UNITED
      STATES





SECURITIES
      AND EXCHANGE COMMISSION





WASHINGTON,
      D.C. 20549





_________________________________________





Form
      10-QSB





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





For
      the
      quarterly period ended June 30, 2007





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





For
      the
      transition period from to


Commission
                  file number 000-30219Chancellor
                  Group, Inc.(Name
                  of small business issuer in its
                  charter)
 
 Nevada
              87-0438647(State
                  or other jurisdiction of
              (I.R.S.
                  Employer Identification No.)incorporation
                  or organization)
 
 216
                  South Price Road, Pampa, TX 79065(Address
                  of principal executive offices)(806-688-9697)(Issuer's
                  telephone number)
  Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.    x Yeso
      No





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). o
      Yes x No





APPLICABLE
      ONLY TO CORPORATE ISSUERS




The
      number of shares outstanding the issuer's common stock, $.001 par value, was
      64,502,781 as of August 1, 2007. Transitional Small Business Disclosure Format
      (Check one): Yes oNo
x







Table
      of
      Contents





PART
                I
            FINANCIAL
                INFORMATIONItem
                1.
            Financial
            1Item
                2.
            Management's
                Discussion and Analysis or Plan of Operation
            13Item
                4.
            Controls
                and Procedures
            18PART
                IIItem
                1.
            Legal
                Proceedings
            18Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            19Item
                6.
            Exhibits
            19Signatures
            19EXHIBIT
                INDEX
            
            20


ii




Item
      1.
      Financial Statements





Chancellor
      Group, Inc.


INDEX




Page
                No.Balance
                Sheet as at June 30, 2007 (Unaudited
            2Statements
                of OperationsFor
                the Three and Six Months Ended June 30, 2007 and 2006
                (Unaudited)
            4Statements
                of Cash FlowsFor
                the Three and Six Months Ended June 30, 2007 and 2006
                (Unaudited)
            5Notes
                to Financial Statements (Unaudited)
            6





1


ITEM
      1.


CHANCELLOR
      GROUP, INC.


CONSOLIDATED
      BALANCE SHEET


JUNE
      30,
      2007


(UNAUDITED)


ASSETSCurrent
                AssetsCash
                in Bank
            
            $
            119,641Total
                Current Assets
            
            
            119,641Fixed
                AssetsLeasehold
                Costs - Developed
            
            
            4,938,564Office
                Building and Equipment
            
            
            120,579Fleet-Road
            
            
            40,476Heavy
                Field Equipment& Tools
            
            
            389,684Accumulated
                Depreciation
            
            
            (136,813
            )Total
                Fixed Assets
            
            
            5,352,490Other
                AssetsUnamortized
                Debt Expense
            
            
            99,187Prepaid
                Long Term Hedge
            
            
            77,700Total
                Other Assets
            
            
            176,887Total
                Assets
            
            $
            5,649,018


2








LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                liabilitiesAccounts
                Payable - Chancellor
            
            $
            109,828Accounts
                Payable - Gryphon Production
            
            
            44,161Stock
                Subscription Payable
            
            
            1,602Misc.
                Accounts Payable & Suspense
            
            
            745Current
                portion of Long Term DebtNote
                Payable - Senior Debt
            
            
            575,004Installment
                Loan - Equipment
            
            
            10,878Total
                Current Liabilities
            
            
            742,218Long
                Term LiabilitiesNote
                Payable - Investor
            
            
            5,000Note
                Payable - Senior Debt
            
            
            1,724,996Note
                Payable - Subordinated Debt
            
            
            3,700,000Installment
                Loan - Equipment
            
            
            56,122Total
                Long Term Liabilities
            
            
            5,486,118Stockholders'
                equityCommon
                stock: $.001 par value, 250,000,000 shares authorized, 64,502,781
                shares
                issued & outstanding
            
            
            60,755Preferred
                Series B stock: $1,000 par value, 250,000 shares authorized, -0-
                issued
                and outstandingPaid
                in capital 3,189,583Accumulated
                deficit
            
            
            (3,323,438
            )Net
                Income (Loss)
            
            
            (506,218
            )Total
                Stockholders' Equity
            
            
            (579,318
            )Total
                Liabilities And Stockholders' Equity
            
            $
            5,649,018





See
      Notes
      to Consolidated Financial Statements


3





CHANCELLOR
      GROUP, INC.


CONSOLIDATED
      STATEMENT OF OPERATIONS


(UNAUDITED)


Six
                  Months Ended
                June
                  30,
              
              Three
                  Months Ended
                June
                  30,2007
              
              2006
              
              2007
              
              2006Sales-
                  Net of RoyaltiesOil
              
              $
              268,473
              
              $
              -
              
              $
              268,473
              
              $
              -Natural
                  Gas
              
              
              21,912
              
              
              -
              
              
              21,912
              
              
              -290,385
              
              
              
              
              
              290,385Severance
                  Taxes
              
              
              13,881
              
              
              
              
              
              13,881Marketing
                  Fees
              
              
              1,474
              
              
              
              
              
              1,474Net
                  Revenues
              
              
              275,030
              
              
              -
              
              
              275,030
              
              
              -Operating
                  expensesLease
                  Operating Exp
              
              
              88,157
              
              
              
              
              
              88,157Other
                  Operating
              
              
              329,426
              
              
              
              
              
              325,658General&
                  Admin
              
              
              112,970
              
              
              17,533
              
              
              104,743
              
              
              1,500Depreciation,
                  Depletion, and Amortization
              
              
              136,813
              
              
              
              
              
              136,813
              
              
              -Total
                  OperatingExpenses
              
              
              667,366
              
              
              17,533
              
              
              655,371
              
              
              1,500Income
                  (loss) from Operations
              
              
              (392,336
              )
              
              (17,533
              )
              
              (380,341
              )
              
              (1,500
              )Other
                  Income (Expenses)Organization
                  Costs
              
              
              (49,299
              )
              
              
              
              
              (49,299
              )Hedge
                  CostAmortization
              
              
              (11,100
              )
              
              
              
              
              (11,100
              )Total
                  Other Inc.(Exp.)
              
              
              (60,399
              )
              
              
              
              
              (60,399
              )Financing
                  ChargesInterest
              
              
              39,313
              
              
              
              
              
              39,292Bank
                  Fees Amortization
              
              
              14,170
              
              
              
              
              
              14,170Total
                  Financing Cost
              
              
              53,483
              
              
              -
              
              
              56,462
              
              
              -Income
                  (loss) before provision for income taxes
              
              
              (506,218
              )
              
              (17,533
              )
              
              (494,202
              )
              
              (1,500
              )Provision
                  for income tax
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  income (loss)
              
              
              ($506,218
              )
              $
              (17,533
              )
              
              ($494,202
              )
              $
              (
                  1,500
              )Net
                  income (loss)
                per
                  share (Basic and
                fully
                  diluted)
              
              $
              (
                  *
              )
              $
              (
                  *
              )
              $
              (
                  *
              )
              $
              (
                  *
              )Weighted
                  average number of common shares outstanding
              
              
              60,828,906
              
              
              56,718,107
              
              
              63,253,906
              
              
              57,155,030


*less
      than $.01 per share


See
      Notes
      to Consolidated Financial Statements


4





CHANCELLOR
      GROUP, INC.


CONSOLIDATED
      STATEMENT OF CASH FLOWS


(UNAUDITED)


Six
                Months Ended
              June
                30,2007
            
            2006Cash
                Flows from Operating Activities:Net
                Income (Loss)
            
            
            ($506,218
            )
            
            (17,533
            )Adjustments
                to Reconcile Net Income (Loss) to Net Cash Flow from Operating
                Activities:Depreciation
                and Amortization
            
            
            136,813Decrease(Increase)
                in Operating Assets
            
            
            (176,887
            )Increase(Decrease)
                in Operating LiabilitiesAccounts
                Payable & Other
            
            
            44,907
            
            
            12,033Total
                Adjustments
            
            
            4,833
            
            
            12,033Net
                Cash Provided by (Used in) Operating Activities
            
            
            (501,385
            )
            
            (5,500
            )Cash
                Flows for Investing ActivitiesCapital
                Expenditures
            
            
            (5,489,303
            )
            
            -Net
                Cash Provided(Used) by Investing Activities
            
            
            (5,489,303
            )
            
            -Cash
                Flows from FinancingNotes
                Payable Borrowings
            
            
            6,072,000
            
            
            -Paid
                in Capital
            
            
            37,500
            
            
            5,500Net
                Cash Provided by Financing
            
            
            6,109,500
            
            
            5,500Net
                Increase (Decrease) in Cash
            
            
            118,812
            
            
            -Cash
                Beginning
            
            
            829
            
            
            -Cash
                Ending
            
            $
            119,641
            
            
            -





See
      Notes
      to Consolidated Financial Statements


5


Chancellor
      Group, Inc.





NOTES
      TO
      FINANCIAL STATEMENTS





JUNE
      30,
      2007


(Unaudited)





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





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.





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 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, the Company 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 has 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. The Company has
      also
      acquired a replacement backhoe machine for $67,000.Subsequently, Additional
      Field equipment and tolls were purchased for $31,184.




The
      plan
      is to operate our properties and to restore 10-20 wells per month to production.
      A typical well restoration is estimated to cost $2,500 to $5,000.




Soon
      after April 16, 2007, the number of producing wells was determined to be 84.
      As
      of June 30, 2007, 142 wells are producing - an increase of 58 wells or 69%
      in
      ten weeks. Productive capacity on April 16 was estimated to be 70 bopd and
      90
      mcfd. Productive capacity at June 30 is estimated to be 155 bopd and 200 mcfd
      gas.” The oil is light sweet crude and the natural gas has very high heat
      content, 1600 to 2600 btu/scf.





Principles
      of Consolidation





The
      accompanying consolidated financial statements include the accounts of
      Chancellor Group, Inc., and will include its newly formed, 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. Former
      subsidiaries Radly Petroleum, Inc., Lichfield Petroleum America, Inc. , and
      Getty Petroleum, Inc., no longer exist.





6


CHANCELLOR
      GROUP, INC.





Notes
      to
      Unaudited Consolidated Financial Statements - Continued





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





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 unrecoverability 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 carryforwards
      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.





7


CHANCELLOR
      GROUP, INC.





Notes
      to
      Unaudited Consolidated Financial Statements - Continued


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





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.





8


CHANCELLOR
      GROUP, INC.





Notes
      to
      Unaudited Consolidated Financial Statements - Continued


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





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 Shell Trading Company, 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.





9


CHANCELLOR
      GROUP, INC.





Notes
      to
      Unaudited Consolidated Financial Statements - Continued


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





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.
      RELATED PARTY TRANSACTIONS





In
      the
      second quarter of 2007, ending June 30, 2007, a related party purchased 300,000
      shares of Chancellor common stock for $15,000. Also in the second quarter of
      2007, we paid $40,000 in consulting fees, regarding capital market access and
      other matters, to a related party.





NOTE
      3.  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, 2006 the Company had approximately $3,315,000 in unused federal
      net
      operating loss carryforwards, which begin to expire principally in the year
      2011. A deferred tax asset of approximately $660,000 resulting from the loss
      carryforward has been offset by a 100% valuation allowance. The increase in
      the
      valuation allowance from 2005 to 2006 was approximately $12,000.





At
      June
      30, 2007 the Company had approximately $3,784,000 in unused federal net
      operating loss carryforwards, which begin to expire principally in the year
      2011. A deferred tax asset of approximately $757,000 resulting from the loss
      carryforward has been offset by a 100% valuation allowance. The increase in
      the
      valuation allowance from year end 2006 to second quarter 2007 was approximately
      $97,000. The net operating loss carryforwards may be limited under the Change
      of
      Control provisions of the Internal Revenue Code section 382.


10


CHANCELLOR
        GROUP, INC.
 
 Notes
        to
        Unaudited Consolidated Financial Statements - Continued


NOTE
      4.
      STOCKHOLDERS' EQUITY





Common
      Stock





The
      Company has 250,000,000 authorized shares of common stock, par value $.001,
      with
      64,502,781 shares issued and outstanding as of June 30, 2007.





Preferred
      Stock





Preferred
      Series B 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. 48,000 Series B shares have been issued and converted in prior
      years.





Stock
      Options





Non-employee
      Stock Options





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,
      2005
      and 2006, no options were issued, exercised or cancelled.





The
      Company currently has stock options outstanding to various individuals in the
      following amounts:





2,000,000
      options exercisable for one share of common stock at an exercise price of $0.025
      per share, currently exercisable, expiring December 31, 2009, and 4,000,000
      options exercisable for one share of common stock at an exercise price of $0.02
      per share, currently exercisable, expiring December 31, 2009.





In
      addition, At the closing of the purchase of the Caldwell Assets, pursuant to
      an
      Agreement to Issue Warrants, dated April 13, 2007 (the “CapWest Warrant
      Agreement”), we also issued CapWest a warrant to purchase 2,000,000 shares of
      our common stock, at a purchase price of $0.001 per share, which warrant is
      exercisable at any time up to April 13, 2012. CapWest has a put option (the
“Put
      Option”) during the period beginning on the first to occur of the following
      dates (a) the second anniversary of the CapWest Loan Agreement; or (b) the
      date
      when the Company shall have paid CapWest’s loan in full to put the CapWest
      Warrants to the Company for repurchase at an exercise price of
      $1,000,000.





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 quarter ending June 30,
      2007.


11


CHANCELLOR
        GROUP, INC.
 
 Notes
        to
        Unaudited Consolidated Financial Statements - Continued


NOTE
      5.
      GOING CONCERN UNCERTAINTY





These
      financial statements are presented assuming the Company will continue as a
      going
      concern. The Company has had recurring losses from operations, negative working
      capital, and stockholders' equity deficiency. This raises substantial doubt
      about its ability to continue as a going concern. Management's plan in regard
      to
      these matters includes restoring sufficient production capacity from the
      recently acquired properties so as to achieve positive cash flow, as well as
      raising working capital to assure the Company's viability, through private
      or
      public equity offerings and/or debt financing; and acquiring and developing
      profitable oil and gas properties. There can be no assurance that either
      operating or capital market transactions will be successful.





NOTE
      6.
      SUBSEQUENT EVENTS





Under
      the
      terms of the Company’s Senior Bank Loan, its Gryphon Production Company
      subsidiary was required to make principal payments, as well as interest, on
      the
      Senior loan with Western National Bank commencing in July. The Company made
      such
      a payment of $47,917 in July.





On
      August
      2, 2007, that Company and CapWest Resources, Inc., our subordinated debt lender,
      agreed in principle, subject to definitive documentation, to amend the
      Subordinated Loan Agreement in order to increase the loan by $250,000. The
      terms
      of the agreement in principle were: a) The Company must pay accrued interest
      thru July 30, by August 20, 2007. The Company has paid $42,000 in August, and
      must pay an additional $85,000 by that date; b) CapWest agreed to require
      monthly interest only thereafter, until December 31, 2007; c) The Company agreed
      to raise $250,000 in common equity by October 31,2007; d) The Company agreed
      to
      reduce administrative salaries by $25,000 per month; e) The net revenue interest
      after payout provided in the CapWest loan (see Liquidity and Capital resources)
      was increased from 15% to 20%.





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.





12




ITEM
      2.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN of OPERATION




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





Chancellor
      Group, Inc., a Nevada corporation (“we”, “us”, “Chancellor” or the “Company”),
      is in the business of acquisition, exploration, and development of natural
      gas
      and oil properties. In 1997, we had purchased oil, gas and mineral leases in
      Pecos County, Texas. All such leases have since lapsed. Following the
      appointment in 2002 of a new Board by the Court in a derivative action brought
      against us in 2001, the Company has applied itself to reorganizing management,
      providing up to date accounting information and seeking new business
      opportunities. Funds provided by several investor-shareholders enabled the
      process to proceed and the Company's audits and filings with the Securities
      and
      Exchange Commission to be brought up to date.





Since
      that time, we have been actively seeking the acquisition of petroleum producing
      assets, and have completed an initial acquisition of oil and gas leases and
      related facilities and equipment as described below under “Plan of
      Operation.”





Our
      common stock is quoted on the Over-The-Counter market and trades under the
      symbol CHAG.PK. As of June 30, 2007, there were 64,502,781 shares of our common stock issued and outstanding.





13


Three
      Months Ended June 30, 2007 Compared to Three Months Ended June 30,
      2006





We
      had no production operations in calendar year 2006. Our oil production
      operations began April 16 th ,
      2007 with an effective date of April 1 st ,
      2007. During the three month period ending June 30 th ,
      2007 we produced 7,787 barrels of oil and sold 9,727 barrels of oil and produced
      and sold 13,070 mcf gas, generating $290,385 revenues after royalties, with
      a
      one month lag in receipt of revenues for the prior months sales. Start up
      expenditures, included debt origination expenditures, and the required prepaid
      hedge were $251,456. We had 84 wells actually producing oil and gas on April
      16 th and restored an additional 58 wells by June 30 th .
      Operating expenses exceeded revenues for the period primarily due to very low
      initial producing rates due to wet weather, a logistic bottleneck due to a
      regional refinery fire and delay in revenue receipt after change in operating
      company from Caldwell to Gryphon. Revenue from sale of oil in April was paid
      in
      late May and revenue from sale of gas in April was paid in early June. The
      terms
      of our loan agreement 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.
      In aggregate, the delays in revenue, hedge expense, and non-recurring expenses
      amounted to approximately $490,000 of reduced income and $666,000 of reduced
      cash flow.





Six
      Months Ended June 30, 2007 Compared to Six Months Ended June 30,
      2006





We
      had no production operations in calendar year 2006. Our oil production
      operations began April 16 th ,
      2007 with an effective date of April 1 st ,
      2007. During the three month period ending June 30 th ,
      2007 we produced 7,787 barrels of oil and sold 9,727 barrels of oil and produced
      and sold 13,070 mcf gas, generating $290,385 revenues after royalties, with
      a
      one month lag in receipt of revenues for the prior months sales. Start up
      expenditures, included debt origination expenditures, and the required prepaid
      hedge were $251,456. We had 84 wells actually producing oil and gas on April
      16 th and restored an additional 58 wells by June 30 th .
      Operating expenses exceeded revenues for the period primarily due to very low
      initial producing rates due to wet weather, a logistic bottleneck due to a
      regional refinery fire and delay in revenue receipt after change in operating
      company from Caldwell to Gryphon. Revenue from sale of oil in April was paid
      in
      late May and revenue from sale of gas in April was paid in early June. The
      terms
      of our loan agreement 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.
      In aggregate, the delays in revenue, hedge expense, and non-recurring expenses
      amounted to approximately $490,000 of reduced income and $666,000 of reduced
      cash flow.





We
      have a
      stockholders' deficiency in the amount of $579,318 at June 30,
      2007.





PLAN
      OF
      OPERATION





On
      April
      16, 2007, we closed the acquisition of assets from Caldwell Production Company,
      Inc., consisting of 48 mineral leases with 631 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.


14




Our
      plan
      is to operate our properties and to restore 10-20 wells per month to production.
      A typical well restoration we estimate will cost $2,500 to $5,000.




We
      commenced operations on April 16 with what were 84 actually producing wells.
      As
      of June 31, 142 wells are producing --- an increase of 58 wells or 69% in ten
      weeks. Productive capacity on April 16 was estimated to be 70 bopd and 90 mcfd.
      Productive capacity at June 30 is estimated to be 155 bopd and 200 mcfd gas.
      The
      oil is light sweet crude and the natural gas has very high heat content, 1600
      to
      2600 btu/scf.




The
      previous owners, Caldwell Production Co. Inc. reported March production of
      2212
      barrels and 2850 mcf gas, substantially below calendar year 2006 average
      production due to operational issues, and extremely wet weather, a logistics
      bottleneck caused by a fire at a regional refinery in February 2007. We took
      over on April 16. April production was 2016 barrels oil and 3179 mcf gas.
      Production for May was 2671 barrels oil and 3950 mcf gas, and June production
      increased to 3100 barrels oil and 5931 mcf gas. Gas production and sales volumes
      are equal. Oil sales volumes in April were 2349 barrels; May amounted to 3123
      barrels and June oil sales increased to 4255 barrels. Production and Sales
      data
      is summarized below:




The
      following table is for the three months ended:




June
                  30, 2007
              
              June
                  30, 2006Oil
                  and Gas SalesOil
                  Sales(Bbl)
              
              
              9,727
              
              
              0Natural
                  Gas (Mcf)
              
              
              13,070
              
              
              0Average
                  Sales Price:Oil,
                  per Bbl:
              
              $
              62.76
              
              
              0Gas,
                  per MMCF:
              
              $
              8.15
              
              
              0


15
 
 
 The
        following table is for the six months ended:
  June
                    30, 2007
                
                June
                    30, 2006Oil
                    and Gas SalesOil
                    Sales(Bbl)
                
                
                9,727
                
                
                0Natural
                    Gas Sales (Mcf)
                
                
                13,070
                
                
                0Average
                    Sales Price:Oil,
                    per Bbl:
                
                $
                62.76
                
                
                0Gas,
                    per MMCF:
                
                $
                8.15
                
                
                0


The
      Company plans to continue its program of aggressive well restoration, working
      capital permitting. However, we have discovered a substantial legacy of
      regulatory compliance issues such as demonstrating well bore integrity of
      injection and disposal wells and fluid level testing of inactive wells requiring
      immediate attention, distracting personnel and equipment from our well  restoration
      program.




Furthermore,
      due to the time lag between production increases and cash revenues, coupled
      with
      the initial low level of oil and gas sales deliveries, and start up costs,
      , we
      have now fully drawn down our initially committed bank line amounts. Thus,
      future levels of activity may be constrained by the lack of
      liquidity.




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.




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




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. Although our bank lines have higher amounts authorized by the banks,
      and we plan to seek additional commitments, there can be no assurance that
      further bank funding will be made available. In addition, it may be necessary
      for the company to raise equity in the private or public markets in order to
      assure future progress on the business plan.





16


Liquidity
      & Capital Resources





As
      of
      June 30, 2007 the Company had $119,641 of cash on hand We have an accumulated
      deficit of $3,829,656.10 and have a stockholders' deficiency of $579,318
      respectively, at June 30, 2007.





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 (“WNB”), Midland, Texas, 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 is 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 also entered into a Loan Agreement with CapWest Resources, Inc.,
      Midland, Texas, 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 is a variable rate equal to the prime rate
      as
      defined in this Agreement plus 4%. Under the CapWest loan agreement, CapWest
      has
      a 2% overriding royalty interest in the Leases. After the payout of CapWest’s
      loan, or in the event that the Company is sold, this overriding royalty interest
      will convert to a 15% net revenue interest in the Leases. This interest may
      be
      purchased by us under a formula specified in this Agreement.





On
      April
      26, 2007 we drew $75,000 for additional working capital and start-up expenses.
      On May 6, 2007 we drew $88,800 to purchase a hedge floor for a portion of our
      oil production, as required by the loan agreements. On May 7, 2007 we drew
      $203,000 to fund lease operating expenses and well restorations. On June 14,
      2007 we drew $98,000 for the same purposes. The CapWest Loan Agreement has
      now
      been fully drawn to the initially agreed amount of $3,700,000.




Due
      to
      the time lag between production increases and cash revenues, coupled with the
      initial low level of oil and gas sales deliveries, as well startup costs, we
      have now fully drawn down our initially committed bank line amounts. This
      necessitated our commencing negotiation of the terms of additional debt funding
      with our lenders and immediately seeking equity capital in the approximate
      amount of $250,000 from outside investors. The negotiation of additional debt
      funding has recently resulted in an agreement in principle to amend the loan
      documents with our subordinated lender to borrow an additional $250,000 subject
      to several conditions (see “Note 6. Subsequent Events” to the unaudited Notes to
      Financial Statements).





We
      anticipate that we will be required to raise equity capital to fully rework
      wells that are currently not in production in the next 12 months and to finance
      our planned business operations. There are no assurances that we will be able
      to
      raise additional equity capital. In the event we are unable to obtain additional
      capital or funding we may be unable to pursue our business plans to increase
      our
      crude oil production.





17


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.





ITEM
      3.
      CONTROLS AND PROCEDURES





The
      Company's Chief Executive Officer and its Chief Financial Officer are primarily
      responsible for the accuracy of the financial information that is presented
      in
      this quarterly Report. These officers have as of the close of the period covered
      by this Quarterly Report, evaluated the Company's disclosure controls and
      procedures (as defined in Rules 13a-4c and 15d-14c promulgated under the
      Securities Exchange Act of 1934 and determined that such controls and procedures
      were effective in ensuring that material information relating to the Company
      was
      made known to them during the period covered by this Quarterly Report. Since
      their evaluation, no changes were made to the Company's internal controls or
      in
      other factors that could significantly affect these controls.





PART
      II—OTHER INFORMATION





ITEM
      1.
      Legal Proceedings





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.





18


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





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





Date
                Title
                    and Amount1)
                Purchaser
                Principal
                    Underwriter
                Total
                    Offering Price/
                  Underwriting
                    DiscountsApril
                    1 - June 30, 2007
                300,000
                    shares of common stock purchased by a Company Director
                Company
                    Director
                NA
                $15,000/NA





(1)
      These shares were issued pursuant to private offering exemptions provided by
      Section 4(2) of the Securities Act of 1933, as amended (Securities Act), and
      Rule 506 promulgated thereunder, to a limited number of investors and are
      restricted shares as defined in the rules and regulations under the Securities
      Act.





ITEM
      6.
      Exhibits.





31.1
            Certification
                of Chief Executive Officer Pursuant to Section 302 of The Sarbanes
                Oxley
                Act of 2002.





31.2
            Certification
                of Chief Financial Officer Pursuant to Section 302 of The Sarbanes
                Oxley
                Act of 2002.





32.1
            Certification
                of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of
                2002.





32.2
            Certification
                of 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.







SIGNATURES





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


Chancellor Group, Inc.
              (Registrant)By:
            /s/ Bradley
              W. FischerBradley
                W. Fischer, President and
              Chief
                Executive OfficerDated: August 14, 2007





19


EXHIBIT
                  INDEXExhibit
                  Number
              Description31.1
              Certification
                  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes
                  Oxley
                  Act of 2002.31.2
              Certification
                  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes
                  Oxley
                  Act of 2002.32.1
              Certification
                  of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as
                  adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of
                  2002.32.2
              Certification
                  of 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.


20