Forward Looking Statements

From time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by us with the Securities and Exchange Commission, including this Form 10-Q. Words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project or projected", or similar expressions are intended to identify "forward-looking statements". Such statements are qualified in their entirety by reference to and are accompanied by the above discussion of certain important factors that could cause actual results to differ materially from such forward-looking statements.

Investors should be aware of factors that could have a negative impact on the Company's prospects and the consistency of progress in the areas of revenue generation, liquidity, and generation of capital resources. These include: (i) inability of the Company to generate revenue and profit from its properties,
(ii) possible inability to attract investors for its equity securities or otherwise raise adequate funds from any source should the Company seek to do so,
(iii) increased governmental regulation, (iv) increased competition, (v) unfavorable outcomes to litigation involving the Company or to which the Company may become a party in the future and, (vi) a very competitive and rapidly changing operating environment. The risks identified here are not all inclusive. New risk factors emerge from time to time and it is not possible for management to predict all of such risk factors, nor can it assess the impact of all such risk factors on the Company's business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.

The financial information set forth in the following discussion should be read in conjunction with management's discussion and analysis contained in our 2007 Annual Report on Form 10-K as well as the consolidated financial statements and notes thereto included elsewhere herein.

Plan of Operation

During the first nine months of 2008, the Company has been active with substantial development on each of our three major properties. During the next twelve months, the Company plans to continue the development of its asset base as well as identify additional assets for addition to our overall land base.

All projects to date have been managed on schedule and within budget as the Company proves to be an effective operator in each jurisdiction in which it operates. In late 2007, a $17.4 million private placement financing was completed under difficult market conditions and in December 2007, the Company's common shares were listed on the Toronto Venture Exchange in Canada on an aggressive timeline. The Company expects to finance its future capital expenditure programs with either debt or equity financings and divestitures or a combination thereof. As of September 30, 2008, the Company has no secured debt. A description of the Company's recent and planned activities for its core properties is included below.

Kodiak Energy, Inc. is a petroleum and natural gas exploration and development company whose primary objective is to identify, acquire and develop working interests in undeveloped or underdeveloped petroleum and natural gas prospects. We are focused on prospects located in Canada and the United States. The prospects we hold are generally under long term leases and include partial and full working interests. In all of our core properties, Kodiak is the operator and majority interest owner. In two properties, we have the option to perform certain exploratory drilling to earn additional interests. The prospects are subject to varying royalties due to the state, province or federal governments and, in some instances, to other royalty owners in the prospect. None of our core properties are exposed to the recent Alberta Royalty Review changes.

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The Company plans to engage in seismic data collection and well drilling programs on a number of prospects in which it has an interest or right to acquire percentage interests over the next two years. Drilling programs will be conducted where the seismic data supports the effort and expense and further development drilling will be based on the results of the initial wells. A number of our prospects are located in the vicinity of petroleum and natural gas infrastructure, thereby providing the opportunity to tie-in to existing or planned pipelines. This will be important in lowering the overall cost of development and marketing any natural resources located in a prospect.

The Company currently has no petroleum or natural gas reserves or production. The Company will begin recording revenue when production from proved reserves commences.

Core Properties

Canada

Lucy - Northern British Columbia

The Company is the operator and 80% working interest owner of a 1,920 acre lease located in Northeastern British Columbia. The Company believes the lease is situated on the southeast edge of the Horn River Basin and the Muskwa Shale gas prospect. Industry continues to show increased interest in this shale gas play with several comparisons of the Muskwa Shale gas potential as an analogue of the Barnett Shale gas potential. Other industry participants continue to acquire large land positions in this part of British Columbia which are prospective for this type of play.

The Company has been involved in two previous drilling operations on the lease. In the fourth quarter of 2006, Kodiak farmed in as a non-operated partner, paying 10% to earn 7.5%, on a drilling operation in the Lucy (Gunnell) area. This first drilling operation, designed to target a Middle Devonian reef prospect, had several operational problems and was unsuccessful.

After performing an internal review of seismic and drilling data, it was determined there was a seismic anomaly on the southern half of the lease. This anomaly was identified on several different seismic lines and a decision was made to drill a well on that part of the lease to evaluate both the anomaly as the primary target and the Muskwa shale, seen in the first well but not evaluated by the operator at that time.

In the third quarter of 2007, the Company served partners with an independent operations notice with the intention of increasing its working interest in the lease. The Company was able to increase its working interest to 80%; however, that process required a substantial amount of title work, which was recently completed.

In the first quarter of 2008, a second drilling operation was completed and a vertical well was cased. It was determined that the Middle Devonian seismic anomaly was not a reef buildup and the wellbore was cased due to encountering significant gas shows in the previously identified Muskwa Shale with a formation thickness of approximately sixty meters.

The Company submitted an application to the British Columbia Oil & Gas Commission ("OGC") for an experimental scheme to test the Muskwa Shale gas potential. On August 12, 2008, Kodiak received the final approval of the Lucy experimental scheme application. The Company is preparing to execute a multi-phase work program designed to test the deliverability of the Muskwa shale gas formation using vertical and horizontal drilling and completion techniques. Kodiak's proposed work program would allow for early production into a pipeline in order to monitor long term deliverability rates and pressures of horizontal and vertical test wells on the periphery of the Horn River Basin.

These results would be some of the first commercial production results for a Horn River Basin shale gas project and would provide information that would help define the effective exploration area of the Basin and assist in the validation of adjoining properties in a divestiture process, should that occur.

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Kodiak contracted an industry-recognized shale gas assessment laboratory to prepare and analyze the drill cuttings from the 2008 well in order to evaluate the Muskwa Shale interval for gas potential. The shale gas assessment is conducted by performing various tests on the rock cuttings that were obtained while drilling the well in order to determine the type, quality and amount of adsorbed gas and free gas.

The most important conclusion from the drill cutting analysis is that the information received continues to support the evaluation of Kodiak's Muskwa (Evie) shale gas prospect. The laboratory data is consistent with other public industry and government data on the Muskwa shales. It should also be noted that the numbers obtained on the laboratory analysis of drill cuttings may be conservative due to the nature of sampling drill cuttings on a drilling rig. Another significant point is that all three wells on the Kodiak lease drilled deep enough to penetrate the Muskwa Shale had elevated gas detector readings while penetrating the shales.

The prospect is still in the early stages of delineation and no assurance can be given that its exploitation will be successful. However, based on well cuttings and drilling data, Kodiak's internal technical analysis has estimated the volume of adsorbed and free gas in the Muskwa (Evie) shales to have a potential net reserves of 41 bcf per section or 123 bcf total. We estimate, based on estimated 25% recovery factor on the three sections of land, a total of 30.75 bcf recoverable contingent resources. In calculating this number, the Company used all of the laboratory analysis findings and wellbore information obtained during the drilling operation. For reference, this internally calculated volume is between the "best" and "high" calculations listed in the Chapman report that only had the TOC analysis and industry available data. Further appraisal work is required before these estimates can be finalized and establish commerciality.

The current intention is to perform the following work commitments for the license (target dates are subject to change as new information becomes available).

· Fourth Quarter 2008 and First Quarter 2009 - Perforate the Muskwa intervals, perform a vertical fracture treatment, test and evaluate pressures and production and, if economic, equip and tie in well to pipeline.

· Third Quarter 2009 - Drill and case a 1000 meter horizontal leg from an existing cased vertical well on the lease, perform a horizontal staged fracture treatment, test and evaluate pressures and production and, if economic, equip and tie in well to pipeline.

Little Chicago - Northwest Territories

The Company is the operator and largest working interest owner of the 201,160 acre Exploration Licence 413 ("EL 413")in the Mackenzie River Valley centered along the planned Mackenzie Valley Pipeline. In 2006, the Company signed an exploration farm-in agreement with the two 50% working interest owners of EL
413. The company reprocessed 50 km of existing seismic data in Q4 of 2006 and during the 2006-07 winter work season, the Company expended approximately $6,500,000 to shoot and acquire 84 km of high resolution 2D seismic data on the farm-out Lands, thus earning a 12.5% working interest in the property. In September, 2007, the Company acquired Thunder River Energy, Inc.'s ("Thunder") remaining 43.75% in the property giving the Company a 56.25% interest in EL 413. A letter of intent signed earlier in 2008 with the Company's remaining partner in the project, that would have allowed Kodiak to acquire the balance of the working interest in EL 413 and become a 100% working interest owner, recently expired.

A 2007-08 43 km 2D high resolution seismic program has been completed on the property and results are being processed and interpreted. This project was completed on budget and schedule for a total cost of $4.5 million. The initial seismic results show substantial structural closure and support the planning for a 2008-09 multiple well drilling program. That data was included in an updated Chapman Prospective Resource report published in May, 2008.

EL 413 (Little Chicago) has two prospective target reservoirs identified by the 2007 and 2008 seismic and gravity surveys, plus a further deeper target, yet to be qualified or quantified. While reviewing core samples and well information from previous regional drilling operations, Kodiak also identified a shallow oil reservoir which is an additional prospective target.

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The Devonian Bear Rock Prospect ("Bear Rock") is the first described target and is located at a shallow depth of approximately 700 meters (2,300 ft.). This reservoir was previously identified and preliminarily evaluated in the initial Chapman Report prepared in 2005. The expected product from the reservoir is light and medium oil, with no consideration to solution gas.

The combined seismic obtained during 2007 and 2008 acknowledged a series of pools distributed throughout the project. The Chapman Report identified fifteen Bear Rock leads located along the seismic lines with five of them being selected as well defined high grade Bear Rock leads. This is an increase of 5 additional leads from the initial 2007 work program. Indicators of these potentially prolific reservoirs are present along several seismic lines that may imply these Bear Rock occurrences to be present throughout EL 413.

The 2007 seismic also identified a pinchout at the top of the Precambrian formation that overlies the pinchout of the Basal Sand to suggest a hydrocarbon trap. The two overlying pinchouts present an opportunity for both prospects to be explored. Additional geophysical work was required to target optimum drilling locations.

The decision to acquire additional seismic in the winter of 2008 was made to accommodate the potential to drill both the Devonian Bear Rock and the Basal Cambrian Sand targets from a common drilling site. This would substantially lower drilling costs on a per well basis and reduce the overall project risk.

The addition of 2008 seismic to the 2007 seismic further defined a hydrocarbon trap in the Basal Cambrian Sand sitting on the top of the PreCambrian. This interval, found at a depth of approximately 2,300 meters (7,545 feet), has never been regionally penetrated and tested; however, it has been proven as a productive reservoir in the Colville Hills area approximately 125 kilometers (77 miles) east of EL 413. With this additional data, the Chapman Report identified five drilling locations that will allow the Basal Cambrian Sand and the top of the Precambrian to be drilled and tested.

Physical evidence of hydrocarbons is present with a natural surface oil seep on the northern edge of the license area on the banks of the Mackenzie River. This natural occurrence is suggestive of a shallow oil pool, possibly in the Canol formation, and warrants further investigation. While reviewing core samples and well logs from previous regional drilling activity. Kodiak was able to map out the Canol/Imperial formation and determine that it is the likely source of the natural surface seeps. This prospect will be found on the Northwest quarter of EL 413 and is at a very shallow depth of approximately 350 meters (1,148 feet).

Internal company review has prioritized the drill locations to two high grade locations that will provide the opportunity to test the Devonian Bear Rock Prospect and the Basal Cambrian Sand/Precambrian Prospect with the same drill site.

It is anticipated that the first two exploratory wells will be drilled during the 2009 drilling season. Work has commenced on preparing the necessary permitting applications and the Company is currently working on finalizing the Access and Benefits agreements with the beneficiaries of the land claims - the Gwich'in and Sahtu. These agreements are expected to be finalized in the near future; however, delays in obtaining these agreements and other permits required for the drilling program have made it difficult to mobilize for the winter of 2008/09 and mobilization is now scheduled for the following season. Part of those negotiations would be a post drilling royalty earning into the property by the Gwich'in and Sahtu when converted to a significant discovery license.

In addition, Kodiak has made application with regulators to extend the EL 413 license, approval of which Kodiak believes is imminent. This extension will permit an expanded development plan to investigate additional targets identified in the previous seismic programs.

The Company is currently in discussions with other industry partners to share in the costs of the drilling programs, thus reducing risk and capital commitments. Financing plans will be finalized when overall partnerships are established. Kodiak intends on retaining operatorship.

The Company has demonstrated that it is an effective operator in this challenging environment - with on budget, on schedule projects over the last two winters, excellent relationships with all stakeholders from the Beneficiaries of the Land Claims, to all the regulatory bodies and project contractors in the area.

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United States

New Mexico

Through its acquisition of Thunder, the Company acquired a 100% interest in 55,000 acres of property located in northeast New Mexico. Additional land acquisitions have increased the Company's land position to approximately 79,000 acres. These lands have potential for natural gas and CO2 and oil and helium resources at shallow depths.

The Company recently completed a 35 mile 2D high resolution seismic program and a three well drilling program. The three wells were drilled with air to reduce formation damage and they were cased to the base of the Yeso formation. Based on gas detector results, drill cutting samples and open hole logs, all wells showed three potential shallow porous sandstone formations capable of CO2 production with up to 200 feet of identified net pay thickness. The Yeso, Glorieta and Santa Rosa formations were perforated and flow tested to determine deliverability and pressure. There were multiple gas samples analyzed at specialized independent laboratories from two separate extended flow tests that identified CO2 concentration quality from 98.4% to 99.5%. Two of the wells were stimulated with a nitrified acid squeeze and were able to sustain an extended flow rate of approximately 375mcf/d. The shallow sands have been mapped using offset well control and the newly acquired seismic data and the Company has determined there is a high likelihood of encountering the target formations throughout the leased project area; provided, however, that no assurance can be given that this will be the case.

The 35 mile 2D high resolution seismic program was completed on schedule and on budget and after reviewing the seismic data, the Company was able to effectively map out a probable long term development area which would result in CO2 production from the previously identified formations. The seismic is currently being evaluated to identify possible conventional oil and gas prospects on the leased project area.

A preliminary project feasibility study is being commissioned to identify capital development costs and timelines as well as projected operating costs in order to provide information to support a large scale long-term plan of development. This information will enable the definitions for pipeline access planning and negotiation, transportation agreements, sales contracts for the CO2, additional land acquisition terms and conditions, facility engineering and construction and ultimately the parameters for financing the project development.

Several companies have expressed interest in participating in the New Mexico properties at several levels of involvement. There is also potential for the integration of the CO2 production into Permian Basin enhanced oil recovery projects.

Montana

During 2006, the Company, under a joint venture farmout agreement, participated in a seismic acquisition program and a two well drilling program to earn a 50% non-operating working interest in the wells and well spacing. This joint venture project provides the company with the right to participate on a 50% basis going forward on this prospect in the Hill County area of Montana. The Operator of the project had 60,000 contiguous undeveloped acres of P&NG rights in the area, as well as some excess capacity in facilities and pipelines. Two wells were drilled in the third quarter of 2006; one is cased for subsequent evaluation of the multiple zones found and one was abandoned. In order to facilitate the efficient exploration of this prospect area, the company has acquired from the original operator a 100% working interest of 12,000 acres of P&NG rights while retaining the right to participate and initiate operations on the remaining approximate 48,000 acres of prospect leases. After an internal geological review of this prospect, and in light of current commodity prices, consideration is being given to the divestiture of the property and the company is working jointly with our partner to obtain the best value.

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Financial Condition and Changes in Financial Condition (All dollar values are expressed in United States dollars unless otherwise stated)

During the first nine months of 2008, the Company continued to further its major projects in Canada and the United States. Capital expenditures were incurred during the three and nine months ended September 30, 2008 of $4,747,092 (2007 - $15,032,016) and $14,284,267 (2007 - $21,247,605) respectively. The Company's total assets have increased to $39,837,881 as at September 30, 2008 from $34,690,768 at the end of 2007 and just $2,707,075 at the end of 2006. These increases resulted from the aggressive capital expenditure programs undertaken by the Company over the last two years and were enabled by the financings described under "Liquidity and Capital Resources". Total assets consist of cash and other current assets of $1,157,182 (December 31, 2007 - $10,288,410); unproved oil and gas properties and equipment of $38,348,274 (December 31, 2007
- $24,043,005); and other assets of $332,425 (December 31, 2007 - $359,353). Our total current liabilities were $1,533,081 (December 31, 2007 - $2,302,555) and consisted of accounts payable and accrued liabilities relating to capital activities and general and administrative costs incurred. We had long term liabilities of $44,937 (December 31, 2007 - $110,955) and asset retirement obligations of $210,764 (December 31, 2007 - $151,814). Shareholders' equity amounted to $37,997,099 (December 31, 2007 - $32,068,444), net of an accumulated deficit of $8,433,397 (December 31, 2007 - $6,839,439).

Overall Operating Results

In the nine months ended September 30, 2008, the Company had income during the evaluation period of $ 46 (2007 - $225) and operating costs of $8,863 (2007 - $12,149) relating to 2006 production from its Granlea, Alberta project. The well watered out in late 2006 and was deemed uneconomic. Except for that production, the Company remains in the exploration stage.

In the three months ended September 30, 2008, the Company had income during the evaluation period of $ Nil (2007 - Loss of $202) and operating costs of $3,590 (2007 - $549) relating to Granlea.

Net Loss for the nine months ended September 30, 2008 totalled $1,593,958 (2007
- $1,839,051). As well as the operating expenses referred to above, expenses during the period consist of general and administrative expenses of $1,620,905 (2007 - $1,647,925), including stock-based compensation expense amounting to $507,790 (2007 - $469,322); depletion, depreciation and accretion of $ 41,718 (2007 - $35,043) and interest expense of $1,257 (2007 - $94,056).

Net Loss for the three months ended September 30, 2008 totalled $558,614 (2007 - $877,957). As well as the operating expenses noted above, expenses during the period consist of general and administrative expenses of $550,822 (2007 - $793,936), including stock-based compensation expense amounting to $152,185 (2007 - $190,239); depletion, depreciation and accretion of $16,441 (2007 - $12,900) and interest expense of $ Nil (2007 - $75,238).

General and administrative expenses include the cost of employed and consulting personnel and others who provided investor relations services, public company costs for SEC reporting compliance, accounting, audit and legal fees and other general and administrative office expenses. General and administrative expense also includes stock-based compensation relating to the cost of stock options granted to directors, officers, employees and other personnel. Although General and Administrative costs for the three and nine month periods ending September 30, 2008 and 2007 are comparable, such costs have been increasing as the scope of the company's activities have increased and we believe substantial amounts will continue to be spent on such costs in the near term as we progress with the evaluation of our oil and gas prospects. A significant increase in our shareholder base from 1,000 to approximately 7,000 shareholders over the past two years has also contributed to our increased general and administrative costs.

Depletion, depreciation and accretion for the three and nine months ended September 30, 2008 and 2007 includes the cost of depreciation relating to office furniture and equipment. All of the remaining capitalized costs relate to Canadian and United States unproven properties and have been excluded from the depletable cost pools for ceiling test purposes.

The deferred income tax provisions (recoveries) for the three months ended September 30, 2008 were $ Nil (2007 - $(3,468)) and for the nine months ended September 30, 2008 were $(5,000) (2007 - $52,012). (See Note 9).

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Capital Expenditures:

Capital Expenditures incurred by the Company during the three and nine months
ended September 30, 2008 and 2007 are set out below.

                                      Three Months                      Nine Months
                                     Ended Sept. 30                   Ended Sept. 30
                                 2008             2007             2008             2007

  Land acquisition and
  carrying costs              $ 4,260,154     $ 14,563,699     $  5,432,404     $ 14,591,140
  Geological and
  geophysical                     274,709          224,230        4,827,544        6,105,000
  Intangible drilling and
  completion                      166,306          237,751        3,862,901          492,189
  Tangible completion and
  facilities                       45,923            6,336          161,418           59,276

   Total Capital Costs
  Incurred                    $ 4,747,092     $ 15,032,016     $ 14,284,267     $ 21,247,605

Land acquisition and retention costs include the cost of new acreage acquired in New Mexico, additional consideration paid for our EL413 NWT property and ongoing property retention costs.

Geological and geophysical costs include the costs of the seismic programs carried out on the EL 413 Little Chicago, North West Territory project in 2008 and 2007 and the New Mexico seismic program for 2008.

Intangible drilling and completion costs for 2008 include the Company's 57% share of the drilling of the recent Lucy well in British Columbia and 100% of the three well New Mexico program. . . .