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04 May 2016
New York, May 04, 2016 -- Moody's Investors Service (Moody's) confirmed Ecopetrol S.A.
(Ecopetrol)'s Baa3 senior unsecured ratings. The company's
ba3 BCA (Baseline Credit Assessment) remained unchanged. The outlook
on the ratings is negative.
This concludes Ecopetrol's ratings review initiated on January 18,
..Issuer: Ecopetrol S.A.
.... Issuer Rating, Confirmed at Baa3
....Multiple Seniority Shelf, Confirmed
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Baa3
..Issuer: Ecopetrol S.A.
....Outlook, Changed To Negative From
Rating Under Review
"Ecopetrol's ratings confirmation was based on Moody's view that,
although the company's Exploration and Production (E&P) business will
post weak operating metrics in the next couple of years given low oil
prices, high cost structure and declining production, the
company's midstream and downstream businesses will support stable
cash flows, enough to sustain financial metrics in credit-protective
levels," said Nymia Almeida, a Senior Credit Officer
at Moody's. "Furthermore, Moody's continues
to assume high probability of support from the Government of Colombia
(Baa2 stable) and a moderate default dependence between the two entities.
This assessment results in a three-notch uplift of Ecopetrol's
senior unsecured rating to Baa3 from its ba3 BCA."
Ecopetrol's capex reduction of 38% in 2016 to around USD
3 billion is positive as a measure to protect liquidity. Going
forward, investments in downstream will decline materially once
the upgrade of the Cartagena refinery is completed. However,
lower capex in 2016 will weaken production, which Moody's
expects will decline by over 8% annually in 2016 and 2017.
Longer term, lower capex will also put pressure on the company's
reserve replacement, which is critical since Ecopetrol's reserve
life as of December 2015 was only 7.4 years. Favorable results
from the midstream business, which benefits from high capacity utilization
and adequate tariffs, as well as the 25% higher refining
capacity and efficiency improvements starting in June 2016, will
contribute to Ecopetrol's ability to post flat to slightly positive
free cash flow in the next couple of years, assuming no dividend
payments in the period.
The company's Baa3 ratings and ba3 BCA continue to reflect Ecopetrol's
status as Colombia's leading oil and gas producer, accounting for
about two-thirds of the country's production and 100% of
the supply of oil products. The ratings also take into consideration
Ecopetrol's more stable cash flows from its midstream subsidiary,
Cenit, which includes Ocensa (Baa3 negative).
Ecopetrol has a weak liquidity position that includes USD 2.2 billion
of cash and cash equivalents as of December 31, 2015 to cover the
company's short term maturities of about USD 1.2 billion for 2016
and 2017 plus interest and capex. Liquidity buffers include asset
sales as the company has a wide portfolio of valuable core and non-core
assets. In the current environment, divestitures of upstread
assets pose challenges but midstream and downstream assets could be relatively
easily monetized. Although about 85% of the company's debt
is denominated in hard currencies, local currency devaluation risk
is not high for Ecopetrol given that a large portion of its EBITDA is
in US dollars.
The negative outlook on Ecopetrol's ratings reflects the weak results
in its E&P business in terms of cash margin, production growth
and reserve levels. Although its midstream and downstream business
have supported Ecopetrol's consolidated results, a sustained
negative performance in E&P will have a material negative effect on
the company's credit profile in the medium to long term.
A ratings downgrade could occur if Ecopetrol's fails to post EBITDA
in the USD 4 billion neighborhood in the next 12 months or if it faces
liquidity constraints. In addition, because Ecopetrol's
ratings benefit from implicit support from the government of Colombia,
a downgrade of the government's rating or a change in Moody's assumptions
about government support could lead to a downgrade of Ecopetrol's
ratings. Conversely, a rating upgrade is not envisioned in
the medium term but the outlook on Ecopetrol's ratings could be
stabilized if during 2016 the company manages to reverse the trend of
sharp decline in production and weak E&P margins as a result of achieving
further operating or capital efficiencies.
The principal methodology used in these ratings was Global Integrated
Oil & Gas Industry published in April 2014. Other methodologies
used include the Government-Related Issuers published in October
2014. Please see the Ratings Methodologies page on www.moodys.com
for a copy of these methodologies.
Ecopetrol is the largest integrated oil and gas company in Colombia.
It is responsible for over 60% of total Colombian oil production
and has a proved hydrocarbon reserve position of roughly 1.8 billion
barrels of oil equivalent at the end of 2015. The company has three
business segments, exploration and production (E&P, 51%
of revenues and 56% of EBITDA), refining activities (34%
of revenues and 5% of EBITDA), and transportation and logistics
(15% of revenues and 39% of EBITDA). Its production
averaged 761 mboed in 2015.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Nymia C. Almeida
VP - Senior Credit Officer
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
MD - Corporate Finance
Corporate Finance Group
Moody's confirms Ecopetrol's Baa3 ratings; negative outlook
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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