UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period endedSeptember 30, 2006



Commission File No.001-32920







KODIAK OIL & GAS CORP.

(Exact name of registrant as specified in its charter)





| | YUKON TERRITORY(State or other jurisdiction of
incorporation or organization) | N/A(I.R.S. Employer 
Identification No.)
| | ----------------------------------------------------------------------------- | ----------------------------------------



1625 Broadway, Suite 330

Denver, Colorado 80202

(Address of principal executive offices, including zip code)



303-592-8075

(Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.     Yes   
    No



Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated   filer,   or   a   non-accelerated   filer.   See   definition   of
accelerated filer and large accelerated  filer  in Rule 12b-2 of the
Exchange Act.

Large accelerated filer                  Accelerated
filer                  Non-accelerated
filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes   
    No



| | 74,969,426 shares of no par value of the Registrant's Common Stock were issued and outstanding as of  October 27, 2006.
| | -----------------------------------------------------------------------------------------------------------------------

___________________________





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KODIAK OIL & GAS CORP.

INDEX

|Part I - Financial Information | Page                                                                                
|------------------------------ | ------------------------------------------------------------------------------------
|Item 1.                        | Financial Statements (unaudited)                                                    
|                               | Consolidated Balance Sheets September 30, 2006 & December 31, 2005                  
|                               | Consolidated Statement of Operations Three & Nine Months Ended Sept. 30, 2006 & 2005
|                               | Statement of Stockholders Equity September 30, 2006 & December 31, 2005            
|                               | Consolidated Statement of Cash Flows Nine Months Ended September 30, 2006 & 2005    
|                               | Notes to Consolidated Financial Statements September 30, 2006                       
|Item 2.                        | Managements Discussion & Analysis of Financial Condition & Results of Operations   
|Item 3.                        | Quantitative & Qualitative Disclosures about Market Risk                            
|Item 4.                        | Controls & Procedures                                                               
|                               |                                                                                     
|Part II - Other Information    |                                                                                     

|Item 1.    | Legal Proceedings                                         | 24
|---------- | --------------------------------------------------------- | --
|Item 1A.   | Risk Factors                                              | 24
|Item 2.    | Unregistered Sales of Equity Securities & Use of Proceeds | 24
|Item 3.    | Defaults Upon Senior Securities                           | 24
|Item 4.    | Submission of Matters to a Vote of Security Holders       | 24
|Item 5.    | Other Information                                         | 24
|Item 6.    | Exhibits                                                  | 25
|Signatures | 26                                                       















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PART1 - FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS

KODIAK OIL & GAS CORP.

CONSOLIDATED BALANCE SHEETS



|                                                              |         |                  | (UNAUDITED)       |                  | (AUDITED)        
|------------------------------------------------------------- | ------- | ---------------- | ----------------- | ---------------- | -----------------
|                                                              |         |                  | September 30,     |                  | December 31,     
|                                                              | ASSETS  |                  | 2006              |                  | 2005             
|Current assets:                                               |         |                  |                   |                  |                  
|Cash and cash equivalents                                     |         |                  | $     21,432,860  |                  | $       7,285,548
|Accounts receivable                                           |         |                  |                   |                  |                  
|Trade                                                         |         |                  | 1,126,530         |                  | 447,981          
|Accrued Sales                                                 |         |                  | 430,659           |                  | 226,406          
|Prepaid expenses and other                                    |         |                  | 138,092           |                  | 30,631           
|                                                              |         |                  |                   |                  |                  
|Total Current Assets                                          |         |                  | 23,128,141        |                  | 7,990,566        
|                                                              |         |                  |                   |                  |                  
|Property and equipment (full cost method), at cost:           |         |                  |                   |                 
|Proved oil and gas properties                                 |         |                  | 26,191,988        |                  | 11,277,307       
|Unproved oil and gas properties                               |         |                  | 12,010,614        |                  | 6,307,903        
|Less-accumulated depletion, depreciation and amortization     |         | (1,443,314)      |                   | (121,941)       
|                                                              |         |                  | 36,759,288        |                  | 17,463,269       
|Other property and equipment, net of accumulated depreciation |         |                  |                  
|of $95,904 in 2006 and $47,525 in 2005                        |         | 158,561          |                   | 183,481         
|Restricted Investment                                         |         |                  | 217,400           |                  | 153,000          
|                                                              |         |                  |                   |                  |                  
|Total Assets                                                  |         |                  | $     60,263,390  |                  | $     25,790,316 
|                                                              |         |                  |                   |                  |                  
|LIABILITIES AND STOCKHOLDERS EQUITY                          |         |                 
|Current Liabilities:                                          |         |                  |                   |                  |                  
|Accounts payable and accrued liabilities                      |         |                  | $       2,103,383 |                  | $       4,411,572
|                                                              |         |                  |                   |                  |                  
|Noncurrent liabilities:                                       |         |                  |                   |                  |                  
|Asset retirement obligation                                   |         |                  | 159,065           |                  | 69,073           
|Total Liabilities                                             |         |                  | 2,262,448         |                  | 4,480,645        
|                                                              |         |                  |                   |                  |                  
|Commitments and Contingencies - Note 7                       
|Stockholders equity:                                        
|Common stock, $0.01 par value: authorized-100,000,000         |         |                  |                  
|Issued:  74,969,426 shares in 2006 and 54,547,158 in 2005     | 749,694 |                  | 545,472          
|Additional paid in capital                                    |         |                  | 64,483,787        |                  | 26,593,826       
|Accumulated deficit                                           |         |                  | (7,232,539)       |                  | (5,829,627)      
|                                                              |         |                  |                   |                  |                  
|Total Stockholders Equity                                    |         |                  | 58,000,942        |                  | 21,309,671       
|                                                              |         |                  |                   |                  |                  
|Total Liabilities and Stockholders Equity                    |         | $     60,263,390 |                   | $     25,790,316
|                                                              |         |                  |                   |                  |                  



SEE ACCOMPANYING NOTES



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KODIAK OIL & GAS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED



|                                          |                                  |                                 |   |                
|----------------------------------------- | -------------------------------- | ------------------------------- | - | ---------------
|                                          |                                  |                                 |   |                
|                                          | Three months ended September 30, | Nine months ended September 30,
|                                          |                                  | 2006                            |   | 2005           
|                                         
|Revenues:                                 |                                 
|Gas production                            |                                  | $      143,504                  |   | $        65,315
|Oil production                            |                                  | 897,085                         |   | 22,656         
|Interest                                  |                                  | 232,446                         |   | 39,402         
|                                         
|Total revenue                             |                                  | 1,273,035                       |   | 127,373        
|                                         
|Cost and expenses:                        |                                 
|Oil and gas production                    |                                  | 194,021                         |   | 55,693         
|Depletion, depreciation, amortization     |                                 
|and abandonment liability accretion       |                                  | 494,829                         |   | 15,287         
|General and administrative                |                                  | 980,100                         |   | 289,791        
|Gain on currency exchange                 |                                  | (6,627                          | ) | (181,146       
|                                         
|Total costs and expenses                  |                                  | 1,662,323                       |   | 179,625        
|                                         
|Net loss for the period                   |                                  | $    (389,288                   | ) | $     (52,252  
|                                         
|Basic & diluted weighted-average common   |                                 
|shares outstanding                        |                                  | 74,939,654                      |   | 44,825,221     
|                                         
|Basic & diluted net loss per common share |                                  | $         (0.01                 | ) | $         (0.00
|                                         



SEE ACCOMPANYING NOTES



---







KODIAK OIL & GAS CORP.

STATEMENT OF STOCKHOLDERS EQUITY

UNAUDITED



|                                  |  | Common Stock | Contributed | Accumulated     | Total        
|--------------------------------- |  | ------------ | ----------- | --------------- | -------------
|                                  |  | Shares       | Amount      | Surplus         | Deficit      
|                                  |  |              |             |                 |              
|Balance December 31, 2004:        |  | 33,875,283   | $  338,753  | $     8,324,261 | $ (3,824,536)
|                                  |  |              |             |                 |              
|Issuance of stocks for cash:      |  |              |             |                 |              
|-pursuant to private placement    |  | 17,000,000   | 170,000     | 15,474,243      |              
|-pursuant to exercise of warrants |  | 3,496,875    | 34,969      | 2,480,709       |              
|-pursuant to exercise of options  |  | 100,000      | 1,000       | 11,122          |              
|Stock issuance costs              |  |              |             | (292,370)       |              
|Employee stock options            |  | 75,000       | 750         | 54,750          |              
|Stock based compensation          |  |              |             | 541,111         |              
|Net loss                          |  |              |             |                 | (2,005,091)  
|                                  |  |              |             |                 |              
|Balance December 31, 2005:        |  | 54,547,158   | 545,472     | 26,593,826      | (5,829,627)  
|                                  |  |              |             |                 |              
|Issuance of stocks for cash:      |  |              |             |                 |              
|-pursuant to private placement    |  | 19,514,268   | 195,142     | 39,249,295      |              
|-pursuant to exercise of options  |  | 908,000      | 9,080       | 177,812         |              
|Stock issuance costs              |  |              |             | (2,909,298)     |              
|Stock based compensation          |  |              |             | 1,372,152       |              
|Net loss                          |  |              |             |                 | (1,402,912)  
|                                  |  |              |             |                 |              
|Balance September 30, 2006:       |  | 74,969,426   | $  749,694  | $   64,483,787  | $ (7,232,539)
|                                  |  |              |             |                 |              



SEE ACCOMPANYING NOTES



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KODIAK OIL & GAS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED



|                                                     |                                 |                 
|---------------------------------------------------- | ------------------------------- | ----------------
|                                                     |                                 |                 
|                                                     | Nine Months Ended September 30,
|                                                     | 2006                            | 2005            
|                                                    
|Cash flows from operations                          
|Net loss                                             | $(1,402,912)                    | $  (868,210)    
|Reconciliation of net loss to net cash provided     
|by operating activities:                            
|Depletion, depreciation, amortization and           
|abandonment liability accretion                      | 1,374,019                       | 29,019          
|Stock based compensation                             | 1,372,152                       | --              
|Changes in current assets and liabilities           
|Accounts receivable-Trade                            | (678,549)                       | (19,362)        
|Accounts receivable-Accrued Sales                    | (204,253)                       | (127,100)       
|Prepaid expenses and other                           | (107,462)                       | (599,462)       
|Accounts payable                                     | (728,440)                       | 27,005          
|                                                    
|Net cash used by operating activities                | (375,445)                       | (1,558,110)     
|                                                    
|Cash flows from investing activities                
|Oil and gas properties                               | (22,111,417)                    | (4,852,896)     
|Equipment                                            | (23,457)                        | (76,512)        
|Restricted investment: designated as restricted      | (53,800)                        | --              
|Restricted investment: undesignated as restricted    | (10,600)                        | --              
|                                                    
|Net cash used for investing activities               | (22,199,274)                    | (4,929,408)     
|                                                    
|Cash flows from financing activity                  
|Proceeds from the issuance of shares                 | 39,631,329                      | 9,679,567       
|Issuance costs                                       | (2,909,298)                     | (292,370)       
|                                                    
|Net cash provided by financing activities            | 36,722,031                      | 9,387,197       
|                                                    
|Net change in cash and cash equivalents              | 14,147,312                      | 2,899,679       
|Cash and cash equivalents at beginning of the period | 7,285,548                       | 2,707,763       
|                                                    
|Cash and cash equivalents at end of the period       | $ 21,432,860                    | $ 5,607,442     
|                                                    
|Non-cash Items                                      
|Oil & Gas Property accrual included in              
|Accounts Payable                                     | $   1,726,890                   | $    325,570    
|                                                    
|Asset retirement obligation                          | $        85,725                 | $             --
|                                                    





SEE ACCOMPANYING NOTES



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KODIAK OIL & GAS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1 - Organization



Description of Operations



Kodiak Oil & Gas Corp. and its subsidiary (Kodiak or the Company) is a public company dually listed for trading on the American Stock Exchange (AMEX) and the TSX Venture Exchange and whose corporate headquarters are located in Denver, Colorado, USA.  The Company is an independent energy company engaged in the exploration, exploitation, development, acquisition and production of natural gas and crude oil in the western United States.



The Company was incorporated (continued) in the Yukon Territory on September 28, 2001.



Note 2  Basis of Presentation and Significant Accounting Policies



Basis of Presentation



The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Kodiak Oil & Gas (USA) Inc.  All significant inter-company balances and transactions have been eliminated. The majority of the Corporations business is transacted in US dollars and, accordingly, the financial statements are expressed in US dollars.The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the Companys results for the periods presented. These consolidated financial statements should be read in conjunction with the Companys Annual Report on Form 20F for the fiscal year ended December 31, 2005. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.



Certain amounts in the 2005 unaudited consolidated financial statements have been reclassified to conform to the 2006 unaudited consolidated financial statement presentation; such reclassifications had no effect on the 2005 net loss.



Use of Estimates in the Preparation of Financial Statements



The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of oil and gas reserves, assets and liabilities and disclosure of contingent assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The Company bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances. Although actual results may differ from these estimates under different assumptions or conditions, the Company believes that its estimates are reasonable.



Cash and Cash Equivalents



Cash and cash equivalents consist of all highly liquid investments that are readily convertible to cash and have maturities of three months or less when purchased.  The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments.





8



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Restricted Investment



The restricted investment balance as of September 30, 2006 is comprised of: (a) $175,000 certificate of deposit to collateralize a surety bond to provide for state bonding requirements for plugging and abandonment liabilities; and (b) $42,400 certificate of deposit to collateralize the costs of office improvements that will be released over the four year remaining term of the lease at $10,600 per year.  At December 31, 2005 the balance was comprised of: (a) $100,000 certificate of deposit to collateralize a surety bond to provide for state bonding requirements for plugging and abandonment liabilities; and (b) $53,000 certificate of deposit to collateralize the costs of office improvements that will be released over the five year term of the lease at $10,600 per year.



Concentration of Credit Risk



The Companys cash equivalents and short-term investments are exposed to concentrations of credit risk.  The Company manages and controls this risk by investing these funds with major financial institutions.



The Companys receivables are comprised of oil and gas revenue receivables and joint interest billings receivable.  The amounts are due from a limited number of entities.  Therefore, the collectability is dependent upon the general economic conditions of the few purchasers and joint interest owners.  The receivables are not collateralized.  However, to date the Company has had minimal bad debts.



Oil and Gas Producing Activities



The  Company  follows  the  full  cost  method  of  accounting  for  oil and gas
operations  whereby all costs related to the  exploration and development of oil
and  gas  properties  are  initially  capitalized  into  a  single  cost  center
(full  cost  pool).  Such  costs  include  land  acquisition  costs,
geological  and  geophysical   expenses,   carrying   charges  on  non-producing
properties,   and  costs  of  drilling   directly  related  to  acquisition  and
exploration  activities.  Proceeds from property sales are generally credited to
the full cost pool,  with no gain or loss  recognized,  unless such a sale would
significantly  alter the relationship  between  capitalized costs and the proved
reserves attributable to these costs. A significant  alteration would typically
involve a sale of 25% or more of the proved  reserves  related to a single  full
cost pool.



Costs capitalized, together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated gross proved reserves as determined by independent petroleum engineers.  The costs of unproved properties are withheld from the depletion base until such time as they are either developed or abandoned.  When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations.



For depletion and depreciation purposes, relative volumes of oil and gas production and reserves are converted at the energy equivalent rate of six thousand cubic feet of natural gas to one barrel of crude oil.



Under the full cost  method of  accounting,  capitalized  oil and gas  property
costs less accumulated depletion and net of deferred income taxes may not exceed
an amount equal to the present value, discounted at 10%, of estimated future net
revenues  from proved oil and gas  reserves  plus the cost,  or  estimated  fair
value, if lower, of unproved  properties.  Should  capitalized  costs exceed this
ceiling, an impairment is recognized.  The present value of estimated future net
revenues  is computed by  applying  current  prices of oil and gas to  estimated
future  production  of  proved  oil  and gas  reserves  as of  period-end,  less
estimated  future  expenditures  to be incurred in developing  and producing the
proved   reserves,    assuming   the    continuation    of   existing    economic
conditions.





9



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Other Property and Equipment



Other property and equipment such as office furniture and equipment, vehicles, and computer hardware and software are recorded at cost.  Costs of renewals and improvements that substantially extend the useful lives of the assets are capitalized.  Maintenance and repair costs are expensed when incurred.  Depreciation is recorded using the straight-line method over the estimated useful lives of three years for computer equipment, and five years for office equipment and vehicles.  When other property and equipment is sold or retired, the capitalized costs and related accumulated depreciation are removed from the accounts.



Fair Value of Financial Instruments



The Companys financial instruments including cash and cash equivalents, accounts receivable and accounts payable are carried at cost, which approximates fair value due to the short-term maturity of these instruments.



Stock-Based Compensation



The Company has historically accounted for stock-based compensation under the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.  This statement requires us to record an expense associated with the fair value of stock-based compensation.  We currently use the Black-Scholes option valuation model to calculate stock based compensation at the date of grant.  Option pricing models require the input of highly subjective assumptions, including the expected price volatility.  Changes in these assumptions can materially affect the fair value estimate.



Asset Retirement Obligation



The Company follows SFAS No. 143, Accounting for Asset Retirement  Obligations, which  requires  that the fair value of a  liability  for an asset  retirement obligation  be recognized in the period in which it was incurred if a reasonable estimate of fair value could be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The increase in carrying value of a property associated with the capitalization of an asset retirement cost is included in proved oil and gas properties in the consolidated balance sheets.  The Company depletes the amount added to proved oil and gas property costs.  The future cash outflows associated with settling the asset retirement obligations that have been accrued in the accompanying balance sheets are excluded from the ceiling test calculations.  The Company also depletes the estimated
dismantlement and abandonment costs, net of salvage values, associated with future development activities that have not yet been capitalized as asset retirement obligations.  These costs are also included in the ceiling test calculation.  The asset retirement liability will be allocated to operating expense by using a systematic and rational method.  The Company has recorded a net asset of $152,725, a related liability of $159,065 (using a 8.5% discount rate and a 2.97% inflation rate). The information below reconciles the value of the asset retirement obligation for the periods presented.



|                                  | Period ended  |  | Period ended     
|--------------------------------- | ------------- |  | -----------------
|                                  | September 30, |  | December 31,     
|                                  | 2006          |  | 2005             
|                                  |               |  |                  
|Balance beginning of period       | $     69,073  |  | $               -
|Liabilities incurred              | 84,085        |  | 67,000           
|Liabilities settled               | -             |  | -                
|Revisions in estimated cash flows | -             |  | -                
|Accretion expense                 | 5,907         |  | 2,073            
|                                  |               |  |                  
|Balance end of period             | $   159,065   |  | $     69,073     
|                                  |               |  |                  



10



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Recently Issued Accounting Pronouncements:



In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No.133 and 140." SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," and also resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, "Application of Statement 133 to Beneficial Interests in Securitized Financial Assets."  SFAS No. 155 was issued to eliminate the exemption from applying SFAS No.133 to interests in securitized financial assets so that similar instruments are accounted for in a similar fashion, regardless of the instrument's form.  The Company does not believe that its financial position, results of operations or cash flows will be
impacted by SFAS No.155 as the Company does not currently hold any hybrid financial instruments.



In June  2006,  the FASB  issued  FASB  Interpretation (FIN)  No. 48,  Accounting  for
Uncertainty  in Income Taxes.  The  interpretation  clarifies the accounting for
uncertainty in income taxes  recognized in a company's  financial  statements in
accordance with Statement of Financial  Accounting Standards No. 109, Accounting
for Income  Taxes.  Specifically,  the  pronouncement  prescribes a  recognition
threshold and a measurement  attribute for the financial  statement  recognition
and measurement of a tax position taken or expected to be taken in a tax return.
The  interpretation  also  provides  guidance  on  the  related   derecognition,
classification,   interest  and  penalties,   accounting  for  interim  periods,
disclosure  and  transition of uncertain tax positions.  The  interpretation  is
effective for fiscal years  beginning  after  December 15, 2006. The adoption of
FIN 48 would not have a material impact on the Company's  consolidated financial
position, results of operations or cash flows.



In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). This Statement defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure related to the use of fair value measures in financial statements. The Statement is to be effective for the Companys financial statements issued in 2008; however, earlier application is encouraged. The Company is currently evaluating the timing of adoption and the impact that adoption might have on its financial position or results of operations.



In September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 108 ("SAB 108"). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006, and early application is encouraged. The Company does not believe SAB 108 will have a material impact on its financial position or results from operations.





Note 3  Property Acquisition



InMarch 2006, the Company completed the acquisition of 10,629 gross (9,566 net) acres of mineral leasehold in Sweetwater County, Wyoming for $6.9 million cash.  The acreage is part of the Companys Vermillion Basin projects.



Note 4  Common Stock



On March 8, 2006, the Company issued 19,514,268 common shares in a private placement to a group of accredited investors for gross proceeds of $39,444,438. The Company paid commissions and expenses of $2,909,298.







11



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Note 5  Compensation Plan



Stock-based Compensation Plan



The Company has a stock-based compensation plan whereby share purchase options may be granted with an exercise price equal to the trading value when granted.  The total number of share purchase options outstanding cannot exceed 10% of the total number of shares issued.



For the three and nine month periods ended September 30, 2006, the Company recorded stock-based compensation of $251,059 and $1,372,152, respectively. The Company did not grant any options during the same periods ended September 30, 2005.



The following assumptions were used for the Black-Scholes model:



|                                                                                              | September 30, 2006
|--------------------------------------------------------------------------------------------- | ------------------
|                                                                                              |                   
|Risk free rates                                                                               | 5.09%             
|Dividend yield                                                                                | 0%                
|Expected volatility                                                                           | 64.92%            
|Weighted average expected stock option life                                                   | 3.2 yrs           
|                                                                                              |                   
|The weighted average fair value at the date of grant for stock options granted is as follows: |                   
|                                                                                              |                   
|Weighted average fair value per share                                                         | $           1.76  
|Total options granted                                                                         | 1,635,000         
|                                                                                              |                   
|Total weighted average fair value of options granted                                          | $  2,446,068      







12



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Note 6  Stock Options



A summary of the stock options outstanding is as follows:



|                                          |            |  | Weighted   
|----------------------------------------- | ---------- |  | -----------
|                                          |            |  | Average    
|                                          | Number     |  | Exercise   
|                                          | of Options |  | Price      
|Balance outstanding at December 31, 2004  | 3,138,500  |  | $      0.42
|                                          |            |  |            
|Granted                                   | 900,000    |  | $      1.09
|Exercised                                 | (100,000)  |  | $      0.14
|                                          |            |  |            
|Balance outstanding at December 31, 2005  | 3,938,500  |  | $      0.58
|                                          |            |  |            
|Granted                                   | 1,635,000  |  | $      3.41
|Exercised                                 | (908,000)  |  | $      0.14
|                                          |            |  |            
|Balance outstanding at September 30, 2006 | 4,665,500  |  | $      1.53
|                                          |            |  |            
|Options exercisable at September 30, 2006 | 3,530,000  |  |            
|                                          |            |  |            



At September 30, 2006, stock options outstanding are as follows:



|               |  | Number of |  |                 
|-------------- |  | --------- |  | ----------------
|Exercise Price |  | Shares    |  | Expiry Date     
|$0.14          |  | 462,000   |  | December 4, 2008
|$0.45          |  | 1,000,000 |  | March 1, 2009   
|$0.90          |  | 668,500   |  | August 23, 2009 
|$1.09          |  | 900,000   |  | October 16, 2010
|$2.11          |  | 50,000    |  | March 12, 2011  
|$3.18          |  | 1,300,000 |  | April 14, 2011  
|$4.03          |  | 285,000   |  | June 28, 2011   
|               |  | 4,665,500 |  |                 
|               |  |           |  |                 



All stock option exercise prices have been converted to US dollars based upon the exchange rate at

August 31, 2006.



Note 7 - Commitments and Contingencies



The Company leases office facilities under an operating lease agreement that expires on June 30, 2010.  Rent expense was $48,200 in 2005.  The Company has no other capital leases and no other operating lease commitments.





13



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The following table shows the annual rentals per year for the life of the lease:



|Years Ending December 31, |      
|------------------------- | -----
|                          |      
|                          |      
|                          |      
|                          |      
|                          |      
|                          | Total
|                          |      



During the year ended December 31, 2004, the Company entered into three one-year employment agreements. Each agreement includes the issue of 50,000 common shares, of which 25,000 were issued upon commencement and 25,000 were issued in 2005.



As is customary in the oil and gas industry, the Company may at times have commitments in place to reserve or earn certain acreage positions or wells. If the Company does not pay such commitments, the acreage positions or wells may be lost.



Note 8  Differences Between Canadian and United States Accounting Principles



These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America which differ in certain respects with those principles and practices that the Company would have followed had its financial statements been prepared in accordance with accounting principles and practices generally accepted in Canada.



The Companys accounting principles generally accepted in the United States of America differ from accounting principles generally accepted in Canada as follows:



| | a) | Stock-based Compensation
| | -- | ------------------------



The Company  grants  stock  options at exercise  prices equal to the fair market
value of the  Companys  stock at the date of the grant. Under Statement of
Financial  Accounting  Standards  No.  123, the  Company  had  accounted  for its
employee stock options under the fair value method. The fair value is determined
using an option  pricing  model that takes into  account  the stock price at the
grant date, the exercise price, the expected life of the option,  the volatility
of the underlying stock and the expected  dividends,  and the risk-free interest
rate over the expected life of the option.



As a result of the new recommendations of the Canadian Institute of Chartered Accountants regarding accounting for stock-based compensation, there is no difference between Canadian GAAP and US GAAP for the three and nine month periods ended September 30, 2006 or 2005.



| | b) | Comprehensive Loss
| | -- | ------------------



US GAAP requires disclosure of comprehensive loss which, for the Company is net loss under US GAAP plus the change in cumulative translation adjustment under US GAAP.









14



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The concept of comprehensive loss does not come into effect until fiscal years beginning on or after October 1, 2006 for Canadian GAAP.



Management does not believe that any recently issued, not yet effective, Canadian accounting standards if currently adopted could have a material effect on the accompanying financial statements.



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements



This Quarterly Report includes certain statements that may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included in this Quarterly Report, other than statements of historical facts, address matters that the Company reasonably expects, believes or anticipates will or may occur in the future. Forward-looking statements may relate to, among other things:



| |  | the Companys future financial position, including working capital and anticipated cash flow;
| | - | ---------------------------------------------------------------------------------------------

| |  | the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas;
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| |  | market demand;
| | - | --------------

| |  | risks and uncertainties involving geology of oil and gas deposits;
| | - | ------------------------------------------------------------------

| |  | the uncertainty of reserve estimates and reserves life;
| | - | -------------------------------------------------------

| |  | the uncertainty of estimates and projections relating to production, costs and expenses;
| | - | ----------------------------------------------------------------------------------------

| |  | potential delays or changes in plans with respect to exploration or development projects or capital expenditures;
| | - | -----------------------------------------------------------------------------------------------------------------

| |  | fluctuations in oil and gas prices, foreign currency exchange rates and interest rates;
| | - | ---------------------------------------------------------------------------------------

| |  | health, safety and environmental risks;
| | - | ---------------------------------------

| |  | uncertainties as to the availability and cost of financing; and
| | - | ---------------------------------------------------------------

| |  | the possibility that government policies or laws may change or governmental approvals may be delayed or withheld.
| | - | -----------------------------------------------------------------------------------------------------------------

Other sections of the Quarterly Report may include additional factors that could adversely affect our business and financial performance.  Moreover, we operate in a very competitive and rapidly changing environment.  New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our 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.

Our forward-looking statements contained in this Quarterly Report are made as of the respective dates set forth in this Quarterly Report.  Such forward-looking statements are based on the beliefs, expectations and opinions of management as of the date the statements are made.  We do not intend to update these forward-looking statements, except as otherwise required by law.  For the reasons set forth above, investors should not place undue reliance on forward-looking statements.



15



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Overview



Kodiak Oil & Gas Corp. is a public company dually listed on the American Stock and Options Exchange (AMEX) and the TSX Venture Exchange, trading symbol KOG, and is engaged in the business of exploration and development of oil and gas properties.  The Companys principal focus is on the exploration and development of oil and gas properties within two producing basins in the Rocky Mountain Region.  The Company is exploring for natural gas in the Green River Basin in southwestern Wyoming and oil in the Williston Basin in Montana and North Dakota.



As of December 31, 2005, we had estimated proved reserves of 6.0 BCFE, with a PV-10 value of $18.2 million. Our reserves are 79% proved developed and are comprised of 48% natural gas and 52% crude oil. The fiscal year ended December 31, 2005 marked the first year that we recorded natural gas and crude oil reserves.



Our results of operations and financial condition are significantly  affected by
oil and natural gas  commodity  prices,  which can fluctuate  dramatically.
Commodity  prices are beyond the  Companys  control and are  difficult  to
predict.  The first ten  months  of 2006  have  seen  volatility  in oil and gas
prices.  Spot market prices reflected  worldwide concerns about producer ability
to  ensure   sufficient  supply  to  meet  increasing  demand  amid  a  host  of
uncertainties caused by political instability,  a weaker US dollar and crude oil
refining  constraint.  During the past sixty days, we have seen commodity  prices
decline due to rising U.S. fuel stocks,  easing  economic  growth and diminished
political tensions. New York Mercantile Exchange (NYMEX) prices for the year are
stated  in the chart  below  for both oil and gas  during  the same  period.  We
receive  lower prices for our oil and gas than what is posted on the NYMEX.  The
chart below shows the price differentials  received for our products for each of
the periods.



|          |   | NYMEX                                                                          |                    | Net             |  | NYMEX            |                  | Net             
|--------- | - | ------------------------------------------------------------------------------ | ------------------ | --------------- |  | ---------------- | ---------------- | ----------------
|          |   | West Texas                                                                     |                    | Oil             |  | Natural Gas      |                  | Gas             
|2006      |   | Intermediate                                                                   | Deducts *          | Price           |  | Settlement       | Deducts *        | Price           
|          |   |                                                                                |                    |                 |  |                  |                  |                 
|January   |   | $          65.49                                                               | $           (6.90) | $         58.59 |  | $         11.43  | $         (2.63) | $           8.80
|February  |   | $          61.63                                                               | $         (11.30)  | $         50.33 |  | $           8.40 | $         (1.71) | $           6.69
|March     |   | $          62.69                                                               | $         (13.30)  | $         49.39 |  | $           6.64 | $         (0.56) | $           6.08
|April     |   | $          69.44                                                               | $         (12.30)  | $         57.14 |  | $           7.23 | $         (1.66) | $           5.57
|May       |   | $          70.84                                                               | $         (10.00)  | $         60.84 |  | $           7.20 | $         (1.49) | $           5.71
|June      |   | $          70.95                                                               | $           (7.30) | $         63.65 |  | $           5.93 | $         (1.14) | $           4.79
|July      |   | $          74.41                                                               | $           (6.35) | $         68.06 |  | $           5.80 | $         (0.82) | $           4.98
|August    |   | $          73.04                                                               | $           (7.85) | $         65.19 |  | $           7.04 | $         (1.24) | $           5.80
|September |   | $          63.80                                                               | $           (8.20) | $         55.60 |  | $           6.38 | $         (1.28) | $           5.10
|          |   |                                                                                |                    |                 |  |                  |                  |                 
|          | * | Deducts include locale differentials, transportation, and gravity adjustments.



Exploratory Activity



Williston Basin-Grizzly Prospect



We own an interest in 3,864 gross acres in McKenzie County, North Dakota. The
lands are located in western McKenzie County, near the Montana
border and are part of the Middle Bakken horizontal oil play. The Middle Bakken
pay zone is a Devonian silty dolomite located between the Upper Bakken Shale and
either a thin lower Bakken shale or the Three Forks Formation. Producing wells in the zone generally
consist of from one to three 4,000-5,000-foot horizontal laterals
or occasionally one longer 8,000-9,000-foot lateral.



Our initial test well, the Kodiak  Grizzly 13-6H (62.5%  working  interest (WI);
51.25% net revenue  interest  (NRI)-  Kodiak  operated),  has been  drilled to a
vertical  depth of 10,500 feet with  dual-laterals  for total  measured depth of
19,397 feet.  The well was put on  production  July 22 with initial rates of 115
barrels of oil per day (BOPD) flowing  naturally  without



16



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stimulation  or artificial  lift. In
late-September, the well was put on pump at an initial rate of 160  BOPD, and the  production  rates  have  declined  to
approximately  60 BOPD.  The well was fracture stimulated  in  November and is just
being flowed back.  Kodiaks  share of the drilling and
completion costs to date is $4.1 million.  Two miles to the west, the Company has
drilled the Kodiak Federal #4-11H well (62.5% WI; 54.69% NRI - Kodiak  operated)
to a vertical  depth of 10,500 feet,  and a total  measured depth of 24,500 feet
through a tri-lateral  well.  Kodiaks  share of the costs for drilling and
completion to date of the #4-11H well is $3.7 million. The well is averaging
325 BOPD and 100 mcfg/d through a 8/64ths inch choke with 1800 psi flowing tubing  pressure.

We have commenced drilling on a third location,  the Grizzly Federal #1-27H well
(62.5% WI; 52.98 NRI before payout  50.86% WI;  37.86% NRI after payout-  Kodiak
operated),  with a surface  location  that is three  miles  north of the  Kodiak
Federal  #4-11H.  The  drilling  block for this well  encompasses  two  stand-up
320-acre  tracts  and  an  estimated  9,000 foot horizontal  leg  will  be
drilled. Our intermediate string of casing at has been set at 10,815 feet and we
are  currently  drilling  horizontally.  Estimated  drill  time is 45 days,  with
drilling and completion costs net to Kodiak of $2.7 million.



Williston Basin-Wrangler/Lowell Prospect



We own a 50% WI and  operate  the  Wrangler/Lowell  Project  located in Sheridan
County,  Montana  encompassing  approximately  22,194 gross  acres.  The primary
producing  objectives include the Mission Canyon and the Red River Formations at
approximate depths of 8,000 feet and 11,000 feet, respectively. The initial test
well on the Lowell  Prospect (State #8-16) was drilled to a depth of 7,700 feet.
The well  encountered  13 feet of porosity and was placed on production in early
September 2005. In late 2005, we drilled three 160 acre offsets:  State
#6-16,  State #10-16 and Christensen Trust #15-9.  Current field production from
the four wells is approximately  400 BOPD (160 net BOPD
(Kodiak - 40% NRI)).  We have begun  permitting  procedures  for two  additional
development  drilling locations.  We anticipate that one of these locations will
be drilled in early 2007. Our share of drilling and completion for each location
is estimated to be approximately $500,000.



Further to the west, we recently  completed a  20-square-mile  3-D seismic shoot.
The  seismic  data has been  processed  and  interpreted  resulting  in  several
geologic  leads.  We have begun  permitting  procedures  for one  exploratory
drilling  location  that  would  evaluate  the  Mission  Canyon  and  Red  River
Formations.  We intend to commence  drilling on this location in late 2006.  Our
share of the seismic  program was $450,000, and our share of the
exploratory well is expected to be $1.25 million through completion.



Williston Basin-Great Bear Prospect



The Great Bear Prospect is located  along the  northwest  flank of the Williston
Basin in Divide County,  North Dakota.  The main  reservoir  objective is porous
dolomite in the Ordovician Red River Formation. The Red River Formation produces
oil and  natural  gas from  structural  and  stratigraphic  traps in the area of
interest. We have acquired an interest under approximately  14,500 gross acres on
the Great Bear Prospect.  Our initial well, the Pederson #14-9H well (43.75% WI - Kodiak
operated),
reached total depth on January 22, 2006. The  horizontal  well was drilled to an
approximate  vertical  depth of 10,600 feet and a total measured depth of 14,725
feet to test the Red River C  Formation.  Initial production testing
of the well resulted in 100% water. The liner in the lateral portion of the well
was pulled and a cement  plug was set  approximately  300 feet into the  lateral
well bore. The well swabbed at an  approximate  rate of 300 barrels of fluid per
day with up to 13% oil cut. Production  facilities
have been installed and the well was placed on pump in early September 2006 to determine
the volume of oil production  prior to additional  drilling.  The
well is currently  pumping five to 10 BOPD (90% water cut) and current plans are
to pump  the well  over the next  several  months  to  determine  if the oil cut
increases.  Completed  well costs were  approximately  $2.0  million  net to the
Companys working interest.



Approximately  three miles east of the Pederson well, we drilled the Nielsen
#14-12 well (50% WI;  operated by Kodiak) to a vertical  depth of 10,750 feet to
evaluate the Red River  C  Formation.  The well was determined to be
non-commercial;  however  we have  not  abandoned  the  location  as it is being
evaluated as a possible water disposal well for potential producing wells in the
area.  Completed  well  costs  are  approximately  $1.2 million  net to our
working interest.







17



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The Company has completed a reinterpretation of seismic data, and has identified additional potential locations.  Subject to continued production testing and drilling results in the Wrangler/Lowell project area, we intend to pursue additional geophysical leads during 2007.



Green River Basin--Vermillion Basin, Sweetwater County, Wyoming

Vermillion Basin Shallow - Almond Sandstone, Almond Coals and Ericson Sandstone



The Company is  participating  in a development  program of three vertical wells
(approximate  depth of 6,000 feet) on its Chicken  Springs Unit (50% WI; 42% NRI;
non-operator)  in  Sweetwater  County,  Wyoming to develop  natural gas from the
Almond  sands.  Drilling of the  initial  well began in  September  2006 and the
three-well program has been completed with fracture  stimulation work to follow.
The wells are direct offsets to the Companys  three producing wells in the
field.  The  Companys  share  of the  drilling  and  completion  costs  for these three wells is
estimated at $1.3 million.

Vermillion Basin Deep-Gas Project  Baxter Shale and Frontier and Dakota Sandstone

Chicken Springs, Chicken Ranch, Whiskey Canyon, Horseshoe Basin Units



Over the past two years, an unrelated exploration and development company has
completed 14 wells in the Vermillion  Basin area to evaluate the
deeper  natural gas potential of the Baxter Shale,  Frontier and Dakota sands at
depths ranging to approximately  15,000 feet. We believe that all of these wells
are on production.  We believe that the prospective  zones are present
over a very  large  geologic  area and have  undergone  the  proper  burial  and
subsequent uplift to generate hydrocarbons in the dry gas phase and maintain the
overpressuring   created  during  hydrocarbon   generation.
While the total prospective productive area and applicable
well drainage area are unknown, based on the
exploration work of other producers in the Green River basin, we believe that a 40 acre spacing may be
appropriate for optimum drainage on this prospect.  Based on the 49,427 gross acres (30,862 net) that we control,
we may have the potential for approximately 750 locations, based upon a 40-acre spacing pattern.
Currently  these  wells cost  approximately $4.5-5.0  MM per well for  drilling  and
completion.



Kodiak has recently commenced drilling operations on the North Trail-State #4-36
(100% WI   Kodiak  operated),  which is  expected to be drilled to a total
depth of 14,625 feet to evaluate  the natural gas  potential of the Baxter Shale
and Frontier and Dakota sands.  Intermediate casing has been set to 10,950 feet.
It is anticipated  that drilling  operations will be completed in early December
and completion  work will follow.  The nearest  third-party  production from the
targeted  formations is approximately  three miles southwest of our initial well
location.



Three miles to the west, Kodiak is permitting the NT Federal #1-33 well (100%
WI;
84.5% NRI  Kodiak operated).  The proposed test is 14,600 feet. Subject to
BLM lease stipulations,  drilling of this well is expected to commence immediately after
the North Trail #4-36  drilling is  completed.  Drilling time is estimated to be
similar to the initial well and should be completed  during the first quarter of
2007. The Trail #30 is currently being drilled and operated by Questar Corp. one
mile south of this location.



Approximately six miles northwest of the North Trail #4-36 and four miles north of
the NT Federal #1-33, Kodiak has permitted the #1-8 CR Unit (Kodiak operated)
well in its Chicken Ranch Unit. The proposed total depth is 14,800 feet. We
expect this well will be drilled in 2007.  We have commenced permitting procedures on an
additional nine locations in the immediate area.  We expect these permits to be
approved in early 2007, which will provide additional locations for our proposed
2007 drilling program.



Kodiak is permitting  four wells in its Horseshoe  Basin Unit to test the Baxter
Shale and Frontier and Dakota  sandstones.  The nearest  third-party  production
from the  targeted  formations  is located  approximately  six miles east in the
Canyon Creek and Whiskey  Canyon  Units.  The HB Unit #5-3  (approximate  60% WI
  Kodiak  operated)  well will be drilled to a total depth of 13,750 feet.
Pipeline  right-of-way  is in process and it is  anticipated  that drilling will
commence in 2007, after the BLM lease stipulations expire.





18



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Other Wyoming Prospects

Masterson /Shiprock Prospects-Sweetwater County, Wyoming



We have WI ranging from 40-70% in 5,260 gross acres in this geologic  area.  The
initial test well was drilled and cased to a depth of 6,970 feet in January 2005
and complted in the Second Frontier.  Production  from the well  commenced in August 2005. We
are seeking permits to drill  additional  locations in this same geologic region
and intend to  participate  in the drilling of at least one non-operated well before year end, with
an approximate  40% WI. Our share of the drilling and completion  costs for this
geologic area is estimated to be approximately $400,000.



Popskull Prospect-Converse County, Wyoming



We have a 23.4% WI in 2,560 gross acres that have been pooled with other working
interest  partners.  The initial  test well is expected to commence  drilling in
early 2007 and will test the potential of the Muddy  Sandstone at a
depth of 12,500  feet.  Outside  the pooled  area,  Kodiak owns 100% WI in 7,507
gross,  6,289 net acres where we have mapped the potential of the Muddy channel.
Our  share of the  drilling  and  completion  costs  for this  geologic  area is
estimated to be approximately $600,000.



Product Prices and Production



Our results of operations and financial condition are significantly  affected by
oil and natural gas  commodity  prices,  which can fluctuate  dramatically.
Commodity  prices are beyond our control and are  difficult  to
predict. Oil and gas volume and price realization  comparisons for the indicated
periods are set forth below.  The Company does not hedge any of its  production.



|           |  |                                  |                                 |                    
|---------- |  | -------------------------------- | ------------------------------- | -------------------
|           |  |                                  |                                 |                    
|           |  | Three months ended September 30, | Nine months ended September 30,
|           |  | 2006                             |                                 | 2005               
|          
|Volume:    | 
|Gas (Mcf)  |  | 36,434                           |                                 | 23,030             
|Oil (Bbls) |  | 14,316                           |                                 | 300                
|           | 
|Price:     | 
|Gas (Mcf)  |  | $              5.02              |                                 | $              5.43
|Oil (Bbls) |  | $            62.66               |                                 | $            59.68 



Exploration and Development Costs



The prices  received for domestic  production of
oil and gas  have  increased  significantly  during  the past  several  years in
response to global  political issues and domestic  shortages.   The cost of
the services we need to drill, complete and operate wells has also increased and
in  some  cases  shortages  have  developed.   For  example,  there  are an
inadequate  number of drilling rigs in the west to satisfy the drilling needs of
exploration  companies  such as  Kodiak.  In 2006, we have continued to experience
increases in rig rates,  field service costs,
material  prices,  and  all  other costs  associated  with  drilling,  completing  and
operating  wells.  While  commodity  prices  are still at
historically  high levels,  we have seen a decline over the past sixty days.  In
the event commodity prices continue to decline over a longer period,  we believe
that the trend toward increasing costs and equipment shortages could ease during
the first half of 2007.  Although we have a formal  process for  establishing  a
drilling budget,  we continue to adjust this budget as additional  opportunities
arise or as the economics of our planned activities change.



19



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Results of Operations



Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005



The Company  reported a net loss for the nine months ended September 30, 2006 of
$1,402,912 compared with a net loss of $868,210 for the same period in 2005. The
Companys  earnings  before  interest,  taxes,   depreciation,   depletion,
amortization,   gain  on  foreign   currency   and  stock  based   compensation,
(EBITDA)  increased to $968,489 from a loss of $849,059 for the nine
months  ending  September 30, 2006 and 2005  respectively.  EBITDA is not a GAAP
measure of  performance.  We use this  non-GAAP  performance  measure
primarily to compare our performance  with other companies in the industry that
make a similar  disclosure.  The Company believes that this performance  measure
may also be useful to  investors  for the same  purpose.  Investors  should  not
consider this measure in isolation or as a substitute for operating  income,  or
any other measure for determining the Companys  operating performance that
is calculated in accordance with GAAP. In addition, because EBITDA is not a GAAP
measure,  it may not  necessarily  be  comparable to similarly  titled  measures
employed by other companies.  A reconciliation  between EBITDA and net income is
provided in the table below:



|                                               |                                  |              
|---------------------------------------------- | -------------------------------- | -------------
|                                               |                                  |              
|                                               | Nine Months ending September 30,
|Reconciliation of EBITDA:                      | 2006                             | 2005         
|                                              
|Net Loss                                       | $  (1,402,912)                   | $   (868,210)
|Add back:                                     
|Depreciation, depletion & amortization expense | 1,374,019                        | 29,019       
|Gain on foreign currency exhange               | (374,770)                        | (9,868)      
|Stock based compensation expense               | 1,372,152                        | --           
|                                              
|EBITDA                                         | $      968,489                   | $   (849,059)
|                                              



Gas production volumes were 93,721 and 28,907 Mcf for the nine month periods ended September 30, 2006 and 2005, respectively.  Oil production volumes were 38,223 and 300 barrels for the nine month period ended September 30, 2006 and 2005.  As shown above, total gas price realizations decreased 16.5% to $5.96 per Mcf for the nine month period ended September 30, 2006 compared to the same period ending September 30, 2005.  Oil price realizations decreased 1.42% to $58.93 per barrel for the period ended September 30, 2006. The net effect of the pricing and volume changes resulted in oil and gas revenues of $2,811,267 for the nine month period ended September 30, 2006 compared to $101,516 for the same period ending September 30, 2005.

The Company recorded lease operating and production taxes of $543,682 during the nine month period ended September 30, 2006, as compared to $130,039 during the same period in 2005. Depreciation, depletion, amortization and abandonment liability accretion was $1,374,019 for the nine month period ended September 30, 2006 compared to $29,019 for the same period in 2005.  The changes in these expenses reflect the Companys growing production base, number of producing wells and revenues.



The  Companys  general and  administrative  costs of $3,270,534 during the
nine months ended September 30, 2006 compares to $891,263 for the same period in
2005.  Included in the 2006 general and administrative  expense is a stock based
compensation charge of $1,121,093 for options issued to Officers,  Directors and
employees  in  compliance  with  Statement  of  Financial  Accounting  Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation.  There were
no options granted in 2005. The increase in general and administrative  expenses
is a result of the  increase in the number of employees and related
salary  expenses, and level of activity.  The Company  currently  has eleven full
time employees and two part time  employees,  an increase of seven from the same
period in 2005.  Salary and  payroll  expense  for the nine month  period  ended
September  30, 2006 was  $1,075,595  compared to $575,319 for the same period in
2005. The Company has also incurred additional legal expenses





20



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and additional costs related to outside accounting services, as a result of the Companys filings with the Securities and Exchange Commission, costs associated with the application for trading on the AMEX, and costs incurred for year end reporting to shareholders.  The Company commenced trading on the AMEX on June 21, 2006.



Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005



The Company reported a net loss for the three months ended September 30, 2006 of $389,288 compared with a net loss of $52,252 for the same period in 2005. The Companys earnings before interest, taxes, depreciation, depletion, amortization, gain on foreign currency and stock based compensation, (EBITDA) increased to $349,973 from a loss of $218,111 for the nine months ending September 30, 2006 and 2005 respectively.  EBITDA is not a GAAP measure of performance.  The company uses this non-GAAP performance measure primarily to compare its performance with other companies in the industry that make a similar disclosure.  The Company believes that this performance measure may also be useful to investors for the same purpose.  Investors should not consider this measure in isolation or as a substitute for operating income, or any other measure for determining the Companys operating
performance that is calculated in accordance with GAAP.  In addition, because EBITDA is not a GAAP measure, it may not necessarily be comparable to similarly titled measures employed by other companies.  A reconciliation between EBITDA and net income is provided in the table below:



|                                               |                                   |              
|---------------------------------------------- | --------------------------------- | -------------
|                                               |                                   |              
|                                               | Three Months ending September 30,
|Reconciliation of EBITDA:                      | 2006                              | 2005         
|                                              
|Net Loss                                       | $  (389,288)                      | $    (52,252)
|Add back:                                     
|Depreciation, depletion & amortization expense | 494,829                           | 15,287       
|Gain on foreign currency exchange              | (6,627)                           | (181,146)    
|Stock based compensation expense               | 251,059                           | --           
|                                              
|EBITDA                                         | $   349,973                       | $  (218,111) 
|                                              



Gas production volumes were 36,434 and 23,030 Mcf for the three month periods ended September 30, 2006 and 2005, respectively.  Oil production volumes were 14,316 and 300 barrels for the three month periods ended September 30, 2006 and 2005.  As the oil and gas price and volume table above shows, total gas price realizations decreased 7.55% to $5.02 per Mcf for the three month period ended September 30, 2006 compared to the same period ending September 30, 2005.  Oil price realizations were $62.66 per barrel for the three month period ended September 30, 2006 compared to $59.78 for the same period ending September 30, 2005. The net effect of the pricing and volume changes resulted in oil and gas revenues of $1,040,589 for the three month periods ended September 30, 2006 compared to $87,971 for the same period ending September 30, 2005.



The Company recorded lease operating and production tax expense of $194,021 during the three month period ended September 30, 2006, as compared to $15,287 during the same period in 2005. Depreciation, depletion, amortization and abandonment liability accretion was $352,837 for the three month period ended September 30, 2006 compared to $15,287 for the same period in 2005.  The changes in these expenses reflect the Companys growing production base, number of producing wells and revenues.



The Companys general and administrative costs of $980,100 during the three
months  ended  September  30, 2006  compares to $289,791  for the same period in
2005. Included in the September 30, 2006 general and administrative expense is a
stock based  compensation  charge of $251,059  for options  issued to  Officers,
Directors  and employees in compliance  with  Statement of Financial  Accounting
Standards  (SFAS) No. 123, Accounting for Stock-Based  Compensation.
The  increase  in  general  and  administrative  expenses  is a  result  of  the
Companys  increased  staffing  requirements  and  level of  activity.  The
Company  currently has eleven full time employees and two part time  employees,  an
increase of seven from the same period in 2005.





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Liquidity and Capital Resources



As of September 30, 2006, the Company had working capital of $21,024,758 and no long term debt.  The Company believes that its current working capital and cash flow from operations will fund the Companys anticipated exploration and development drilling program through year end and into the first part of 2007. During the three and nine month periods ended September 30, 2006, the Companys share of exploration and development costs was $4,082,247 and $22,111,417 respectively.  Included in the nine month expenditures was $6.9 million for the acquisition of mineral leaseholds in the Companys Vermillion Basin project.  As a result of such property acquisitions, the Company has revised its budgeted capital expenditures to reduce drilling expenditures on lower priority exploration prospects.



The Company is currently operating two rigs in the Rocky Mountain Region. We have
secured one drilling rig for our two-well program in our deep Vermillion
Basin prospect area. This drilling program has commenced and drilling activity
should be completed during the first quarter of 2007. The drilling rig that we have under contract
in the Williston Basin is subject to a sixty day notice to
retain. We are planning to move this rig from our Grizzly prospect in McKenzie
County, ND to our Lowell/Wrangler prospect in Sheridan County, MT in the fourth
quarter. We anticipate utilizing this rig into the first quarter of
2007. Future expenditures will be subject to drilling rig availability and the
results of continued production. We anticipate capital expenditures
of approximately $12.3 million over the remaining three months of 2006. The
costs will be allocated between the Green River Basin ($7.6 million) and the
Williston Basin ($4.7 million).



We currently do not have sufficient capital resources to fund our anticipated 2007 capital requirements. In
addition to our existing cash and short term investments and cash flow from operations, expect that we will need to undertake one or
more debt or equity financings to fully fund our anticipated 2007 exploration and development program. At October 31, 2006, we had no
lines of credit or other bank financing arrangements. We are currently in discussions with a lender to establish a credit facility
and we anticipate that we may have one in place by year end. We cannot be certain that additional funding will be available on
acceptable terms, or at all. If we are unable to raise additional capital when required or on acceptable terms, we may have to
significantly delay, scale back or discontinue our drilling or exploration program, seek to enter into a joint venture arrangement
with a third party to fund our planned exploration and drilling programs, or seek to sell one or more of our existing properties.



Financial Instruments and Other Instruments



As of  September  30, 2006 the Company  had cash,  accounts  payable and accrued
liabilities,  which are carried at  approximate  fair value  because of the short
maturity   date  of  those   instruments.   Unless   otherwise   noted,   it  is
managements  opinion  that  the  Company  is not  exposed  to  significant
interest,    currency   or   credit   risks   arising   from   these   financial
instruments.





Critical Accounting Policies and Estimates



We refer you to the corresponding section in Part I, Item 5 of our Annual Report on Form 20F for the year ended December 31, 2005.



Recently Issued Accounting Pronouncements:



In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No.133 and 140." SFAS No. 155 amends SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," and also resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, "Application of Statement 133 to Beneficial Interests in Securitized Financial Assets."  SFAS No. 155 was issued to eliminate the exemption from applying SFAS No.133 to interests in securitized financial assets so that similar instruments are accounted for in a similar fashion, regardless of the instrument's form.  The Company

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does not believe that its financial position, results of operations or cash flows will be impacted by SFAS No.155 as the Company does
 not currently hold any hybrid financial instruments.



In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes.  The interpretation clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes.  Specifically, the pronouncement prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on the related derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition of uncertain tax positions. The interpretation is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 would not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.



In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). This Statement defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure related to the use of fair value measures in financial statements. The Statement is to be effective for the Companys financial statements issued in 2008; however, earlier application is encouraged. The Company is currently evaluating the timing of adoption and the impact that adoption might have on its financial position or results of operations.



In September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 108 ("SAB 108"). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006, and early application is encouraged. The Company does not believe SAB 108 will have a material impact on its financial position or results from operations.



Off-Balance Sheet Arrangements



We do not have any off-balance sheet financing arrangements at September 30, 2006.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Commodity Price Risk



Our primary market risk is market changes in oil and natural gas prices.  Prospective revenues from the sale of products or properties will be impacted by oil and natural gas prices.  A $1.00 per mcf change in the market price of natural gas will result in approximately a $94,000 change in our gross gas production revenue.  A $1.00 per barrel change in the market price of oil will result in approximately a $38,000 change in our gross oil production revenue. The impact on any potential sale of property cannot be readily determined.



Interest Rate Risk



We currently maintain some of our available cash in redeemable short term investments, classified as cash equivalents, and our reported interest income from these short term investments could be adversely affected by any material changes
 in US dollar interest rates.  A 1% change in the interest rate would have approximately a $54,000 impact if all of our cash was invested in interest bearing notes.





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ITEM 4. CONTROLS AND PROCEDURES



Under the supervision and with the  participation of our management, we evaluated
the design and operation of our  disclosure  controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or
the Exchange  Act) as of June 30, 2006. On the basis of this review,
our  management  concluded  that our  disclosure  controls and  procedures  are
effectively designed to give reasonable assurance that the information
we are required to disclose in reports that we file under the Exchange Act is
recorded,  processed,  summarized and reported within the time periods specified
in the rules and forms of the SEC and to ensure that information  required to be
disclosed  in  the  reports  filed  or  submitted  under  the  Exchange  Act  is
accumulated and  communicated  to our management,  including our Chief Executive
Officer and Chief Financial  Officer,  in a manner that allows timely  decisions
regarding  required  disclosure.  There were no  changes  in the  Companys
internal  controls over  financial  reporting  that occurred in the third fiscal
quarter of 2006 that materially affected or were reasonably likely to materially
affect, its internal control over financial reporting.



PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

| | None.
| | -----

ITEM 1A. RISK FACTORS



Information about material risks related to the Companys business, financial condition and results of operations for the three and nine months ended September 30, 2006, does not materially differ from that set out in Risk Factors of the Companys Annual Report on Form 20F for the year ended December 31, 2005.



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

| | None.
| | -----

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

| | None.
| | -----



Additional information relating to the Company is available on SEDAR at www.sedar.com





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ITEM 6.  EXHIBITS



| | (a) | Exhibits
| | --- | --------



31.1   Certification of the Chief Executive Officer and Chief Accounting Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002



32.1   Certification of the Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350







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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|KODIAK OIL & GAS CORP.(Registrant)/s/ Lynn A. PetersonLynn A. PetersonPresident
|-------------------------------------------------------------------------------

Dated:  November 14, 2006.







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