Fitch Expects to Rate Ecopetrol's USD2B Proposed Issuance 'BBB'

  Fitch Expects to Rate Ecopetrol's USD2B Proposed Issuance 'BBB'

Business Wire

CHICAGO -- May 20, 2014

Fitch Ratings expects to assign a rating of 'BBB' to Ecopetrol S.A.'s
(Ecopetrol) proposed USD2 billion senior unsecured issuance. The company
expects to use the proceeds from the issuance to finance its investment
program as well as for general corporate purposes.

KEY RATING DRIVERS

Ecopetrol's ratings reflect the close linkage with the Republic of Colombia
(FC and LC IDRs of 'BBB' and 'BBB+', respectively), which currently owns 88.5%
of the company. Ecopetrol's ratings also reflect its strong financial profile
and improving production levels. Ecopetrol's growth strategy and associated
capital investment are considered aggressive and, in Fitch's view, could be
challenging to achieve. Ecopetrol is expected to maintain a financial and
credit profile consistent with the assigned rating.

Linkage to Sovereign

Ecopetrol's ratings are linked to the credit profile of the Republic of
Colombia, which owns 88.5% of the company's total capital. The company is also
linked closely with the Colombian government through its reliance upon the
receipt of the price difference from selling fuel in the local market instead
of the export market. The company generates approximately 20% of government
revenues and is of great strategic importance to the country given that it
supplies virtually all liquids fuel demand in Colombia. The company also owns
100% of the country's refining capacity.

Aggressive Growth Strategy

Ecopetrol's growth strategy is aggressive and could be challenging for the
company. The company plans to increase consolidated production to 1.3 million
barrels of oil equivalent per day (boepd) by 2020, from 788,200 boepd of
consolidated production during 2013. It also intends to increase refining
capacity to 420,000 barrels per day (bpd) from 335,000 bpd. These aggressive
goals increase both business and event risk. Fitch believes that Ecopetrol
will face challenges in meeting these goals.

Improving Operating Metrics

The company's operating metrics have been improving during recent years and
are now considered somewhat in line with the assigned rating category.
Ecopetrol's reserve life stood at 8.1 as of year-end 2013. The company will
need to maintain its average Reserve Replacement Ratio (RRR) at or above 164%
in order to maintain or increase its reserve life profile while still reaching
its 2020 production target. Failure to maintain this level of RRR while
increasing production to the company's stated target will reduce Ecopetrol's
reserve life, which will imply a the need for higher investments in the
future.

Strong Financial Profile

Ecopetrol maintains a strong financial profile with USD14.6 billion of EBITDA
and USD11.6 billion of debt as of the latest 12 months (LTM) ended March 2014.
This translates into a financial leverage ratio of approximately 0.8 times
(x). The company reported moderate leverage (measured as total proven reserves
to total debt, of approximately USD4.2 per barrel), sizable reserves, and
increasing production levels. These factors, plus its dominant domestic market
share, allow the company to generate consistently strong cash flows from
operations and meet its obligations in a timely manner. Liquidity is adequate
with USD5.5 billion of consolidated cash and equivalents as of March 31, 2014.

Aggressive Capex Plan

Ecopetrol plans to finance its USD68.5 billion capital expenditure program for
2014-2020 using internal cash flow generation and debt issuances, as well as,
possibly, additional primary-equity offerings. These could increase
Ecopetrol's total floating capital to as much as 20%. Due to the high dividend
policy and aggressive capital expenditure plan, free cash flow (FCF) is
expected to be under pressure in the foreseeable future. In addition, debt
could continue rising, while leverage is expected to remain within the
assigned rating category.

RATING SENSITIVITY

An upgrade could result from an upgrade of Colombia's ratings coupled with
continued financial and performance strong operating; namely, maintaining or
increasing the reserve life ratio as production grows.

A downgrade could occur following a downgrade of Colombia's sovereign ratings,
an increase in leverage beyond Fitch's expectations (e.g. above 3.0x), weak
operating performance resulting in a sustained production-to-reserves level
below five years, and/or a sharp and extended commodity price downturn.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'Parent and Subsidiary Rating Linkage' (Aug. 5, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Parent and Subsidiary Rating Linkage Fitch's Approach to Rating Entities
within a Corporate Group Structure

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714476

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=830896

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Contact:

Fitch Ratings
Primary Analyst
Lucas Aristizabal
Director
+1 312-368-3260
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Jose Luis Rivas
Associate Director
+57-1-3269999 ext. 1016
or
Committee Chairperson
Glaucia Calp
Senior Director
+57-1-3269999 ext. 1110
or
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com
 
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