Fitch Ratings Affirms Ecopetrol at 'BB'.

CHICAGO -- Fitch Ratings has affirmed the foreign currency rating of Ecopetrol S.A. (Ecopetrol) at 'BB' and the local currency rating at

'BBB-'. Ecopetrol's ratings are strongly linked with the credit profile of the Republic of Colombia (local and foreign currency ratings of 'BBB-' and 'BB', respectively), the company's shareholder. The Rating Outlook is Stable.

The assigned ratings are supported by a strong financial profile, successful reorganization efforts, sizable reserves, and dominant domestic market share. These positives are tempered by vulnerability to fluctuations in international commodity prices, declining reserves and production activity, and tightening environmental regulations. Fluctuations in energy prices are mitigated by the company's hedging policy to guarantee minimum required payments to the government. As noted, the rating of Ecopetrol is strongly linked to that of the Colombian government, based on the company's nature as a state-owned entity and the government's ultimate ability to restrict the company's financial flexibility, including the possible widening of the purposes of its borrowing to quasi-sovereign and fiscal, rather than commercial, uses. The linkage is further strengthened by the importance of Ecopetrol to public-sector revenues and by the government's restrictions on Ecopetrol's budget.

Ecopetrol has been facing declining production of crude oil and may soon become a net importer of crude without significant new discoveries. To address this, the company has recently increased its capital expenditures to expand its exploration and production activities. The company also needs to improve its refineries to comply with more strict domestic environmental standards, as well as increase its opportunity for exports. Completion of a substantial capital-expenditure program at Barrancabermeja and Cartagena, Ecopetrol's principal refineries, should improve the company's ability to grow revenues through increased production of value-added products, improving operating cash flow and reducing product import requirements by 2008.

Strong international crude oil and product prices have offset declining volumes in the Cusiana and Cupiagua fields, which, coupled with successful cost-reduction efforts, have allowed for the strengthening of the company's financial profile. However, the absence of new exploratory finds and continued decrease in production may challenge medium-term financial flexibility and profitability. Current and forecasted credit protection measures are solid for the rating category.

Ecopetrol is an integrated oil company majority-owned by the Colombian government. The company's activities include exploration for and production of crude oil and natural gas and refining, transportation, distribution, and marketing of refined products. Ecopetrol is Latin America's fourth-largest integrated oil concern. Operations are organized into exploration and production, refining and marketing, transportation, and international commerce and gas.