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




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




No.
_________




CHANCELLOR
GROUP, INC.




WARRANT
TO PURCHASE ______ SHARES OF


COMMON
STOCK, PAR VALUE $0.01 PER SHARE




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




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




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




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





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




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


2




X = Y (A -
B)


A




where




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




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




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




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




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




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


3


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




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




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




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




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


4


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


5


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




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




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




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




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




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


6


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




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




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




If to the
Company:




Chancellor
Group, Inc.


216 South
Price Road


Pampa,
Texas 79065


Attn:  Maxwell
Grant, Chief Executive Officer




with a
copy to:




Kelly
Hart & Hallman LLP


201 Main
Street, Suite 2500


Fort
Worth, Texas 76102


Attn:  F.
Richard Bernasek, Esq.


7


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




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




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




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


8


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




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




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




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




[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]


9


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




CHANCELLOR
      GROUP, INC.By:









APPENDIX
A


CHANCELLOR
GROUP, INC.


WARRANT
EXERCISE FORM




To
Chancellor Group, Inc.:




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





NameAddressFederal
      Tax ID or Social Security No.





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


(electronically                        
(provide                         
DWAC Instructions:___________________), or


(other                                                                                             
(specify): __________________________________________).




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




Dated:
___________________, ____




Note:  The
      signature must correspond withthe
      name of the Warrant holder as writtenon
      the first page of the Warrant in every
                                  Signature:particular,
      without alteration or enlargement
                                  
                                  Name
      (please print)or
      any change whatever, unless the Warranthas
      been assigned.AddressFederal
      Tax Identification orSocial
      Security
No.








Assignee:


2





APPENDIX
B


CHANCELLOR
GROUP, INC.


NET ISSUE
ELECTION NOTICE




To:
Chancellor Group, Inc.




Date:[_________________________]




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




SignatureName                                                                            
      for                                                                                
      RegistrationMailing
      Address




3