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Kodiak Energy, Inc.
 
EXHIBIT 10.2

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Division of
Corporate Finance
Mail Stop 7010

 
December 12, 2007

William Tighe
Chief Executive Officer
Kodiak Energy, Inc.
734 7th Avenue S.W.
Calgary, Alberta, Canada T2P 3P8

 
Re:
Kodiak Energy, Inc.

Registration Statement on Form SB-2
Filed November 13, 2007
File No. 333-147325

Annual Report on Form 10-KSB
Filed April 4, 2007
File No. 333-82434

Dear Mr. Tighe:

We have limited our review of the above filings to those issues we have
addressed in our comments. Where indicated, we think you should revise your
document in response to these comments. If you disagree, we will consider your
explanation as to why our response is inapplicable. Please be as detailed as
necessary in your explanation. In some of our comments, we may ask you to
provide us with information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.

Please understand that the purpose of our review is to assist you in your
compliance with the applicable disclosure requirements and to enhance the
overall disclosure in your filings. We look forward to working with you in these
respects. We welcome any questions you may have about our comments or any other
aspect of our review. Feel free to contact us at the telephone numbers listed at
the end of this letter.

Form SB-2 filed November 13, 2007

1)
Please update your financial statements and other financial discussion.  Refer
to Rule 3-12 of Regulation S-X.

 
2)
We note your announcement that, effective December 3, 2007, Mark Hlady resigned
from the position of chief executive officer and William Tighe became your chief
executive officer.  Please update the disclosure throughout your filing to
reflect such changes.

 

 
 

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Compensation discussion and analysis, page 33
 
3)
You state that Sicamous Oil & Gas Consultants, Ltd., a company owned by Mr.
Tighe, is paid Cdn. $10,000 per month pursuant to a consulting
agreement.  Section 3.1 of your agreement with Sicamous Oil & Gas Consultations,
Ltd. (filed  as Exhibit 10.8 to your registration statement), provides for
payment of $5,000 per month for services provided by Mr. Tighe during the term
of such agreement.  Please reconcile this apparent inconsistency.

 
Signatures
 
4)
Identify each person occupying more than one of the specified capacities, and
make clear who is signing in the capacity of your principal accounting officer
or controller.  See Instructions 1 and 2 to Signatures, Form SB-2.

 
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006
 
General
 
5)
It appears that your public float as of December 31, 2006, exceeded $25
million.  Please tell us how you have evaluated whether you remain eligible to
continue to use the Small Business Issuer forms.  Refer to Item 10(a)(2) of
Regulation S-B for additional guidance.

 
Business, page 3
 
6)
Please clarify whether you have proved reserves as defined by Rule 4-10(a) of
Regulation S-X, as of September 30, 2007 and December 31, 2006.  To the extent
you do not have any proved reserves, address the following:

 
 
·
Revise your filing throughout to label yourself as an exploration-stage company,
not a development stage company;

 
·
Revise the caption on your statements of operations to characterize revenues as
income during the evaluation period, as the use of revenues implied that amounts
are derived from a proved property;

 
·
Disclose in the footnotes to the financial statements that you will begin
recording revenue once it has been determined that you have proved reserves; and

 
·
Clarify on page 13 with regards to the Province/Granlea property whether that
property had been evaluated in light of its production during 2006.

 
 

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7)
We note the disclosure under this section indicating that you are a development
stage oil and gas company with no assets and liabilities.  However, your balance
sheet as of December 31, 2006, indicated that you have assets and
liabilities.  Revise the disclosure under this section to resolve this apparent
inconsistency.

 
Description of Property, page 8

8)
Explain to us where you have provided disclosure responsive to each of the items
identified in Industry Guide 2.

Management’s Discussion and Analysis or Plan of Operation, page 12

Province/Granlea – Southeast Alberta, page 13

9)
We note that a substantial increase in water rates resulted in the well being
shut in until it is re-evaluated.  If there is a reasonable likelihood that a
material impairment will be recorded upon the re-evaluation of the
Province/Granlea wells, please expand your MD&A to describe the impact an
impairment would have on your financial statements.  Refer to FRC 501.12.b for
additional guidance.

10)
We note on page 28 that you recorded a writedown of approximately $1.4 million
as a result of application of the ceiling test.  Please expand your MD&A to
describe the specific reasons or factors underlying the impairment.

Financial Statements, page 16

11)
Please provide the disclosures set forth by SFAS 69 to extent applicable.  For
any disclosures that you do not believe are applicable, explain to us the
reasons why you believe they do not apply to you.

Consolidated Balance Sheets, page 17

12)
We note that you have recorded at December 31, 2006, accounts receivable for
$685,975.  Please expand your footnotes to describe what comprises your accounts
receivable.  Note that this comment also applies to corresponding amounts
appearing in your financial statements for the subsequent interim period.

 
 

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Consolidated Statements of Operations, page 19

13)
We note that you presented stock-based compensation as a separate
caption.  Please present the compensation expense on your statements of
operations using the function of the expense (for example, general and
administrative expense or operating expense).  Refer to SAB topic 14:F for
additional guidance.

14)
We note that you included a ceiling test impairment together with depletion,
depreciation and accretion expense.  Please separately present the impairment
expense or re-label the caption to more accurately reflect the nature of the
expenses.

15)
Please present earnings per share on the face of the income statement.  See
paragraph 36 of SFAS 128 for additional guidance.

Consolidated Statements of Cash Flows, page 20

16)
We note that you classified changes in non-cash working capital as investing and
financing activities.  Please tell us what changes comprise these line items and
how their classifications as investing and financing activities is more
appropriate than classification as either an operating activity or a non-cash
investing and financing activity.  Tell us whether the amounts presented as
changes in non-cash working capital represent gross or net amounts of related
receipts and payments and how their presentation is consistent with the guidance
of paragraph 11 to 13 of SFAS 95.

Notes to Consolidated Financial Statements, page 21

Note 1. Organization, Basis of Presentation and Going Concern Uncertainty, page
21

17)
We note disclosure in the first paragraph indicating that your consolidated
financial statements are presented in accordance with generally accepted
accounting principles in the United States of America, except as outlined in
Note 2, which discloses the nature of restatements of previously issued
financial statements.  Please revise this disclosure to include a clear and
unqualified statement as to whether your consolidated financial statements as
presented are prepared in accordance with U.S. GAAP.

18)
We note that you changed your policy for accounting for oil and gas properties
from the successful efforts method to the full cost method.  Please tell us
whether you obtained and filed a preferability letter in connection with this
change.  See Exhibit 18 under term 601 of Regulation S-B and SAB Topic 12:C.1.

Note 6.  Capital Assets, page 27

Unproved Properties, page 28

19)
We note that included in oil and gas properties are costs of $1,430,987 related
to unproven properties, which exceeds the net book value of oil and gas
properties of $1,270,253 as of December 31, 2006.  Please reconcile this
difference, and revise the notes to your consolidated financial statements as
appropriate.  State separately on the face of the balance sheet the aggregate of
capitalized costs of unproved properties and major development projects that are
excluded from the capitalized costs being amortized.

 
 

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20)
Please revise to provide the disclosures required by Rule 4-10(c)(7)(ii) of
Regulation S-X, including:

 
·
A description of the current status of the significant unproven properties,
including the anticipated timing of the inclusion of the associated costs in the
amortization computation; and

 
·
A table showing by categories the costs making up the unproven oil and gas
properties account balance.

21)
We note that you recorded an impairment under the ceiling test during
2006.  Please clarify for us whether the impairment pertained to proved or
unproved properties.  Please expand your footnotes to describe in reasonable
detail the circumstances that led to the impairment.

22)
Provide us a reasonably detailed discussion of the drilling activates you have
conducted during the two most recent fiscal years and through the date of your
response.  As part of your response, describe the timing, type, location,
results and current status of each well

Note 7.  Convertible Debt, page 28

23)
We note that you issued convertible debt in 2005 as compensation for services
received.  Please explain to us how you considered the guidance in EITF 01-01 in
accounting for the issuance of convertible debt pursuant to the stock for
services compensation plan.

Note 9.  Share Capital, page 29

24)
We note that you issued 7,500,000 common shares to a non-employee and determined
the value based on the invoices rendered for the services provided.  Paragraph 7
of SFAS 123(R) requires that a company use the fair value of goods or services
received if it is more reliably measurable than the fair value of the equity
instruments issued.  Please tell us why you believe the fair value of the
services received was more reliable than the fair value of the common shares
issued.  We generally believe the fair value of common stock issued is a more
reliable measure.  Refer to paragraph A7 of AFAS 123(R) for additional guidance.

25)
Please clarify in the last paragraph on page 30 the percentage of your issued
and outstanding common shared that may be issued under your stock option plan.

Note 10.  Stock-Based Compensation, page 31

26)
Please explain to us how you addressed the disclosure requirements set forth by
paragraphs A240 of SFAS 123(R).

 
 

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Note 12.  Loss Per Share, page 32

27)
Please revise your computation of basic and diluted loss per share to adjust
retroactively for all periods presented to reflect your stock splits.  In
addition, disclosure that that the per share computations reflect such changes
in the number of shares.  Refer to paragraph 54 of SFAS 128 for additional
guidance.

Note 14.  Related Party Transactions, page 33

28)
We note that your officers and directors purchased 10.2 million shares of common
stock on December 22, 2005, for $0.02 per share.  We further note that 1 million
common shares were purchased on December 30, 2005, for $0.50 per share.  Please
address the following related to these transactions:

 
 
·
Explain to us the reasons for the difference in the purchase price per share
between the December 22,  2005 and the December 30, 2005 subscriptions;

 
·
Tell us how you considered the guidance in paragraph 7 of SFAS 123(R) in which a
share-based payment transaction with employees shall be measured based on the
fair value the equity instruments issued; and,

 
·
Tell us how you determined the fair value of the common shares issued to your
officers and directors as part of the December 22, 2005 purchase.

 
29)
We note that you issued 2 million common shares in consideration for corporate
development services rendered by a related party and that you valued the shares
at a market price of $0.05 per share.  We further note on page 11 that your
lowest stock price during 2006 was $0.375 per share.  Please tell us how you
determined the fair value of the shares issued, and describe the accounting
principles that you applied in recording the expense at a value other than the
observable market price.

Item 8A.  Controls and Procedures, page 35

30)
We note your disclosure in your annual report and your quarterly reports for the
quarters ended March 31, 2007, June 30, 2007 and September 30, 2007 regarding
your conclusion that your disclosure controls and procedure were effective as of
the date of each such filing.

Please revise your annual report and each quarterly report to disclose the
conclusions of your principal executive and provincial financial officers, or
persons performing similar functions, regarding the effectiveness of your
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) as of the end of the period covered by each such report, based on
the evaluation of the controls and procedures required by Rule 13a-15(b).  See
Item 307 of Regulation S-B.  For example, the conclusions of your principal
executive and principal financial officer regarding the effectiveness of your
internal controls and procedures should be as of December 31, 2006.

 
 

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31)
Please revise your annual report and your quarterly reports for the quarters
ended March 31, 2007, June 30, 2007, and September 30, 2007 to provide the
information required by Item 308(c) of Regulation S-B.

Form 10-Q For the Fiscal Quarter Ended September 30, 2007

Unaudited Consolidated Statements of Cash Flows, page 5

32)
Please disclose information about your non-cash investing and financing
activities.  The disclosures may be either narrative or summarized in a
schedule, and they should clearly relate the cash and non-cash aspects of
transactions involving similar items.  Refer to paragraph 32 of SFAS 95 for
additional guidance.

Note 8.  Share Capital, page 11

33)
We note in footnote (m) on page 13 that you purchased certain undeveloped oil
and gas properties in Canada and the United States.  Please clarify whether the
properties were proved or unproved based in the definitions found in Rule
4-10(a) of Regulation S-X.

Management’s Discussions and Analysis or Plan of Operation, page 19

Southeast Alberta – Manyberries, page 21

34)
We note that you will release nine sections of undeveloped properties back to
Crown and abandon wells in the fourth quarter of 2007. Please describe for us
how you considered this abandonment in applying your full cost ceiling test and
evaluating unproved properties as of September 30, 2007.  To the extent that an
impairment is not necessary during the nine months ended September 30, 2007,
provide indicative value as to the impact that the abandonment of the wells will
have on your financial statements.

Website

35)
If you retain links to the reports by SISM, you should make clear that you are
paying $42,000 to SISM and that therefore it is not providing “independent
coverage” notwithstanding the assertions in the reports to that effect.

***

Closing Comments

As appropriate, please amend your filings in response to these comments. You may
wish to provide us with marked copies of the amendments to expedite our review.
Please furnish a cover letter with your amendments that keys your responses to
our comments and provides any requested information. Detailed cover letters
greatly facilitate our review. Please understand that we may have additional
comments after reviewing your amendments and responses to our comments.

 
 

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We urge all persons who are responsible for the accuracy and adequacy of the
disclosure in the filing to be certain that the filing includes all information
required under the Securities Act of 1933 and that they have provided all
information investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating to a
company’s disclosure, they are responsible for the accuracy and adequacy of the
disclosures they have made.

Notwithstanding our comments, in the event the company requests acceleration of
the effective date of the pending registration statement, it should furnish a
letter, at the time of such request, acknowledging that:

 
·
should the Commission or the staff, acting pursuant to delegated authority,
declare the filing effective, it does not foreclose the Commission from taking
any action with respect to the filing;

 
·
the action of the Commission or the staff, acting pursuant to delegated
authority, in declaring the filing effective, does not relieve the company from
its full responsibility for the adequacy and accuracy of the disclosure in the
filing; and

 
 
·
the company may not assert staff comments and the declaration of effectiveness
as a defense in any proceeding initiated by the Commission or any person under
the federal securities laws of the United States.

In addition, please be advised that the Division of Enforcement has access to
all information you provide to the staff of the Division of Corporation Finance
in connection with our review of your filing or in response to our comments on
your filing.

We will consider a written request for acceleration of the effective date of the
registration statement as confirmation of the fact that those requesting
acceleration are aware of their respective responsibilities under the Securities
Act of 1933 and the Securities Exchange Act of 1934 as they relate to the
proposed public offering of the securities specified in the above registration
statement. We will act on the request and, pursuant to delegated authority,
grant acceleration of the effective date.

We direct your attention to Rules 460 and 461 regarding requesting acceleration
of a registration statement. Please allow adequate time after the filing of any
amendment for further review before submitting a request for acceleration.
Please provide this request at least two business days in advance of the
requested effective date.

You may contact Ryan Milne at (202) 551-3680 or Brad Skinner, Senior Assistant
Chief Accountant, at (202) 551-3489 if you have any questions regarding comments
on the financial statements and related matters. Please contact Laura Nicholson
at (202) 551-3584 or, in her absence, Timothy Levenberg, Special Counsel, at
(202) 551-3707 with other questions.

 
Sincerely,
     
H. Roger Schwall
 
Assistant Director

Cc:
B. Skinner

R. Milne
T. Levenberg
L. Nicholson

via facsimile
Andrew Hudders, Esq.
(212) 754-0330
 
 
 

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