TLM

Ecopetrol's shares rose to a new record after the announcement that the company will purchase BP PLC's (BP) oil and exploration business in Colombia, marking the largest acquisition in the history of the state-owned oil firm.

Ecopetrol's (ECOPETROL.BO) shares climbed 2.86% and closed at 3,235 pesos ($1.76) as investors welcomed the company's plan to buy BP's oil and exploration assets in Colombia.

Ecopetrol is teaming up with Canadian oil firm Talisman Energy (TLM.T) to pay $1.9 billion for BP's assets. Under the agreement, Ecopetrol will have a controlling 51% stake and Talisman will own 49%.

The acquisition could a stepping stone as Ecopetrol embarks on an ambitious expansion plan for the next few years. The company, which is 89.9% state-owned, expects its oil production to grow 18% by the end of this year to 685,000 barrels per day. For 2011, the company says it will be producing 871,000 barrels per day.

With the purchase of the BP assets, Ecopetrol and Talisman will add 94 million barrels in reserves and current production of 24,000 barrels of oil equivalent per day.

The deal also gives Ecopetrol and Talisman control over BP's minority stake in four key pipelines at a time that the country is suffering bottlenecks as pipeline development hasn't kept up with the growth in oil output.

The purchase has "strategic value" because of the pipeline interests, said a research note from brokerage firm Interbolsa SA.

Ecopetrol is also taking control of two off-shore oil exploration blocks in the Caribbean controlled by BP. "The projects are very promising," said Mauricio Restrepo, an oil industry analyst with local brokerage firm Bolsa y Renta.

Ecopetrol president Javier Gutierrez told local radio station Caracol that BP's operations "are located in one of the areas in Colombia with the highest prospects." The negotiations with BP, Gutierrez said, lasted "a few days."

BP is unloading its Colombian operations as part of $30 billion asset-disposal program to pay for the costs of the Gulf of Mexico oil spill.

Ecopetrol is likely to pay for the purchase without issuing debt, Restrepo said. The company has seen its net income soar this year on higher oil prices and output.

Ecopetrol also calculated its budget for this year at $56 per barrel, which means that the company hasn't had to finance its investments with loans or debt issues this year.

The oil company plans to invest $80 billion between 2011 and 2020 in a bid to double its output and boost refining and petrochemical activities. If Ecopetrol's plan is successful, the company could produce 1.3 million barrels of oil equivalent a day in 2020.

The BP deal represents the largest acquisition by Ecopetrol. In 2009, the company paid $742 million for the Colombian unit of French oil company Etablissements Maurel et Prom SA (MAU.FR), Hocol Petroleum Ltd.

Ecopetrol, like other smaller oil firms operating in Colombia, has benefited from the improved security in Colombia's rural areas under the iron-handed security policies of outgoing President Alvaro Uribe, who is set to be replaced by former defense minister Juan Manuel Santos on Aug. 7.

-By Darcy Crowe, Dow Jones Newswires; (57) 1 703 8953; darcy.crowe@dowjones.com

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