EXHIBIT 10.14

FIRST AMENDMENT
TO
LOAN AGREEMENT

THIS FIRST AMENDMENT TO LOAN AGREEMENT (this “Amendment”) is entered into as of
the 9th day of August 2007, by and among CHANCELLOR GROUP, INC., a Nevada
corporation, whose address for purposes of this Agreement is 216 S. Price Road,
Pampa, Texas 79065 (“Chancellor”), GRYPHON PRODUCTION COMPANY, LLC, a Texas
limited liability company, whose address for purposes of this Agreement is P. O.
Box 742, Pampa, Texas 79066 (“Production”), and GRYPHON FIELD SERVICES, LLC, a
Texas limited liability company, whose address for purposes of this Agreement is
P. O. Box 742, Pampa, Texas 79066 (“Field Services”)(Chancellor, Production, and
Field Services being collectively referred to herein as the “Borrowers”), and
CAPWEST RESOURCES, INC., a Texas corporation, whose address for purposes of this
Agreement is 508 West Wall Street, Suite 1100, Midland, Texas 79701 (the
ALender@).

NOTICE IS TAKEN OF THE FOLLOWING:

A.
Borrowers and Lender have previously entered into that certain Loan Agreement,
dated as of April 13, 2007 (the “Loan Agreement”). Capitalized terms not
otherwise defined, or re-defined herein, are defined in the Loan Agreement.

B.
The Loan Agreement provides for an advancing line of credit/term loan in the
amount of Ten Million and No/100 Dollars ($10,000,000.00), with an existing
Borrowing Base in the amount of Three Million Seven Hundred Thousand
($3,700,000.00) (the “Loan”). The Loan is evidenced by an Advancing Line of
Credit/Term Note, dated as of April 13, 2007, executed by the Borrowers in favor
of the Lender (the “Note”). The Note is collateralized by second lien Deeds of
Trust covering oil and gas properties in Carson and Gray Counties, Texas
(collectively, the “Deeds of Trust”), as well as equipment and other personal
property identified in and covered by the Security Agreement, and the Warrants.

 
C.
The Borrowers have asked the Lender to modify the Loan to reflect an increase in
the Borrowing Base from Three Million Seven Hundred Thousand Dollars
($3,700,000.00) to Three Million Nine Hundred Fifty Thousand Dollars
($3,950,000.00), and the Lender has agreed to that request. In consideration of
the Lender’s consent to their requested increase in the Borrowing Base, the
Borrowers have agreed to the modification of various covenants found in the Loan
Agreement.

D.
The Borrowers and the Lender have agreed to execute this Amendment in order to
recognize the increase in the Borrowing Base of the Loan and the modification of
various covenants found in the Loan Agreement.

 
NOW, THEREFORE, for and in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree to amend the terms of the Loan Agreement
as follows:

1.
Definitions.

Unless otherwise specifically defined herein, all defined terms used in this
Amendment shall have their respective meanings set forth in the Loan Agreement.
Capitalized terms not otherwise defined herein shall have the same definitions
assigned to them under the terms of the Loan Agreement.

 
 

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2. Amendments.

A.
The definition of “Contractual Rights” found in the Loan Agreement is hereby
amended by deleting it in its entirety and substituting the following:

“Contractual Rights” means that certain personal property interest in
contractual rights, created pursuant to the terms of the Loan Agreement, which
shall now be increased from fifteen percent (15%) to twenty percent (20%) of
Borrowers’ Gross Oil and Gas Proceeds, as defined in the Loan Agreement, derived
and produced from Borrowers’ Mineral Interests in those certain oil and gas
leases and wells located in Carson and Gray Counties, Texas, as set forth in the
Loan Agreement. The additional five percent (5%) of such proceeds shall be
conveyed to Lender by Borrowers under that certain Bill of Sale and Assignment
of Contractual Rights, dated of even date herewith, by and among Borrowers and
Lender.

B.
Subsection 2.2 (a) of the Loan Agreement is hereby amended by deleting it in its
entirety and substituting the following:

2.2 - Borrowing Base.

     
(a)
The Borrowing Base is hereby established at $3,950,000.00.

C.
Article VI of the Loan Agreement is hereby amended by adding the following
sections:

6.16 - Interest Payments. On or before August 20, 2007, Chancellor agrees to
tender to Lender all accrued and owing interest payments, specifically
including, but not limited to those interest payment due as of July 30, 2007,
and the Borrowers agree to be completely current on all interest payment due and
accrued on or before August 30, 2007. Lender agrees to accept payments of
interest only (and not payments based upon Borrowers’ Gross Oil and Gas
Proceeds) through December 30, 2007. Thereafter, as to all payments beginning
with the one to be made on January 30, 2008, payments shall be tendered based
upon the formula provided in the Loan Agreement under Section 2.4.

6.17 - Use of Loan Proceeds Attributable to the Increased Borrowing Base.
Borrowers agree that out of the loan proceeds attributable to Lender’s consent
to the increase in the Borrowing Base provided for in this Amendment, Borrowers
will use a maximum of Eighty Thousand Dollars ($80,000.00) of such proceeds for
the payment of operating expenses, and a minimum of One Hundred and Seventy
Thousand Dollars ($170,000.00) for the purpose of restoring existing oil and gas
wells to productive status.

6.18 -  Equity Contributions. On or before October 31, 2007, Borrowers shall
have obtained an additional equity contribution of Two Hundred Fifty Thousand
Dollars ($250,000.00).

6.19 - Reduction in General and Administrative Expenses. Borrowers agree to
reduce their consolidated general and administrative expenses paid to members of
its management team to a maximum of Twenty Thousand Dollars ($20,000.00),
beginning with those payments to be tendered to such management team members for
their services during the month of August. Borrowers agree to maintain such
general and administrative expenses at this level until such time as Borrowers
have fulfilled the covenant stated in Section 6.18 above and have demonstrated
to the satisfaction of the Lender (acting in its sole and absolute discretion)
that the Borrowers have met, and are continuing to meet, the forecasts for
monthly production, revenues, and expenses, as stated in the pro forma business
plan that Borrowers presented to the Lender in connection with their application
for the Loan.

6.20 -  Budgeted Oil and Gas Sales Figures. Borrowers agree that they will reach
the budgeted oil and gas sales figures of 5,300 barrels of oil (“BO”)(with net
production to Borrowers of 4,134 BO) and 10,000 million cubic feet (“MCFG”) of
natural gas production (producing net production to Borrowers of 8,750 MCFG),
forecast in their pro forma business plan, and attain a producing well count of
245 wells on or before December 31, 2007. Should Borrowers fail to fulfill this
covenant, they agree to reduce the general and administrative expenses provide
for in Section 6.19 above from the amount of Twenty Thousand Dollars
($20,000.00) to the amount of Ten Thousand Dollars ($10,000.00), beginning with
general and administrative expenses paid to management for the month of January
2008.

 
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6.21 -  Bank Statements from Bank of America, N.A. Within fifteen (15) days of
the execution of this Amendment, Borrowers shall provide Lender with copies of
any and all statements that they have received from Bank of America, N.A. in
Pampa, Texas. Following the initial delivery of copies of such statements,
Borrowers shall continue to provide Lender with such copies, by transmitting
such a copy to Lender, via certified mail, return receipt requested, or
electronically, on or before fifteen (15) days after their receipt of such a
statement.

D.
Section 7.1 of the Loan Agreement is hereby amended by adding the following
sections:

7.1 -  Consolidated Debt Service Coverage Ratio. Beginning with the financial
reports due for July 2007, Borrowers shall attempt to comply with Section 7.1 of
the Loan Agreement by not permitting their Consolidated Debt Service Coverage
Ratio to be less than 1.1 to 1.0 at any time. As stated in the Loan Agreement,
the Consolidated Debt Service Coverage Ratio shall be calculated monthly based
upon year-to-date figures for the current calendar year, beginning on July 1,
2007, and shall be reported to Lender by Borrowers within forty-five (45) days
after the end of each calendar month. Should Borrowers be unable to fulfill this
negative covenant or the covenant covering the same matter in the Senior Loan
Agreement, the Lender agrees to reduce its minimum Consolidated Debt Service
Coverage Ratio to the same level as that required by the Senior Lender, until
December 31, 2007, at which point the Lender’s original ratio shall be
automatically reinstated into the terms of this Loan Agreement.

3. Effectiveness.

 
A.
Except to the extent specifically amended and supplemented hereby, all of the
terms, conditions and provisions of the Loan Agreement shall remain unmodified,
and the Loan Agreement, as amended and supplemented by this Amendment, is
ratified and confirmed as being in full force and effect.

 
B.
All references to the Loan Agreement herein or in any other document or
instrument between Borrower and Lender shall hereinafter be construed to be
references to the Loan Agreement as modified by this Amendment.

4.
Counterparts: This Amendment may be executed in any number of counterparts, each
of which when executed and delivered shall be deemed an original, but all of
which constitute one instrument. In making proof of this Amendment, it shall not
be necessary to produce or account for more than one counterpart thereof signed
by each of the parties hereto.

5.
Notice of Final Agreement:

THIS WRITTEN AGREEMENT AND ANY OTHER INSTRUMENTS EXECUTED BY THE PARTIES
CONTEMPORANEOUSLY HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date and year first above written.
 

        BORROWERS:         CHANCELLOR GROUP, INC.  
   
   
    By:   /s/ Bradley Fischer  

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BRADLEY FISCHER
 
President
   

          GRYPHON PRODUCTION COMPANY, LLC         By:   By: /s/ Bradley Fischer
 

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BRADLEY FISCHER
President
   

         
GRYPHON FIELD SERVICES, LLC
        By:   By: /s/ Bradley Fischer  

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BRADLEY FISCHER
President
   

          LENDER:          
CAPWEST RESOURCES, INC.
        By:   By: /s/ Mark McKinney  

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MARK D. MCKINNEY
President
   

 
 
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