COMPROMISE SETTLEMENT AGREEMENT AND RELEASE OF ALL CLAIMS

This COMPROMISE AND SETTLEMENT AGREEMENT AND RELEASE OF ALL CLAIMS (the “Agreement”) is entered into by and between Chancellor Group, Inc., Gryphon Production Company, LLC, and Gryphon Field Services, LLC (the “Chancellor Parties”) and New Concept Energy, Inc. (“NCE”), each of whom stipulates and agrees to the following:

A.    The Chancellor Parties filed bankruptcy in October 2007, in the Amarillo Division of the Bankruptcy Court for the Northern District of Texas under the following case numbers:

B.    When the term “Parties” is used in this Agreement, it refers to:

C.    Effective on June 1, 2008, the Chancellor Parties entered into a Purchase and Sale Agreement (the “PSA”) with Legacy Reserves Operating, L.P., a Delaware limited partnership (“Legacy”), CapWest Resources, Inc., a Texas corporation (“CapWest”), and Western National Bank, a national banking association (the “Bank”), pursuant to which the Chancellor Parties sought to sell certain oil and gas properties to Legacy and settle all disputes which the Chancellor Parties had with CapWest and the Bank. The PSA also had provisions affecting interests held by Axis Network, Pty Ltd. (“Axis”). Legacy, CapWest, the Bank, and Axis are herein collectively referred to as the “PSA Parties.”

D.    On June 21, 2008, the Chancellor Parties filed Debtors’ Motion to Voluntarily Dismiss Chapter 11 Cases (the “Motion to Dismiss”), seeking to dismiss the bankruptcy proceedings so that the PSA Parties could close the transaction contemplated by the PSA.

E.    Prior to June 2008, NCE had entered into discussions with the Chancellor Parties and had acquired one million shares of Chancellor Group, Inc. common stock (the “NCE Stock”).

F.    On July 3, 2008, NCE filed its Objection to the Chancellor Parties’ Motion to Dismiss.

G.    On August 1, 2008, a group of shareholders, collectively referred to as the “Supporting Shareholders Group,” filed its Response in Support of Debtors’ Motion to Voluntarily Dismiss Chapter 11 Cases. The Supporting Shareholders Group consists of: Ernest P. Andrews, Daniel M. Byrnes, Forum Energy Inc., Robert Gordon, Peter Harris, Koala Pictures Pty. Ltd., John C. Y. Lee, Frank McEnulty, Dudley Muth, Jill Orizondo, A. Saskia Orizondo, Julie Reid, Keith Tesori, and Gregory Hilton Young.

H.    On August 11, 2008, a hearing was held on the Chancellor Parties’ Motion to Dismiss.

I.    On August 14, 2008, the Court announced its decision in the case.

J.    On August 15, 2008, the “Order of Dismissal” dismissing the Chancellor Parties’ bankruptcy cases was entered.

K.    On August 22, 2008, NCE filed its Motion for Reconsideration of the Orders Entered on August 15, 2008 Dismissing Chapter 11 Cases (the “Motion for Reconsideration”).

L.    All provisions of this Agreement are contractual in nature, and not mere recitals only.

M.    This Agreement, and the execution thereof, does not, and is not intended to be, an admission of fault or wrongdoing by any party, and all Parties expressly disclaim any liability to any other party.

N.    The current status of the Order of Dismissal, with the pending Motion for Reconsideration, creates uncertainty with respect to the Chancellor Parties’ bankruptcy proceedings and the PSA, and the Parties have determined that they wish to reach finality with respect to the Chancellor Parties’ bankruptcy proceedings and the PSA. Issues between the Parties relating to the bankruptcy proceedings of the Chancellor Parties, the Order of Dismissal, and the PSA are herein collectively referred to as the “Controversy.”

O.    The Chancellor Parties, the PSA Parties, and the Supporting Shareholders Group are collectively referred to herein as the “Released Parties.”

P.    The Parties desire to reach a full and final settlement and resolution, have agreed to compromise and settle the Controversy, including any and all claims relating to any damage of any kind or character whatsoever by NCE against the Released Parties, or claims by the Chancellor Parties against NCE, whether now known or unknown, whether asserted in the Controversy or not. This includes claims which NCE, or any other party in privity with NCE has or may have against the Released Parties and their respective subsidiaries, affiliates, officers, directors, insurers, agents, servants, employees, representatives, and attorneys, whether herein named or not, for any damages, of any kind or character whatsoever, arising out of or related to the acts and omissions alluded to documents or pleadings related to the Controversy.

NOW, THEREFORE, in consideration of the mutual agreements, covenants, representations, stipulations, releases and terms contained in this Agreement, the sufficiency of consideration is hereby mutually acknowledged, the Parties to this Agreement agree as follows:

1.    Release by NCE . In return for the consideration outlined below, NCE and any other party in privity with it, including parent, subsidiaries, or any controlling persons or entities, do hereby release, acquit, and forever discharge the Released Parties and their respective subsidiaries, parent corporations, sister corporations, related entities, affiliates, officers, directors, insurers, agents, servants, employees, representatives, and attorneys, whether herein named or not, of and from any and all liability, actions, claims, obligations, demands, or lawsuits whatsoever, which NCE now has or hereinafter may have on account of or in any manner arising out of or relating to the damages, matters, and allegations set forth, alleged, or alluded to or which might have been set forth, alleged, or alluded to by NCE in documents or pleadings related to the Controversy and to which reference is made, including the consequences of such damages, including any attorneys’ fees, costs, or interest, directly or indirectly, by reason of any damages sustained by the Released Parties, it being the express intent of NCE to release the Released Parties and their respective subsidiaries, affiliates, officers, directors, insurers, agents, servants, employees, representatives, and attorneys, whether herein named or not, and all Parties in privity therewith, from all further liability to any person, firm, or corporation on account of any alleged damages sustained by NCE.

2.    Rel