Fitch Ratings Improves Outlook for Ecopetrol to Stable and Affirms BBB Rating

This week, Fitch Ratings affirmed Ecopetrol‘s BBB rating and upgraded its outlook for the state-controlled energy company from negative to stable. The BBB rating applies to both the company’s local and foreign currency long-term risk rating.

The outlook improvement followed the New York-based ratings agency making the same upgrade to Colombia’s sovereign rating, which it correlates highly with Ecopetrol’s credit situation. The cities of Bogotá and Medellín also received an outlook change from negative to stable last week in the wake of the nation’s upgrade.

Fitch Ratings first put Colombia’s sovereign rating outlook on negative watch last July. It followed suit with the same action for Ecopetrol, Bogotá, and Medellín.

According to Ecopetrol, its outlook upgrade reflects a sound financial position and the ability to respond to a high volatility oil price environment as well as the the firm’s “solid relationship with the Republic of Colombia and its strategic importance for the supply of crude and refined products for the country.” This is supported by strong cash generation, an adequate capital structure, and a high capacity to meet its debt payment obligations, said Ecopetrol in a statement.

Just days earlier, Ecopetrol reported its 2016 earnings. While noting that it had suffered a difficult operating year marked by low oil prices, CEO Juan Carlos Echeverry announced that the company has planned to devote some $650 million USD to exploration investment in 2017, more than double the amount it spent last year.

“Adding reserves and maintaining the pace of production are the company’s focus,” said Echeverry. “The exploration campaign will be stepped up significantly in regions of high prospectivity. Investment in exploration will rise from $280 million USD to $650 million USD, thus increasing offshore wells from two to six and onshore wells from five to 11 from 2016 to 2017. Enhanced recovery will continue to leverage additional reserves in mature fields. We stress that a strong cash position allows us to assess opportunities for inorganic growth in the Ecopetrol Business Group’s reserves.”