenues, operating income and cash flows;
	•	reducing the carrying value of our crude oil and natural gas properties; or
	•	limiting our access to sources of capital, such as equity and long-term debt.

The current recession could have a material adverse impact on our financial position, results of operations and cash flows.

The oil and gas industry is cyclical in nature and tends to reflect general economic conditions. The US and other world economies are in a recession which could last well into 2009 and beyond. The recession may lead to significant fluctuations in demand and pricing for our crude oil and natural gas production, such as the decline in commodity prices which occurred during 2008 and into 2009. If commodity prices continue to decline, there could be impairments of our operating assets.

Our business involves many operating risks that may result in substantial losses for which insurance may be unavailable or inadequate.

Our operations are subject to hazards and risks inherent in operating and restoring oil and gas wells, such as fires, natural disasters, explosions, casing collapses, surface cratering, pipeline ruptures or cement failures, and environmental hazards such as natural gas leaks, oil spills and discharges of toxic gases. Any of these risks can cause substantial losses resulting from injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution and other environmental damages, regulatory investigations and penalties, suspension of our operations and repair and remediation costs. In addition, our liability for environmental hazards may include conditions created by the previous owners of properties that we purchase or lease.

We maintain insurance coverage against some, but not all, potential losses. We do not believe that insurance coverage for all environmental damages that could occur is available at a reasonable cost. Losses could occur for uninsurable or uninsured risks, or in amounts in excess of existing insurance coverage. The occurrence of an event that is not fully covered by insurance could harm our financial condition and results of operations.

Our proved reserve estimates may be inaccurate and future net cash flows are uncertain.

Estimates of proved oil and gas reserves and their associated future net cash flow necessarily depend on a number of variables and assumptions. Among others, changes in any of the following factors may cause estimates to vary considerably from actual results:


•	production rates, reservoir pressure and other subsurface information;
•	future oil and gas prices;
•	assumed effects of governmental regulation;
•	future operating costs;
•	future property, severance, excise and other taxes incidental to oil and gas operations;
•	capital expenditures; and
•	work-over and remedial costs.

Our business depends on natural gas transportation pipelines, most of which are owned by others.

The marketability of our natural gas production depends in large part on the availability, proximity and capacity of pipeline systems owned by third parties. The unavailability of or lack of available capacity on these systems and facilities could result in the shut-in of producing wells or the delay or discontinuance of development plans for properties. The lack of availability of these facilities for an extended period of time could negatively affect our revenues. Federal and state regulation of oil and natural gas production and transportation, tax and energy policies, changes in supply and demand, pipeline pressures, damage to or destruction of pipelines and general economic conditions could adversely affect our ability to produce, gather and transport natural gas.

Competition in our industry is intense and many of our competitors have greater financial and technological resources.

We operate in the competitive area of oil and gas exploration and production. Many of our competitors are large, well-established companies that have larger operating staffs and significantly greater capital resources than we do.

We are subject to various governmental regulations and environmental risks that may cause us to incur substantial costs.

From time to time, in varying degrees, political developments and federal and state laws and regulations affect our operations. In particular, price controls, taxes and other laws relating to the crude oil and natural gas industry, changes in these laws and changes in administrative regulations have affected and in the future could affect crude oil and natural gas production, operations and economics. We cannot predict how agencies or courts will interpret existing laws and regulations or the effect these adoptions and interpretations may have on our business or financial condition.

Our business is subject to laws and regulations promulgated by federal, state and local authorities relating to the exploration for, and the development, production and marketing of, crude oil and natural gas, as well as safety matters. Legal requirements are frequently changed and subject to interpretation and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. We may be required to make significant expenditures to comply with governmental laws and regulations.

Our operations are subject to complex federal, state and local environmental laws and regulations including, for example, in the case of federal laws, the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Resource Conservation and Recovery Act, as amended, the Oil Pollution Act of 1990, the Clean Air Act, the Clean Water Act and the Occupational Safety and Health Act. Environmental laws and regulations change frequently and the implementation of new, or the modification of existing, laws or regulations could negatively impact our operations. The discharge of natural gas, crude oil, or other pollutants into the air, soil or water may give rise to significant liabilities on our part to the government and third parties and may require us to incur substantial costs of remediation. In addition, we may incur costs and penalties in addressing regulatory agency procedures involving instances of possible non-compliance.

Our acquisition activities may not be successful, which may hinder our replacement of reserves and adversely affect our results of operations.

Under certain circumstances, we may pursue acquisitions of businesses that complement or expand our current business and acquisition and development of new prospects that complement or expand our prospect inventory. We may not be successful in identifying or acquiring any material property interests, which could hinder us in replacing our reserves and adversely affect our financial results and rate of growth. Even if we do identify attractive opportunities, there is no assurance that we will be able to complete the acquisition of the business or prospect on commercially acceptable terms. If we do complete an acquisition, we must anticipate difficulties in integrating its operations, systems, technology, management and other personnel with our own. These difficulties may disrupt our ongoing operations, distract our management and employees and increase our expenses.

Competition for experienced, technical personnel may negatively impact our operations.

Our exploratory and development drilling success depends, in part, on our ability to attract and retain experienced professional personnel. The loss of any key executives or other key personnel could have a material adverse effect on our operations. In particular, the loss of the services of our President, Thomas Grantham, could adversely affect our business, revenues and results of operations. As we continue to grow our asset base and the scope of our operations, our future profitability will depend on our ability to attract and retain qualified personnel, particularly individuals with a strong background in geology, geophysics, engineering and operations.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

The Company owns its office building, consisting of 7,620 square feet of office space, including shop, warehouse and office complex, in Pampa, Texas.

Item 3. Legal Proceedings.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

(a) Principal Market or Markets: The Company's common stock trades under the symbol CHAG.OB on the OTC Bulleting Board.

High and low bids for the Company's common stock for the previous eight quarters are shown below.


Class	Quarter Ended	High*		Low*

Common	Mar. 31, 2008		0.15		0.05
Common	June 30, 2008		0.20		0.04
Common	Sept. 30, 2008		0.15		0.02
Common	Dec. 31, 2008		0.05		0.10

Common	Mar. 31, 2007		0.00		0.00
Common	June 30, 2007		0.20		0.00
Common	Sept. 30, 2007		0.20		0.11
Common	Dec. 31, 2007		0.05		0.01

________________________________

*$0.00 denotes less than $0.01 per share

(b) Common Stock: On December 31, 2008 there were 64,232,781 shares of common stock issued and outstanding, which were held by more than 400 shareholders of record excluding individuals holding securities in street name.

The Company has never paid cash dividends on its common stock and currently intends to continue its policy of retaining all of its earnings for use in its business.

Item 6. Selected Financial Data.

Not applicable.

Item 7. Management's Discussion and Analysis or Plan 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.

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 and. On October 30, 2007, we had 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 had entered into an Agreement, effective as of June 1, 2008 with Legacy Reserves Operating LP (“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.PK. As of November 1, 2008, there were 64,232,781 shares of our common stock issued and outstanding.

Twelve Months Ended December 31, 2008 Compared to Twelve Months Ended December 31, 2007

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

We had no production operations in the first three months of calendar year 2007. Our oil production operations began April 16 th , 2007 with an effective date of April 1 st , 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 months sales, as compared with 24,114 barrels of oil and 48,759 mcf of gas, generating $2,351,433 in gross revenues in 2008. Start up expenditures, included debt origination expenditures, and the required prepaid hedge were $251,456. Effective June 1, 2008, we sold producing properties with 173 producing wells to Legacy. We had 84 wells actually producing oil and gas on December 31, 2008. The terms of our loan agreement for the initial acquisition of our oil and gas properties required us to hedge initial oil production; we purchased two 1000 barrel hedge contracts covering the first 24 months production at a cost of $88,900. We also experienced non-recurring expenses related to start-up.

We have a stockholders' equity in the amount of $4,372,212 at December 31, 2008.

PLAN OF OPERATION

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 and 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 for the equipment $291,500. The oil and natural gas leases purchased are on approximately 8,000 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 the acquisition, we has 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 we have acquired additional trucks, including an electrical repair “bucket” truck, which is needed to restore electric power to several previously non-producing wells. The cost of this additional equipment was $34,000 and associated tools and equipment was $6,422. We have also acquired a replacement backhoe machine for $67,000. Subsequently, additional Field equipment and tools were purchased for $31,184. We were also required to invest $38,949 in the rehabilitation and restoration of the office building.

We commenced operations on April 16, 2007 with what were 84 actually producing wells. As of December 31, 2007, 203 wells are producing. Productive capacity on April 16, 2007 was estimated to be 70 bopd and 90 mcfd. Productive capacity at December 31, 2008 is estimated to be 60 bopd and 33 mcfd gas. The oil is light sweet crude and the natural gas has very high heat content, 1600 to 2600 btu/scf.

Our near-term plans include continued maintenance of existing wells, our primary focus being to operate our properties and to restore 5-10 wells per month to production. Of primary importance are approximately 10 to 20 wells that have been temporarily abandoned that need to be repaired and brought on line as producing wells, which should be accomplished within the next three to six months. A typical well restoration has cost us $2,500 to $5,000. In some circumstances enhanced production is expected to be achieved by an ongoing treatment plan to reduce paraffin down-hole, in flow lines, treatment equipment, and salt water disposal wells. 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 that oil and gas 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.

The following table is for the twelve months ended:

	December 31, 2008 %		December 31, 2007 %
Oil and Gas Sales
Oil Sales(Bbl)		24,114		23,120
Natural Gas Sales (Mcf)		48,759		55,831

Average Sales Price:
Oil, per Bbl:	$	82.92		73.09
Gas, per MMCF:	$	7.22		7.11

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 in 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.

Liquidity & Capital Resources

As of December 31, 2008 the Company had $2,531,525 of cash on hand. We have an retained earnings of $1,187,704 and have a stockholders' equity of $4,372,212 at December 31, 2008.

CRITICAL ACCOUNTING POLICIES

The Securities and Exchange Commission 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 its business and financial reporting requirements. FRR 60 considers an accounting policy to be 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.

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". 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.

Item 7A. 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 three months or less. Our interest income is sensitive to changes in the general level of U.S. interest rates. Due to the short-term nature of our investments, we believe that there is not a material risk exposure.

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.

The prices of the commodities that the Company produces are unsettled at this time. At times the prices seem to be drift down and then either increase or stabilize for a few days. Current price movement seems to be slightly up but with the prices of the traditionally marketed products (gasoline, diesel, and natural gas as feed stocks for various industries, power generation, and heating) are not showing material increases. Although prices are difficult to predict in the current environment, the Company maintains the expectation that demand for its products will continue to increase for the foreseeable future due to the underling factors that oil and natural gas based commodities are both sources of raw energy and are fuels that are easily portable.

Item 8. Financial Statements and Supplementary Data.

CHANCELLOR GROUP, INC.

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007

CHANCELLOR GROUP, INC.

Consolidated Financial Statements

TABLE OF CONTENTS


	Page

Report of Independent Registered Public Accounting Firm	12

Consolidated balance sheet	13

Consolidated statements of operations	14

Consolidated statements of stockholders’ equity	15

Consolidated statements of cash flows	16

Notes to consolidated financial statements	17

Larry O'Donnell, CPA, P.C.

Telephone (303) 745-4545

2228 South Fraser Street

Fax (303) 369-9384

Unit I

Email larryodonnellcpa@msn.com

Aurora, Colorado 80014

www.larryodonnellcpa.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Chancellor Group, Inc.

I have audited the accompanying balance sheet of Chancellor Group, Inc. as of December 31, 2008 and 2007, and the related statements of operations, changes in stockholders’ deficit and cash flows for each years then ended. These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audits.

I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chancellor Group, Inc. as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles in the United States of America.

/s/ Larry O’Donnell, CPA, P.C.

Larry O’Donnell, CPA, P.C.

March 25, 2009

CHANCELLOR GROUP, INC.

Consolidated Balance Sheets

For The Years Ended December 31, 2008 and December 31, 2007

	2008			2007
ASSETS
Current Assets
Cash in Bank	$	2,531,525		$	218,118
Revenue Receivable		201,455			248,680
Prepaid Insurance		23,665			0
Total Current Assets		2,756,645			466,798

Fixed Assets
Leasehold Costs – Developed		1,396,252			4,938,564
Office Building & Equipment		132,065			126,073
Fleet – Road		218,661			62,263
Heavy Field Equipment & Tools		442,746			405,593
Accumulated Depreciation		(262,479	)		(411,495	)
Total Fixed Assets		1,927,246			5,120,998

Other Assets
Unamortized Debt Expense		0			55,500
Unamortized Letter of Credit		834			0
Prepaid Long Term Hedge		11,100			70,848
Deposits		4,975			250
Total Other Assets		16,908			126,598

Total Assets	$	4,700,799		$	5,714,394

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable—Chancellor	$	0		$	109,828
Accounts Payable – Gryphon Production		224,598			264,800
Accrued Interest Payable		0			113,028
Miscellaneous Accounts Payable & Suspense		5,949			10,044
Estimated Income Tax		96,439			0
Stock Subscription Payable		1,602			1,602
Total Current Liabilities		328,587			499,302

Long Term Liabilities
Note Payable—Senior Debt		0			2,108,332
Note Payable – Subordinated Debt		0			3,797,345
Installment Loan – Equipment		0			63,576
Note Payable – Investors		0			5,160
Total Long Term Liabilities		0			5,974,413

Stockholders’ Equity
Common Stock: $.001 par value, 250,000,000 shares authorized, 65,232,781 shares issued and outstanding including 1,000,000 shares held as treasury stock		65,233			64,803
Paid in Capital		3,229,905			3,221,735
Retained Earnings		(4,045,659	)		(3,323,438	)
Treasury Stock		(110,000	)		0
Net Income (Loss)		5,232,732			(722,221	)
Total Stockholders’ Equity		4,372,212			(759,321	)
Total Liabilities and Stockholders’ Equity	$	4,700,799		$	5,714,394

See Notes to Consolidated Financial Statements

CHANCELLOR GROUP, INC.

Consolidated Statement of Operations

For The Years Ended December 31, 2008 and December 31, 2007

	2008			2007
Sales – Net of Royalties Paid
Oil	$	1,408,179		$	1,689,931
Natural Gas		351,846			397,152
Other Income		0			2,165
Gross Revenue		1,760,025			2,089,248

Severance Taxes		107,664			105,461
Marketing Fees		3,459			17,326
Royalties Paid		44,468			11,127

Net Revenue		1,604,433			1,955,334

Operating Expenses
Lease Operating Expense		2,221,615			1,120,162
General & Administrative Expense		451,529			539,230
Depreciation, Depletion & Amortization		397,254			411,495
Total Operating Expense		3,070,398			2,034,887

Income (loss) From Operations		(1,465,964	)		(115,554	)

Other Income (Expenses)
Interest		6,707			0
Other Income		39,971
Sales of Assets (Net of Cost)		7,436,208
Organization Costs		(0	)		(49,299	)
Hedge Income (Net of Amortization)		(18,484	)		(33,300	)
Total Other Income (Expense)		7,463,401			(82,599	)

Financing Charges
Interest		(597,417	)		(481,559	)
Bank Fees Amortization		(70,848	)		(42,509	)
Total Financing Charges		(668,265	)		(524,068	)

Income (Loss) before provision for
Income Taxes		5,329,172			(722,221	)

Provision for Income Taxes		96,439			0

Net Income (Loss)	$	5,232,733		$	(722,221	)

Net Income (Loss) per Share
(Basic and Fully Diluted)	$	0.0811		$	(	*)

Weighted Average Number of Common Shares
Outstanding		64,511,585			64,802,781

* Less than $.01 per Share

See Notes to Unaudited Consolidated Financial Statements

CHANCELLOR GROUP, INC.

Consolidated Statements of Stockholders’ Equity

For The Twenty Four Months Ended 12/31/2008

	COMMON Par Value Shares		STOCK $.001 Amount		PREFERRED Series B Amount		Paid in Capital		TREASURY Shares		TREASURY Amount		(Accumulated Deficit)
Balance at December 31, 2006		60,755,030	$	60,755	$	-	$	3,152,083		0	$	0	$	(3,323,438	)

Stock issued for Cash		1,550,000		1,550				35,950

Compensatory stock issuances		2,497,751		2,498				33,502

Stock issued for stock subscription payable

Net gain (loss) for the year														(722,221	)
Balance at December 31, 2007		64,802,781	$	64,803	$	-	$	3,221,535		0	$	0	$	(4,045,659	)

Stock issued for Cash

Compensatory stock issuances		430,000		430				8170

Stock issued for stock subscription payable

Treasury Stock										1,000,000	$	110,000

Net gain (loss) for the year														5,123,733
Balance at December 31, 2008		65,232,781	$	65,233	$	-	$	3,229,905		1,000,000	$	110,000	$	1,187,074

See Notes to Consolidated Financial Statements

CHANCELLOR GROUP, INC.

Consolidated Statement of Cash Flows

For The Years Ended December 31, 2008 and December 31, 2007

	2008			2007
Cash Flows From Operating Activities:
Net Income (loss)	$	(1,465,964	)	$	(722,221	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation & Amortization		421,940			411,494
(Increase) Decrease in Operating Assets		51,064			(375,277	)
Increase (Decrease) in Operating Liabilities		(160,454	)		387,872
Net Cash Provided by (used for)
Operating Activities		(1,153,414	)		(298,132	)

Cash Flows From Investing Activities
Sale of Assets		10,880,049
Interest Income		6,707
Other Capital Expenditure		(860,565	)		(5,532,494	)
Net Cash Provided by (used for)
Investing Activities		9,916,191			(5,532,494	)

Cash Flows From Financing Activities
Notes Payable		(5,974,414	)		5,974,414
Interest Paid		(483,556	)		0
Treasury Stock		(110,000	)		0
Paid in Capital		430			69,652
Common Stock		8,170			4,048
Net Cash Provided by (used for)
Financing Activities		(6,559,370	)		6,047,914

Net Increase (Decrease) in Cash		2,313,407			217,288
Cash at the Beginning of the Period		218,118			830

Cash at the End of the Period	$	2,531,525		$	218,118

See Notes to Consolidated Financial Statements

CHANCELLOR GROUP, INC.

Notes to Consolidated Financial Statements

December 31, 2008

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

Organization

Chancellor Group, Inc. (the "Company") was incorporated in the state of Utah on May 2, 1986, and then, on December 31, 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. In 1996 the Company's corporate name was changed from Nighthawk Capital, Inc. to Chancellor Group, Inc.

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 84 are actively producing (two of which are natural gas wells). We also own and operate from our 15.9 acre property, with its shop, yard and office complex. The 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 approximating 200 or so acres on the Worley Combs lease. The six leases have the production rights for oil, casing-head gas and natural gas.

As of December 31, 2008, 84 wells are producing. Productive capacity at December 31, 2008 is estimated to be 60 bopd and 33 mcfd gas. 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 those of 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.

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.

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.

Cash and Cash Equivalents

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

Accounting Year

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

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.

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.

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. This life is estimated to be five years. The useful life of the office building and warehouse is estimated to be 20 years.

Depletion

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

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.

Products and Services, Geographic Areas and Major Customers

The Company plans to develop its domestic oil and gas properties, located in Gray and Carson counties, Texas, and possibly to acquire additional producing oil and gas properties. The Company’s major customers are Valero Marketing, DCP Midstream, and Eagle Rock Energy.

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, 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.

Recent Accounting Pronouncements

In March 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 155, "Accounting for Certain Hybrid Financial Instruments." SFAS 155 resolves certain accounting issues related to various hybrid financial instruments. The Company has adopted the provisions of SFAS No. 155 which are effective for fiscal years beginning after September 15, 2006. The adoption did not have a material effect on the results of operations of the Company.

In March 2006, the FASB issued SFAS No. 156 "Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This statement requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits for subsequent measurement using either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement No. 140. The Company has adopted the provisions of SFAS No. 156, which are effective in general for an entity's fiscal year beginning after September 15, 2006. The adoption did not have a material effect on the results of operations of the Company.

In December 2006, the FASB issued SFAS No. 157 "Fair Value Measurements", to improve consistency and comparability in fair value measurements, and to expand related disclosures. The Company has adopted the provisions of SFAS No. 157, which are effective for financial statements for fiscal years beginning after November 15, 2007. The adoption did not have a material effect on the results of operations of the Company.

In September 2006 the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans”. SFAS No. 158 requires the Company to recognize the funded status of its post retirement plans on the balance sheet and recognize as a component of accumulated other comprehensive income the gains and losses, prior service costs or credits that occur during the financial year but are not recognized as components of the Company’s pension costs This Statement is effective as of the beginning of its first fiscal year that begins after December 15, 2008. The Company does not expect application of SFAS No. 156 to have a material affect on its financial statements.

In February 2007 the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The amendment to SFAS No. 115 applies to all entities with investments in available-for-sale or trading securities. The statement is effective for fiscal years beginning after November 15, 2007. The Company does not expect application of SFAS No. 159 to have a material affect on its financial statements.

NOTE 2. INCOME TAXES

Deferred income taxes arise from the temporary differences between financial statement and income tax recognition of net operating losses. These loss carryovers are limited under the Internal Revenue Code should a significant change in ownership occur. The Company accounts for income taxes pursuant to SFAS 109.

At December 31, 2007, the Company had approximately $4.6 million in unused federal net operating loss carry-forwards (NOL), which was to expire in the year 2011. The entire NOL was used this tax year. The resulting income tax liability is $96,439.

At December 31, 2008, the Company has approximately $118,000 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 at into 166.667 shares of the Company's common stock upon election by the shareholder, 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 65,232,781 shares issued and outstanding (which includes 1,000,000 shares of Treasury Stock not held for retirement) as of December 31, 2008 (see footnotes regarding Treasury Stock, Sale of Assets and Related Party Transactions for additional information).

Treasury Stock

During the proceeding of the Bankruptcy the Company entered into a relationship with New Concepts Energy, Inc. (NCE). In the process of negotiations the Company arranged for NCE to receive 1,000,000 shares of Common Stock and obligated itself to pay an additional $10,000 at the closing of the Bankruptcy proceedings. At the conclusion of the Bankruptcy proceeding when NCE was no longer involved in the Company’s financial plans the Company agreed to acquire the 1,000,000 shares of Common Stock for $110,000. The Company has acquired 1,000,000 shares for a purchase price of $110,000 which are currently being held as treasury stock but will be reissued at sometime in the future (see footnotes regarding Sale of Assets and Related Party Transactions).

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), 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 the years ended December 31, 2007 and 2008, no options were issued, exercised or cancelled. There were no stock options issued in the first quarter of 2008.

The Company currently has outstanding warrants to purchase an aggregate of 6,000,000 shares of common stock expiring December 31, 2009, of which warrants to purchase 2,000,000 shares are at an exercise price of $.025 per share, and 4,000,000 of which are at an exercise price of $0.02 per share.

At the closing of the purchase of the Caldwell Assets, pursuant to an Agreement to Issue Warrants, dated April 13, 2007, with CapWest, we had issued CapWest a warrant (“CapWest Warrants”) to purchase 2,000,000 shares of our common stock, at a purchase price of $0.001 per share. At the August 29, 2008 closing under the Agreement with Legacy, for a total additional consideration of $1,550,000, Capwest assigned the CapWest Warrants back to the Company for cancellation and conveyed to the Company the twenty (20%) percent production payment and two (2%) percent overriding royalty held by Capwest.

Employee Stock Options

The Company accounts for non-employee stock options under SFAS 123 (as amended by SFAS 148). The Company issued no employee stock options and had none outstanding at the end of 2005, 2006 or as of the close of the year ending December 31, 2007. There were no stock options issued in the first and second quarters of 2008.

NOTE 4. FIXED ASSETS

A summary of fixed assets at December 31, 2008, follows:


	Balance						Balance
	December 31, 2007		Additions		Deletions		December 31, 2008
Auto/Transportation Equipment	$	65,298	$	161,765	$	8,402	$	218,661
Buildings & Improvements		125,280						125,280
Leases & Lease Equipment		4,956,916		634,268		4,194,932		1,396,252
Furniture, Fixtures & Office Equipment		793		5,992				6,785
Machinery & Equipment		84,207		58,540		0		442,747
	$	5,532,494	$	860,565	$	4,203,334	$	2,189,725
Less: Accum. Depr.								262,479
							$	1,927,246

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, Midland, Texas (“WNB”) for a senior loan facility (the “WNB Loan Agreement”). At the closing of the purchase of the Caldwell 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 this 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, under which we drew down at closing $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 this Agreement plus 4%. Under the CapWest loan agreement, CapWest had a 2% overriding royalty interest in the Leases.

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 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 December 31, 2008.

NOTE 7. ACCUMULATED COMPENSATED ABSENCES

It is the Company’s policy to permit employees to accumulate a limited amount of earned by 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.

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 believed to be producing wells and 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 were 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 the 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 closed on a Loan Agreement with WNB for a senior loan facility. At the closing of the purchase of the Caldwell Assets, we drew down $2.3 million under the WNB Loan Agreement. On April 13, 2007, we also entered into a Loan Agreement with CapWest for an advancing line of credit/term loan facility, under which we drew down at closing $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 had 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, and 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 closing, were paid in full.

The financial statements reflect the sale of the Oil and Gas Assets, effective retroactively to June 1, 2008. The following is the details of the sale and closing costs.

Sales Price			$	13,250,000
Adjustments to Sales Price
Estimated Liability for Well Plugging Expense				( 160,000	)
Retention of HH Merten Lease				( 9,642	)
			$	13,130,358
Closing Costs and Other Related Expenditures
Acquisition of Warrants	$	850,000
Acquisition of 2% ORRI		700,000
Acquisition of 6% 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		(8,761,260	)

Net Received from Sale			$	4,319,098

NOTE 9. RELATED PARTY TRANSACTIONS

The Company uses the services of a local accounting firm to provide the disbursing of the payroll with related expense and accounts payable while maintaining the general ledger. The Company’s President has a one-half interest in that firm. The Company has paid $25,134 for those accounting services this year.

Axis Network Pty. Ltd.(Axis), a company controlled by the Chairman of the Board, through a prior arrangement had the rights to receive a 6.25% Overriding Royalty Interest (ORRI) in the leases owned by the Company. That ORRI was to begin paying 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 $102,000 for those services this year.

During the proceeding of the Bankruptcy the Company entered into a relationship with New Concepts Energy, Inc. (NCE). In the process of negotiations the Company arranged for NCE to receive 1 million shares of Common Stock from Koala Pictures Proprietary, Ltd. (a company controlled by the Chairman of the Board) and obligated itself to pay an additional $10,000 at the closing of the Bankruptcy proceedings. At the conclusion of the Bankruptcy proceeding when NCE was no longer involved in the Company’s financial plans the Company agreed to acquire the 1,000,000 shares of Common Stock for $110,000. The company has acquired 1,000,000 shares for a purchase price of $110,000 which are currently being held as treasury stock.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A (T). Controls and Procedures.

As supervised by our board of directors and our principal executive and principal financial officers, management has established a system of disclosure controls and procedures and has evaluated the effectiveness of that system. The system and its evaluation are reported on in the below Management's Annual Report on Internal Control over Financial Reporting. Our principal executive and financial officer has concluded that our disclosure controls and procedures (as defined in the 1934 Securities Exchange Act Rule 13a-15(e)) as of December 31, 2008, are effective, based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a-15.

Management's Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (the "Exchange Act"). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management assessed the effectiveness of internal control over financial reporting as of December 31, 2008. We carried out this assessment using the criteria of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm, pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report. Management concluded in this assessment that as of December 31, 2008, our internal control over financial reporting is effective.

There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers, and Corporate Governance.

The Directors and Officers of the Registrant as of the date of this report are as follows:

			Served as a
Name	Age	Position	Director since

Maxwell Grant	71	Chairman and Director	May 23, 2007

Thomas Grantham	60	President, Chief Financial	December 5, 2008
		Officer and Director

Robert Gordon	64	Director	May 1, 2002

All Directors of the Company hold office until successors are elected according to the Company's by-laws.

Officers of the Company are elected by the Board of Directors according to the Company's by-laws and hold office until their death, resignation, or removal from office.

Maxwell Grant whose company, Koala Pictures, is Chancellor’s largest shareholder, has a business degree and a journalism diploma in 1960 from Melbourne University. A former international journalist and university lecturer in the early 1960’s in labor relations at Monash University, Melbourne, his New York-published novels have been translated into several languages. His wide range of interests include TV and film production, film financing and more recently oil and gas. For the last three years, Mr. Grant has primarily concentrated on locating a suitable acquisition for the Company and worked on several other film and investment projects. He co-founded in the late 1990’s and was a 19% shareholder of Majestic Film Management Limited, Melbourne, Australia, which raised several million dollars for international feature films for Village Roadshow Pictures. The film JOEY, which he conceived and on which he was Associate Producer, was sold internationally to MGM. Mr. Grant devoted his time and efforts to locate for Chancellor its recently-acquired producing oil and gas property, Caldwell Production Company, in Texas. He participated in negotiations on behalf of the Company for the purchase of the property and identified the sources of financing for the Company to complete the acquisition.

Mr. Grantham is a Certified Public Accountant and received his BAA degree in accounting from West Texas A&M University. Mr. Grantham has extensive oil and gas experience, for the past two years having managed a four-lease, 18-well neighboring property in Gray County Texas. After working for Peat Marwick Mitchell, a major accounting firm and a large firm in the financial services sector, Mr. Grantham, for the past 21 years, has been a partner in Grantham, Cory and Hare, P.C., Pampa, Texas, a full-service accounting firm.

Mr. Robert Gordon is a former senior editor with Mr. Rupert Murdoch's News Corporation. Since 1998, Mr. Gordon has been the CEO of Corporate Writers Australia, an investor relations firm in Melbourne, Australia, specializing in the oil and gas industry. He joined our Board of Directors in 2002.

Item 11. Executive Compensation.

Compensation paid to Officers and Directors is set forth in the Summary Compensation Table below. The Company may reimburse its Officers and Directors for any and all out-of-pocket expenses incurred relating to the business of the Company.

SUMMARY COMPENSATION TABLE

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonquali fied Deferred Compensation Earnings ($)	All Other Compen sation ($)	Total ($)
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)	(i)	(j)
Bradley W. Fischer, Chief Executive Officer	2007	$100,000							$100,000
Thomas H. Grantham President and Chief Financial Officer (1)	2007	$10,000							$10,000
	2008	$80,000							$80,000
Alan Wright, Chief Financial Officer	2007	$50,000		$36,000					$86,000
Maxwell Grant, Chairman of the Board of Directors (2)	2007							$43,000	$43,000
	2008							$135,340	$135,340

(1) The Board of Directors of the Company has approved a stock award of 250,000 shares for Thomas H. Grantham, the Company’s President and Chief Financial Officer. Such stock award was deferred until the Company’s emergence from the Chapter 11 bankruptcy proceeding and, accordingly, is not considered compensation to Mr. Grantham in 2007 or 2008.

(2) Mr. Grant owns 100% of the equity interests in Koala Pictures Proprietary Ltd. (“Koala”) and Axis Network Proprietary Ltd. In March and April 2007, Axis was paid consultancy fees of $25,000 for past work, some of which dated back to previous years. In May, June and July, 2007, Peninsula Oil & Gas Proprietary Ltd. (formerly MG Consulting Proprietary Ltd) was paid $6,000 for each of those three months for a total payment of $18,000. In September, 2008, Koala was paid by the Company $29,340, consisting of a reimbursement to Koala of $25,000 of Court costs awarded in the 2002 shareholders derivative Nevada case to Koala but never paid, $3,000 owing to Koala for funding retainer to a law firm for the Supporting Shareholders’ Group to oppose New Concepts Energy, Inc. in the Chapter 11 bankruptcy proceeding, and $1,134 which Koala had loaned Chancellor some years ago and had been carried on the books as a debt. In September, 2009, Peninsula Oil and Gas (formerly MG Consulting), controlled by Mr. Grant, was paid $78,000 for past due consulting fees which had not been paid since July, 2007 due to the Chapter 11 bankruptcy proceeding, and a $6,000 consulting fee for September, 2009. In October through December, 2008, Peninsula Oil and Gas was paid $6,000 consulting fees for each of those months.

In addition, in 2008, Mr. Grant was paid $4,000 in director fees.

DIRECTOR COMPENSATION

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)
Maxwell Grant	$4,000						$4,000
Robert Gordon	$4,000						$4,000
John C. Y. Lee (1)		$5,200				$14,000	$19,200
Peter Harris (1)		$3,400				$14,000	$17,400

(1) The Company on December 9, 2008 entered into Director’s Settlement Agreements with John C. Y. Lee and Peter Harris. The agreements provided for payment by the Company of $10,000 to each director, and for the issuance of 260,000 shares of our common stock to John C. Y. Lee (valued at $5,200) and 170,000 shares to Peter Harris (valued at $3,400) in lieu of directors fees dating back to 2006 for Mr. Lee and 2007 for Mr. Harris.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth, as of March 27, 2009, on which date 64,802,781 shares of common stock were outstanding, the ownership of each person known by the Registrant to be the beneficial owner of five percent or more of the Company’s common stock, each Officer and Director individually and all Directors and Officers of the Registrant as a group.


		NO. OF		% OF
NAME		SHARES		CLASS


Maxwell Grant (1)	Chairman and Director		24,517,253		36.43	%

Robert Gordon	Director		5,084,800		7.85	%
401 Collins Street
Melbourne
Victoria 3000
Australia

(1)

Mr. Grant owns 100% of the equity interests in Koala Pictures Proprietary Ltd. (“Koala”) which owns 22,017,253 shares of common stock. Axis Network (an affiliate of Koala) owns 8,453 shares of common stock. Mr. Grant’s address is c/o the Company, 216 South Price Road, Pampa, TX 79065. As previously reported, Koala holds warrants expiring December, 2009, to purchase 2,500,000 shares of common stock at an exercise price of $.02 per share.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

In March and April 2007, a private company controlled by Maxwell Grant, a major stockholder (who became our Chairman of the Board of Directors in May 2007) was paid consultancy fees of $25,000 for past work, some of which dated back to previous years.

In May, June and July 2007, a private company controlled by Maxwell Grant was paid $6,000 for each of those three months for a total payment of $18,000.

Axis Overriding Royalty

Pursuant to an agreement dated 12th August, 2004, between Chancellor and Axis Network Pty, Ltd. (a private company controlled by Maxwell Grant), Axis was entitled to a six and one-quarter percent (6.25%) override for identifying and helping secure the producing property Chancellor subsequently bought. At a Board meeting on 15th January, 2007, Mr. Grant volunteered, on behalf of Axis, to freeze the Axis override to help secure a loan to purchase the producing oil and gas property in Pampa, Texas which Chancellor and its subsidiaries now own. At that Board meeting, the directors agreed, in view of the override blockage, that the override due Axis should accrue, except that, at any time, Axis had the right, at its sole discretion, to take warrants for shares of common stock in lieu of override amounts according to the following formula:

1. For the first 12 months after the acquisition of the property, warrants at an exercise price of 5 (five) cents.

2. For the next 12 months after acquisition, at a price of 10 (ten) cents.

3. For the third 12 months after acquisition and thereafter at a price of 15 (fifteen) cents.

Mr. Grant did not join the Board until May, 2007. No warrants were issued.

This overriding royalty interest was subordinated to the payment in full of the loans made by the lenders that provided acquisition financing to the Company for its initial acquisition of its oil and gas properties.

Sale of Oil and Gas Properties; Axis Override and Closing Fee

In connection with the August 29, 2008, sale of a portion of our oil and gas properties following the August 15, 2008 dismissal of the Chapter 11 bankruptcy proceeding, pursuant to 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, and Legacy Reserves Operating LP, acting as buyer (“Legacy”), and our lenders, we sold certain of our oil and gas properties and other assets (the “Assets”) to Legacy for a purchase price of approximately $13,250,000. Pursuant to the terms of the Agreement, the Company acquired the contractual but unrecorded 1/16 th overriding royalty interest held by Axis on all of the Company’s oil and gas properties prior to the sale of certain of the properties to Legacy (the “Original Oil and Gas Properties”), which overriding royalty interest (the “Axis Overriding Royalty Interest”) was merged with and became part of the Assets sold to Legacy. At Closing, the Company conveyed to Axis, as partial consideration for Axis having given up the 6.25% Axis Overriding Royalty, a two (2%) percent overriding royalty on the Original Oil and Gas Properties. To help secure execution of the agreement by all parties, Axis had offered to give up the Axis Overriding Royalty Interest in return for a 2% override and a Lehman formula fee of $232,500, which was paid to Axis at Closing. The Axis Overriding Royalty had been agreed to by the Company in 2004 in return for Axis conducting an extensive search for the Original Oil and Gas Properties, which purchase was completed in April 2007. Axis had further assisted in the search by finding the financing for the purchase of the Original Oil and Gas Properties. Axis is controlled by Maxwell Grant, who was not then on the board of Chancellor. Mr. Grant, who also controls Koala Pictures, the Company's largest shareholder, eventually joined the Board in May, 2007 and became Chairman. Mr. Grant was instrumental negotiating the agreement with Legacy and in the Company’s engaging Simplex Energy Solutions of Midland, Texas, to assist in identifying Legacy as the purchaser of the Assets.

Closing Letter Agreement and Settlement with New Concept Energy, Inc.

On June 21, 2008, we filed a Motion to Dismiss the Chapter 11 cases for us and our two operating subsidiaries seeking to dismiss the bankruptcy proceedings so that we could proceed to close the transaction contemplated by the Agreement. Prior to June 2008, New Concept Energy, Inc. (“NCE”) had entered into discussions with us and had acquired one million shares of our common stock from Koala Pictures Proprietary Ltd. (the “NCE Stock”). On July 3, 2008, NCE filed its Objection to our Motion to Dismiss. On August 11, 2008, a hearing was held on our Motion to Dismiss, and on August 15, 2008, the “Order of Dismissal” dismissing our and our two operating subsidiaries’ bankruptcy cases was entered. On August 22, 2008, NCE filed its Motion for Reconsideration of the Orders Entered on August 15, 2008 dismissing the Chapter 11 cases. In recognition of the actions filed by NCE, related to the bankruptcy cases, and the indemnification provisions of the Agreement, the parties to the Agreement agreed, pursuant to a letter agreement dated August 29, 2008, to increase the amount held in the Escrow Account under the Agreement to $1,500,000, as well as to the terms for full release of funds from the escrow account by the Escrow Agent. On September 4, 2008, a Compromise Settlement Agreement and Release of All Claims (the “Settlement Agreement”) was fully executed by and between the Company and its two operating subsidiaries and NCE. The Settlement Agreement provided for cross releases between the parties and for the repurchase by us of the NCE Stock for a payment of $110,000, which repurchase was implemented.

Local Accounting Firm

Item 14. Principal Accountant Fees and Services

(1) Audit Fees.

The aggregate fees billed by our current independent auditors, Larry O'Donnell, CPA, P.C., for professional services rendered for the audit of our financial statement filed as part of our 2008 Form 10-K filing and for review of our interim financial statements filed as part of our first, second and third quarter reports on Form 10-Q filed for the fiscal year of 2008 are $11,470.

The aggregate fees billed by Larry O’Donnell, CPA, P.C. for professional services rendered for the audit of our financial statement filed as part of our 2007 Form 10-K filing and for review of our interim financial statements filed as part of our first, second and third quarter reports on Form 10-QSB filed for the fiscal year of 2007 are $6,800.

(2) Audit-Related Fees.

There have been no audit-related fees billed by our accountants in each of the last two fiscal years of our Company.

(3) Tax Fees.

There have been no tax fees billed by our accountants in each of the last two fiscal years of our Company.

(4) All Other Fees.

There have been no other fees billed by our accountants in each of the last two fiscal years of our Company.

(5)	It is the policy of our board of directors that before the accountant is engaged to render audit or non-audit services, the engagement is approved by the Board of Directors that is at present acting as the Audit Committee.

(6) Not applicable.

Item 15. Exhibits and Financial Statement Schedules.

(a)(3) Exhibits

Exhibit No.	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 of Incorporation of 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).

Exhibit No.

Description

10.1	Agreement and Plan of Reorganization, dated October 19, 2000, between Chancellor 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).
10.5	Purchase and Sale Agreement, dated as of April 16, 2007, by and between Gryphon Production Company, LLC and Caldwell Production Company (incorporated by reference to Exhibit No. 10.5 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 23, 2007).
10.6	Purchase and Sale Agreement, dated as of April 16, 2007, by and between Gryphon Field Services, LLC and Caldwell Production Company(incorporated by reference to Exhibit No. 10.5 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 23, 2007).
10.7	Loan Agreement, dated April 13, 2007, by and among the Company, Gryphon Production Company, LLC, and Gryphon Field Services Company, LLC, as borrowers, and Western National Bank, as lender(incorporated by reference to Exhibit No. 10.5 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 23, 2007).
10.8	Form of Multiple Advance Term Promissory Note issued by the Company pursuant to the Western National Bank Loan Agreement(incorporated by reference to Exhibit No. 10.5 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 23, 2007).
10.9	Loan Agreement, dated April 13, 2007, by and among the Company, Gryphon Production Company, LLC, and Gryphon Field Services, LLC, as borrowers, and CapWest Resources, Inc., as lender(incorporated by reference to Exhibit No. 10.9 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 23, 2007).
10.10	Form of Multiple Advance Term Promissory Note issued by the Company pursuant to the CapWest Resources, Inc. Loan Agreement (incorporated by reference to Exhibit No. 10.10 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 23, 2007).
10.11	Agreement to Issue Warrants, dated April 13, 2007, between the Company and CapWest Resources, Inc. (incorporated by reference to Exhibit No. 10.11 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 23, 2007).
10.12	Employment Letter Agreement, effective April 16, 2007, between the Company and Bradley W. Fischer (incorporated by reference to Exhibit No. 10.12 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 23, 2007).
10.13	Modification dated as of July 27, 2007, to Form of Multiple Advance Term Promissory Note issued by the Company pursuant to the CapWest Resources, Inc. Loan Agreement (incorporated by reference to Exhibit No. 10.13 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 30, 2007).
10.14	First Amendment, dated as of August 9, 2007, to Loan Agreement, dated April 13, 2007, by and among the Company, Gryphon Production Company, LLC, and Gryphon Field Services, LLC, as borrowers, and CapWest Resources, Inc., as lender (incorporated by reference to Exhibit No. 10.14 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 30, 2007).
10.15	Bill of Sale and Assignment of Contractual Rights, dated as of August 9, 2007, by and among the Company, Gryphon Production Company, LLC, and Gryphon Field Services, LLC, as borrowers, and CapWest Resources, Inc., as lender (incorporated by reference to Exhibit No. 10.15 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 30, 2007).
10.16	First Modification and Amendment, dated as of August 9, 2007 to Advancing Line of Credit/Term Note issued by the Company pursuant to the CapWest Resources, Inc. Loan Agreement (incorporated by reference to Exhibit No. 10.16 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 30, 2007).
10.17	Separation Agreement and Release, dated October 16, 2007, between the Company and Bradley W. Fischer (incorporated by reference to Exhibit No. 10.17 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 22, 2007).

Exhibit No.

Description

10.18	Purchase and Sale Agreement, effective as of June 1, 2008, by and among the Company, Gryphon Production Company, LLC and Gryphon Field Services, LLC, collectively acting as sellers, and Legacy Reserves Operating LP, acting as buyer, and Capwest Resources, Inc. and Western National Bank, collectively acting as sellers’ lenders (incorporated by reference to Exhibit No. 10.18 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 19, 2008).
10.19	Letter Agreement, dated August 29, 2008, amending the Purchase and Sale Agreement, effective as of June 1, 2008, by and among the Company, Gryphon Production Company, LLC and Gryphon Field Services, LLC, collectively acting as sellers, and Legacy Reserves Operating LP, acting as buyer, and Capwest Resources, Inc. and Western National Bank, collectively acting as sellers’ lenders (incorporated by reference to Exhibit No. 10.19 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 5, 2008).
10.20	Compromise Settlement Agreement and Release of All Claims, effective September 4, 2008, by and between the Company, Gryphon Production Company, LLC and Gryphon Field Services, LLC, and New Concept Energy, Inc. (incorporated by reference to Exhibit No. 10.20 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 5, 2008).
10.21	Director’s Settlement Agreement, dated December 9, 2008, between the Company and John C. Y. Lee (incorporated by reference to Exhibit No. 10.21 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 11, 2008).
10.22	Director’s Settlement Agreement, dated December 9, 2008, between the Company and Peter Harris (incorporated by reference to Exhibit No. 10.22 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 11, 2008).
14	The Chancellor Group and Gryphon Production Code of Conduct (incorporated by reference to Exhibit No. 14 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 23, 2007).
31	Certification of Principal Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002, filed hereiwth.
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, filed herewith.

SIGNATURES

Pursuant to the requirements of Section 12(g) 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, on March 30, 2009.


	CHANCELLOR GROUP, INC.

	By:	/s/ Thomas Grantham
		President, Principal Executive Officer and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities indicated, on March 30, 2009.



Chairman and Director:
/s/ Maxwell Grant
Maxwell Grant


Director:
/s/ Robert Gordon
Robert Gordon


President, Chief Financial Officer and Director:
/s/ Thomas Grantham
Thomas Grantham

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