Summary of KODIAK ENERGY, INC.

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

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. 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.

Management is currently unaware of any trends or conditions other than those previously mentioned in this management's discussion and analysis that could have a material adverse effect on the Company's consolidated financial position, future results of operations, or liquidity. However, investors should also 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) variations in revenue,
(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 2008 Annual Report on Form 10-K as well as the consolidated financial statements and notes thereto included elsewhere herein.

Plan of Operation

During the third quarter of 2009, the Company completed an acquisition of properties that represents its first significant producing resource property. On September 30, 2009, Cougar Energy, Inc., the Company's majority-controlled Canadian subsidiary, acquired from an unrelated private company certain wells, facilities and producing operations in and adjacent to the CREEnergy project in Alberta, Canada. The acquisition includes 11 producing wells, 21 suspended wells and associated production, water disposal and pipeline facilities in the Trout field. Gross current production is approximately 170 barrels of oil per day. Cougar will be actively working this fall and winter to maximize production and revenue and will also be assessing other opportunities in the area to supplement this initial asset base.

The Company expects to finance its future capital expenditure programs with combinations of debt, farm-outs, equity financings and some divestitures. 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 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.

The Company plans to aggressively develop and explore its newly acquired Cougar assets. An oil maintenance and development program is planned for the next nine months which is expected to result in increased production of approximately 300 barrels of oil per day (net). Drilling programs will be planned for the fourth quarter of 2010 where the seismic data supports the effort and expense and further drilling will be based on the results of the initial wells.

Production from the Company's new proved reserves commenced on October 1, 2009 and recognition of the associated revenue and cash flow began on that date.

Core Properties

Canada

Trout - Alberta

Cougar has CREEnergy's active cooperation and sponsorship to identify various operators working in the adjacent lands to the CREEnergy Project. Over the last six months, we negotiated commercial terms for area properties that have the greatest upside through normal maintenance and enhanced recovery programs as well as future potential with additional drilling.

These negotiations culminated at the end of September and beginning of October, 2009 with Cougar successfully acquiring producing the Trout Area properties from two private oil and gas companies. The Cougar operations, land and geological team have already high graded many of the properties within these acquisitions and foresee considerable potential to increase existing production in this first round of development. We anticipate operations to commence on these properties during the winter of 2009/10 consisting of a maintenance and work over program. Un updated independent reserves evaluation report is in process of being completed and will be filed and posted on the corporate website in the near future.

The following represents a summary of the producing and non-producing acquisitions completed over the previous six months:

A. Farmin (completed June 9, 2009)

1. 28 sections of land in the area of the CREEnergy Project, northwest of Red Earth Creek, Alberta

2. Cougar has 100% working interest

3. The mineral rights within the farmin agreement are currently held under several Alberta Crown 4-year initial term P&NG licenses expiring in September 2010 - the rights can be grouped and validated with a drilling program and subsequently continued under a 5 year intermediate term license

4. Close to infrastructure - existing pipelines with capacity and all weather roads

5. The wells would have a maximum depth of approximately 1,700 meters (5,577 feet) and potentially target the Gilwood, Slave Point, Wabamun, Gething, and Bluesky formations

6. There is existing regional natural gas infrastructure and the target formations should contain sweet natural gas, which would reduce production and processing charges.

A drilling program has been prepared for one initial well and two subsequent wells. Contingent upon financing this program will be evaluated and funds allocated to the best net back between this gas project and the other oil developments. An 18 month payback criteria will be used prior to assigning capital to this project.

B. Private Company Production and Property Acquisition (completed October 1, 2009)

1. 2560 gross acres of land within and adjacent to the CREEnergy Project area lands

2. 65% working interest in six wells - 2 producing wells and 4 suspended wells

3. Approximately 12 barrels per day (bbl/d) net production (20 bbl/d gross) of light oil

4. Existing wells and reserves are located in the Kidney and Equisetum fields

5. Production facilities

Cougar negotiated a purchase agreement with the private company consisting of cash for the P1 reserves and Cougar shares for the P2 reserves. These properties are located within or adjacent to the CREEnergy Project lands. This acquisition was important for us to solidify our position with CREEnergy.

C. Private Company Production and Property Acquisition (completed September 30, 2009)

1. 7,100 gross acres of mineral rights with an average 85% working interest (all continued through production, no expiries)

2. Approximately 125 barrels per day (bbl/d) net production (170 bbl/d gross)

3. 11 pumping wellbores

4. 8 single well batteries

5. 3 water disposal wellbores with associated facilities

6. 1 observation wellbore

7. 21 suspended wellbores

8. 2 multi well batteries with existing fluid handling capacity in excess of 2500bbl/day (oil, gas and water handling and treating capability)

9. Approximately 38.7 km of pipelines (oil and produced water)

10. Approximately 13 km2 of 3D seismic over the properties

11. Approximately 84 km of 2D seismic over the properties and adjacent lands

The agreed purchase price was CAD$6,000,000 with an initial payment of CAD$1,000,000 at closing. The purchase price was negotiated at $52.50 per barrel (bbl) when oil is currently selling at $75+/bbl.

After operating costs, there is an average of CAD$50.00 net back per barrel at current commodity prices. The cash portion of the acquisition cost was provided by Kodiak.

This was a critical mass property acquisition as there is substantial infrastructure, resulting in lower overall operating costs, lower development costs and giving our schedule an enormous leap forward to achieve our goals

Without this kind of infrastructure, the initial production would have lower net backs due to higher trucking costs and regular non-producing periods due to weather. In lieu of this acquisition, a large amount of capital would have to be spent to bring facilities to this baseline, which we now have.

At current costs, the infrastructure replacement value would be substantially in excess of CAD$6,000,000. This capital will now be able to be spent on the drill bit and development work - allowing for a more aggressive growth plan.

Additional details include:

· The existing pipeline systems provides direct access to sales of oil products, which results in the access to sales being in our control and not third party pipeline operator dependent.

· There are 2 batteries for the handling and treating of oil and the disposal of the produced water. The batteries are capable of handling an estimated 2,500 bbl/d with nominal refit costs.

· Many of the wells are piped into the batteries to lower the need for trucking which is especially important for the higher water cut wells - these pipelines can be expanded to further lower operating costs.

· The produced water can be used for future water floods - which regularly have been shown in the area to add substantial incremental production.

· There are 37 wells, which 11 are currently producing - the 22 suspended wells have potential upside, as discussed below.

· The existing area field personnel willingly transferred to Cougar and their many years of hands-on field expertise has already added value.

This acquisition, combined with the smaller acquisition, provides a solid foundation for us to further enhance the Trout area properties, along with the existing operating and facilities to give substantial momentum to our plans. We believe this justifies the acquisition on that basis alone. There is great potential upside we see on these properties, with additional capital commitments this winter 2009/10 on maintenance programs discussed next.

Upside in Maintenance Programs

We conducted a detailed review of the of the acquired properties public domain petroleum records over last 5 to 7 years with a comparison to other operators in the area. Our operations and geological teams foresee a considerable potential to increase production through normal maintenance activities. Some of these normal maintenance activities include and are not limited to:

· Acid wash of perforations

· Setting of bridge plugs to seal off water

· Waterflood programs

· Cleanouts

· Reperforating

· Repairs to wells with separated rods

· Pump optimization,

· Plug off water sources

· Horizontal drilling

· Use of Low damage drilling fluids

Since these existing technologies have proven to be successful in other similar maintenance programs in the area, we see a high potential to enhance the current production levels within this property.

CREEnergy Lands, Alberta

History

Kodiak has a well developed relationship and track record with Aboriginal communities in northern Canada. This comes from a strong commitment by Kodiak management and personnel for open and honest communications and negotiations with the Aboriginal community leaders - a demonstrated respect for their culture, land and residents. Kodiak's reputation has also been recognized through negotiations with regulatory agencies, resulting in several of those agreements being used as templates with other companies and projects. As a result, our reputation has become known outside the far north of Canada.

CREEnergy Oil and Gas Inc. (CREEnergy) is the authorized agent for multiple First Nations communities. Some of these new First Nations communities are in various stages of ratification from the Federal Government of Canada to satisfy outstanding Treaty Land Entitlement (TLE) claims. Within these new First Nations are approximately 15 townships or 540 sections of mineral rights for development in Alberta.

In order to advance economic sustainability for First Nations communities that CREEnergy represents, CREEnergy searched for an oil and gas partner to develop certain oil and gas projects. Kodiak was one of the industry companies shortlisted in the search. Through discussions, meetings and negotiations since May 2008, CREEnergy selected Kodiak as their joint venture partner to develop those resource projects. The joint venture agreement between CREEnergy and Kodiak is the result of the negotiations.

To develop and strengthen the relationship with CREEnergy, Kodiak formed a subsidiary company, Cougar Energy, Inc. As a result, Cougar is the operating entity for Kodiak in Western Canada.

Joint Venture Information and Summary

In December 2008, a new working relationship and joint venture agreement was established between CREEnergy Oil and Gas Inc. (CREEnergy) and Kodiak Energy, Inc. (Kodiak). The Agreement was built on the foundation of respect for the First Nations communities, their Heritage, their Lands and the Environment. This is a strategic alliance. CREEnergy has agreed to work with Kodiak to develop oil and gas reserves within their lands for the benefit of both CREEnergy and Kodiak.

Joint Venture Agreement

Key priorities were established from the discussions between CREEnergy and Kodiak:

· Use the royalties from the oil and gas production and work programs to develop a revenue stream. The long term purpose of the revenue is to support education, employment and development opportunities for the First Nations communities that Cougar is working with.

· Open communication at all stages of the oil and gas developments.

· Staged and managed growth, with regard to the interests of the communities during each step.

· Identify and source other development opportunities, using a similar model, either as a value add or on a joint venture basis.

Current Status

Cougar continues to actively work with CREEnergy as they assist their First Nations communities to achieve the goal of independence though the Treaty Land Entitlement (TLE) claim with the Federal Government of Canada and the Province of Alberta. This process is nearing completion. We engage with CREEnergy on a weekly basis through conference calls, monthly in person status meetings, and a continual dialogue to foster open communication.

Lucy - Northern British Columbia

The Corporation is the operator and 80% working interest owner of a 1,920 acre lease located in northeastern British Columbia. The Corporation 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.

The Corporation 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 Corporation served partners with an independent operations notice which resulted in the Corporation increasing its working interest in the lease to 80%. 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 Corporation 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 Corporation has prepared 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.

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 both adsorbed 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 Shale. 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 projected similar volumetrics as many of the other majors in the area are projecting. In this analysis, the Corporation used all of the laboratory analysis findings and wellbore information obtained during the drilling operation. Further appraisal work is required before estimates can be finalized and commerciality assessed.

In April, 2009, Kodiak, through its private subsidiary, Cougar, entered into a standard farmout and participation agreement with one of its partners. The partner would provide 90% of the funding for the first phase of the "Lucy" Horn River work program. Upon completion of the funding, the partner will have earned an additional 30% working interest in the wells and property. Cougar will maintain operator status and majority ownership of the project with the management of Kodiak/Cougar overseeing the execution of the work program. Upon fulfillment of the funding provisions of the farmout and participation agreement, Cougar's working interest in the "Lucy" Horn River Basin project would be 50%.

Our partner did not complete its financing commitment and this farmout and participation agreement expired on August 15, 2009. After due diligence was completed in October, 2009, the partner transferred its interest in its Alexander and Crossfield, Alberta wells to the Company as a penalty for non-completion.

Little Chicago - Northwest Territories

The Company is the operator and largest working interest owner of the 201,160 acre Exploration Licen s e 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 shot and acquired 84 km of high resolution proprietary 2D seismic and gravity survey 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, which 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 proprietary seismic program and gravity survey was completed on the property and the results were processed and interpreted and used to support the Corporations planned drilling program. This project was completed on budget and schedule. The seismic and gravity data from the two projects show substantial structural closure and formation character and support the planning for a future multiple well drilling program. That data was included in an updated Chapman Prospective Resource report published in May, 2008.

The decision to acquire additional seismic and gravity data in the winter of 2007-08 was made to improve the potential to drill both the Devonian Bear Rock and the Basal Cambrian Sand targets f rom a common drilling site. This would substantially lower drilling costs on a per well basis and reduce the overall project risk.

Kodiak has analyzed the 2007-08 seismic data and the various reservoir indicators/lands and identified 11 drill locations . These drill locations have been selected to evaluate three primary target formations on EL 413 including the Devonian Bear Rock Oil Prospect, the Basal Cambrian Sand /Top Precambrian Oil and Gas Prospect and the Canol Oil Prospect . These locations have been further high graded into a two phase drilling program consisting of two wells with a planned total depth of 2400 meters each targeting both the Basal Cambrian/Precambrian and the Bear Rock prospects and a m ulti-well shallow drilling program with a planned total depth of 400m each targeting the Canol prospect. A scouting trip was completed in the third quarter of 2008 which allowed the Corporation to review potential access routes, well sites and camp locations.

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 additional 2008 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). The Corporation has identified five drilling locations which could be evaluated during a planned future project drilling program.

In addition, Kodiak had made application with regulators to extend the EL 413 license and has received written notification from Indian and Northern Affairs Canada that a one year extension is available. The one year license extension, which is subject to certain terms and conditions, was provide just prior to expiry and provides for one additional year.

Upon review of the overall status of all projects in the area, current commodity prices being much below levels required to justify development on this and other projects, continued delay of the Mackenzie Valley Pipeline Project, the risk that any discovered gas reserves would be indefinitely stranded without such development, the Company continues to seek partnership in the development; . . .