UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Annual
Report on Form 20-F/A




 ̈ REGISTRATION STATEMENT
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT


OF
1934


OR


x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the
fiscal year ended December 31, 2008


OR


 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
transition period from ____________ to ___________


OR


 ̈ SHELL COMPANY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF


1934


Date of
event requiring this shell company report __________________


Commission
file number: 001-34175




ECOPETROL
S.A.


(Exact
name of Registrant as specified in its charter)




N/A


(Translation
of Registrant’s name into English)




REPUBLIC
OF COLOMBIA


(Jurisdiction
of incorporation or organization)




Carrera 7
No. 37 – 69


BOGOTA –
COLOMBIA


(Address
of principal executive offices)




Alejandro
Giraldo


Investor
Relations Officer


alejandro.giraldo@ecopetrol.com.co


Tel.
(571) 234 4254


Fax.
(571) 234 5628


Calle 37
N.7-43 Piso.3


Bogota,
Colombia


(Name,
Telephone, E-Mail and/or Facsimile number and Address of Company Contact
Person)




Securities
registered or to be registered pursuant to Section 12(b) of the
Act.




Title of
      each class
            
            Name
      of each exchange on which registered:American
      Depository Shares (as evidenced by American Depository Receipts), each
      representing the right to receive20
      Common Shares
            
            New
      York Stock ExchangeEcopetrol
      Common Shares par value Ps$250 per share*
            
            New
      York Stock Exchange





*Not for
trading but only in connection with the registration of the American Depositary
Shares pursuant to the requirements of the SEC.




Securities
registered or to be registered pursuant to Section 12(g) of the
Act:  None




Securities
for which there is a reporting obligation pursuant to Section 15(d) of
the Act:  None




Indicate
the number of outstanding shares of each of the issuer’s classes of capital
or common stock as of the close of the period covered by the annual
report.




Common
Shares, par value Ps$250 per share:  40,472,512,588




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.




 ̈ Yes x No




If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.




 ̈ Yes x No




Note:  Checking
the box above will not relieve any registrant required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 from
their obligations under those Sections.




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.




 ̈ Yes x No




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).




 ̈ Yes  ̈ No




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act.  (Check one):




Large
accelerated filer  ̈   
Accelerated filer  ̈     
 Non-accelerated filer x




Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:


 ̈  U.S.
      GAAP
               ̈ 
      International Financial ReportingStandards as issued by
      theInternational
      Accounting Standards
                Board
              x
    Other





If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow:




 ̈ 
Item 17          x 
Item 18




If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).




 ̈ Yes x No




(APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)




Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.




 ̈ Yes  ̈ No




EXPLANATORY
NOTE
 
 This
annual report on Form 20-F/A of Ecopetrol S.A. replaces in its entirety the
annual report on Form 20-F of Ecopetrol S.A. that was originally filed on June
30, 2009 (the “2008 Form 20-F”) and corrects the following typographical errors
in Item 3A: “Selected Financial Data – Income Statement” of the 2008 Form
20-F:  (i) the U.S. GAAP reconciliation in U.S. Dollars of income
before income tax and minority interest for fiscal year 2008, (ii) the U.S. GAAP
reconciliation in Pesos of income before income tax and minority interest for
fiscal year 2008 and (iii) the U.S. GAAP reconciliation in Pesos of net income
for fiscal year 2008.





Table
of Contents




PageForward-Looking
      Statements
                    
                    1Enforcement
      of Civil Liabilities
                    
                    1Presentation
      of Financial Information
                    
                    2Presentation
      of Information Concerning Reserves
                    
                    3ITEM 1
                    Identity
      of Directors, Senior Management and Advisors
                    
                    4ITEM 2
                    Offer
      Statistics and Expected Timetable
                    
                    4ITEM 3
                    Key
      Information
                    
                    4ITEM 3A
                    Selected
      Financial Data
                    
                    4ITEM 3B
                    Capitalization
      and Indebtedness
                    
                    6ITEM 3C
                    Reasons
      for the Offer and Use of Proceeds
                    
                    6ITEM 3D
                    Risk
      Factors
                    
                    6ITEM 4
                    Information
      on the Company
                    
                    19ITEM 4A
                    History
      and Development of the Company
                    
                    19ITEM 4B
                    Business
      Overview
                    
                    20ITEM 4C
                    Organizational
      Structure
                    
                    59ITEM 4D
                    Property,
      Plant and Equipment
                    
                    60ITEM 4.A
                    Unresolved
      Staff Comments
                    
                    60ITEM 5
                    Operating
      and Financial Review and Prospects
                    
                    60ITEM 5A
                    Operating
      Results
                    
                    66ITEM 5B
                    Liquidity
      and Capital Resources
                    
                    76ITEM 5C
                    Research
      and Development, Patents and Licenses, etc.
                    
                    78ITEM 5D
                    Trend
      Information
                    
                    78ITEM 5E
                    Off-Balance
      Sheet Arrangements
                    
                    78ITEM 5F
                    Tabular
      Disclosure of Contractual Obligations
                    
                    78ITEM 5G
                    Safe
      Harbor
                    
                    82ITEM 6
                    Directors,
      Senior Management and Employees
                    
                    82ITEM 6A
                    Directors
      and Senior Management
                    
                    82ITEM 6B
                    Compensation
                    
                    85ITEM 6C
                    Board
      Practices
                    
                    86ITEM 6D
                    Employees
                    
                    86ITEM 6E
                    Share
      Ownership
                    
                    89ITEM 7
                    Major
      Shareholders and Related Party Transactions
                    
                    89ITEM 7A
                    Major
      Shareholders
                    
                    89ITEM 7B
                    Related
      Party Transactions
                    
                    90ITEM 7C
                    Interests
      of Experts and Counsel
                    
                    92ITEM 8
                    Financial
      Information
                    
                    92ITEM 8A
                    Consolidated
      Statements and Other Financial Information
                    
                    92ITEM 8B
                    Significant
      Changes
                    
                    92ITEM 9
                    The
      Offer and Listing
                    
                    93ITEM 9A
                    Offer
      and Listing Details
                    
                    93ITEM 9B
                    Plan
      of Distribution
                    
                    94ITEM 9C
                    Markets
                    
                    94ITEM 9D
                    Selling
      Shareholders
                    
                    95ITEM 9E
                    Expenses
      of the Issue
                    
                    95ITEM 10
                    Additional
      Information
                    
                    95ITEM 10A
                    Share
      Capital
                    
                    95ITEM 10B
                    Memorandum
      and Articles of Incorporation
                    
                    96ITEM 10C
                    Material
      Contracts
                    
                    99ITEM 10D
                    Exchange
      Controls
                    
                    100ITEM 10E
                    Taxation
                    
                    101ITEM 10F
                    Dividends
      and Paying Agents
                    
                    106ITEM 10G
                    Statement
      by Experts
                    
                    106




ii




ITEM 10H
            Documents
      on Display
            
            107ITEM 10I
            Subsidiary
      Information
            
            107ITEM 11
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            107ITEM 12
            Description
      of Securities Other than Equity Securities
            
            109ITEM 12A
            Debt
      Securities
            
            109ITEM 12B
            Warrants
      and Rights
            
            109ITEM 12C
            Other
      Securities
            
            109ITEM 12D
            American
      Depositary Shares
            
            109ITEM 13
            Defaults,
      Dividend Arrearages and Delinquencies
            
            109ITEM 14
            Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds
            
            109ITEM 15
            Controls
      and Procedures
            
            110ITEM 16
            [Reserved]
            
            110ITEM 16A
            Audit
      Committee Financial Expert
            
            110ITEM 16B
            Code
      of Ethics
            
            110ITEM 16C
            Principal
      Accountant Fees and Services
            
            110ITEM 16D
            Exemptions
      from the Listing Standards for Audit Committee
            
            111ITEM 16E
            Purchases
      of Equity Securities by the Issuer and Affiliated
    Purchasers
            
            111ITEM 16F
            Change
      in Registrant’s Certifying Accountant
            
            111ITEM 16G
            Corporate
      Governance
            
            111ITEM 17
            Financial
      Statements
            
            115ITEM 18
            Financial
      Statements
            
            115ITEM 19
            Exhibits
            
            115SIGNATURES
            
            
            117ANNEX
      I DESCRIPTION OF EXPLORATION AND PRODUCTION CONTRACTS
            
            A-1


iii


FORWARD-LOOKING
STATEMENTS




This
annual report on Form 20-F/A contains forward-looking statements of
Ecopetrol S.A. (hereinafter “we”, “us”, “our”, “Ecopetrol” or the “Company”),
within the meaning of the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995.  These statements are not based on
historical facts and reflect our expectations for future events and
results.  Most facts are uncertain because of their nature.  Words
such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “should”,
“plan”, “potential”, “predicts”, “prognosticate”, and “achieve”, among other
similar expressions, are understood as forward-looking statements.  These
factors may include the following:




·
            Drilling
      and exploration activities




·
            Future
      production rates




·
            Import
      and export activities




·
            Liquidity,
      cash flow and uses of cash flow




·
            Projected
      capital expenditures




·
            Dates
      by which certain areas will be developed or will come
      on-stream




·
            Allocation
      of capital expenditures to exploration and production
      activities




Actual
results are subject to certain factors out of the control of the Company and may
differ materially from the anticipated results.  These factors may include
the following:




·
            Changes
      in international crude oil and natural gas
  prices




·
            Competition




·
            Limitations
      on our access to sources of
financing




·
            Significant
      political, economic and social developments in
  Colombia




·
            Military
      operations, terrorist acts, wars or
embargoes




·
            Regulatory
      developments




·
            Technical
      difficulties




·
            Other
      factors discussed in this document as “Risk
  Factors”




Most of
these statements are subject to risks and uncertainties that are difficult to
predict.  Therefore, our actual results could differ materially from
projected results.  Accordingly, readers should not place undue reliance on
the forward-looking statements contained in this annual report.




ENFORCEMENT
OF CIVIL LIABILITIES


We are a
Colombian company, all of our Directors and executive officers and certain of
the experts named in this annual report are residents of Colombia, and a
substantial portion of their respective assets are located in Colombia. 
Colombian courts determine whether to enforce a U.S. judgment predicated on the
U.S. securities laws through a procedural system known as exequatur.  Colombian
courts will enforce a foreign judgment, without reconsideration of the merits,
only if the judgment satisfies the following requirements:




·
            a
      treaty exists between Colombia and the country where the judgment was
      granted or there is reciprocity in the recognition of foreign judgments
      between the courts of the relevant jurisdiction and the courts of
      Colombia;


1


·
            the
      foreign judgment does not relate to “in rem rights” vested
      in assets that were located in Colombia at the time the suit was filed and
      does not contravene or conflict with Colombian laws relating to public
      order other than those governing judicial
  procedures;




·
            the
      foreign judgment, in accordance with the laws of the country where it was
      rendered, is final and is not subject to appeal and a duly certified and
      authenticated copy of the judgment has been presented to a competent court
      in Colombia;




·
            the
      foreign judgment does not refer to any matter upon which Colombian courts
      have exclusive jurisdiction;




·
            no
      proceeding is pending in Colombia with respect to the same cause of
      action, and no final judgment has been awarded in any proceeding in
      Colombia on the same subject matter and between the same parties;
      and




·
            in
      the proceeding commenced in the foreign court that issued the judgment,
      the defendant was served in accordance with the law of such jurisdiction
      and in a manner reasonably designated to give the defendant an opportunity
      to defend against the action.




The
United States and Colombia do not have a bilateral treaty providing for
automatic reciprocal recognition and enforcement of judgments in civil and
commercial matters.  The Colombian Supreme Court has in the past accepted
that reciprocity exists when it has been proven that either a U.S. court has
enforced a Colombian judgment or that a U.S. court would enforce a foreign
judgment, including a judgment issued by a Colombian court.  However, such
enforceability decisions are considered by Colombian courts on a case-by-case
basis.




We
reserve our right to plead sovereign immunity under the United States Foreign
Sovereign Immunities Act of 1976 with respect to actions brought against us
under United States federal securities laws or any state securities
laws.




PRESENTATION
OF FINANCIAL INFORMATION


In this
annual report, references to “US$” or “U.S. dollars” are to United States
Dollars and references to “$”, “Ps$”, “Peso” or “Pesos” are to Colombian Pesos,
the functional currency under which we prepare our financial statements. 
Certain figures shown in this annual report have been subject to rounding
adjustments and, accordingly, certain totals or tables may not be an exact
calculation of the preceding figures.  In this annual report a billion
is equal to one with nine zeros.




The
accompanying audited consolidated financial statements of Ecopetrol and our
consolidated subsidiaries for the years ended December 31, 2008, 2007 and
2006 have been prepared from accounting records, which are maintained under the
historical cost convention as modified in 1992, to comply with the legal
provisions of the Colombian Contaduría General de la
Nación or National Accounting Office or CGN, to recognize the effect of
inflation on non-monetary balance sheet accounts until December 31, 2001,
including shareholders’ equity.  The CGN authorized us to discontinue
adjusting for inflation starting on January 1, 2002.




Our
consolidated financial statements are prepared in accordance with accounting
principles for Colombian state-owned entities issued by the CGN and other
applicable legal provisions. The CGN adopted new accounting principles for
Colombian state-owned entities in September 2007.  These accounting
principles are known as the Régimen de Contabilidad Pública(Regime of Public Accounting or RCP).  Pursuant to CGN Communication
No. 0079-101345 of September 28, 2007, RCP became effective for Ecopetrol
beginning with fiscal year ended December 31, 2008.  Our consolidated
financial statements at and for the year ended December 31, 2008 have been
prepared under RCP.  Our consolidated financial statements for all prior
years were prepared under the Plan General de Contabilidad
Pública (General Governmental Accounting Plan or PGCP), the former
accounting principles issued by the CGN for Colombian state-owned
entities.  We refer to both RCP and PGCP as Colombian Government Entity
GAAP.  Colombian Government Entity GAAP differs in certain significant
respects from generally accepted accounting principles in the United States or
U.S. GAAP.  Note 33 to our audited consolidated financial statements
included in this annual report provides a description of the principal
differences between Colombian Government Entity GAAP and U.S. GAAP as they
relate to our audited consolidated financial statements and provides a
reconciliation of net income and shareholders’ equity for the years and
dates indicated therein. As a state-owned company, our consolidated financial
statements are periodically reviewed by the CGN. However, the review of our
accounts by the CGN does not constitute an audit.


2


Our
consolidated financial statements include the financial results for Black Gold
Re Ltd., Oleo é Gas Do Brasil Ltda., Ecopetrol Peru S.A., Ecopetrol America
Inc., Andean Chemicals Ltd. and Propilco S.A., which are wholly owed by
us.  Our consolidated financial statements also include the financial
results of Bioenergy S.A. and ODL Finance, of which at December 31, 2008 we had
a 79.14% and 65% direct interest, respectively.  Black Gold Re Ltd., Oleo é
Gas Do Brasil Ltda., Ecopetrol Peru S.A. and Ecopetrol America Inc. are included
in our consolidated financial statements for the years ended December 31,
2007 and 2008.  Andean Chemicals Ltd., Propilco S.A., Bioenergy S.A. and
ODL Finance are included in our consolidated financial statements for the year
ended December 31, 2008.  These financial statements were consolidated
line by line and all transactions and significant balances between affiliates
have been eliminated.




This
annual report translates certain Peso amounts into U.S. dollars at specified
rates solely for the convenience of the reader.  Unless otherwise
indicated, such Peso amounts have been translated at the rate of Ps$2,243.59 per
US$1.00, which corresponds to the Tasa Representativa del
Mercado or Representative Market Rate for December 31, 2008, the
last business day of the year.  The Representative Market Rate is computed
and certified by the Superintendencia Financieraor Superintendency of Finance, the Colombian banking and securities
regulator, on a daily basis and represents the weighted average of the buy and
sell foreign exchange rates negotiated on the previous day by certain financial
institutions authorized to engage in foreign exchange transactions.  The
Superintendency of Finance also calculates the Representative Market Rate for
each month for purposes of preparing financial statements and converting amounts
in foreign currency to Pesos.  Such conversion should not be construed as a
representation that the Peso amounts correspond to, or have been or could be
converted into, U.S. dollars at that rate or any other rate.  On June 25,
2009, the Representative Market Rate was Ps$2,158.72 per US$1.00.




PRESENTATION
OF ABBREVIATIONS




The
following is a list of crude oil and natural gas measurement abbreviations
commonly used throughout this annual report.




bpd
              Barrels
      per dayboe
              Barrels
      of oil equivalentcf
              Cubic
      feetcfpd
              Cubic
      feet per daymcf
              Million
      cubic feetmcfpd
              Million
      cubic feet per daybtu
              Million
      British thermal unitsgbtu
              Giga
      British thermal unitsgbtud
              Giga
      British thermal units per daygcf
              Giga
      Cubic feet





PRESENTATION
OF THE NATION AND GOVERNMENT OF COLOMBIA




References
to the Nation in this annual report relate to the Republic of Colombia, our
controlling shareholder.  References made to the Government of Colombia or
the Government correspond to the executive branch including the President of
Colombia, the ministries and other governmental agencies responsible for
regulating our business.




PRESENTATION
OF INFORMATION CONCERNING RESERVES




Information
concerning the technical definitions used for the estimated proved reserves is
included in this annual report.  The information provided in this annual
report about our 2008 net proved reserves is based on the 2008 audited reserve
reports for 89% of our total reserves prepared by experts under the U.S.
Securities and Exchange Commission (“SEC”) definitions and rules.  The
remaining 11% corresponds to calculations made by us internally using SEC
definitions and rules.  The information regarding our proved reserves for
2007 and 2006 is based on the 2006 reserves reports prepared by experts under
SEC definitions and rules at December 31, 2006 and updated by us to
December 31, 2007 by applying the same rules.  See “Item 4B –
Business Overview – Reserves” for additional information on our reserves
estimates.


3


ITEM 1
            Identity
      of Directors, Senior Management and
Advisors




Not
applicable.




ITEM 2
            Offer
      Statistics and Expected Timetable




Not
applicable.




ITEM 3
            Key
      Information




ITEM 3A
            Selected
      Financial Data




The
following table sets forth, for the periods and at the dates indicated, our
summary historical financial data, which have been derived from our consolidated
financial statements, presented in Pesos.  Our consolidated financial
statements for the year ended December 31, 2008 were audited by
Pricewaterhouse Coopers Ltda. and our consolidated financial statements for the
years ended December 31, 2007, 2006, 2005 and 2004 were audited by Ernst
& Young Audit Ltda.  The information included below and elsewhere in
this annual report is not necessarily indicative of our future
performance.  The tables set forth below are derived from, and should be
read in conjunction with, our consolidated financial statements and accompanying
Notes included in this annual report.  See also Item 5 – “Operating and
Financial Review and Prospects” in this annual report.




BALANCE SHEETFor the year ended December 31,2008(1)
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004(US$in thousands
                      except for
                      common share
                      and dividends
                      per share
                      amounts)
                    
                    
                    (Pesos in millions except for
                      common share and dividends per
                      share amounts)Total
      assets
                    
                    
                    21,707,358
                    
                    
                    
                    48,702.412
                    
                    
                    
                    48,112,080
                    
                    
                    
                    42,137,722
                    
                    
                    
                    32,664,817
                    
                    
                    
                    27,964,390Shareholders’
      Equity
                    
                    
                    15,430,501
                    
                    
                    
                    34,619,717
                    
                    
                    
                    26,808,467
                    
                    
                    
                    20,835,746
                    
                    
                    
                    13,285,251
                    
                    
                    
                    10,000,871Number of common
      shares(3)
                    
                    
                    40,472,512,588
                    
                    
                    
                    40,472,512,588
                    
                    
                    
                    40,472,512,588
                    (2)
                    
                    
                    36,384,788,817
                    
                    
                    
                    36,384,788,817
                    
                    
                    
                    36,384,788,817Dividends
      declared per share:
                    
                    
                    0.05
                    
                    
                    
                    115.0
                    (4)
                    
                    
                    123.0
                    (4)
                    
                    
                    55.0
                    
                    
                    
                    35.7
                    
                    
                    
                    31.8Amounts
      in accordance with U.S. GAAPTotal
      Assets
                    
                    
                    17,963,794
                    
                    
                    
                    40,303,388
                    
                    
                    
                    29,698,528
                    
                    
                    
                    26,517,482Shareholders’ Equity
                    
                    
                    12,224,040
                    
                    
                    
                    27.425.735
                    
                    
                    
                    20,991,031
                    
                    
                    
                    18,015,386Number
      of common shares(3)
                    
                    
                    40,472,512,588
                    
                    
                    
                    40,472,512,588
                    
                    
                    
                    40,472,512,588
                    
                    
                    
                    36,384,788,817Dividends
      declared per share:
                    
                    
                    0.05
                    
                    
                    
                    115.0
                    
                    
                    
                    123.0
                    
                    
                    
                    55.0







(1)
            Amounts
      stated in U.S. dollars have been translated for the convenience of the
      reader at the rate of Ps$2,243.59 to US$1.00, which is the Representative
      Market Rate at December 31, 2008, the last business day of the year,
      as reported and certified by the Superintendency of
    Finance.


(2)
            Includes
      4,087,723,771 new shares issued to the Republic of Colombia or the Nation
      on November 13, 2007, as a result of the capitalization of developed
      reserves in accordance with Decree 2625 of
2000.


4


(3)
            Number
      of common shares include (i) a 1 to 400 stock split occurred in
      July 2007 which for purposes of comparability and dividends per share
      has been applied as if it had occurred in 2003, (ii) 48,512,147 shares
      issued to the Nation on April 2007 representing in-kind
      contributions, and (iii) 4,087,723,771 shares issued to the public in
      connection with our initial offering of shares in
  Colombia.


(4)
            Represents
      payments made in 2008 based on net income and retained earnings for the
      year ended December 31, 2007.  In 2007 dividends were declared
      and paid on 36,384,788,817 shares.  In the same year, dividend
      payments to the Nation amounted to Ps$4,475,399 million of which
      Ps$3,052,236 million corresponded to net income and
      Ps$1,423,163 million to retained earnings paid prior to our initial
      public offering in the fourth quarter of 2007.  See  Item 5
      —”Operating and Financial Review and Prospects — Pre-IPO Distribution of
      Retained Earnings”.




Colombian
Government Entity GAAP differs in certain significant respects to U.S.
GAAP.  For differences in net income and shareholders’ equity, see Note 33
to our consolidated financial statements “Differences between Colombian
Government Entity GAAP and U.S. GAAP” and Item 5 — “Operating and Financial
Review and Prospects — Principal Differences between Colombian Government Entity
GAAP and U.S. GAAP.”




INCOME STATEMENTFor the year ended December 31,2008(1)
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004(US$in thousands
                    except for net
                    income per
                    share and
                    average
                    number of
                    shares
                    amounts)
                  
                  
                  (Pesos in millions except for net
                    income per share and average
                    number of shares amounts)Total
      revenue
                  
                  
                  15,108,228
                  
                  
                  
                  33,896,669
                  
                  
                  
                  22,332,320
                  
                  
                  
                  18,389,965
                  
                  
                  
                  15,512,903
                  
                  
                  
                  13,050,607Operating
      income
                  
                  
                  5,640,648
                  
                  
                  
                  12,655,301
                  
                  
                  
                  8,931,837
                  
                  
                  
                  4,635,832
                  
                  
                  
                  4,498,385
                  
                  
                  
                  3,934,227Net
      operating income per share
                  
                  
                  0.14
                  
                  
                  
                  313
                  
                  
                  
                  291
                  
                  
                  
                  109,207
                  
                  
                  
                  105,969
                  
                  
                  
                  92,679Income
      before income tax
                  
                  
                  7,136,422
                  
                  
                  
                  16,011,204
                  
                  
                  
                  7,065,304
                  
                  
                  
                  4,891,142
                  
                  
                  
                  4,288,330
                  
                  
                  
                  2,916,390Net
      income
                  
                  
                  5,181,513
                  
                  
                  
                  11,629,677
                  
                  
                  
                  5,179,792
                  
                  
                  
                  3,391,373
                  
                  
                  
                  3,253,756
                  
                  
                  
                  2,110,506Weighted average
      number of shares outstanding(2)
                  
                  
                  40,472,512,588
                  
                  
                  
                  40,472,512,588
                  
                  
                  
                  30,702,164,870
                  
                  
                  
                  42,449,825
                  
                  
                  
                  42,449,825
                  
                  
                  
                  42,449,825Net income per
      share(3)
                  
                  
                  0.13
                  
                  
                  
                  287
                  
                  
                  
                  169
                  
                  
                  
                  79,891
                  
                  
                  
                  76,648
                  
                  
                  
                  49,717Amounts
      in accordance with U.S. GAAPTotal
      revenue
                  
                  
                  15,087,076
                  
                  
                  
                  33,849,213
                  
                  
                  
                  22,784,694
                  
                  
                  
                  19,461,739Operating
      income
                  
                  
                  4,385,967
                  
                  
                  
                  9,840,311
                  
                  
                  
                  8,455,099
                  
                  
                  
                  7,245,976Net
      operating income per share
                  
                  
                  0.11
                  
                  
                  
                  243
                  
                  
                  
                  229
                  
                  
                  
                  199Income
      before income tax and minority interest
                  
                  
                  5,984,802
                  
                  
                  
                  13,427,443
                  
                  
                  
                  8,710,648
                  
                  
                  
                  7,765,863Net
      income
                  
                  
                  3,940,953
                  
                  
                  
                  8,841,883
                  
                  
                  
                  6,144,685
                  
                  
                  
                  6,636,424Net
      income per Share
                  
                  
                  0.10
                  
                  
                  
                  218.47
                  
                  
                  
                  166.42
                  
                  
                  
                  182.40Average
      number of shares outstanding(4)
                  
                  
                  40,472,512,588
                  
                  
                  
                  40,472,512,588
                  
                  
                  
                  36,922,352,491
                  
                  
                  
                  36,384,788,817





(1)
            Amounts
      stated in U.S. dollars have been translated for the convenience of the
      reader at the rate of Ps$2,243.59 to US$1.00, which was the Representative
      Market Rate at December 31, 2008, the last business day of the year,
      as reported and certified by the Superintendency of
    Finance.


5


(2)
            The
      weighted average number of common shares outstanding during 2007 was
      30,702,164,870 as a result of the application of the 1 to 400 stock
      split, capitalization of reserves by the Nation and initial public
      offering in Colombia, which represents a net income per share of Ps$169,
      compared to Ps$79,891 during 2006 when the average number of shares
      outstanding was 42,449,825.


(3)
            Net
      Income per share is calculated using the weighted-average number of
      outstanding shares at December 31 of each year, adjusted for a
      1 to 400 stock split and the contribution to equity from the
      Nation.


(4)
            Amounts
      calculated in accordance with U.S. GAAP which differs in certain respects
      with the calculation of weighted average number of shares for Colombian
      Government Entity GAAP.




Exchange
Rates




On June
25, 2009, the Representative Market Rate was Ps$2,158.72 per US$1.00.  The
Federal Reserve Bank of New York does not report a noon-buying rate for
Pesos.  The Superintendency of Finance calculates the Representative Market
Rate based on the weighted averages of the buy/sell foreign exchange rates
quoted daily by foreign exchange rate market intermediaries including financial
institutions for the purchase and sale of U.S. dollars.




The
following table sets forth the high, low, average and period-end exchange rate
for Pesos/U.S. dollar Representative Market Rate for each of the last five years
and for the last six months.




Exchange
      RatesHigh
              
              
              Low
              
              
              Average
              
              
              Period-EndYear
      ended December 31,2004
              
              
              2,778.92
              
              
              
              2,316.12
              
              
              
              2,626.22
              
              
              
              2,389.752005
              
              
              2,397.25
              
              
              
              2,272.95
              
              
              
              2,320.77
              
              
              
              2,284.222006
              
              
              2,634.06
              
              
              
              2,225.44
              
              
              
              2,357.98
              
              
              
              2,238.792007
              
              
              2,261.22
              
              
              
              1,877.88
              
              
              
              2,078.35
              
              
              
              2,014.762008
              
              
              2,392.28
              
              
              
              1,652.41
              
              
              
              1,966.26
              
              
              
              2,243.59December 2008
              
              
              2,333.54
              
              
              
              2,163.14
              
              
              
              2,252.72
              
              
              
              2,243.59January 2009
              
              
              2,386.58
              
              
              
              2,197.72
              
              
              
              2,252.98
              
              
              
              2,386.58February 2009
              
              
              2,596.37
              
              
              
              2,420.26
              
              
              
              2,513.74
              
              
              
              2,555.89March 2009
              
              
              2,590.97
              
              
              
              2,335.29
              
              
              
              2,477.21
              
              
              
              2,561.21April 2009
              
              
              2,544.24
              
              
              
              2,283.20
              
              
              
              2,379.36
              
              
              
              2,289.73May 2009
              
              
              2,288.64
              
              
              
              2,190.45
              
              
              
              2,229.95
              
              
              
              2,190.45





Source:
            Superintendency
      of Finance for historical data.  Banco de la República
      or the Colombian Central Bank (www.banrep.gov.co) and internal calculation
      for averages.




ITEM 3B
            Capitalization
      and Indebtedness




Not
applicable.




ITEM 3C
            Reasons
      for the Offer and Use of Proceeds




Not
applicable.




ITEM 3D
            Risk
      Factors




Below is
a description of the risk factors that we face which may affect our future
results and the overall performance of the Colombian oil industry. 
Prospective purchasers of our shares represented by American Depositary Receipts
or ADRs should carefully consider the risks described below, as well as other
information contained in this annual report, before deciding to invest in our
ADRs.  The risk factors described below are not the only ones that we
face.  Additional risks and uncertainties that we are unaware of, or that
we currently deem immaterial, may also become important factors that affect
us.




Financial
results and the operation of the business units could be affected by the
occurrence of one or more of these factors resulting in a decline in the price
of our shares, which may result in you losing some or all of your
investment.


6


Risks
relating to Colombia’s political and regional environment




Colombia
has experienced internal security issues that have had or could have in the
future a negative effect on the Colombian economy and on us.




Colombia
has experienced internal security issues, primarily due to the activities of
guerrillas, paramilitary groups and drug cartels.  In the past, guerrillas
have targeted the crude oil pipelines, including the Caño Limón-Coveñas and
Ocensa pipelines, and other related infrastructure disrupting our activities and
those of our business partners.  On several occasions guerilla attacks have
resulted in unscheduled shut-downs of the transportation systems in order to
repair damaged sections and undertake clean-up activities.  These
activities, their possible escalation and the effects associated with them have
had and may have in the future a negative impact on the Colombian economy or on
us, which may affect our customers, employees or assets.  In the context of
the political instability, allegations have been made against members of the
Congress of Colombia and on Government officials for possible ties with illegal
groups.  This situation may have a negative impact on the credibility of
the Colombian Government which could in turn have a negative impact on the
Colombian economy or on us in the future.




Attacks
or alleged attacks by the Colombian army of guerrilla positions in neighboring
countries have resulted in political tension with neighboring
countries.




A year
after the Government launched attacks on a FARC camp in Ecuador, that resulted
in the death of one of the members of FARC’s secretariat, the diplomatic
relationships between Colombia and Ecuador are still very tense.  This
political tension is heightened by the Colombian Government’s allegations that
neighboring countries are supporting the guerilla groups.  On other
occasions allegations have been made by Venezuela that the Colombian army has
entered foreign soil while in pursuit of FARC members.  The Colombian army
and air force continue to combat FARC members throughout Colombia, including
Colombia’s borders.  New attacks by Colombia’s armed forces on FARC
positions near Colombia’s borders could result in new and heightened tensions
with its neighbors, which could have a negative impact on Colombia’s economy and
general security situation.




Companies
operating in Colombia, including us, are subject to prevailing economic
conditions and investment climate in Colombia, which may be less stable than
prevailing economic conditions in developed countries.




The
market price of securities issued by Colombian companies, including us are
subject to the prevailing economic conditions in Colombia.  Substantially
all of our assets and operations are located in Colombia, and all of our sales
are currently derived from our crude oil and natural gas production and
production of our refineries located in Colombia.  In the past, economic
growth in Colombia has been negatively affected by lower foreign direct
investment and high inflation rates and the perception of political
instability.




The
Colombian government has changed monetary, fiscal, taxation, labor and other
policies over time and has thus influenced the performance of the Colombian
economy.  We have no control over the extent and timing of government
intervention and policies.




If the
perception of improved overall security in Colombia changes or if foreign direct
investment declines, the Colombian economy may face a downturn which could
negatively affect our financial condition and results of operation. 
Furthermore the market price of our shares and ADSs may be adversely affected by
changes in governmental policy, particularly those affecting economic growth,
exchange rates, interest rates, inflation and taxes.




Developments
and the perception of risk in other countries, especially emerging market
countries, may adversely affect the market price of Colombian securities,
including our American Depositary Shares (ADSs).




Securities
issued by Colombian companies may be affected by economic and market conditions
in other countries, including other Latin American and emerging market
countries.  Securities issued by Colombian issuers are also likely to be
affected by economic and political conditions in Colombia’s neighbors: 
Venezuela, Ecuador, Peru, Brazil and Panama.  Although economic conditions
in such Latin American and other emerging market countries may differ
significantly from economic conditions in Colombia, investors’ reactions to
developments in these other countries may have an adverse effect on the market
value of securities of Colombian issuers.


7


Due to
crises in several emerging market countries (such as the Asian financial crisis
of 1997, the Russian financial crisis of 1998 and the Argentine financial crisis
of 2001), and the recent world financial crisis, investors may view investments
in emerging markets with heightened caution.  As a result of the crisis in
other countries, flows of investments into Colombia were reduced.  Crises
in other emerging market countries may hamper investor enthusiasm for securities
of Colombian issuers.  If Latin America experiences a new slow-down or if
the price for securities of Latin American issuers falls, the price for our ADSs
could follow this trend and could be adversely affected.  A new financial
crisis or an expansion of the current crisis could also make it more difficult
for us and our subsidiaries to access the international capital markets and
finance our operations and capital expenditures in the future on acceptable
terms.




Our
controlling shareholder’s interests may be different from yours.




The
Republic of Colombia, or the Nation, is our largest shareholder controlling
89.9% of our outstanding capital stock.  Colombian law requires the Nation
to maintain the majority of our outstanding capital stock, thus holding the
right to elect the majority of the members of our Board of Directors.  In
the future, the Nation as our controlling shareholder may undertake projects
which may not be in our best interest or in the best interest of our minority
shareholders, including holders of our ADSs.




Before we
can issue any debt in the international and local capital markets, the
Government, through the Ministry of Finance and Public Credit, must authorize
the issuance of such debt and we must register external debt with the Colombian
Central Bank.  We cannot assure you that if we were to seek such an
authorization, that the Nation would issue it in a timely fashion or at
all.




Additionally
our controlling shareholder may require our Board of Directors to declare
dividends in an amount that result in us having to reduce our capital
expenditures thereby negatively affecting our prospects, results of operations
and financial condition.




Our
operations are subject to extensive regulation.




The
Colombian hydrocarbons industry is subject to extensive regulation and
supervision by the Government in matters including the award of exploration and
production blocks by the National Hydrocarbon Agency, or Agencia Nacional de
Hidrocarburos or ANH, the imposition of specific drilling and exploration
obligations, restrictions on production, price controls, capital expenditures
and required divestments.  Existing regulation applies to virtually all
aspects of our operations in Colombia and abroad.  See Item 4B “—
Business Overview — Regulation”.




The terms
and conditions of the agreements with the ANH under which we explore and produce
crude oil and natural gas generally reflect negotiations with the ANH and other
governmental authorities and may vary by fields, basins and hydrocarbons
discovered.




We are
required, as are all oil companies undertaking exploratory and production
activities in Colombia, to pay a percentage of our production to the Government
as royalties.  The Government has modified the royalty program for crude
oil and natural gas production several times in the last 20 years, as it has
modified the regime regulating new contracts entered into with the
Government.  The royalty regime for contracts being entered into today for
crude oil is tied to a scale starting at 8% for production of up to 5,000
barrels per day or bpd and increases up to 25% for production above
600,000 bpd.  Royalties for natural gas production are also subject to
a sliding scale depending on whether the field is on- or off-shore and range
between 8% and 25%.




In the
future, the Government may once again amend royalty payment levels for new
contracts and such changes could have a material adverse effect on our financial
condition or results of operation.


8


The
Government may delay the reimbursement of the gasoline and diesel fuel
subsidies.




The
Government regulates domestic prices of liquid fuels according to international
market conditions in order to align domestic prices with trends in international
prices, with a one month lag.  When domestic prices of liquid fuels are
lower than international parity prices, the Government is responsible for
reimbursing refiners for the difference, which difference is called the fuel
subsidy pursuant to Law 1151 of 2007.  In 2008, following international
trends, domestic prices reached historical highs.  By the end of 2008,
international prices had decreased but the Government decided not to lower
domestic prices.  Instead, the Government kept domestic prices high and
allocated the excess amount (paid in the domestic market with respect to
international parity prices) to a Fuels Stabilization Fund (Fondo de Estabilización de Precios
de los Combustibles).  Similar to the approach followed by other
countries, this Fund is funded with these excess payments when international
prices are low and depleted when international prices are high in order to
mitigate domestic price volatility.




However,
the calculation and payment by the Government of the 2008 price difference (fuel
subsidy) was significantly delayed.




Pursuant
to Resolution 181496 of 2008, the Ministry of Mines and Energy allows refiners
in Colombia to subordinate receipt of their fuel subsidy to the fuel subsidy of
other refiners.  Pursuant to this resolution, we, as well as Refineria de
Cartagena S.A., entered into an agreement by which we agreed to subordinate our
fuel subsidy payments corresponding to 2008 and 2009.  As a result of this
agreement, we will receive our 2008 and 2009 fuel subsidy payments in 2009 and
2010, respectively.




We are
unable to determine when we will fully collect the total amount of these fuel
subsidies or any additional subsidies that become due in the future.  Any
material delay in payment of these subsidies by the Government or a significant
amendment to Law 1151 imposing on us additional responsibilities with
respect to the subsidies could have a negative impact on our financial condition
and results of operations.




Risks
related to our business




Our
business depends substantially on international prices for crude oil and refined
products, and prices for these products are volatile.  A sharp decrease in
such prices could materially and adversely affect our business prospects and
results of operations.




Crude oil
prices have traditionally fluctuated as a result of a variety of factors
including, among others, the following:




·
            Changes
      in international prices of natural gas and refined
    products;




·
            Long-term
      changes in the demand for crude oil, natural gas and refined
      products;




·
            Regulatory
      changes;




·
            Inventory
      levels;




·
            Increase
      in the cost of capital;




·
            Adverse
      economic conditions;




·
            Development
      of new technologies;




·
            Economic
      and political events, especially in the Middle East and elsewhere with
      high levels of crude oil
production;




·
            The
      willingness and ability of the Organization of the Petroleum Exporting
      Countries or OPEC and its members to set production levels and
      prices;




·
            Local
      and global demand and supply;


9


·
            Development
      of alternative fuels;




·
            Weather
      conditions; and




·
            Terrorism
      and global conflict.




As of
December 2008, nearly 97% of our revenues came from sales of crude oil,
natural gas and refined products.  Most prices for products developed and
sold by us are quoted in U.S. dollars and fluctuations in the
U.S. dollar/Peso exchange rate have a direct effect on our Peso-denominated
financial statements.




A
significant and sustained decrease in crude oil prices could have a negative
impact on our results of operations and financial condition.  In addition,
a reduction of international crude oil prices could result in a delay in our
capital expenditure plan, in particular delaying exploration and development
activities, thereby delaying the incorporation of reserves.




We
are exposed to the credit risks of our customers and any material nonpayment or
nonperformance by our key customers could adversely affect our cash flow and
results of operations.




Some of
our customers may experience financial problems that could have a significant
negative effect on their creditworthiness.  Severe financial problems
encountered by our customers could limit our ability to collect amounts owed to
us, or to enforce the performance of obligations owed to us under contractual
arrangements.  In addition, many of our customers finance their activities
through their cash flows from operations, the incurrence of debt or the issuance
of equity.  Recently, there has been a significant decline in the
availability of credit in the credit markets.  Consequently, the market
capitalization of many of our customers has declined substantially.




The
combination of declining cash flows as a result of declines in commodity prices,
a reduction in borrowing bases under reserve-based credit facilities and the
lack of availability of debt or equity financing may result in a significant
reduction of our customers’ liquidity and limit their ability to make payments
or perform on their obligations to us.  In addition, some of our customers
may be highly leveraged and subject to their own operating and regulatory risks,
which increases the risk that they may default on their obligations to us. 
Financial problems experienced by our customers could result in the impairment
of our assets, a decrease in our operating cash flows and may also reduce or
curtail our customers’ future use of our products and services, which may
have a material adverse effect on our revenues.




Achieving
our long-term growth prospects depends on our ability to execute our strategic
plan, in particular discovering additional reserves and successfully developing
them, and failure to do so could prevent us from achieving our long-term
goals.




The
ability to achieve our long-term growth objectives depends on discovering or
acquiring new reserves as well as successfully developing them.  Our
exploration activities expose us to the inherent risks of drilling, including
the risk that we will not discover commercially productive crude oil or natural
gas reserves.  The costs associated with drilling wells are often
uncertain, and numerous factors beyond our control may cause drilling operations
to be curtailed, delayed or cancelled.




If we are
unable to conduct successful exploration and development of our exploration
activities, or if we do not acquire properties having proved reserves, our level
of proved reserves will decline.  Failure to secure additional reserves may
impede us from achieving our growth targets, production targets and may have a
negative effect on our results of operations and financial
condition.




In
association with our business partners we have undertaken deep water drilling
(between 300 and 1,500 meters depth) in two blocks in the Gulf Coast and are
planning to undertake deep water drilling in nine blocks in Colombia and six
blocks in Brazil.  Currently, we are acting as operators in three
exploration blocks in Colombia.  Deep water drilling entails new and
heightened risks as reserves are located at greater distances underneath the
seabed and seismic information for these deposits is more expensive to
produce.  Our lack of expertise in deep water drilling and the heightened
risks and costs associated with this type of drilling may have a negative effect
on our results of operations and financial condition.


10


Our
crude oil and natural gas reserve estimates involve some degree of uncertainty
and may prove to be incorrect over time, which could adversely affect our
ability to generate revenue.




Historical
reserves correspond to quantities estimated by us in accordance with
international standards issued by the Society of Petroleum Engineers, World
Petroleum Congresses and the SEC.  Estimates are based on geological,
topographic and engineering facts.  Actual reserves and production may vary
materially from estimates shown in this annual report, which could affect our
results of operation.




Our
drilling activities are capital intensive and may not be
productive.




Drilling
for crude oil and natural gas involves numerous risks, including the risk that
we will not encounter commercially productive crude oil or natural gas
reservoirs.  The costs of drilling, completing and operating wells are high
or uncertain, and drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors, including:




·
            Unexpected
      drilling conditions;




·
            Pressure
      or irregularities in formations;




·
            Security
      problems;




·
            Equipment
      failures or accidents;




·
            Fires,
      explosions, blow-outs and surface
cratering;




·
            Title
      problems;




·
            Other
      adverse weather conditions; and




·
            Shortages
      or delays in the availability or in the delivery of
    equipment.




Certain
of our future drilling activities may not be successful and, if unsuccessful,
this failure could reduce the ratio at which we replace our reserves, which
could have an adverse effect on our results of operations and financial
condition.  While all drilling, whether developmental or exploratory,
involves risks, exploratory drilling involves greater risks of dry holes or
failure to find commercial quantities of hydrocarbons.  Because of the
percentage of our capital budget devoted to higher-risk exploratory projects, it
is likely that we may in the future experience significant exploration and dry
hole expenses.




Increased
competition from foreign crude oil companies may have a negative impact on our
ability to gain access to additional crude oil and natural gas reserves in
Colombia.




The ANH
is the governmental entity responsible for promoting oil and gas investments in
Colombia, establishing terms of reference for exploration rounds and assigning
exploration blocks to oil and gas companies.  Prior to the enactment of
Decree Law 1760 of 2003, we had an automatic right to explore any territory
in Colombia and to enter into joint venture agreements with foreign and local
oil companies.  Under current regulations, we are entitled to bid for any
exploration blocks offered for exploration by the ANH and we compete under the
same conditions as other domestic and foreign oil and gas companies, that is, we
receive no special treatment.  We may also request the ANH to assign us
exploration blocks which have not been previously reserved by that Agency. 
Our ability to obtain access to potential production fields also depends on our
ability to evaluate and select potential hydrocarbon-producing fields and to
adequately bid for these exploration fields.




Our
strategies include international expansion where we may face competition from
local market players and international oil companies that have experience
exploring in other countries.




If we are
unable to adequately compete with foreign and local oil companies, or if we
cannot enter into joint ventures with market players with properties where we
could potentially find additional reserves, we may be conducting exploration
activities in less attractive blocks.  If we fail to maintain our current
market position in Colombia, our results of operations and financial conditions
may be adversely affected.


11


We
may be subject to substantial risks relating to our development of exploration
activities outside Colombia.




We began
exploration activities outside Colombia in 2006 through our Brazilian
subsidiary, Oleo é Gas Do Brazil Ltda.  Our foreign subsidiaries have
subsequently entered into a number of joint venture exploration agreements with
regional and international oil companies to explore blocks in Peru, Brazil and
the U.S. Gulf of Mexico.  The results of operations and financial condition
of our subsidiaries in these countries may be adversely affected by fluctuations
in their local economies, political instability and government
actions.




We have
limited experience exploring outside Colombia, where we are the incumbent
operator.  We may face new and unexpected risks involving environmental
requirements that exceed those currently faced by us.  We may also
experience the imposition of restrictions on hydrocarbon exploration and export,
or increases in export tax or income tax rates for crude oil and natural
gas.  We may be exposed to legal disputes related to our operating or
exploration activities such as the one we currently face in Brazil where the
awarding of an exploration block is under dispute.




If one or
more of these risks described above were to materialize, we may not achieve the
strategic objectives in our international operations, which may negatively
affect our results of operations and financial condition.




We
may incur losses and spend time and money defending pending law suits and
arbitrations.




We are
currently a party to several legal proceedings relating to civil,
administrative, environmental, and labor claims filed against us.  We are
also subject to labor-related lawsuits filed by current and former employees in
connection with pension plans and retirement benefits affecting the
plaintiffs.  These claims involve substantial sums of money as well as
other remedies.  See Notes 18 and 30 to our consolidated financial
statements.




Our most
relevant legal proceeding was brought by an association of former employees
known by the acronym Foncoeco.  The former
employees brought an action against us in connection with a company
profit-sharing plan offered in 1962 that expired in 1975.  The plaintiffs
claim that our Board of Directors had set aside a specific amount under the
profit sharing plan, which was not entirely distributed to employees eligible
under the plan.  The court of first instance ruled in our favor and
rejected the plaintiffs’ arguments.  The plaintiffs appealed the ruling to
the Tribunal Superior de
Bogota or Bogota Higher Tribunal, which ordered us to present a rendición de cuentas (an
accounting action) to the first instance judge based on the amounts allocated by
our Board of Directors.  Pursuant to our accounting and based on the expert
testimony of a witness presented by the plaintiffs who included amounts never
allocated by our Board of Directors to the profit sharing plan, the first
instance judge ordered us to pay Ps$541,833 million, or approximately
US$260 million.  We have appealed the decision by the first instance
judge to the Bogota Higher Tribunal.  Additionally, we have initiated a
separate Recurso de
Revisión (review proceeding) of the Tribunal’s ruling before the
Colombian Supreme Court.  If we are not successful in our appeal, we may be
obliged to pay the total amount of the ruling, which could have a negative
impact on our results of operations.  At December 31, 2008 we had
recorded a provision of Ps$100,000 million related to this
claim.




Our
operations may not be able to keep pace with the increasing demand for natural
gas.




The
demand for natural gas in Colombia has grown significantly in
recent years.  As a result of this growth, demand for natural gas
could exceed production capacity, resulting in possible supply shortages. 
When production shortages occur, we are required to compensate industrial
clients with whom we have supply contracts by paying penalties and other
compensatory expenses detailed in the supply contracts.




Internal
demand for natural gas has experienced strong growth during the last decade as a
result of national campaigns for cleaner energy and cheaper tariffs for retail
customers.  We may not be able to keep up with local demand and industrial
commitments if demand outpaces the rate of new developments and
discoveries.




We have
long-term contracts to supply power utilities and other large customers. 
In 2007, we entered into an agreement with Petróleos de Venezuela, S.A. or PDVSA
to supply natural gas to Venezuela until 2012, when it is expected that
Venezuela will supply us with natural gas.  It is uncertain whether
Venezuela will be able to begin supplying us with natural gas by
2012.


12


If we are
unable to discover new natural gas reserves or if we cannot extract existing
reserves to meet our commitments and contracts and support local demand, we may
be required to compensate our long-term contract customers for our failure to
supply natural gas, which may have a negative effect on our financial condition
and results of operation.




We
are not permitted by law to own more than 25% of a natural gas transportation
company or sell transportation capacity pipelines which may not allow us to
transport new natural gas reserves to distribution points and to our
customers.




We
discovered natural gas reserves in the Cusiana and Cupiagua fields for which
limited transportation capacity currently exists.  New natural gas
transportation infrastructure may not be available to transport natural gas from
new or existing fields to consumption areas.  Furthermore, we are
prohibited by law from holding more than 25% of the equity of any natural gas
transportation company or from selling transportation capacity to third parties
and we cannot determine whether the necessary transportation capacity will be
built by third parties to transport natural gas.  We may be required to
enter into agreements with natural gas transportation companies in terms that
are not favorable to us.




We
currently have long-term supply contracts with gas-fired power plants that
require us to deliver natural gas in Barrancabermeja and not at La Guajira
fields.  Our ability to deliver the natural gas to these clients at the
delivery point is limited by the Ballena-Barranca pipeline transportation
capacity.  If we are unable to acquire the necessary transportation, we may
be unable to meet our obligation with power generators, which could result in us
having to pay fines.




If we are
unable to transport natural gas discoveries to our customers or to regions where
natural gas is needed, we may not be able to develop these reserves, which would
not allow us to recover the capital expenditures invested to make new natural
gas discoveries.




Results
could be affected by conflicts with the labor unions.




In the
past, we have been affected by strikes and work stoppages promoted by our labor
unions.  These strikes have been both politically and contract-related,
especially during collective bargaining negotiations.  In the event
relations with our labor unions deteriorate, which could result in
industry-general strikes, work stoppages or even sabotages, our results of
operations and financial condition could be negatively affected.




Our
collective bargaining agreement entered into with Unión Sindical Obrera de la
Industria del Petróleo— USO, Asociación de Directivos Profesionales, Técnicos y
Trabajadores de las Empresas de la Rama de Actividad Económica del Recurso
Natural del Petróleo y sus Derivados de Colombia — ADECO, Sindicato Nacional de
Trabajadores de Empresas Operadoras, Contratistas, Subcontratistas de Servicios
y Actividades de la Industria del Petróleo y Similares — SINDISPETROL, three of
our most significant industry labor unions, expired on June 8, 2009 but will
remain in force until a new agreement is reached.  Consensual negotiations
on a new collective bargaining agreement are expected to begin on July 14, 2009
and we expect that they will extend until August 2009.  If an agreement has
not been reached by August 2009, the parties must submit themselves to
arbitration in order to reach a solution.  However, failure or delays in
reaching a new collective bargaining agreement through consensual negotiations
could result in labor unrest, including a strike or work stoppages.  We
have developed a contingency plan which should enable us to maintain our current
levels of production during any related strike or work stoppage.  However,
we cannot assure you that such labor unrest will not negatively affect our
results of operations and financial condition.




We
may experience difficulties in recruiting and retaining key
personnel.




Compensation
for oil engineers and other experienced industry personnel has risen in recent
years making it harder for oil companies with smaller budgets to recruit and
retain top talent.  Larger oil companies in need of qualified personnel
have begun to recruit in non-traditional markets, including Colombia. 
Since the enactment of Decree Law 1760 of 2003, pursuant to which private
oil companies signed exploration and production agreements directly with the ANH
and not with us, Colombia has become a more attractive market for regional and
international oil companies.  New participants and other industry players
have started searching for qualified personnel in Colombia by offering them more
attractive compensation schemes, including our current
employees.


13


We may
need to spend additional resources in identifying and continuing to recruit
highly qualified personnel.  If we are unable to recruit the necessary
personnel or if we cannot retain existing personnel, we may not be able to
operate adequately or meet our growth plans which could adversely affect our
results of operations.




Interruption
of activities caused by external factors.




We are
exposed to several risks that may partially interrupt our activities. 
These risks include, among others, fire disasters, explosions, malfunction of
pipelines and emission of toxic substances.  As a result of the occurrence
of any of the above, operational activities could be significantly affected or
paralyzed.  These risks could result in property damage, loss of revenue,
cost of human lives, pollution and harm to the environment, among others. 
If any of these occur, we may be exposed to economic sanctions, fines or
penalties.




We carry
out and plan to carry out exploration and production activities in areas
classified by the Government as indigenous reserves and afrocolombian
lands.  We may not begin to explore for or produce hydrocarbons in these
regions until we reach an agreement with the indigenous or afrocolombian
communities living on these lands.  Generally these consultations last
between four and six months, but may be significantly delayed if we cannot reach
an agreement.  For example, we conduct operations in areas of the
Northeastern region which are inhabited by the U’wa community. 
Commencement of operations on two blocks in this region have been delayed for 16
years and seven years, respectively, and as of December 2008 we have not
received approval to undertake activities in these two blocks by the indigenous
authorities.  Similarly, some of our exploration operations in the Southern
region have been delayed for over a year as a result of the presence of the
Kofan community who oppose our presence and activities in the reservation. 
If our activities endanger the conservation and preservation of these cultural
minorities or their identities or beliefs, we may not be able to explore regions
with good prospects.  We may face similar risks in other jurisdictions
where we have initiated exploration activities which could have a negative
effect on our operations.




Currency
fluctuations and an appreciation of the Peso against the U.S. dollar could have
a material adverse effect on our financial condition and results of operations
because approximately 36% of our revenues are in U.S. dollars or are referenced
to U.S. dollars.




Approximately
36% of our sales are denominated in U.S. dollars and are made in the
international markets.  The impact of fluctuations in exchange rates,
especially the Peso/U.S. dollar rate on our operations has been and may continue
to be material.  In addition, a substantial share of our liquid assets are
held in U.S. dollars or indexed to foreign currencies and have lost value as the
Peso has appreciated against these currencies.  We usually do not use
forwards, swaps or futures contracts to mitigate the impact of currency
fluctuations as Colombian regulations do not make it attractive for us to
implement a hedging strategy.




The Peso
appreciated 11.9% and 5.4% on average against the U.S. dollar in 2007 and 2008,
respectively.  This has had a material adverse effect on our results of
operations.  When the Peso appreciates against the U.S. dollar, our
revenues from exports, when translated into Pesos, decrease.  However,
imported goods and oil services denominated in U.S. dollars become cheaper for
us.




The Peso
depreciated 1.6% against the U.S. dollar in 2006.  When the Peso
depreciates against the U.S. dollar, our revenues from exports, when translated
into Pesos, increase.




Our
ability to access the credit and capital markets on favorable terms to obtain
funding for our capital projects may be limited due to the deterioration of
these markets.




We expect
to make significant expenditures for the construction of additional crude oil
and natural gas transportation infrastructure over the next two years.  Our
ability to fund these expenditures is dependent on our ability to access the
capital necessary to finance the construction of these facilities. 
Domestic and global financial markets and economic conditions have been, and
continue to be, weak and volatile and have contributed significantly to a
substantial deterioration in the credit and capital markets.  These
conditions, along with significant write-offs in the financial services sector
and the re-pricing of credit risk have made, and likely will continue to make,
it difficult to obtain funding for our capital needs on similar terms to our
recent capital-raising transactions.  As a result, we may be forced to
revise the timing and scope of these projects as necessary to adapt to existing
markets and economic conditions.


14


We
may be exposed to increases in interest rates, thereby increasing our financial
costs.




As a
result of our initial public offering, we became a Sociedad de Economía Mixta or
mixed economy company and can now incur debt locally and in the international
capital markets and can be affected by changes in prevailing interest
rates.  If market interest rates increase, our financing expenses may
increase, which could have an adverse effect on our results of operations and
financial condition.




The cost
of raising funds in debt and equity capital markets has increased while the
availability of funds from those markets has diminished.  The cost of
obtaining funds from the credit markets has increased as many lenders have
increased interest rates, enacted tighter lending standards and reduced, and in
some cases ceased to provide, funding to borrowers.  Due to the recent
downturn in the financial markets, including the issues surrounding the solvency
of many financial institutions and the recent failure, mergers and announced
mergers of several financial institutions, our ability to obtain capital from
credit facilities may be impaired.




We
are subject to extensive environmental regulations in Colombia and in the other
countries in which we operate.




Our
operations are subject to extensive national, state and local environmental
regulations in Colombia.  Environmental rules and regulations are
applicable to our exploration, transportation, refining and production
activities.  These regulations establish, among others, quality standards
for hydrocarbon products, air emissions, water discharges and waste disposal,
environmental standards for abandoned crude oil wells, remedies for soil, water
pollution and the general storage, handling, transportation and treatment of
hydrocarbons in Colombia.  Since the creation of the Ministry of the
Environment in 1993 and the enactment of more rigorous laws, environmental
regulations have substantially impacted our operations and business
results.  Currently, all exploratory project drilling in areas that do not
yet have a license must have an environmental impact assessment and must receive
an environmental license from the local authorities.  The Ministry of the
Environment routinely inspects our crude oil fields, refineries and other
production sites and may decide to open investigations which may result in
fines, restrictions on operations or other sanctions in connection with our
non-compliance with environmental laws.




We are
also subject to regional environmental regulations issued by the corporaciones autonomas regionalesor regional
environmental authorities, which oversee compliance with each region’s
environmental laws and regulations by oil and gas companies.  If we fail to
comply with any of these national or regional environmental regulations, we
could be subject to administrative and criminal penalties, including warnings,
fines and closure orders of our facilities.  See Item 4 – “Business
Overview – Environmental Matters”.




Environmental
compliance has become more stringent in Colombia in recent years and as a result
we have allocated a greater percentage of our expenditures for compliance with
these laws and regulations.  If environmental laws continue to impose
additional costs and expenses on us, we may need to reduce our investments on
strategic projects in order to allocate funds to environmental compliance. 
These additional costs may have a negative impact on the profitability of the
projects we intend to undertake or may make them economically unattractive, in
turn having a negative impact on our results of operations and financial
condition.




We are
subject to foreign environmental regulations for the exploratory activities
conducted by us outside Colombia.  Failure to comply with foreign
environmental regulations may result in investigations by foreign regulators,
which could lead to fines, warnings or temporary suspensions of our operations,
which could have a negative impact on our financial condition and results of
operations.




Our
activities face operational risks that may affect the health and safety of our
workforce.




Some of
our operations are developed in remote and dangerous locations which involve
health and safety risks that could affect our workforce.  Under Colombian
law and industrial safety regulations we are required to have health and safety
practices that minimize risks and healthy issues faced by our workforce. 
Failure to comply with health and safety regulations may derive investigations
by health officials which could result in lawsuits or fines.


15


We may be
obliged to incur additional costs and expenses to allocate funds to industrial
safety and health compliance.  These additional costs may have a negative
impact on the profitability of the projects we may decide to
undertake.




In
addition, we may be subject to foreign health and safety regulations for our
exploratory activities conducted outside Colombia.  Foreign health and
safety regulations may be more severe than those established under Colombian law
and, therefore, we may be required to make additional investments to comply with
those regulations.




If
we do not successfully integrate Propilco and the operations of any of our
recent acquisitions, we may not achieve the expected benefits from such
operations.




We
acquired a controlling voting interest in Polipropileno del Caribe S.A.
(Propilco) on April 7, 2008.  Although we will continue to operate
Propilco as a separate business unit, obtaining the expected benefits of the
acquisition will depend, in part, on our ability to manage disparate operations
and to integrate distinct corporate cultures.  These integration efforts
may not succeed or may distract our management from operating our existing
business.  Additionally, we may not be able to enhance earnings from our
other operations if we do not successfully integrate Propilco or any of our
recent acquisitions into our Company.  Our failure to successfully manage
this or any of the other acquisitions mentioned in Note 32 to our
consolidated financial statements could adversely affect our financial condition
and results of operations.




Our
strategic plan contemplates the expansion of operations outside of Colombia
where we will be subject to all of the risks associated with investments in new
countries.




As part
of our strategic plan, we have begun to operate through business partners,
subsidiaries or affiliates outside of Colombia.  As of the date hereof, we
have investments and subsidiaries incorporated in Peru, Brazil and the United
States, and we are analyzing investments in other countries.  In connection
with making investments, we are and will be subject to risks relating to
unstable economic and political conditions, governmental economic actions, such
as exchange or price controls or limits on the activities to be performed by us,
increases in tax rates, contractual changes, and social and environmental
challenges.  In addition, we have recently acquired a company in Peru and
we have faced reputational risks arising from prior ownership of such company.
These factors, among others that our international activities may encounter,
could adversely affect our results of operations in those countries and decrease
the value of our investments.




Risks
relating to our ADSs




The
market for our ADSs has only started to develop recently.  An active and
liquid public market for our ADSs may not develop.




Illiquid
or inactive trading markets generally result in higher price volatility and
lower efficiency in the execution of sale and purchase orders in the securities
markets.  The market price of the ADSs may fluctuate significantly in
response to a number of factors, some of which may be beyond our control. 
In the event that the trading price of our ADSs declines, you may lose all or
part of your investment in our ADSs.  In addition, holders of ADSs may
choose to cancel them and receive instead common shares in an amount equivalent
to that of the ADSs previously held.  Cancellation of a considerable number
of ADSs may significantly influence the development of an actively liquid market
for our ADSs, which may have a material adverse effect on the price of our
ADSs.




Holders
of our ADSs may encounter difficulties in exercising their voting
rights.




Holders
of our common shares are entitled to vote on shareholder matters.  However,
holders of our ADSs may encounter difficulties in exercising some of the rights
of shareholders if they hold our ADSs rather than the underlying common
shares.  For example, holders of our ADSs are not entitled to attend
shareholders’ meetings, and can only vote by giving timely instructions to the
Depositary in advance of a shareholders’ meeting.  Under Colombian law, we
are not required to solicit proxies from our existing shareholders and,
therefore, you may not receive notice in time to instruct the depositary to vote
the shares.


16


We
believe that the holders of the ADSs should be able to direct the Depositary to
vote the common shares separately in accordance with their individual
instructions, particularly as this is the current interpretation of the Superintendencia de Sociedadesor Superintendency of Corporations; this issue has been the subject of
differing regulatory interpretations in the past and may be subject to differing
interpretations in the future.  Under prior regulatory interpretations, the
Depositary could be required to vote the underlying common shares in a single
block (presumably reflecting the majority vote of the ADS holders).  In the
future, the Colombian regulatory authorities may change their interpretation as
to how voting rights should be exercised by ADSs holders, and if this were to
occur any such limitation or loss could adversely affect the value of such
common shares and your ADSs.




Our
ADSs holders may be subject to restrictions on foreign investment in
Colombia.




Colombia’s
International Investment statute regulates the manner in which non-Colombian
residents can invest in Colombia and participate in the Colombian securities
market.  Among other requirements, Colombian law requires foreign investors
to register certain foreign exchange transactions with the Colombian Central
Bank and outlines the necessary procedures to authorize certain types of foreign
investments.  Colombian law requires that certain foreign exchange
transactions, including international investment in foreign currency between
Colombian residents and non-Colombian residents, must be made through authorized
foreign exchange market participants.  Any income or expenses under our ADR
program must be made through the foreign exchange market.




Investors
acquiring our ADRs are not required to register with the Colombian Central
Bank.  Investors in ADRs who choose to surrender their ADRs and withdraw
common shares would have to register their investment in the common shares as a
foreign direct investment, in the event the investor does not own a portfolio of
investments in Colombia; or as a portfolio investment, in the event the investor
delivers such shares to a registered foreign capital investment fund. 
Non-Colombian residents cannot directly hold portfolio investments in Colombia,
but are able to do so through a registered foreign capital investment
fund.  Investors would only be allowed to transfer dividends abroad after
their foreign investment registration procedure with the Colombian Central Bank
has been completed.  Investors withdrawing the common shares may incur in
expenses and/or suffer delays in the application process.  The failure of a
non-resident investor to report or register foreign exchange transactions with
the Colombian Central Bank relating to investments in Colombia on a timely basis
may prevent the investor from remitting dividends, or initiate an investigation
that may result in a fine.  In the future, the Government, the Congress of
Colombia or the Colombian Central Bank may amend Colombia’s International
Investment Statute or the foreign investment rules, which could result in more
restrictive rules and could negatively affect trading of our ADSs.




Additionally,
Colombia currently has a free exchange rate system; however, other restrictive
rules for the exchange rate system could be implemented in the future.  In
the event that a more restrictive exchange rate system is implemented, the
depositary may experience difficulties converting Peso amounts into U.S. dollars
to remit dividend payments.




Holders
of our ADSs are not able to effect service of process on us, our directors or
executive officers within the United States, which may limit your recovery in
any foreign judgment you obtain against us.




We are a
sociedad de economía
mixta organized under the laws of Colombia.  All of our directors
and executive officers reside outside the United States.  All or a
substantial portion of our assets and the assets of these persons are located
outside the United States.  As a result, it may not be possible for you to
effect service of process within the United States upon us or these persons or
to enforce against us or them in U.S. courts judgments obtained in such courts
predicated upon the civil liability provisions of the U.S. federal securities
laws.  Colombian courts determine whether to enforce a U.S. judgment
predicated on the U.S. securities laws through a procedural system known as
exequatur.  For a
description of these limitations, see “Enforcement of Civil
Liabilities.”


17


We
may claim immunity under the Foreign Sovereign Immunities Act with respect to
actions brought against us under the US securities laws and your ability to sue
or recover may be limited.




We
reserve the right to plead sovereign immunity under the United States Foreign
Sovereign Immunities Act of 1976 with respect to actions brought against us
under United States federal securities laws or any state securities laws. 
Accordingly, you may not be able to obtain a judgment in a U.S. court against us
unless the U.S. court determines that we are not entitled to sovereign immunity
with respect to that action.  Moreover, you may not be able to enforce a
judgment against us in the United States except under the limited circumstances
specified in the Foreign Sovereign Immunities Act.




The
protections afforded to minority shareholders in Colombia are different from
those in the United States, and may be difficult to enforce.




Under
Colombian law, the protections afforded to minority shareholders are different
from those in the United States.  In particular, the legal framework with
respect to shareholder disputes is less developed under Colombian law than U.S.
law and there are different procedural requirements for commencing shareholder
lawsuits, such as shareholder derivative suits.  As a result, it may be
more difficult for our minority shareholders to enforce their rights against us
or our Directors or controlling shareholder than it would be for shareholders of
a U.S. company.




The
relative volatility and illiquidity of the Colombian securities markets may
substantially limit our investors’ ability to sell our ADSs at the price and
time they desire.




Investing
in securities that are traded in emerging markets, such as Colombia, often
involves greater risk when compared to other world markets, and these
investments are generally considered to be more speculative in nature.  The
Colombian securities market is substantially smaller, less liquid, more
concentrated and can be more volatile than other securities markets.  For
example, the Bolsa de Valores
de Colombia or BVC had a market capitalization of approximately
Ps$195,700 billion (US$99.53 billion using the monthly average
exchange rate for 2008) as of December 31, 2008, a 5% decrease when
compared with the amount at the end of 2007, and a trading volume of
approximately Ps$45,591 million (US$25.2 million, using the average
exchange rate for 2008), a 44% decrease when compared to the volume in
2007.  In contrast, the New York Stock Exchange had a market capitalization
of US$17.9 trillion as of December 31, 2007, and a daily trading volume of
approximately US$73.1 billion in 2008.




At
December 31, 2008 our shares had the highest trading volume in the BVC
averaging 20.9 million shares traded per day representing the highest
market capitalization of the BVC and 41.46% of the BVC’s total market
capitalization.  Our shares represent 50.9% of the Índice General de la Bolsa de
Valores de Colombia or IGBC stock market index, 18.8% of the COL20, a
stock market index that includes the top 20 traded stocks in the BVC and 20% of
the COLCAP, a stock price volatility index.  In addition, our shares were
placed with a large number of retail investors and concentration of our shares
may be low.  Consequently, it may be difficult for you to purchase large
quantities of shares from a single shareholder.  We cannot assure you that
a liquid trading market for our ADSs will develop or, if developed, will be
maintained following this offering, which could substantially limit the ability
of investors in our ADSs to sell them at the price and time you
desire.




We
are not required to disclose as much information to investors as a U.S. issuer
is required to disclose.




We are
subject to the reporting requirements of the Superintendency of Finance and the
BVC.  The corporate disclosure requirements that apply to us may not be
equivalent to the disclosure requirements that apply to a U.S. issuer and, as a
result, you may receive less interim information about us than you would receive
from a U.S. issuer.


18


ITEM 4
            Information
      on the Company




ITEM 4A
            History
      and Development of the Company




Ecopetrol
is a mixed economy company, organized on August 25, 1951, and existing
under the laws of Colombia.  We have an unlimited duration.  Our
address is Carrera 7 No. 37-69 Bogota, Colombia and our telephone number is
+571 234 4000.




We were
incorporated as the Empresa Colombiana de Petróleos S.A. as a result of the
reversion of the De Mares concession to the Government by the Tropical Oil
Company in 1921.  We began our operations as a governmental industrial and
commercial company, responsible for administering Colombia’s hydrocarbon
resources.




We began
operating the crude oil fields at Cira-Infantas and the pipeline that connected
that field with the Barrancabermeja refinery and the port of Cartagena. 
Three years later, the first national seismic study was performed under the De
Mares concession which led to the discovery of the Llanito crude oil field in
1960.




In 1961,
we assumed the direct operation of the Barrancabermeja refinery and continued
its transformation into an industrial complex.  International Petroleum
Colombia Limited or Intercol began the construction of a new facility in
Mamonal, Cartagena, where the pipeline terminal of the Andean National
Corporation was already located and which also included a loading port.  In
December 1957, the Cartagena Refinery began operations, and in 1974 it was
acquired by us.




In 1970,
we adopted our first by-laws that transformed us into a governmental industrial
and commercial company, linked to the Ministry of Mines and Energy.  Decree
Law 1760 of June 26, 2003 transformed us from an industrial and
commercial company into a state-owned corporation by shares linked to the
Ministry of Mines and Energy and renamed us Ecopetrol S.A. in order to make us
more competitive.  Prior to our reorganization our capital expenditures
program and access to the credit markets were limited by the Government which
was making its decisions based on its budgetary needs and not on our growth
prospects.




In 2006,
the Congress of Colombia authorized us to issue up to 20% of our capital stock
in Colombia, subject to the condition that the Nation control at least 80% of
our capital stock.  On November 13, 2007, we placed
4,087,723,771 shares in the BVC, which resulted in 483,941 new shareholders
and raised approximately Ps$5,723 billion for the sale of 10.1% of our
capital stock.  Since September 18, 2008, our ADS’s have been trading
in the New York Stock Exchange under the symbol “EC”.  Each ADS represents
20 common shares of the Company.




In
April 2008, we completed the acquisition of Polipropileno del Caribe S.A.
(Propilco), the main polypropylene supplier in Colombia, for the purchase price
of approximately US$690 million, thereby increasing our market share
in the petrochemical business.  We acquired 49% of Propilco’s shares
directly and the remaining 51% indirectly, through our subsidiary Andean
Chemicals Ltd.




In
February 2009, we, in partnership with Korea National Oil Corporation
(KNOC), acquired a 100% stake (50% for each participating company) in Offshore
International Group Inc. (OIG) for the purchase price of
US$900 million.  OIG is the U.S. parent of Petrotech Peruana S.A.,
which carries out crude oil exploration and production activities in
Peru.




In
February 2009, we entered into a memorandum of understanding with Glencore
International A.C. pursuant to which we acquired in May 2009 all of its stake in
Refinería de Cartagena S.A. through our subsidiary Andean Chemicals for the
purchase price of US$549 million, thereby becoming the sole indirect owner
of Refinería de Cartagena S.A.




In
March 2009, we entered into an agreement with Maurel and Prom pursuant to
which we acquired in May 2009 100% of its stake in its subsidiary in
Bermuda, Hocol Petroleum Limited, for the purchase price of US$580 million
plus US$168 million for working capital.  Hocol Petroleum Limited’s
most important assets are Hocol and Homcol, two companies incorporated in the
Cayman Islands with branches in Colombia involved in crude oil and natural gas
exploration and production activities in Colombia.


19


In
March 2009, we entered into an agreement with Enbridge Inc., a Canadian
company, pursuant to which we acquired 100% of its stake in Oleoducto Central
S.A. (Ocensa) for the purchase price of approximately US$418 million,
thereby increasing our ownership of Ocensa from 35.3% to 60%.




These
recent acquisitions were funded mainly through cash on hand and cash flow from
our operations.




Currently,
we are the largest company in Colombia as measured by revenue, profit, assets
and shareholders’ equity.  We are Colombia’s only vertically-integrated
crude oil and natural gas company with operations in Colombia and
overseas.  Our operation does not include natural gas transportation
activities due to legal restrictions.




ITEM 4B
            Business
      Overview




Strategic
Plan




Our 2008
– 2015 Strategic Plan focuses on transforming us into a global company with
emphasis on crude oil and natural gas and the development of alternative
fuels.  We are committed to developing into a key player with high
competitive standards, strong human resources and transparent social
responsibility policies.  We intend to become one of Petroleum Intelligence
Weekly’s 27 leading oil and natural gas companies.




Our
strategic plan provides detailed initiatives for each one of our business
segments.  Our main objective is to increase our reserves to
1,280 million barrels of oil equivalent or boe by 2015 and achieve a daily
output of approximately 1 million boe by such date.  We are also
planning on expanding our refining and conversion capacity and increasing our
petrochemical production, while complying with local and international
environmental standards.




We expect
to fund our strategic initiatives through cash on hand and cash flow from
operating activities.  We also expect to access the local and international
capital markets to fund part of our expansion.  We currently have begun to
incur long-term debt, recently entering into a Ps$2.2 billion (approximately
US$1 billion) syndicated loan facility with a syndicate of local banks in May
2009.  In addition, Oleoducto de los Llanos Orientales or ODL, our indirect
Panamanian subsidiary, through its Colombian branch office, Oleoducto de los
Llanos Orientales Sucursal Colombia, entered into a Ps$520,000 million
(approximately US$200 million) loan facility with Banco de Bogota S.A., Banco de
Occidente S.A., Banco Popular S.A. and Banco AV Villas S.A., which together
comprise the Grupo Aval, in March 2009.  We believe that we will be
able to access local and international markets when the need arises.  We
are also authorized by law 1118 of 2006 to sell an additional 9.9% of our
equity, which could be used to complete funding our strategic plan.




We expect
to achieve our strategy together with our joint venture partners with whom we
have built long-term relationships.  We are also working with foreign
governmental authorities in countries where we already have operation or where
we intend to develop operations.




Exploration
and Production




We intend
to continue the expansion of our exploration and production activities and enter
into new joint ventures to further develop our business.  We intend to
become one of Latin America’s leading crude oil and natural gas companies. 
In line with our development strategy, we intend to increase our average daily
production of hydrocarbons to one million boe per day by the year 2015.  By
2015, we estimate our total investment in exploration activities at
US$11 billion and in production activities at US$27 billion for a
total of US$38 billion.




Increase
our average daily production of hydrocarbons




Our
2008-2015 Strategic Plan contemplates estimated capital expenditures of
approximately US$38 billion in exploratory and development activities in
Colombia and abroad.  Our goal is to increase our reserves to 1,280 million
boe by 2012 and to increase our daily output of hydrocarbons to approximately
one million boe per day by 2015.  From 2008 to 2015, we estimate spending
approximately US$11 billion in exploratory activities in Colombia and
abroad and anticipate drilling directly and together with other oil companies
approximately 300 gross wells.  We estimate that we will need to
incorporate approximately 435 million boe per year of new crude oil and
natural gas reserves from a combination of exploratory drilling, acquisition of
reserves in place and incorporation of new reserves from existing fields to
achieve our one million boe per day production target.


20


Between
2008 and 2015, we plan to invest approximately US$16 billion in production
projects, including development of mature fields, increasing production of heavy
crude oil and development of natural gas fields.  In addition, during the
course of the same period, we intend to invest approximately US$11 billion
to execute our growth strategy by selectively entering into joint ventures with
major international and regional crude oil companies to bid for new exploration
and production blocks on-shore and off-shore within and outside Colombia. 
In 2008, our capital expenditures in our exploration and production segment were
Ps$4,911,487 million (approximately US$2.5 billion).




Refining




Expand
our refining capacity in the Cartagena and Barrancabermeja refineries and
increase our production of petrochemicals




We intend
to expand and modernize our refining capacity in the Cartagena and
Barrancabermeja refineries in order to reach a 95% conversion rate.  Our
goal is to process approximately 650 thousand bpd by 2015.  The
implementation of this initiative will allow us to increase production of
refined products and improve the efficiency of and upgrade existing facilities
in order to reach higher margins in our refining segment.  Our strategic
plan contemplates the investment of approximately US$11 billion in the
upgrade and expansion of our refineries, and in the eventual acquisition of
refineries in markets where we acquire crude oil production.  We expect to
invest approximately US$4 billion to increase our production of
petrochemicals and reach 2.7 million tons per year by 2015, including
700,000 tons per year of polypropylene produced by Polipropileno del Caribe S.A.
(Propilco).  In 2008, our capital expenditures in our refining and
petrochemicals segment were Ps$776,080 million (approximately US$0.4
billion).




Transportation




Development
of our transportation infrastructure




We plan
to implement a transportation infrastructure program focused on the construction
of crude oil pipelines and multipurpose transportation systems to assure our
transportation capacity.  We intend to invest approximately
US$1.2 billion in the construction and upgrading of our transportation
infrastructure to meet our future requirements and in the conversion of existing
crude oil pipelines for the transportation of heavy crude oil.  In 2008,
our capital expenditures in our transportation segment were Ps$939,996 million
(approximately $478 million).




Marketing




Selectively
expand our activities into the retail segment




Our
marketing strategy is focused on supplying the local market and exporting crude
oil, refined products and natural gas to end-users, including refineries and
wholesalers in order to improve our margins.  We are focused on increase
our market participation in crude oil and refined products in the Far
East.  We are currently opening new markets for our products, such as China
and India.  We continue to selectively evaluate entering into retail
markets in Colombia.  Our 2008-2015 Strategic Plan contemplates investments
of approximately US$3 billion in the retail sector.




Our
principal export markets in 2008 were:  the US market, which accounted for
56%; Far East 10%; Aruba 10%, Chile 5% and Europe 4%.  Currently, we
maintain short-term crude oil supply contracts with Valero, ConocoPhillips and
Tesoro Refining, as well as supply contracts for refined products with Refineria
Dominicana de Petróleo S.A., Glencore and Berkshire, and a natural gas supply
agreement with PDVSA.




Based on
our natural gas production growth projections, we expect to increase our sales
by focusing on deliveries of compressed natural gas for motor vehicles and
industrial users, which have high demand.


21


Others




Expand
our operations in the renewable energy market




We intend
to participate in the renewable energy market in Colombia with local investors
with whom we have undertaken the development of a refinery to process palm oil
for bio-fuels.  Our plan calls for investment of US$570 million in
these initiatives.  See Item 4B — “Business Overview — Environmental
Matters.”




Capital
Expenditures




Our
consolidated capital expenditures during 2008 amounted to
Ps$6,704,595 million compared to Ps$3,036,962 million in 2007 and
Ps$1,862,934 million in 2006.  The most significant increase in our
capital expenditures has been in our exploration and production segment which
increased 84% in 2008 to Ps$4,911,487 million from
Ps$2,678,684 million in 2007, and 105% in 2007 when compared to
Ps$1,309,361 in 2006.  We plan to meet our budgeted capital expenditures
primarily through existing cash on hand, cash from operating activities and
financings in the local and international financial markets.  We may access
equity markets through the issuance of an additional 9.9% of our common stock as
authorized by Law 1118 of 2006.




At
May 31, 2009, our subsidiary in Peru had made capital expenditures of
approximately US$2 million and our subsidiary in the Gulf of Mexico had
made capital expenditures of approximately US$49 million.  These
capital expenditures were funded by our own resources.  All expenditures
include project evaluation, payments to advisors, operation expenditures and
costs associated to assignment of exploration blocks.




We
currently have capital expenditures commitments locally and abroad. The most
significant capital expenditures are within our exploration, transportation and
refining segments.  See Note 31 to our consolidated financial statements
for a description of our principal commitments.




Overview




We are a
vertically integrated oil company operating in Colombia and overseas.  We
are majority owned by the Nation and our shares trade on the BVC under the
symbol ECOPETROL and in the New York Stock Exchange under the symbol “EC”. 
We divide our operations into four business segments that include exploration
and production; transportation; refining; and marketing and supply.  We are
the largest corporation in Colombia, as measured by assets, sales, net income
and net worth, and we play a key role in the local energy supply market. 
Exports of crude oil and refined-products accounted for approximately 33% of
Colombia’s total exports in 2008, of which our exports accounted for
48%.




Overview
by Business Segment




Exploration
and Production




Summary




Our
exploration and production business segment includes exploration, development
and production activities in Colombia and abroad.  We began local
exploration in 1955 and international exploration in 2006.  We conduct
exploration and production activities directly and through joint ventures with
third parties.  We are the largest producer of crude oil and natural
gas, the largest operator, and at December 31, 2008, we maintained the most
acreage under exploration in Colombia.




According
to the ANH, Colombia has 23 sedimentary basins, and at December 31, 2008,
we had exploratory activities in 14 of them.  The following map shows
the basins where we conduct exploratory activities.


22


23
  We have
organized our production activities into five administrative
regions.  The administrative regions, and their respective 2008
results, are:
  Northeastern Region – The
Northeastern region is comprised of two areas, one located in the north of
Colombia along the Atlantic coast and the other located in the Piedemonte
Llanero.  The Northeastern region covers approximately
200,350 acres, and includes the natural gas fields located at La Guajira
and the crude oil and natural gas fields located in
Cusiana-Cupiagua.  The Northeastern region has a total production of
approximately 40.4 thousand bpd of crude oil and 451.8 million cubic
feet per day or mcfpd of natural gas.  At December 31, 2008, we
had 438 million boe of net proved reserves of crude oil and natural
gas.
  Mid-Magdalena Valley Region –
The Mid-Magdalena Valley region runs along the Magdalena river valley and covers
approximately 1,282,339 acres.  The Mid-Magdalena Valley region
includes the crude oil fields located in the Santander department and part of
the Antioquia, Cesar and Boyacá departments near the Barrancabermeja
refinery.  The Mid-Magdalena Valley region has a total production of
approximately 65.8 thousand bpd of heavy and light crude oil and 27.4 mcfpd
of natural gas.  At December 31, 2008, we had 221 million
boe of net proved reserves of crude oil and natural gas.
  Central Region – The Central
region is located in Colombia’s central region and includes the Meta department
and part of the Casanare department.  The Central region covers
approximately 521,697 acres and has a total production of approximately
122.3 thousand bpd of heavy and medium crude oil and 1.7 mcfpd of natural
gas.  At December 31, 2008, we had 265 million boe of net
proved reserves of crude oil and natural gas.
  Catatumbo-Orinoquía Region –
The Catatumbo-Orinoquía region is located in the eastern part of Colombia and
runs along the border with Venezuela covering approximately
669,616 acres.  The Catatumbo-Orinoquía region includes the Caño
Limón crude oil field and the Gibraltar natural gas field with a total
production of approximately 73.9 thousand bpd of crude oil and 1
mcfpd.  At December 31, 2008, we had 105 million boe of net
proved reserves of crude oil and natural gas.
  Southern Region – The
Southern region is located on the southwestern region of Colombia and covers
approximately 1,502,376 acres.  The Southern region includes the
Orito, Guando and Neiva fields located mainly in the Cundinamarca, Huila and
Putumayo departments.  The Southern region has a total production of
approximately 57.9 thousand bpd of crude oil and 5 mcfpd of natural
gas.  At December 31, 2008, we had 107 million boe of net
proved reserves of crude oil and natural gas.
  24
  The map
below indicates the location of our operations in Colombia.
 
 
 
 Strategy
  Our main
strategies in exploration and production in Colombia and abroad are to increase
our crude oil and natural gas reserves and reach a production of
one million boe per day in 2015, by:
  ·
              Investing
      in high potential hydrocarbon areas in Colombia and
  abroad;
  ·
              Selectively
      acquiring reserves;
  ·
              Implementing
      new strategies and deploying state-of-the art technologies to increase
      reserve recovery of new and mature
fields;
  ·
              Investing
      in the development of natural gas and heavy crude oil;
  and
  25
  ·
              Entering
      into new joint ventures with regional and international oil companies in
      Colombia and abroad.
  Exploration
  Our
exploration plan in Colombia is focused on exploration near existing production
sites; exploration in already producing basins; and exploration in frontier
areas including off-shore areas with potential for large
findings.  Our exploration strategy outside Colombia is focused on
larger prospects.
  In 2008,
surface exploration in Colombia by acquisition of seismic data covered
approximately 16,286 equivalent kilometers of which we participated in 6,789
equivalent kilometers representing a 120% increase as compared with 2007,
corresponding to 2,018 kilometers of 2D seismic data and 2,807 square kilometers
of 3D seismic data.  Of this amount 3,236 equivalent kilometers were
directly prospected by us, 2,094 equivalent kilometers were prospected together
with our business partners in Colombia, 354 equivalent kilometers were
prospected together with our business partners in international fields and 1,105
equivalent kilometers were prospected by third parties under sole risk
contracts.  (1 square kilometer (3D seismic data) corresponds to
1.7 kilometers (2D seismic data) of equivalent kilometers).
  Exploration
Activities in Colombia
  We
conduct exploration in Colombia on our own and through joint ventures with
regional and international oil and gas companies.  We also benefit
from sole risk contracts when commercial reserves are found.  In the
case of sole risk contracts, we do not take any exploration
risk.
  26
  The
following table sets forth the number of gross and net exploratory wells drilled
by us and our joint venture partners, and the exploratory wells drilled by third
parties under a sole risk contract for the years ended December 31, 2008,
2007 and 2006.
  For
      the year ended December 31,2008
                
                
                2007
                
                
                2006Gross
      Exploratory Wells:Owned
      and operated by EcopetrolProductive(1)
                
                
                4
                
                
                
                1
                
                
                
                1Dry(2)
                
                
                6
                
                
                
                3
                
                
                
                2Total
                
                
                10
                
                
                
                4
                
                
                
                3Operated
      by Ecopetrol in Joint VentureProductive
                
                
                1
                
                
                
                1
                
                
                
                –Dry
                
                
                0
                
                
                
                2
                
                
                
                1Total
                
                
                1
                
                
                
                3
                
                
                
                1Operated
      by Partner in Joint VentureProductive
                
                
                1
                
                
                
                –
                
                
                
                –Dry
                
                
                3
                
                
                
                5
                
                
                
                –Total
                
                
                4
                
                
                
                5
                
                
                
                –Net Exploratory Wells:Productive
                
                
                4.9
                
                
                
                1.4
                
                
                
                1Dry
                
                
                6.5
                
                
                
                5.6
                
                
                
                2.5Total
                
                
                11.4
                
                
                
                7
                
                
                
                3.5Sole Risk(3):Productive
                
                
                8
                
                
                
                8
                
                
                
                14Dry
                
                
                12
                
                
                
                13
                
                
                
                16Total
                
                
                20
                
                
                
                21
                
                
                
                30
  
 (1)
              A
      productive well is an exploratory well that is not a dry
    well.
 (2)
              A
      dry well or hole is an exploratory well found to be incapable of producing
      either crude oil or natural gas in sufficient quantities to justify
      completion as a crude oil or natural gas
well.
 (3)
              We
      do not take any risk in sole risk contracts but we benefit from successful
      exploratory efforts.  See Item 4 — “Overview of Exploration
      and Production Contractual
Arrangements.”
  In 2008,
our gross and net exploratory wells drilled included two international wells
drilled: one in Peru with our business partner Repsol, where we have a 49.5%
ownership interest and one in the Gulf of Mexico with our business partner
Shell, where we have a 25% ownership interest.  Both were dry
wells.
  The
following table sets forth our current net and gross exploratory wells drilled
at March 31, 2009.
  For
      the three-month period ended March 31, 2009Gross
                
                
                NetNumber
      of net and gross wells drilled:Joint
      ventures
                
                
                0
                
                
                
                0Sole
      Risk
                
                
                0
                
                
                
                0Directly
      Ecopetrol
                
                
                3
                
                
                
                3Total
                
                
                3
                
                
                
                3
 
 
  27
  International
Exploration Activities
  Our
international exploration strategy is focused on securing blocks available for
exploration and entering into joint ventures with international and regional oil
companies.  Exploring outside Colombia will allow us to diversify our
risk and improve the possibilities for increasing our crude oil and natural gas
reserves.  In December 2006, the incorporation of Ecopetrol Oleo
e Gas do Brasil Ltda., our first foreign affiliate, represented a milestone in
our international expansion.  With the incorporation of our first
foreign affiliate, we initiated our international exploration and the
consolidation as an international oil and gas company.  In 2007, two
new operating subsidiaries were incorporated, Ecopetrol del Peru and Ecopetrol
America Inc.
  As of
December 31, 2008, we have signed 16 agreements to participate in
exploratory blocks in Peru (9), Brazil (6) and the Gulf of Mexico
(1).  Our partners include, among others, Talisman, BP, Anadarko,
Repsol-YPF, Petrobras, Petroperu, Petrogal, CVRD, Shell, ENI, Statoil and New
Field.
  In
February 2009, we, in partnership with Korea National Oil Corporation
(KNOC), acquired a 100% stake (50% for each participating company) in Offshore
International Group Inc. (OIG).  OIG is the U.S. parent of Petrotech
Peruana S.A., which carries out crude oil exploration and production activities
in Peru.
  In
March 2009, we entered into an agreement with Maurel and Prom pursuant to
which we acquired in May 2009 100% of its stake in its subsidiary in
Bermuda, Hocol Petroleum Limited.  Hocol Petroleum Limited’s most
important assets are Hocol and Homcol, two companies incorporated in the Cayman
Islands with branches in Colombia involved in crude oil and natural gas
exploration and production activities in Colombia.
  Production
  Our
average daily production of hydrocarbons in 2008 totaled 447 thousand boe,
of which 362 thousand bpd corresponded to crude oil and 85 thousand
boe corresponded to natural gas.  Of our 362 thousand bpd,
172 thousand bpd came from fields we directly operate and 190 thousand
bpd came from our participation in joint ventures, shared risk agreements and
other contractual arrangements with our business partners.  During
2007, our average daily production of hydrocarbons totaled 399 thousand
boe, of which 327 thousand bpd corresponded to crude oil and
72 thousand boe corresponded to natural gas.  Our average daily
production of hydrocarbons in 2006 was 385 thousand bpd, of which
316 thousand bpd corresponded to crude oil and 69 thousand boe to
natural gas.  Our production during 2008 consisted of approximately
70% light and medium crudes (with a gravity between 16o and 35o American
Petroleum Institute or API) and 30% of heavy crudes, with a gravity lower than
15° API.
  Our crude
oil and natural gas production includes 110 fields directly operated by us and
184 fields in joint venture with 40 oil companies.  At
December 31, 2008, we were the largest participant in the Colombian
hydrocarbons industry with approximately 66% of crude oil production and
approximately 56% of natural gas production.
  We
produce crude oil and natural gas in the five administrative
regions.  The Northeastern region has significant production of
natural gas and light crude oil while the Central region and the southern part
of the Mid-Magdalena Valley region have the most significant production and
prospects of heavy crude oil, and currently produce light and medium crude
oil.  The Catatumbo-Orinoquía region has significant production of
medium crude oil and the Southern region has production of medium and light
crude oil.
  We
undertook development drilling in the five producing regions and applied new
technologies, allowing us to drill 146 gross development wells operated by us in
2008, 26 more than in 2007 and 81 more than in 2006.  Of the total
gross development wells drilled in 2008, seven were dry wells, two of those
located in the Catatumbo-Orinoquia region, two located in the Mid-Magdalena
Valley region and three were located in the Southern region.  There
were five dry development wells in 2007 and no dry development wells during
2006.
  Relevant
operational activities
  During
2008 we drilled a significant number of horizontal wells, particularly in heavy
crude oil fields.  We drilled two multilateral wells in the Castilla
field, located in the Central Region, during the first quarter of
2008.  In conjunction with our partner Mansarovar, we also drilled two
additional wells in the Nare-Teca field located in the Mid-Magdalena Valley
Region.
  28
  In 2008,
we undertook maintenance work in our waterfloods systems in the Casabe fields,
located in the Mid-Magdalena Valley Region, to improve the crude oil production
of these fields from approximately 8000 bpd to 10300 bpd.  In
conjunction with our partner Occidental, we also evaluated the waterfloods and
water injection systems in the Cira fields, located in the Mid-Magdalena Valley
region, in order to increase the recovery factor of these fields.
  The
following table sets forth the number of gross and net development wells drilled
exclusively by us and in joint ventures for the years ended December 31,
2008, 2007 and 2006.
  For
      the year ended December 31,2008
                
                
                2007
                
                
                2006Northeastern
      Region:Gross
      wells owned and operated by Ecopetrol
                
                
                –
                
                
                
                –
                
                
                
                –Gross
      wells in Joint Ventures(1)
                
                
                1
                
                
                
                2
                
                
                
                6Net
      Wells(2)
                
                
                1
                
                
                
                1
                
                
                
                3Mid-Magdalena
      Valley Region:Gross
      wells owned and operated by Ecopetrol
                
                
                90
                
                
                
                77
                
                
                
                45Gross
      wells in Joint Ventures
                
                
                344
                
                
                
                153
                
                
                
                34Net
      Wells
                
                
                285
                
                
                
                146
                
                
                
                62Central
      Region:Gross
      wells owned and operated by Ecopetrol
                
                
                41
                
                
                
                29
                
                
                
                15Gross
      wells in Joint Ventures
                
                
                66
                
                
                
                17
                
                
                
                3Net
      Wells
                
                
                79
                
                
                
                38
                
                
                
                17Catatumbo-Orinoquía
      Region:Gross
      wells owned and operated by Ecopetrol
                
                
                5
                
                
                
                8
                
                
                
                –Gross
      wells in Joint Ventures
                
                
                59
                
                
                
                53
                
                
                
                52Net
      Wells
                
                
                36
                
                
                
                36
                
                
                
                25Southern
      Region:Gross
      wells owned and operated by Ecopetrol
                
                
                10
                
                
                
                6
                
                
                
                5Gross
      wells in Joint Ventures
                
                
                36
                
                
                
                58
                
                
                
                50Net
      Wells
                
                
                27
                
                
                
                33
                
                
                
                30Total
      Gross wells owned and operated by Ecopetrol
                
                
                146
                
                
                
                120
                
                
                
                65Total
      Gross wells in Joint Ventures
                
                
                506
                
                
                
                283
                
                
                
                145Total
      Net Wells
                
                
                428
                
                
                
                254
                
                
                
                137
  
 (1)
              Net
      wells correspond to the sum of wells entirely owned by us and our
      ownership percentage of wells owned in joint venture with our
      partners.
 (2)
                The
      information provided by our business partners regarding the number of
      wells drilled in joint ventures during 2008 was updated in
      February 2009.
  Production
Activities in Colombia
  As a
result of our 2008-2015 Strategic Plan and our investments in production
activities, our average daily production of crude oil reached 362 thousand
bpd in 2008, a 12% increase compared to 2007 and a 15% increase when compared to
2006.  The increase in average daily production is due to a 24%
increase in production from fields developed with our business partners, which
totaled 215 thousand bpd in 2008 from 175 thousand bpd in 2007, and a
4% reduction from fields operated by us, which totaled a 145 thousand bpd
in 2008 compared to 151 thousand bpd in 2007.
  29
  The
following table sets forth our average daily crude oil production, average sales
price and average production costs (lifting costs) for the years ended
December 31, 2008, 2007 and 2006.
  For
      the Year ended December 312008
                
                
                2007
                
                
                2006(thousand
      bpd)Northeastern
      region:Joint
      venture operation
                
                
                40.4
                
                
                
                47.5
                
                
                
                58.3Direct
      operation
                
                
                —
                
                
                
                —
                
                
                
                —Total
      Northeastern region
                
                
                40.4
                
                
                
                47.5
                
                
                
                58.3Mid-Magdalena
      Valley region:Joint
      venture operation
                
                
                15.1
                
                
                
                12.7
                
                
                
                12.4Direct
      operation
                
                
                50.7
                
                
                
                39.4
                
                
                
                34.9Total
      Mid-Magdalena Valley region
                
                
                65.8
                
                
                
                52.1
                
                
                
                47.3Central
      region:Joint
      venture operation
                
                
                28.6
                
                
                
                15.3
                
                
                
                3.7Direct
      operation
                
                
                93.7
                
                
                
                82.8
                
                
                
                85.7Total
      Central region
                
                
                122.3
                
                
                
                98.1
                
                
                
                89.4Catatumbo-Orinoquía
      region:Joint
      venture operation
                
                
                70.9
                
                
                
                64.9
                
                
                
                63.8Direct
      operation
                
                
                3.0
                
                
                
                6.0
                
                
                
                1.9Total
      Catatumbo-Orinoquia region
                
                
                73.9
                
                
                
                70.9
                
                
                
                65.7Southern
      region:Joint
      venture operation
                
                
                33.6
                
                
                
                35.2
                
                
                
                35.7Direct
      operation
                
                
                24.3
                
                
                
                22.9
                
                
                
                20Southern
      region
                
                
                57.9
                
                
                
                58.1
                
                
                
                55.6Other
      (Includes Production testsand
      International assets(1))
                
                
                1.6Total
      average daily crude oil production
                
                
                361.9
                
                
                
                326.6
                
                
                
                316.2Crude
      Oil Average Sales Price(U.S.
      dollar per barrel(2))
                
                
                83.98
                
                
                
                64.76
                
                
                
                53.39Aggregate
      Average Lifting Costs of crude oil (U.S. dollars per
      barrel)
                
                
                8.33
                
                
                
                7.24
                
                
                
                5.23Aggregate
      Average Lifting Costs of crude oil (Ps$ per barrel)
                
                
                16,376
                
                
                
                15,057
                
                
                
                12,343
  
 (1)
              Includes
      1.3 thousand bpd of production from exploratory activities and
      0.3 thousand bpd of crude oil production from our international
      fields located in the U.S. Gulf.
 (2)
              Lifting
      costs per barrel are calculated based on total production, including
      royalties.
  The
increase in our crude oil lifting costs for 2008 was mainly due to an increase
in crude oil production activities, both directly and in association with our
business partners, an increase in well maintenance activities and the
appreciation in the average exchange rate for the Peso against the U.S.
Dollar.
  30
  The table
below sets forth the volumes of crude oil purchased from our business partners
and volumes of crude oil purchased from the ANH corresponding to royalties which
have been received by the ANH in-kind from producers for the years ended
December 31, 2008, 2007 and 2006.
  For
      the year ended December 31,2008
                
                
                2007
                
                
                2006(million
      barrels)Crude
      oil purchasedfrom
      the ANH
                
                
                32.6
                
                
                
                31.0
                
                
                
                32.8Crude
      oil purchased from our Business partners
                
                
                18.8
                
                
                
                12.7
                
                
                
                10.0Total
                
                
                51.4
                
                
                
                43.7
                
                
                
                42.8
 
 The
following table sets forth our developed and undeveloped gross and net acreage
of crude oil production by region for the year ended December 31,
2008.
  Production Acreage at
                    December 31, 2008
                
                
                Average crude oil production for the
                    year ended December 31, 2008(1)Developed and Undeveloped
                
                
                (thousand bpd)Gross
                
                
                Net(in
      acres)Northeastern
      region
                
                
                200,350
                
                
                
                120,210
                
                
                
                40.4Mid-Magdalena
      Valley region
                
                
                1,282,339
                
                
                
                635,944
                
                
                
                65.8Central
      region
                
                
                521,697
                
                
                
                330,799
                
                
                
                122.3Catatumbo-Orinoquía
      region
                
                
                669,616
                
                
                
                399,920
                
                
                
                73.9Southern
      region
                
                
                1,502,376
                
                
                
                847,454
                
                
                
                57.9International
                
                
                5,760
                
                
                
                530
                
                
                
                0.3Total
                
                
                4,182,138
                
                
                
                2,334,857
                
                
                
                360.6
 
 (1) Does
not include 1.3 thousand bpd of production from exploratory
activities.
  The
following table sets forth our total gross and net productive wells by region
for the year ended December 31, 2008.
  At December 31, 2008Crude Oil
                
                
                Natural Gas
                
                
                Natural Gas and
                    Crude OilGross
                
                
                Net
                
                
                Gross
                
                
                Net
                
                
                Gross
                
                
                NetNortheastern
      region
                
                
                –
                
                
                
                –
                
                
                
                28
                
                
                
                16
                
                
                
                63
                
                
                
                32Mid-Magdalena
      Valley region
                
                
                252
                
                
                
                158
                
                
                
                3
                
                
                
                2
                
                
                
                2146
                
                
                
                1643Central
      region
                
                
                240
                
                
                
                183
                
                
                
                –
                
                
                
                –
                
                
                
                108
                
                
                
                97Catatumbo-Orinoquía
      region
                
                
                393
                
                
                
                242
                
                
                
                –
                
                
                
                –
                
                
                
                261
                
                
                
                176Southern
      region
                
                
                12
                
                
                
                10
                
                
                
                7
                
                
                
                3
                
                
                
                922
                
                
                
                639Total
                
                
                897
                
                
                
                593
                
                
                
                38
                
                
                
                21
                
                
                
                3500
                
                
                
                2587
 
 Crude
Oil
  Light
crude oil
  Light
crude oil has an API gravity 25o or higher and tends to have a higher sales
price in the international market.  We develop and produce light crude
oil in the Cravo Norte joint venture and in the Cusiana and Cupiagua
fields.  During 2008, our production of light crude oil was
89 thousand bpd, a 9.5 % decrease compared to 98 thousand bpd produced
in 2007.  During 2007, our production of light crude oil decreased
8.1% when compared to 107 thousand bpd in 2006.  The decrease in
production is due to the decline of the fields as they are becoming mature and
the recovery level continues to be lower.
  31
  Our most
productive fields are located in the Catatumbo-Orinoquía and Northeastern
regions.  These fields are:
  (i) Caño Limón.  The
Caño Limón field is located in the department of Arauca.  We
participate in this field through a joint venture with Occidental
Petroleum.  The production of the Cravo Norte project during 2008
reached 48.2 thousand bpd, compared to 50.4 thousand bpd in 2007 and
48.3 thousand bpd in 2006.  We estimate that the Cravo Norte
project has approximately 54.4 million barrels of crude oil in proved
reserves.
  (ii) Cusiana and
Cupiagua.  The Cusiana and Cupiagua blocks are located in the
Piedemonte Llanero and
are developed in partnership with British Petroleum and Total.  The
project is composed by the Cusiana, Cupiagua, Pauto, Floreña and Volcanera
fields.  The production of these fields during 2008 was
40.4 thousand bpd, compared to 47.5 thousand bpd in 2007 and
58.2 thousand bpd in 2006.  We estimate that the Cusiana and
Cupiagua fields have approximately 145.8 million barrels of crude oil in
proved reserves and 868.9 mcf of natural gas reserves.  The first
joint venture agreement with British Petroleum and Total under which we produce
crude oil and natural gas in these fields will expire in 2010 and the production
rights will revert to us at no additional cost.  See Item 4 —
“Overview of Exploration and Production Contractual Arrangements.”
  Heavy
crude oil
  We
consider heavy crudes those having an API gravity below 15o.  We
develop, upgrade and produce heavy crude in the Central and Mid-Magdalena Valley
regions.  From 2000 to 2008 we invested approximately
US$1,430 million to expand our production of heavy crude oil, which
increased from 24 thousand bpd in 2000 to 109 thousand bpd in
2008.  Our production of heavy crudes in 2008 reached
109 thousand bpd, a 35% increase when compared to 2007 as a result of the
development of the Rubiales, Castilla and Chichimene fields, in the San Fernando
Region.  In 2007, our production of heavy crudes amounted to
81 thousand bpd compared to 68.5 thousand bpd in 2006 mainly as a
result of the development of the Rubiales and Castilla fields.  We are
committed to developing our heavy crude reserves as they are an integral part of
our growth strategy.
  Our most
important heavy crude oil projects are:
  (i) Cubarral.  The
Cubarral block is located in the Central region and is composed of the Castilla
and Chichimene fields with approximately 167 million barrels of developed
and undeveloped proved reserves.  We decided to undertake the
development of the project and selected a strategic partner for exploration in
the Caño Sur Block.
  (ii) Rubiales.  The
Rubiales field is located in the Central region and is developed in joint
venture with Metapetroleum.  Investments in this field during 2008
amounted to US$164 million as we and our business partner drilled 61
development wells and enlarged our fluid treatment facilities.  The
Rubiales field increased Ecopetrol’s production from 10.6 thousand bpd in
2007 to 20 thousand bpd in 2008.  We expect our production share
during 2009 to reach 30.3 thousand bpd.
  (iii) Nare-Teca.  Nare-Teca
field is located in the Mid-Magdalena Valley region developed in joint venture
with Mansarovar, a joint venture between Sinopec from China and Oil and Natural
Gas Corporation Ltd. from India.  During 2008, we invested
approximately US$94 million in drilling 173 development wells and fluid
treatment facilities.  We expect our production share to increase to
11 thousand bpd in 2009 and to reach a maximum of 15 thousand bpd by
2010.
  Mature
fields
  We
consider the development of mature fields an integral part of our strategy to
increase average daily production and hydrocarbon reserves.  Mature
fields are those fields that have reached their maximum output and have entered
their final decline in production.  Approximately 70.4% of our fields
are considered mature.  However, these reservoirs, discovered over 20
years ago, still have significant reserves which can be recovered through
aggressive drilling campaigns and by applying new technologies.  We
continue to focus our efforts on improving the productivity ratio of several
directly operatedmature fields and other
fields currently held in joint venture with other oil companies, which will
become mature in the near future.
  32
  For the
last six years, we have been developing mature fields in all five
regions.  As a result of these activities, we were able to reduce the
rate of decline in production from mature crude oil fields which totaled
227.2 thousand bpd in 2008 compared to 227 thousand bpd in 2007 and
228 thousand bpd in 2006.
  The table
below describes the location, number and daily production of our mature fields
for the periods indicated below.
  At December 31,
                    2008
                
                
                For the year ended December 31,Number of fields
                
                
                2008
                
                
                2007
                
                
                2006(thousand bpd)Northeastern
      region:Joint
      Venture
                
                
                5
                
                
                
                40.4
                
                
                
                47.5
                
                
                
                58.2Direct
      Operation
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Total
      Northeastern region
                
                
                5
                
                
                
                40.4
                
                
                
                47.5
                
                
                
                58.2Mid-Magdalena
      Valley region:Joint
      Venture
                
                
                15
                
                
                
                4.1
                
                
                
                5.2
                
                
                
                5.4Direct
      Operation
                
                
                32
                
                
                
                50.9
                
                
                
                39.0
                
                
                
                34.9Total
      Mid-Magdalena Valley region
                
                
                47
                
                
                
                55.0
                
                
                
                44.2
                
                
                
                40.3Central
      region:Joint
      Venture
                
                
                5
                
                
                
                1.4
                
                
                
                1.5
                
                
                
                1.8Direct
      Operation
                
                
                19
                
                
                
                20.8
                
                
                
                23.5
                
                
                
                26.0Total
      Central region
                
                
                24
                
                
                
                22.2
                
                
                
                25
                
                
                
                27.8Catatumbo-Orinoquía
      region:Joint
      Venture
                
                
                56
                
                
                
                67.9
                
                
                
                64.1
                
                
                
                57.5Direct
      Operation
                
                
                6
                
                
                
                4.8
                
                
                
                5.7
                
                
                
                5.7Total
      Catatumbo-Orinoquía region
                
                
                62
                
                
                
                72.7
                
                
                
                69.7
                
                
                
                63.2Southern
      region:Joint
      Venture
                
                
                37
                
                
                
                13
                
                
                
                17.6
                
                
                
                18.0Direct
      Operation
                
                
                32
                
                
                
                23.9
                
                
                
                22.9
                
                
                
                20.0Total
      Southern region
                
                
                69
                
                
                
                36.4
                
                
                
                40.5
                
                
                
                38.0Total
                
                
                207
                
                
                
                227.2
                
                
                
                227
                
                
                
                228
 
 Purchase
Commitments with our business partners
  We have
entered into a number of crude oil purchase contracts with certain of our
business partners.  Crude oil purchased from our business partners is
either processed in our refineries or exported.  The purchase price is
calculated based on international market prices.  Consequently, our
total financial exposure depends on the international prices of oil and volumes
produced.  We believe that the risk of such exposure is hedged because
we either export the crude oil at international market prices or sell refined
products at prices which are correlated with international market
prices.  During 2008, the total volumes of crude oil we purchased from
our business partners amounted to 23% of our total crude oil sales.
  Deliveries
of crude oil are made on a continuous basis.  At March 31, 2009 we had
40 of these contracts outstanding, of which 16 or 40% expire in 2009, 21 or
52.5% expire in 2010 and the remaining 3 or 7.5% thereafter.
  Under
most of our existing contracts we are obliged to purchase 100% of our partner’s
production in the specific field.  However, beginning in the last
quarter of 2008, we began signing contracts capping our obligation to purchase
at a certain level depending on production forecasts.  As of
February 28, 2009, our accumulated purchases of crude oil under these
commitments amounted to 66.1 thousand bpd of crude oil for
2008.
  33
  The term
of some of our purchase contracts is linked to the term of the joint venture
agreements signed with our business partners.  Other clauses of the
contracts such as price and place of delivery may be subject to renegotiation
during the term of the contract.  Other purchase contracts not linked
to joint venture agreements may be extended and renegotiated by the
parties.  We expect to renegotiate and extend our most significant
purchase contracts not linked to the joint venture agreements.
  Natural
Gas
  Our
production of natural gas is driven by the growth of local demand and exports to
Venezuela.  In 2008 we produced 487 mcfpd, an 18.5% increase when
compared to 2007 and a 23.6% increase when compared to 2006.
  The
following table sets forth our average daily natural gas production, our average
sales price and average production costs (lifting costs) for the years ended
December 31, 2008, 2007 and 2006.
  For
      the year ended December 31, 20082008
                
                
                2007
                
                
                2006(mcfpd)Northeastern
      region:Joint
      Venture
                
                
                451.8
                
                
                
                375.4
                
                
                
                348.0Direct
      Operation
                
                
                —
                
                
                
                —
                
                
                
                —Total
      Northeastern region
                
                
                451.8
                
                
                
                375.4
                
                
                
                348.0Mid-Magdalena
      Valley region:Joint
      Venture
                
                
                6.0
                
                
                
                8.1
                
                
                
                10.2Direct
      Operation
                
                
                21.4
                
                
                
                21.5
                
                
                
                21.8Total
      Mid-Magdalena
                  Valley
      region
                
                
                27.4
                
                
                
                29.6
                
                
                
                32.0Central
      region:Joint
      Venture
                
                
                —
                
                
                
                —
                
                
                
                —Direct
      Operation
                
                
                1.7
                
                
                
                1.6
                
                
                
                7.7Total
      Central region
                
                
                1.7
                
                
                
                1.6
                
                
                
                7.7Catatumbo-Orinoquía
      region:Joint
      Venture
                
                
                1.0
                
                
                
                1.1
                
                
                
                1.8Direct
      Operation
                
                
                —
                
                
                
                —
                
                
                
                —Total
      Catatumbo-
                  Orinoquía
      region
                
                
                1.0
                
                
                
                1.1
                
                
                
                1.8Southern
      region:Joint
      Venture
                
                
                2.8
                
                
                
                3.3
                
                
                
                4.2Direct
      Operation
                
                
                2.2
                
                
                
                1.0
                
                
                
                0.2Total
      Southern region
                
                
                5.0
                
                
                
                4.2
                
                
                
                4.5Total
      natural gas production
                
                
                486.8
                
                
                
                412.0
                
                
                
                394.0Natural
      gas average sales price (U.S. dollar per mbtu)(1)
                
                
                3.73
                
                
                
                1.98
                
                
                
                2.04Aggregate
      Average Lifting Costs of natural gas (U.S. dollars per mbtu)(2)
                
                
                0.29
                
                
                
                0.21
                
                
                
                0.20Aggregate
      Average Lifting Costs of natural gas ((Ps$ per mbtu)(2)(3)
                
                
                580.0
                
                
                
                427.2
                
                
                
                479.3
 
 (1)
              Corresponds
      to million British thermal units.
 (2)
              Corresponds
      to lifting costs from La Guajira fields.  Lifting costs per
      barrel are calculated based on total production, including
      royalties.
 (3)
              Corresponds
      to Colombian Pesos
  34
  Natural
gas lifting costs increased to US$0.29 per thousand cubic feet (“thousand
cf”) in 2008 from US$0.21 per thousand cf in 2007 due to (i) an increase in
the disbursements for minor projects related to natural gas treatment in the
Guajira fields as established in the contract with our business partner Chevron,
(ii) an increase in the production payments to Petrosantander as a result of an
increase in volumes and the sales price of natural gas (pursuant to our contract
with them) and (iii) the appreciation in the average exchange rate for the Peso
against the U.S. Dollar.
  35
  The following table sets forth our
developed and undeveloped gross and net acreage of natural gas production by
region:
  Developed and Undeveloped
                    Production Acreage as of
                    December 31, 2008
                
                
                Average natural gas
                    production for the year ended
                    December 31, 2008(in acres)
                
                
                (thousand cfpd)Gross
                
                
                NetNortheastern
      region
                
                
                238,801
                
                
                
                142,127
                
                
                
                451.8Mid-Magdalena
      Valley region
                
                
                769,582
                
                
                
                455,228
                
                
                
                27.4Central
      region
                
                
                201,415
                
                
                
                129,384
                
                
                
                1.7Catatumbo-Orinoquía
      region
                
                
                10,166
                
                
                
                —
                
                
                
                1.0Southern
      region
                
                
                241,933
                
                
                
                121,802
                
                
                
                5Total
                
                
                1,461,897
                
                
                
                848,539
                
                
                
                486.6
 
 Northeastern
region
  The
largest production of natural gas in Colombia is located in the Northeastern
region, which we develop under two joint venture contracts.  We
develop the Guajira natural gas reserves with our partner Chevron and the
Cusiana and Cupiagua reserves in partnership with British Petroleum and
Total.  Natural gas production in the Northeastern region averaged
451.8 mcfpd in 2008.  The natural gas produced from these fields is
used to supply our local demand and the surplus is exported to
Venezuela.
  As a
result of the age and the decline rate of the Cusiana, Cupiagua and Floreña
crude oil fields, we commenced production of natural gas for sale with the
construction of a new gas treatment plant in 2006.  As a result,
natural gas treatment capacity in the Cusiana fields increased to 200
mcfpd.  During 2008 the production of natural gas for sale from the
Cusiana, Cupiagua and Floreña fields totaled to 255.2 mcfpd, a 21% increase when
compared with the 210.7 mcfpd produced in 2007.  Currently, we are
re-injecting a significant percentage of natural gas in the Cusiana and Cupiagua
fields to keep the current recovery ratio.  We plan to build two new
plants, including a natural gas treatment plant to increase treatment capacity
and production of natural gas for sale to 410 mcfpd by 2011.
  We have
additional natural gas production located in the Gibraltar block in the
department of Arauca.  We are currently building the production and
transportation infrastructure.  We expect the Gibraltar block to start
producing approximately 30 mcfpd in the fourth quarter of 2009.
  Reserves
  Our net
proved reserves of crude oil and natural gas at December 31, 2008, totaled
1,137.0 million boe, which represents a 6.0% decrease from
1,209.9 million boe registered in 2007.  In 2007, our proved
reserves decreased 3.4% from the 1,252.5 million boe registered in
2006.  The reduction in our reserves in 2008 is mainly due to (i) a
decrease in the ratio at which we replaced reserves as a result of a lower crude
oil valuation price at December 31, 2008 and (ii) an increase in our 2008
crude oil and natural gas production, both of which were partially offset by an
increase in reserves classified as proved reserves and new projects to be
developed in 2009.  Our crude oil reserves in 2007 decreased to
857 million barrels of crude oil from 921 million barrels of crude oil
in 2006 offset by our natural gas proved reserves which increased to
1,980 million cubic feet or mcf from 1,860 mcf of reserves in
2006.
  Hydrocarbon
reserves were calculated based on the valuation method established by the
SEC.  Our hydrocarbon net proved reserves have been audited in 2008 by
Ryder Scott, DeGolyer and MacNaughton and Gaffney, Cline & Associates
(collectively, the “External Engineers”).  These firms have audited
89% of our total net proved reserves.  The information presented below
and elsewhere in this annual report referring to our 2008 net proved reserves
estimates is based on those reports and on our own calculations for the
remaining 11% of our hydrocarbon net proved reserves.  Our 2008 crude
oil and natural gas net proved reserves include reserves from our first
international production asset located in the Gulf of Mexico.
  36
  Our
reserves were audited in 2006 by the External Engineers.  We updated
the reserve estimates at December 31, 2007 using the same valuation
method.  In July 2008, the External Engineers audited 85% of our
reserves at December 31, 2007 but the reserve estimates for 2007 shown in
this annual report are ours.  The total negative difference between
our estimates and those of the experts with respect to the 85% of reserves that
were audited is 5.6%.  Although the total difference was not material,
there were significant differences, both positive and negative, with respect to
particular fields.  The most important differences, on a field by
field basis arise from the following four areas:  (1) Evaluation of
the quality and quantity of information available to incorporate reserves as
proved with reasonable certainty, reflecting changes for the Tibu (+100.6% or
12.77 million barrels), Casabe (-14.8% or 6.01 million barrels) and
Gibraltar (-59.2% or 18.48 million boe) fields; (2) differences in
quantifying depletion rates for purposes of estimating future production,
affecting the estimates for the Cusiana (-33.4% or 29.65 million barrels),
San Francisco (-70.2% or 20.58 million barrels), Guando
(-8.9%  or 6.4 million barrels), La Cira (-18.2% or
8.99 million barrels) and Orito (-25.8% or 4.57 million barrels)
fields; (3) differences in the method used to estimate the reserves in the
Cupiagua fields  (+23.9% or 17.3 million barrels) which in 2006 was the
gas/oil ratio against accumulated gas and  in 2007 was oil rate
against time; and (4) as a result of differences in the External Engineers’
interpretations, the economic limits differ with respect to the ones reported by
us, therefore reflecting differences between operating expenses and capital
expenditures applied by us and by the External Engineers. We do not deem these
differences to be significant with respect to the impact on the Company’s
estimates as a whole.
  The
reserve information presented in this section is based on the SEC’s valuation
method used for U.S. GAAP purposes.  See Item 5
–  “Operating and Financial Review and Prospects – Principal
differences between Colombian Government Entity GAAP and U.S. GAAP” and Note 33
to our consolidated financial statements.
  The
following table sets forth our estimated net proved reserves (developed and
undeveloped) and net proved developed reserves of crude oil for the years ended
December 31, 2008, 2007 and 2006.
  At December 31,2008
                
                
                2007
                
                
                2006Proved
                    Developed
                    and
                    Undeveloped
                
                
                Proved
                    Developed
                
                
                Proved
                    Developed
                    and
                    Undeveloped
                
                
                Proved
                    Developed
                
                
                Proved
                    Developed
                    and
                    Undeveloped
                
                
                Proved
                    Developed(million barrels)Northeastern
      region
                
                
                107.8
                
                
                
                66.3
                
                
                
                133.2
                
                
                
                87.5
                
                
                
                127.1
                
                
                
                96.1Mid-Magdalena
      Valley region
                
                
                214.0
                
                
                
                136.8
                
                
                
                214.5
                
                
                
                154.5
                
                
                
                217.4
                
                
                
                140.3Central
      region
                
                
                265.1
                
                
                
                138.8
                
                
                
                218.2
                
                
                
                153.1
                
                
                
                282.4
                
                
                
                125.5Catatumbo
      – Orinoquía region
                
                
                104.6
                
                
                
                82.9
                
                
                
                109.9
                
                
                
                97.2
                
                
                
                96.9
                
                
                
                88.0Southern
      region
                
                
                106.6
                
                
                
                92.8
                
                
                
                181.5
                
                
                
                159.0
                
                
                
                197.2
                
                
                
                160.8Total
      Colombia
                
                
                798.1
                
                
                
                517.6
                
                
                
                857.4
                
                
                
                651.3
                
                
                
                921.2
                
                
                
                610.7Total
      International
                
                
                0.8
                
                
                
                0.8
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
                
                
                798.9
                
                
                
                518.4
                
                
                
                857.4
                
                
                
                651.3
                
                
                
                921.2
                
                
                
                610.7
 
 The
following table sets forth our estimated net proved reserves (developed and
undeveloped) and net proved developed reserves of crude oil and natural gas by
region for the years ended December 31, 2008, 2007 and 2006.
  At December 31,2008
                
                
                2007
                
                
                2006Proved
                    Developed
                    and
                    Undeveloped
                
                
                Proved
                    Developed
                
                
                Proved
                    Developed
                    and
                    Undeveloped
                
                
                Proved
                    Developed
                
                
                Proved
                    Developed
                    and
                    Undeveloped
                
                
                Proved
                    Developed(million boe)Northeastern
      region
                
                
                437.8
                
                
                
                187.4
                
                
                
                467.7
                
                
                
                286.9
                
                
                
                442.3
                
                
                
                259.9Mid-Magdalena
      Valley region
                
                
                221.3
                
                
                
                143.1
                
                
                
                228.8
                
                
                
                166.9
                
                
                
                232.9
                
                
                
                153.0Central
      region
                
                
                265.1
                
                
                
                138.8
                
                
                
                218.2
                
                
                
                153.1
                
                
                
                282.4
                
                
                
                125.5Catatumbo
      – Orinoquía region
                
                
                104.6
                
                
                
                82.9
                
                
                
                109.9
                
                
                
                97.2
                
                
                
                97.0
                
                
                
                88.1Southern
      region
                
                
                107.4
                
                
                
                93.7
                
                
                
                185.3
                
                
                
                162.7
                
                
                
                197.9
                
                
                
                161.4Total
      Colombia
                
                
                1,136.2
                
                
                
                645.8
                
                
                
                1,209.9
                
                
                
                866.9
                
                
                
                1,252.5
                
                
                
                788.0Total
      International
                
                
                0.8
                
                
                
                0.8
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
                
                
                1,137.0
                
                
                
                646.6
                
                
                
                1,209.9
                
                
                
                866.9
                
                
                
                1,252.5
                
                
                
                788.0
  37
 
 The
following table sets forth our estimated net proved developed and undeveloped
reserves of crude oil and natural gas at December 31, 2008, 2007 and
2006.
  Net proved developed and undeveloped
                    ReservesOils
                
                
                Gas
                
                
                Total(million barrels)
                
                
                (gcf)
                
                
                (million boe)Reserves
      at December 31, 2006
                
                
                921.2
                
                
                
                1,860.4
                
                
                
                1,252.5Revisions
                
                
                25.9
                
                
                
                74.0
                
                
                
                39.0Extensions
      and discoveries
                
                
                9.8
                
                
                
                164.1
                
                
                
                39.0Production
                
                
                (99.6
                )
                
                
                (118.8
                )
                
                
                (120.7
                )Reserves
      at December 31, 2007
                
                
                857.4
                
                
                
                1,979.6
                
                
                
                1,209.9Revisions
                
                
                44.1
                
                
                
                54.5
                
                
                
                53.8Extensions
      and discoveries
                
                
                8.3
                
                
                
                0.8
                
                
                
                8.4Production
                
                
                (111.0
                )
                
                
                (136.0
                )
                
                
                (135.2
                )Reserves
      at December 31, 2008
                
                
                798.9
                
                
                
                1,898.9
                
                
                
                1,137.0Net
      proved developed reservesAt
      December 31, 2006
                
                
                610.7
                
                
                
                995.4
                
                
                
                788.0At
      December 31, 2007
                
                
                651.3
                
                
                
                1,210.5
                
                
                
                866.9At
      December 31, 2008
                
                
                518.4
                
                
                
                720.6
                
                
                
                646.6
 
 The above
referenced net royalty reserve amounts are the same amounts used to reconcile
Note 33 to our consolidated financial statements under FAS 69.
  Current
Activities
  During
the first quarter of 2009, our average production of crude oil was
375.53 thousand barrels per day.  Our average production of
natural gas during the same period was 467.1 million cubic feet per day for
a total production of 457.4 thousand boe per day.  We drilled 107
new wells in the first quarter of 2009, 16 of which are injector
wells.
  Overview
of Exploration and Production Contractual Arrangements
  Contractual
Arrangements for the exploration and production of crude oil and natural gas in
Colombia
  Introduction
  Colombia
has modified the contractual regime governing the exploration, development and
production of hydrocarbons several times since its introduction in 1970 to
address the country’s exploration and production needs.  The
exploration and production contracts entered into by our business partners and
us provide for the production split, the length of the exploration and
production terms and royalty payments.
  Under
Colombian law, an existing contract cannot be modified because of a change to
the contractual regime, except in the cases of public order
regulations.  As a result, contracts that were executed prior to the
issuance of a new contractual regime remain in force and are not affected by the
new regime put in place subsequently.  At December 31, 2008, we
were party to 37 agreements executed under the contractual regime existing prior
to 1994; to 39 agreements executed under the contractual regime existing between
1994 and 2004; and to 9 agreements executed under the contractual regime
existing after 2004.
  38
  Under
joint venture contracts entered into before March 1994, which include the
Cusiana and Cupiagua crude oil fields, the private investor explored a
previously agreed upon area at its own risk and expense.  Thereafter,
we had the option to become a joint venture partner by reimbursing the investor
50% of the exploration costs of oil wells within commercially viable fields and
50% interest of all future development costs related to those
fields.  Once we became a partner, we had a 50% interest in the
production of the field.
  If we
decided not to become a joint venture partner within a certain period of time,
the private investor had the right to enter into a sole risk contract for the
field’s crude oil production until it had recovered 200% of its investment and a
100% of its total costs.  Thereafter, we could participate in the
development of the field and all future costs and expenses are automatically
shared with our partner as if we had elected to become a joint venture partner
in the field.
  Beginning
in 1994, modifications were made to standard joint venture contracts to maintain
the private investor’s share of production at 50% until aggregate production
exceeded 60 million barrels.  Thereafter, our share increased
gradually, up to a maximum of 70% of production.  In 1995, further
modifications to the standard joint venture contracts required us to pay for
half of the exploration costs, not only for wells that ultimately proved to be
productive, but also for dry wells, stratigraphic wells and seismic exploration
in fields that became commercially viable.  The modifications also
provided for competitive bidding for the right to explore and develop marginal
fields (defined according to certain technical, financial and operational
criteria).  In the bidding process, private companies presented bids
based on percentages of production they would pay us in exchange for the rights
to develop these fields.  Winning bidders were responsible for all
future investment and operating costs related to the field.
  The
standard joint venture contracts were once again modified in 1997 to promote
private sector activity in the development of inactive areas and small fields
and in the exploration for natural gas.  These modifications extended
the exploration periods, increased the levels of reimbursement for private
companies’ exploration costs and provided for the reimbursement of exploration
costs in real terms and denominated in U.S. dollars.
  In 1999,
the Government adopted two additional modifications to the standard terms of the
joint venture contracts, applicable to new joint venture contracts:
  ·
              Reduction of Our Initial
      Participation.  The Government reduced our initial
      participation under the joint venture contracts from 50% to
      30%.  At December 31, 2008, we had 31 joint venture
      contracts outstanding in which our 50% participation did not change, and
      14 joint venture agreements are outstanding where our participation was
      30%.
  ·
              Modified
      R-Factor.  The Government modified the formula used to
      determine the increase in our share of total production or the
      R-Factor.  The R-Factor is calculated by dividing accumulated
      revenues in cash by investments and costs.  If the R-Factor
      increases above a certain profitability threshold, then our share of
      production increases above the initial 30%.  Pursuant to the
      1999 modifications, we raised the profitability threshold at which the
      R-Factor triggers an increase in our share from 1.0 to
      1.5.  Private companies benefited from this modification because
      our share remained at 30% for a longer period of time.  In
      addition, the R-Factor was calculated in constant dollars.  This
      new calculation method was designed to prevent inflation from causing an
      increase in the R-Factor and a corresponding increase in our
      share.
  We also
entered into various types of arrangements in connection with our own crude oil
and natural gas exploration and production projects.  These
arrangements included:  risk participation contracts, shared-risk
contracts, risk services contracts and discovered undeveloped fields
contracts.
  ·
              Risk Participation
      Contracts.  Under these contracts, we assumed 15% of the
      exploration costs and risks at the beginning of the second year in
      exchange for a larger participation in the future production and equal
      representation on the executive committee of the joint
      venture.  At December 31, 2008, we had three risk
      participation contracts in effect.
  39
  ·
              Incremental Production
      Agreements.  We currently have two types of incremental
      production agreements, the standard incremental production agreements or
      SIPA, and the development of incremental production project agreements or
      DIPA.  Under the SIPA, we calculate the total number of proved
      developed reserves available in a specific field or well and then
      establish a base production curve for the reserves.  Any future
      production exceeding the curve, which we refer to as incremental
      production, results from extracting proved undeveloped reserves or
      probable reserves which require additional investments funded by our
      partners under the SIPA.  We have the right to a previously
      specified percentage of the incremental production.  Our
      percentage participation varies depending on the total amount invested by
      our partners and on the R-Factor which cannot be lower than
      1.5.  The volume produced under the production curve is not
      shared with our partners.  At December 31, 2008, we had
      three SIPAs in effect.
  Under the
DIPA, we file a request with the Ministry of Mines and Energy to approve an
incremental production project for a field that we directly
operate.  If the project is approved, we agreed with our partners to
develop the field and we determine mandatory investment thresholds for our
partners.  We are not required to fund any investment.  The
production from the field is distributed to us and our partners receive a
percentage of the total production from the field which varies depending on the
invested amount.  Once the mandatory investment stage expires, we
agree with our partners on the percentage of production, total costs and
additional investments to be paid by each party.  We pay 20% royalties
to the Nation on the base production curve and variable royalties on any
incremental production.  Additionally, in the event of higher prices
and large volumes, we have adjustment clauses to increase our share in the
production.  At December 31, 2008, we had two DIPAs in
effect.
  ·
              Shared-Risk Production
      Contracts.  Under these contracts, we remain as operators
      of the field and assume responsibility for 50% of all investments and
      costs.  Private oil companies submit bids to enter into
      agreements with us based upon the production percentage they will assign
      to us.  The successful bidder has the right to enter into the
      shared-risk contract with us.  At December 31, 2008, we had
      one shared-risk production contract
outstanding.
  ·
              Risk Service Production
      Contracts.  We began using the risk production service
      contract in January 1998 to increase production through the use of
      new technologies in crude oil fields then operated by our
      partners.  All investments in new technologies were made by our
      partners who received a tariff payment based on a formula that took into
      account the incremental production resulting from the technological and
      operative investments.  At December 31, 2008, we had two
      risk service contracts outstanding for the development of the
      Valdivia-Almagro field and the Rancho Hermoso field located in the Mirador
      formation.
  ·
              Discovered Undeveloped Fields
      Contracts.  We have entered into discovered undeveloped
      fields contracts to promote exploration by private companies of both
      undeveloped and inactive fields.  Under this agreement, the
      contracting party assumes all costs and expenses for the development and
      operation of a field in exchange for a previously specified fee per
      barrel, which varies depending on the production level.  At
      December 31, 2008, we had 18 discovered undeveloped fields contracts
      outstanding.
  ·
              Sole Risk Contacts.After 2000, the party deciding to enter in a sole risk contract has
      the right to recover 100% of its investment and
      costs.  Thereafter, we can participate in the development of the
      field sharing all new investment and costs.  At
      December 31, 2008, we had 15 sole risk contracts
      outstanding.
  Current
Contractual Regime
  In 2004,
the authority to enter into exploration and production contracts was assigned to
the ANH under a different exploration and production contractual
scheme.  We became an operator like any other company, competing with
all other regional and international oil companies in Colombia for exploration
and production opportunities under the same conditions and without any special
rights.  Decree Law 1760 gave us the ability to maintain in effect all
contracts we had entered into prior to January 1, 2004, as well as to have
absolute discretion as to whether or not such contracts would be extended after
their stated termination date.  If we decide not to extend the
contracts, the production rights will revert to us and we would have the right,
at no additional costs to us, to exploit the associated reserves
indefinitely.  Contracts entered into by us after January 1,
2004, that are not extended by the ANH, they will revert to the ANH and not to
us.
  40
  The ANH
introduced two new model contracts to replace the previously used joint venture
contracts:  the exploration and production contract and the technical
evaluation agreement.
  ·
              Exploration and Production
      Contract or E&P.Under the E&P contract the
      contractor, including us, assumes all exploration and production
      activities.  The contractor also assumes all risks and costs of
      exploration and is the sole owner of all production and assets involved in
      the exploration and production activities for the term of the
      contract.  There is no partnership or joint venture between the
      contractor and the ANH.
  ·
              Technical Evaluation
      Agreements or TEA.  The scope of the technical evaluation
      agreement is limited to exploration activities.  Under this
      agreement, the contractor can evaluate a specific area and decide whether
      or not it will enter into an exploration and production
      contract.  The contractor assumes all risks and costs of the
      activities and operations.  The agreement may be entered into
      for an 18-month period for on-shore areas and up to a 24-month period for
      off-shore areas.
  We have
entered into a number of exploration and production contracts with regional and
international oil companies.  Please see Annex I — “Description of
Exploration and Production Contracts” for a list of our exploration and
productions contracts still in force at December 31, 2008 which describes
the main characteristics of these contracts, including the region where they are
developed, the identity of our partners and operators, our ownership percentage,
the expiration date, the percentage of royalties we have to pay, and whether or
not once expired and not extended by us, they will revert to us.
  Management
of crude oil and natural gas joint ventures
  Every
crude oil and natural gas joint venture development has an executive committee,
which makes all technical, financial and operational decisions.  All
major decisions are made unanimously, including for those projects where we have
less than a 50% economic interest.  Although we do not operate a
number of these joint ventures under development, we do have an active role in
the decision making process and development of the projects.  As a
result, we have direct control over the development of joint ventures, even for
those joint ventures where we have less than a majority economic
interest.
  Refining
and Petrochemicals
  Summary
  There are
two main refineries in Colombia:  Barrancabermeja, which we own and
operate, and Cartagena, which we own since May 2009 and operate.  We
also own two other minor refineries, Orito and Apiay.  In
April 2007, we transferred the Cartagena Refinery’s assets to Glencore
International AG or Glencore in exchange for a 49.0% interest in Refinería de
Cartagena S.A.  In February 2009, we entered into a memorandum of
understanding  with Glencore pursuant to which we acquired in May 2009
all of its stake in Refinería de Cartagena S.A. through our subsidiary Andean
Chemicals, thereby becoming the sole indirect owner of Refinería de Cartagena
S.A.  Our refineries produce a full range of refined products
including gasoline, diesel, jet fuel, liquefied petroleum gas or LPG and heavy
fuel oils among others.
  During
2008, refining and petrochemicals investments amounted to
Ps.776  million.  These investments comprised 93 different
projects, including re-conversion, upgrading, equipment replacement and
environmental projects.
  41
  The
following table sets forth our daily average installed and actual refinery
capacity for each of the last three years.
  For the year ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006Capacity
                  
                  
                  Through-
                      put
                  
                  
                  % Use
                  
                  
                  Capacity
                  
                  
                  Through-
                      put
                  
                  
                  % Use
                  
                  
                  Capacity
                  
                  
                  Through-
                      put
                  
                  
                  % Use(bpd)Barrancabermeja
                  
                  
                  250,000
                  
                  
                  
                  232,052
                  
                  
                  
                  93
                  %
                  
                  
                  250,000
                  
                  
                  
                  229,650
                  
                  
                  
                  92
                  %
                  
                  
                  250,000
                  
                  
                  
                  232,000
                  
                  
                  
                  93
                  %Cartagena
                  
                  
                  80,000
                  
                  
                  
                  78,028
                  
                  
                  
                  98
                  %
                  
                  
                  80,000
                  
                  
                  
                  80,270
                  
                  
                  
                  100
                  %
                  
                  
                  80,000
                  
                  
                  
                  80,284
                  
                  
                  
                  100
                  %Apiay
                  
                  
                  2,500
                  
                  
                  
                  1,314
                  
                  
                  
                  53
                  %
                  
                  
                  2,500
                  
                  
                  
                  2,208
                  
                  
                  
                  88
                  %
                  
                  
                  2,500
                  
                  
                  
                  1,839
                  
                  
                  
                  74
                  %Orito
                  
                  
                  2,500
                  
                  
                  
                  1,176
                  
                  
                  
                  47
                  %
                  
                  
                  2,500
                  
                  
                  
                  1,128
                  
                  
                  
                  45
                  %
                  
                  
                  2,500
                  
                  
                  
                  810
                  
                  
                  
                  32
                  %Total
                  
                  
                  335,000
                  
                  
                  
                  312,570
                  
                  
                  
                  93
                  %
                  
                  
                  335,000
                  
                  
                  
                  313,256
                  
                  
                  
                  94
                  %
                  
                  
                  335,000
                  
                  
                  
                  314,933
                  
                  
                  
                  94
                  %
 
 The
average conversion ratio for the Barrancabermeja and Cartagena refineries was
79% and 76% respectively.  In 2008 these refineries supplied the local
demand for fuels and produced a surplus of certain refined products for
export.  Over the last three years we have maintained the conversion
ratios of our refineries at similar rates, 78.3% in 2008, 80.4% in 2007 and
79.0% in 2006.
  The
refining margin decreased from 10.4 US$/Bl in 2007 to 4.47 US$/Bl  in
2008 mainly due to the “crack spread” (difference between the prices of refined
products and the prices of crude oil) and, especially, to low gasoline and LPG
prices.
  Strategy
  During
2008, we made significant progress in achieving our corporate goals to (i)
position the Barrancabermeja and Cartagena Refineries among Latin-America’s
first quartile within the Solomon Index (which classifies refineries by their
performance and rank) by 2010 and (ii) implement an aggressive investment plan
that will allow us to reach a production level of 650 thousand bpd and
2.7 million tons per year.  This strategy is oriented towards
improving the configuration of the Barrancabermeja and Cartagena refineries and
upgrading them to high conversion through the addition of coking capacity,
hydrocracking and complimentary hydroprocessing units and making the necessary
modifications in order for the fuels produced by the refineries to comply with
more stringent environmental regulations in Colombia and our export
markets.  Our strategy is also focused on refining heavy crude oil and
increasing our production of petrochemicals.  The strategy may also
include further upgrades and expansions and selectively acquiring additional
refining assets.  We seek to improve our ranking in the Solomon Index,
which classifies refineries by their performance and rank, to be one of the best
refineries in Latin America.
  Barrancabermeja
Refinery
  In the
Barrancabermeja refinery we produce a variety of fuels, such as regular and
premium unleaded gasoline, diesel fuel, kerosene, jet fuel, aviation fuel, LPG,
fuel oil and sulfur.  We also produce petrochemicals, including,
paraffin waxes, lube base oils, low-density polyethylene, aromatics, asphalts,
alkylates, cyclohexane and aliphatic solvents, and refinery grade
propylene.
  The fuel
hydro-treatment facility in the Barrancabermeja refinery is another major
refining project that we have undertaken, which will enable us to meet existing
regulation requirements relating to fuel quality standards, including diesel
fuel with maximum sulfur content of 50 parts per million by
2010.
  The
Barrancabermeja refinery is undergoing a modernization process aiming to convert
the refinery into deep conversion, allowing it to process heavy and extra-heavy
crudes produced in local fields and increase production of mid-distillates for
the local market, as well as producing fuels meeting international sulphur
content standards.  This project should be in operation in
2013.
  42
  Cartagena
Refinery
  In order
to develop the Cartagena Refinery master plan, we selected Glencore as our
strategic partner.  Refinería de Cartagena S.A. began its operations
on April 1, 2007.  The refinery’s products are mainly exported to
the Caribbean and the United States.  In February 2009, as a result of
financing difficulties experienced by Glencore which were making it difficult
for it to develop the master plan, we entered into a memorandum of understanding
with Glencore pursuant to which we acquired in May 2009 all of its stake in
Refinería de Cartagena S.A. through our subsidiary Andean Chemicals, thereby
becoming the sole indirect owner of Refinería de Cartagena S.A.
  As part
of this overhaul plan we expect to increase the competitiveness and
profitability of the Cartagena Refinery through the modernization of its
facilities and processes and improve the reliability of the refinery’s
units.  We plan to increase the refinery’s production capacity to
150 thousand bpd by 2013 and improve refining margins by processing cheaper
heavy crude oils; raising the conversion ratio, and producing a higher quality
product slate.  We also expect to satisfy existing environmental
regulations for fuels by reducing sulfur content in gasoline and diesel fuel,
thus complying with national and international fuel standards.
  The
following table sets forth our production of refined products at the
Barrancabermeja refinery for the years ended December 31, 2008, 2007 and
2006.
  For
      the year ended December 31,2008
                
                
                2007
                
                
                2006(bpd)LPG,
      Propylene and Propane
                
                
                18,227
                
                
                
                18,019
                
                
                
                19,515Motor
      Fuels
                
                
                77,110
                
                
                
                78,663
                
                
                
                78,466Jet
      Fuel and Kerosene
                
                
                15,861
                
                
                
                15,152
                
                
                
                15,046Diesel
                
                
                60,633
                
                
                
                66,931
                
                
                
                63,136Fuel
      Oil
                
                
                48,747
                
                
                
                41,387
                
                
                
                47,837Lube
      Base Oils and Waxes
                
                
                2,031
                
                
                
                1,752
                
                
                
                1,418Aromatics
      and Solvents
                
                
                2,893
                
                
                
                3,227
                
                
                
                3,191Asphalts
                
                
                6,862
                
                
                
                6,434
                
                
                
                4,574Other
      Products
                
                
                998
                
                
                
                477
                
                
                
                1,004Total
                
                
                233,363
                
                
                
                232,042
                
                
                
                234,186Difference
      between Inventory of Intermediate Products
                
                
                1,897
                
                
                
                (441
                )
                
                
                803Total
      Production
                
                
                235,259
                
                
                
                231,601
                
                
                
                234,989
 
 The
following table sets forth our production of refined products at the Cartagena
Refinery for the years ended December 31, 2008, 2007 and 2006.
  For
      the year ended December 31, (1)2008
                
                
                2007
                
                
                2006(bpd)LPG,
      Propylene and Butane
                
                
                4,869
                
                
                
                3,117
                
                
                
                3,390Motor
      Fuels
                
                
                24,577
                
                
                
                27,198
                
                
                
                29,122Jet
      Fuel and Kerosene
                
                
                6,969
                
                
                
                6,911
                
                
                
                7,704Diesel
                
                
                20,260
                
                
                
                21,534
                
                
                
                22,096Fuel
      Oil
                
                
                18,495
                
                
                
                19,288
                
                
                
                17,815Aromatic
      Tar
                
                
                820
                
                
                
                1,162
                
                
                
                1,552Other
      Products
                
                
                33
                
                
                
                46
                
                
                
                51Total
                
                
                76,024
                
                
                
                79,256
                
                
                
                81,730Difference
      between Inventory of Intermediate Products
                
                
                2,176
                
                
                
                1,499
                
                
                
                (517
                )Total
      Production
                
                
                78,200
                
                
                
                80,755
                
                
                
                81,213
  
 (1)
              The
      table shows the entire production of the Cartagena
    Refinery.
  In
addition to our product slate, we have started to purchase low-sulfur diesel and
biodiesel to improve the quality of the diesel produced in the Barrancabermeja
and Cartagena refineries.  The Cartagena Refinery is currently
purchasing biodiesel fuel in the local market and mixing it with its production
of diesel to reduce sulfur content.  The Barrancabermeja refinery is
also working on improving the quality of its diesel products and is currently
importing low-sulfur diesel.  The low-sulfur diesel is being mixed
with the current diesel production of the Barrancabermeja
refinery.
  43
  Petrochemicals
and other products
  We own
and operate four petrochemical plants located within the Barrancabermeja
refinery producing a variety of products including aromatics, cyclohexane,
paraffin waxes, lube base oils, polyethylene and solvents.
  During
2008, we invested US$54 million to improve our polyethylene production
capacity in the Barrancabermeja Refinery.  As a result of this
investment, we have increased our production level by 12 thousand tons per
year, thereby increasing our market share in this business segment.
  Propilco
  On
December 21, 2007, we entered into an agreement with Primevalue Service
S.A., Primefinanzas S.A., Primeother Ltda. and Invernac & Cía S.C.A., which
are part of Valorem, and Latin American Investors Limited and Heathrow
Enterprises Limited, which are part of the Sandford Group, to acquire 100% of
the outstanding shares of Propilco, and the transaction was completed on
April 7, 2008.  Propilco is the main polypropylene supplier in
Colombia and the first resins producer in the Andean region, Central America and
the Caribbean.  On April 7, 2008, we completed the acquisition of
Propilco.  This acquisition allows us to assure synergies and to
create value by taking advantage of the petrochemical flows derived from the
refining process.  It also opens the possibility of us undertaking new
petrochemical projects in the future, which would follow the current trend in
the hydrocarbon industry.
  The
following table sets forth Propilco’s capacity and throughput for each of the
last three years.
  For
      the year ended December 31,2008
                
                
                2007
                
                
                2006(Metric
      Tons)Capacity
                
                
                405,000
                
                
                
                380,000
                
                
                
                360,000Throughput
                
                
                383,874
                
                
                
                372,476
                
                
                
                356,500%
      Use
                
                
                95
                %
                
                
                98
                %
                
                
                99
                %
 
 During
2008, Propilco’s production totaled 384 thousand tons of petrochemical
products, a 3% and 8% increase when compared to the 372 thousand tons
produced in 2007 and 357 thousand tons in 2006,
respectively.  However, Propilco’s profits were negatively affected
during the last two quarters of 2008 as a result of the decrease in the
international price of crude oil and differences between the prices of
petrochemical products and the price of crude oil.
  We intend
to expand Propilco’s production facilities to increase its production capacity
to 455 in 2009 and to 500 thousand tons by 2010.
  Transportation
  Summary
  Our
transportation segment includes the transportation of crude oil, motor fuels,
fuel oil and other refined products, excluding natural gas.  In 2008,
our transportation segment also included the transportation of the mixture of
diesel and palm oil.
  At
December 31, 2008, we, directly or in joint venture with private sector
participants, owned, operated and maintained an extensive network of crude oil
and refined products pipelines connecting our and third-party production centers
and terminals to refineries, major distribution points and export
facilities.  We own outright 32.9% of the total crude oil pipeline
shipping capacity and 99% of the total product pipeline shipping capacity in
Colombia.  When aggregated with the crude oil pipelines in which we
own a minority interest, we have access to 68.5% of the oil pipeline shipping
capacity in Colombia.
  44
  Our
transportation business has three key elements:  transportation and
shipping of our own and third party crude oil and refined products; sales of
excess transportation capacity to third parties; and optimization of our future
transportation needs.
  At
December 31, 2008, our network of crude oil and multi-purpose pipelines
extended approximately 8,433 kilometers in length.  The
transportation network we own directly and in partnership with our joint venture
partners consists of approximately 5,025 kilometers of main crude oil pipeline
networks connecting various fields to the Barrancabermeja and Cartagena
refineries, as well as to export facilities.  Of the 5,025 kilometers
of crude oil pipelines, we directly own 2,270.5 kilometers and 2,752 kilometers
with our business partners.  We also own 3,400 kilometers of
pipelines for transportation of refined products from the Barrancabermeja and
Cartagena refineries to wholesale distribution points.  Approximately
55% of our crude oil pipelines were constructed through joint ventures and other
agreements with our business partners in order to transport crude oil from
producing fields.
  Strategy
  Our main
strategies in our transportation segment are to:
  ·
              Improve
      efficiency in all stages of logistic processes by using a variety of
      transportation systems and focusing on operational excellence, safety
      standards and high quality
services;
  ·
              Construct
      the necessary crude oil pipelines to transport our crude oil and heavy
      crude oil to the refineries and ports and to construct the necessary
      refined products pipelines to transport our refined products according to
      demand; and
  ·
              Selectively
      invest in the development of new and more efficient transportation
      systems.
  All of
our transportation processes have been certified under ISO 9001, ISO 14001 and
OHSAS 18001, which provide standards for hydrocarbons reception, storage and
dispatch by pipes and pipelines.
  We
believe we have sufficient transportation capacity to meet our existing needs
and we are developing our transportation infrastructure for any additional needs
from new discoveries.  We have significant experience in providing
transportation services through crude oil pipelines, trucks, tankers and
barges.
  The map
below shows the main transportation networks owned by our business partners and
us.
  45
  TRANSPORTATION
INFRASTRUCTURE
  
 
 Pipelines
  In 2008,
pipelines in which we own an interest transported a total of 542.3 thousand
bpd of crude oil and 209.5 thousand bpd of refined products for a total of
751.8 thousand bpd in 2008, a 5.5% increase when compared to
2007.  In 2007 pipelines transported a total of 710.4 thousand
bpd of crude oil and refined products compared to 651.8 thousand bpd in
2006.
  The
following table sets forth our main pipelines and the main pipelines in which we
own an interest by name, kilometers covered, type of product transported,
origin, destination and our ownership percentage as of December 31,
2008.
  Pipeline
                
                Kilometers
                
                Product
                    Transported
                
                Origin
                
                Destination
                
                Ownership
                    PercentageCaño
      Limón-Coveñas
                
                770
                
                Crude
      Oil
                
                Caño
      Limón
                
                Coveñas
                
                
                50
                %(1)Oleoducto
      del Alto Magdalena
                
                400
                
                Crude
      Oil
                
                Tenay
                
                Vasconia
                
                
                49
                %Oleoducto
      de Colombia
                
                480
                
                Crude
      Oil
                
                Vasconia
                
                Coveñas
                
                
                43.85
                %(2)Oleoducto
      Central S.A. (Ocensa)
                
                835
                
                Crude
      Oil
                
                Cusiana
                
                Coveñas
                
                
                35.29
                %(3)Oleoducto
      Transandino
                
                306
                
                Crude
      Oil
                
                Southern
      fields
                
                Tumaco
      Port
                
                
                100
                %
 
 
 (1)
              Since
      January 2009, we are the exclusive owner of the Caño Limón-Coveñas
      pipeline.
 (2)
              Since
      March 2009, we own 65.57% of the Oleoducto de Colombia
      pipeline.
 (3)
              Since
      March 2009, we own 60% of the Oleoducto Central S.A. (Ocensa)
      pipeline.
  As a
result of the extension of the Cravo Norte Association Contract, we and our
business partner Occidental, agreed that all assets included in such contract
which were acquired prior to December 31, 2008 would completely revert back
to Ecopetrol.  The Caño Limon-Coveñas pipeline is included among these
assets.  As a result, since January 1, 2009, we are the exclusive
owner of this pipeline.
  In
March 2009, we entered into an agreement with Enbridge Inc., a Canadian
company, pursuant to which we acquired 100% of its interest in Oleoducto Central
S.A. (Ocensa), thereby increasing our ownership of Ocensa from 35.3% to
60%.
  46
  In
March 2009, we entered into an agreement with Maurel and Prom pursuant to
which we acquired in May 2009 100% of its stake in its subsidiary in
Bermuda, Hocol Petroleum Limited.  Hocol Petroleum Limited’s most
important assets are Hocol and Homcol, two companies incorporated in the Cayman
Islands with branches in Colombia involved in crude oil and natural gas
exploration and production activities in Colombia.  Additionally, as a
result of this acquisition, we are now the indirect owner of Hocol’s interest in
Oleoducto de Colombia S.A. and Oleoducto del Alto Magdalena and our total
interest in these two pipelines increased from 43.85% to 65.57% and from 49% to
85.12%, respectively.
  The
operation of our pipelines is made under international standards and industry
practices, such as remote operation, integrity management, automatic ticket
transfer, health, safety and environmental policies and a high index of customer
satisfaction.  The reduction in operating costs, fulfillment of
volumetric commitments and reduction in theft, have resulted in higher customer
satisfaction and a lower number of complaints.
  The table
below sets forth the volumes of crude oil and refined products transported
through the crude oil pipelines and multipurpose pipelines owned by
us.
  For
      the year ended December 31,2008
                
                
                2007
                
                
                2006(thousand
      bpd)Crude
      oil transport
                
                
                542.3
                
                
                
                516.6
                
                
                
                471.1Refined
      products transport
                
                
                209.5
                
                
                
                193.8
                
                
                
                180.7Total
                
                
                751.8
                
                
                
                710.4
                
                
                
                651.8
 
 At
December 31, 2008, we owned 54 stations, 20 of them located in crude oil
pipelines and 34 of them in refined products pipelines with a nominal storage
capacity of 19 million barrels of crude oil and 6 million barrels of
refined products.  We also sell storage capacity to third parties in
our Pozos Colorados and Mancilla facilities and in the Coveñas
port.  We do not own any tankers.
  Theft
of fuel
  Fuel
theft, which reached 7,270 bpd in 2002, was reduced to 389 bpd in 2008, as a
result of the comprehensive strategy developed in coordination with different
law-enforcement agencies and governmental authorities.  Theft of fuel
in 2008, when compared to 2007, was reduced by 31% and 94.6% when compared to
2002.  We continue to evaluate alternatives to improve the efficiency
of our transportation system, including improvements to the monitoring and
control systems through new supervisory activities and data collection
systems.
  The table
below sets forth the decrease in the level of hydrocarbon theft in our pipelines
and multipurpose pipelines.
  For
      the year ended December 31,2008
                
                
                2007
                
                
                2006(thousand
      bpd)Hydrocarbon
      theft
                
                
                0.4
                
                
                
                0.6
                
                
                
                0.9
 
 Other
transportation facilities
  We also
enter into transportation agreements with tanker trucks and barge companies to
transport crude oil from production locations that currently do not have
pipeline connection to the refineries and our export
locations.  Production of refined products for which we currently have
no pipeline capacity and cannot be transported in the tanker trucks is
transported by barges.  During 2008, 18.5 million barrels of
crude oil and refined products were transported by tanker trucks and
11 million barrels of crude oil and refined products were transported by
barges.
  Export
and import facilities
  We
currently own five docks for export of crude oil and refined
products.  Our crude oil loading facilities can load tankers of up to
150 thousand tons and deliver up to 1.5 million
bpd.  Adjacent to these loading facilities we also have crude oil
storage facilities which are capable of storing 7.5 million
barrels.  Our docks used for import and export of refined products can
load tankers of up to 70 thousand tons and deliver up to 500 thousand
barrels.  Additionally, these facilities have storage capacity of up
to 1 million barrels.
  47
  New
transportation projects:
  Oleoducto
de los Llanos Orientales
  We and
Pacific Rubiales Energy Corp., or Pacific, are jointly expanding the production
of the Rubiales field in the Central region from its current production of heavy
crude oil to 126 thousand bpd.  In July 2008, we, through
our Panamanian subsidiary ODL Finance, indirectly acquired a 65% interest in
Oleoducto de los Llanos Orientales or ODL, a company which, through its
Colombian branch, Oleoducto de los Llanos Orientales Sucursal Colombia, is
currently building a 235 km, 24” pipeline to transport crude oil from the
Rubiales field to the Monterrey pump station where it will connect with the
Ocensa pipeline.  Pacific Rubiales owns the remaining 35% interest of
ODL.
  We will
maintain and operate the Rubiales pipeline.
  Heavy
Crude Oil Castilla Pipeline Project
  We expect
to construct two new pipelines.  The first pipeline will transport
heavy crude oil from the Castilla fields located in the Central region to the El
Porvenir pumping station, which is part of the Ocensa pipeline
system.  The second pipeline will transport dissolvents from the
Sutamarchan pumping station in the Central region to the Castilla
field.
  Second
Apiay – Porvenir pipeline
  In
December 2008 we finished the construction of a new 127 kilometers pipeline
in the Central region which connects the Apiay field with the El Porvenir
pumping station.  The pipeline increased our transportation capacity
from the Castilla fields by approximately 50% to 150 thousand bpd in the
first stage of the project.  This pipeline became the second pipeline
connecting the Apiay field with the El Provenir pumping station.
  Sutamarchan
– Apiay naphtha pipeline
  We intend
to construct a new 133 kilometers pipeline from the Sutamarchan pump station to
the Porvenir pumping station. We also intend to convert our old Apiay – Provenir
crude oil pipeline to a refined products pipeline.  The pipelines will
transport naphtha to be used as dissolvent for heavy crude oils produced in the
Castilla fields.
  Increase
the capacity of the Pozos Colorados - Galán multi-purpose pipeline
 
 We expect
to build a new 187 kilometers pipeline in the Mid Magdalena region from Ayacucho
to Galán and to modify approximately 290 kilometers of the Pozos Colorados –
Ayacucho pipeline, upgrading the system to a 14” pipeline.  Through
this expansion, we aim to (i) increase transportation capacity to 60 bpd and
(ii) transport imported diluents and diesel to the Barrancabermeja
Refinery.
  Distribution
and Marketing
  Summary
  We market
a full range of refined and feed stockproducts locally
including regular and high octane gasoline, diesel fuel, jet fuel, natural gas
and petrochemical products.  Local sales of regular gasoline, LPG, jet
fuel, diesel fuel and natural gas from the Guajira field are subject to
government price regulation with reference to international benchmarks for fuel
oil.  We export crude oil, LPG, butane, high and low octane gasoline,
naphtha, jet fuel, natural gas and fuel oil.  During the last five
years we have sold jet fuel, naphtha and gasoline to the Dominican Republic in
term contracts.  We sell fuel oil to traders who mix it with solvents
to improve the quality of our products and subsequently delivered it to the U.S.
East Coast market, Rotterdam market and the Far-East.
  48


We are
the main producer and main supplier of fuel and refined products in
Colombia.  For regulated products, the Ministry of Mines and Energy
establishes maximum prices producers can charge and retail prices for these
products pursuant to resolutions.  The Ministry also establishes
maximum wholesale and retail margins.




Strategy




Our
strategy in the marketing and distribution business segment is focused on
supplying the local market and exporting crude oil not used in our refineries
and in the Cartagena Refinery, and refined products principally to end-users,
including refineries and wholesalers.  Our crude oil export sales are
made in the spot market and through long-term contracts, primarily to US Gulf
Coast refineries, the US West Coast, Caribbean and China
refineries.  We are focused on entering into new and developing
markets and increasing the direct sales of our products to the
Far-East.




Crude
oil supply commitments




As part
of our transfer of the Cartagena Refinery assets in 2007, we extended a
ten-month commercial offer to Refinería de Cartagena for the supply of crude
oil.  The commercial offer was renewed in December 2008 for a
two-month period and renewed again in February 2009 for an additional one
year period.  Pursuant to the terms of the offer, the Cartagena
Refinery has the option to purchase from us up to 85 thousand bpd of crude
oil from our Caño Limón, Vasconia Blend, Ayacucho Blend, Cusiana and Castilla
production.  As we continue to operate the Cartagena Refinery, our
operations committee evaluates and decides monthly the refinery’s crude oil mix
needs including the need for foreign crudes which we import from West Africa,
the North Sea and the Caribbean.




The
purchase price for the delivered volumes is established by reference to an
international benchmark index, subject to certain adjustments.




Import
of Ultra Low Sulfur Diesel Fuels




We are
reducing sulfur emissions from fuels produced by us through the import of ultra
low sulfur diesel to be mixed with our local production in order to protect the
environment.  Last year, we imported this ultra low sulfur diesel and
managed to reduce sulfur diesel levels from 1,000 ppm (parts per million) in
2007 to a maximum of 500 ppm in 2008 in Bogota and from 4,000 ppm in 2007 to a
maximum of 3,000 ppm in 2008 in the rest of the country.




Natural
Gas




Summary




Development
of natural gas reserves began in the 1970s with the discovery of the Guajira
fields in the Northeastern region.  Additional natural gas reserves
were discovered in the Piedemonte
Llanero.  We sell natural gas in Colombia to local distribution
companies, power generators and large customers.  In 1986, we
introduced a program known as “Natural Gas for Change”, which sought to increase
local consumption.  In 1993, the Government developed a regulatory
framework for the distribution and marketing of natural gas.  Between
1995 and 1997, we connected our natural gas production fields with distribution
points and major cities.  In 1997, we transferred all of our natural
gas transportation assets to a newly created company, Empresa Colombiana de Gas
or Ecogás.  Ecogás was spun-off from us in 1998 and sold to Empresa de
Energía Eléctrica de Bogotá in 2007.




Marketing
of Natural Gas




Currently,
there are more than 20 natural gas distribution companies with operations in
Colombia.  As a result of the growth of the Colombian economy in
recent years and the demand for natural gas from Venezuela, the total demand for
natural gas, including natural gas exports, has increased by 19.2% in 2008 to
906.3 giga British thermal units per day (gbtud), from 760.4 gbtud in 2007 and
by 25.6% from 721.2 gbtud in 2006.  At December 31, 2008, natural
gas distribution companies had approximately 5 million
customers.  We sell natural gas to distribution companies through
take-or-pay contracts and in the spot market.


49




Compressed
Natural Gas




Demand
for compressed natural gas for motor vehicles continues to grow as the
Government has launched a plan to convert public transportation and taxis from
regular fuel to compressed natural gas.  Market participants including
natural gas distribution companies, natural gas transportation companies and
producers including us, contribute funds as an incentive for the conversion to
compressed natural gas.  We do not compress the natural gas but
instead sell it to third-parties for its compression.  The compressed
natural gas program was initiated in 2003.  45,480 vehicles were
converted in 2008, 66,489 vehicles were converted in 2007 and 72,247 vehicles
were converted in 2006, which adds up to a total of 280,385 vehicles which were
converted by the end of 2008.  As a result of these conversions,
demand for compressed natural gas increased by 13.2% in 2008 as compared to
2007.




Natural
gas sales to the power and industrial sector




We market
and sell natural gas to the industrial sector and to gas-fired and combined
cycle power plants.  We have a number of long-term supply contracts
with power generators under which such companies have entered into take-or-pay
contracts and purchase and supply obligations for the supply of natural
gas.  Pursuant to the terms of these agreements if we do not ship the
contracted natural gas amounts we must pay a fine to our
customers.  Long-term supply contracts establish a pricing formula
that depends on international reference prices.




The
following table sets forth our local deliveries of natural gas including
deliveries to our refineries, during 2008, 2007 and 2006.




For the year ended December 31,2008
              
              
              2007
              
              
              2006(giga btud)Gas-fired
      power plants
              
              
              73.5
              
              
              
              123.3
              
              
              
              137.7Refineries
              
              
              88.3
              
              
              
              93.5
              
              
              
              96.7Petrochemical
              
              
              4.2
              
              
              
              4.0
              
              
              
              12.2Industrial
              
              
              64.7
              
              
              
              40.6
              
              
              
              29.0Distributors(1)
              
              
              192.2
              
              
              
              152.9
              
              
              
              143.2Compressed
      Natural Gas
              
              
              31.6
              
              
              
              40.9
              
              
              
              25.8Producers
              
              
              36.1
              
              
              
              60.0
              
              
              
              42.8Total
      Deliveries
              
              
              490.5
              
              
              
              515.2
              
              
              
              487.2







(1)
            Deliveries
      to distributors include deliveries to industrial clients who are required
      to purchase natural gas from
distributors.




Natural
Gas Exports




In 2007,
we and Chevron entered into a long-term natural gas supply contract with
PDVSA.  Pursuant to the terms of the agreement, we have agreed to
deliver the following quantities of natural gas to Venezuela:




For the year ended December 31,2008
              
              
              2009
              
              
              2010
              
              
              2011(gbtud)Volume
      Commitments
              
              
              50
              
              
              
              150
              
              
              
              150
              
              
              
              100





In 2008,
we and our partner Chevron delivered 146.9 gbtud to PDVSA, thereby exceeding the
quantities of natural gas agreed to in our gas export contract with
PDVSA.  Of the total volume of gas delivered, 45.6% came from us,
34.4% came from Chevron and 20% came from royalties.


50




Natural
gas delivery commitments




The table
below sets forth the commitments we have in firm contracts with local natural
gas distribution companies, local industries, gas fired power generators,
international companies (PDVSA in Venezuela) and internal agreements with our
refineries and fields:




For the year ended December 31,2009
                
                
                2010
                
                
                2011
                
                
                2012
                
                
                2013
                
                
                2014
                
                
                2015
                
                
                2016(gbtud)Volume
      Commitments(1)
                
                
                667
                
                
                
                680
                
                
                
                686
                
                
                
                317
                
                
                
                263
                
                
                
                247
                
                
                
                210
                
                
                
                210





(1)
              Includes
      royalty volumes that are managed by
Ecopetrol.




We have
natural gas delivery commitments with local natural gas distribution companies,
local industry, gas-fired power generators, international companies (PDVSA) and
internal agreements with refineries and fields.  Pursuant to long-term
supply contracts and other agreements, we must supply natural gas to these
parties and failure to deliver the agreed amounts would result in
fines.  In order to meet our natural gas delivery commitments we have
four (4) main natural gas production fields, the “Guajira” fields, the “Cusiana
and Cupiagua” fields, the “Piedemonte” fields and the “Gibraltar”
fields.  The “Guajira”, “Cusiana and Cupiagua” and “Piedemonte” fields
are productive fields whereas the “Gibraltar” field will begin production at the
end of 2009.  Of our total natural gas production at December 31,
2008, 62% was supplied by the La Guajira production, 27% from the Cusiana and
Cupiagua fields and the remaining 11% from fields located in the Central
region.




The
following table sets forth the estimated production of our productive fields
which is available to meet our firm delivery commitments of natural gas for the
years ended December 31, 2008 to 2012.




For the year ended December 31,2008
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              2012(gbtud)Guajira
      Fields
              
              
              450.3
              
              
              
              450.3
              
              
              
              450.0
              
              
              
              447.2
              
              
              
              408.9Cusiana
      and Cupiagua Fields
              
              
              144.6
              
              
              
              220.6
              
              
              
              348.7
              
              
              
              386.6
              
              
              
              386.6Other
      Fields
              
              
              76.6
              
              
              
              102.3
              
              
              
              96.2
              
              
              
              91.2
              
              
              
              87.6Imports
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              38.9
              
              
              
              85.0Total
              
              
              671.5
              
              
              
              773.1
              
              
              
              895.0
              
              
              
              964.0
              
              
              
              968.0





Price
controls on the La Guajira natural gas production




The
Ministry of Mines and Energy through the Colombian Commission for the Regulation
of Energy and Gas or CREG, establishes the maximum price we are allowed to
charge customers who consume less than 100 thousand cfpd, under take-or-pay
contracts, which we refer to as regulated customers.  Maximum prices
we can charge are determined with reference to the average export price for fuel
oil for the prior six months.




Priorities
for delivery of natural gas




The
Ministry of Mines and Energy established distribution priorities in the event of
a shortfall of reserves or production of natural gas.  Residential
consumers with existing supply contracts, small businesses and distributors of
compressed natural gas have the first priority for
delivery.  Contracts for export of natural gas have the same priority
under the firm commitments as other users such as industrial consumers and power
generators.  The agreements that are not firm commitments and
contemplate delivery of natural gas “as available” have priority over customers
on the spot market.  We may enter into natural gas export contracts if
the ratio of reserves to production exceeds seven years.




Legal
Proceedings
  At
December 31, 2008 we were a party to 2,563 legal proceedings relating to
civil, administrative, environmental, tax and labor claims filed against us in
the Colombian courts and arbitration tribunals.  Historically, we have
been successful in defending law suits filed against us.  Based on the
advice of our legal advisors it is reasonable to assume that the litigation
procedures brought against us will not materially affect our financial position
or solvency regardless of the outcome.  See Note 33 (Contingencies) to our
Consolidated Financial Statements included in this annual report for a
discussion of our legal proceedings.  We highlight an unresolved
material lawsuit:




51




Foncoeco




An
association of former employees known by the acronym Foncoeco brought an action
against us in connection with a company profit-sharing plan offered in 1962 that
expired in 1975.  The plaintiffs claim that our Board of Directors had
set aside a specific amount under the profit sharing plan, which was not
entirely distributed to employees eligible under the plan.  The court
of first instance on June 25, 2002, ruled in our favor and rejected the
plaintiffs’ arguments.  The plaintiffs appealed the ruling to the
Bogota Higher Tribunal, which ordered us to present a rendición de cuentas (an
accounting action) to the first instance judge based on the amounts allocated by
our Board of Directors.  Pursuant to our accounting and based on the
expert testimony of a witness presented by the plaintiffs who included amounts
never allocated by our Board of Directors to the profit sharing plan, the first
instance judge on December 16, 2005, ordered us to pay
Ps$541,833 million, or approximately US$260 million.  We
have appealed the decision by the first instance judge to the Bogota Higher
Tribunal.  Additionally, we have initiated a separate Recurso de Revisión (review
proceeding) of the Tribunal’s ruling before the Colombian Supreme
Court.  Based on the opinions from our legal counsel regarding the
likelihood of a favorable ruling we expect the Bogota Higher Tribunal to revise
and reduce the amount of the first instance.  Additionally, as of
December 31, 2008 we have increased the previously created provision to
Ps$100,000 million considering the probability of a ruling in favor of the
plaintiffs.




Regulation




The
principal governmental entities regulating us are the Ministry of Mines and
Energy and the CREG.




Ministry
of Mines and Energy




The
Ministry of Mines and Energy is responsible for managing and regulating
Colombia’s nonrenewable natural resources assuring their optimal utilization by
defining and adopting national policies regarding exploration, production,
transportation, refining and distribution of minerals and
hydrocarbons.




CREG




Laws 142
and 143 of 1994 created the CREG, a special administrative unit of the Ministry
of Mines and Energy, responsible for regulating and establishing the standards
for the exploitation and use of energy and natural gas, fostering the
development of the energy services industry, promoting competition and
responding to consumer and industry needs.




Control
Entities




Superintendency
of Domiciliary Public Services




Under
Colombian regulations, the distribution and marketing of natural gas is
considered a public service.  As such, this activity is regulated by
Law 142 of 1994 and supervised by the Superintendency of Domiciliary Public
Services.




Superintendency
of Corporations




We are
subject to the supervision of the Superintendency of Corporations, the
governmental body responsible for supervising corporations domiciled in
Colombia.




Superintendency
of Finance




The
Superintendency of Finance is responsible for monitoring, promoting and
regulating the publicly traded securities market, registered issuers,
broker-dealers, mutual funds and any other participants in the public market
including the BVC.


52




We are a
registered issuer and our debt (pension bonds) and equity securities are
publicly traded.  The Superintendency of Finance is responsible for
the supervision of any activity we undertake that may affect the market for our
securities.  We are required to inform the Superintendency of Finance
of any material event and provide periodic reports of our financial
condition.




Hydrocarbon
Resources Administrator




National
Hydrocarbons Agency – ANH




The ANH
was created in 2003 and is responsible for the administration of Colombia’s
hydrocarbon reserves.  The ANH’s objective is to manage the
hydrocarbon reserves owned by the Nation through the design, promotion and
negotiation of the exploration and production agreements in areas where
hydrocarbons are found.  The ANH is also responsible for creating and
maintaining attractive conditions for private investments in the hydrocarbon
sector and for designing, bidding rounds for exploration blocks.  Any
oil company selected by the ANH to explore a specific block must execute an
exploration and production contract with the ANH.  All royalty
payments in connection with the production of hydrocarbons are made to the ANH
in-kind unless the ANH grants a specific waiver to make royalty payments in
cash.




We, and
other oil companies working in Colombia send to the ANH information on the
evolution of our exploratory activities and those of our partners.




Regulatory
Framework




Regulation
of Exploration and Production Activities




Pursuant
to Colombian law, the Nation is the exclusive owner of all hydrocarbon resources
located in Colombia and has full authority to determine the rights, royalties or
compensation to be paid by private investors for the exploration or production
of any hydrocarbon reserves.  The Ministry of Mines and Energy is the
authority responsible for regulating all activities related to the exploration
and production of hydrocarbons in Colombia.




Decree
Law 1056 of 1953 or the Petroleum Code, establishes the general procedures and
requirements that must be completed by a private investor prior to commencing
hydrocarbon exploration or production activities.  The Petroleum Code
sets forth general guidelines, obligations and disclosure procedures that need
to be followed during the performance of these activities.




Prior to
2003, all activities regarding the exploration and production of hydrocarbons
were governed by Decree 231 of 1974.  Consequently, during such period
all of our activities were outlined and regulated by this
decree.  Decree 231 was replaced by Decree Law 1760 of 2003, but all
agreements entered into by us prior to 2003 with other oil companies are still
regulated by Decree 231.




Decree
Law 1760 of 2003 introduced Colombia’s new contractual regime for hydrocarbons
and granted the ANH full and exclusive authority to regulate and oversee the
exploration and production of hydrocarbon reserves.  Decree Law 1760
was complemented by Decree 2288 of 2004, which regulates all aspects related to
the reversion of reserves and infrastructure under the joint venture agreements
executed by us before 2004.  Accord 008 of 2004 issued by the
Directive Council of the ANH, sets forth the necessary steps for entering into
exploration and production contracts with the ANH.




Pursuant
to Colombian law we are obliged by law to pay a percentage of our production to
the ANH as royalties.  Each production contract has its own royalty
arrangement.  In 1999, a modification to the royalty system
established a sliding scale for royalty payments linked to the production level
of crude oil and natural gas fields discovered after July 29, 1999 whether
the production is crude oil or natural gas, and the quality of the crude oil
produced.  Since 2002 the royalties system has ranged from 8% for
fields producing up to 5,000 bpd to 25% for fields producing in excess of
600,000 bpd.  Changes in royalty programs only apply to new
discoveries and do not alter fields already in their production
stage.  Producing fields pay royalties in accordance with the
applicable royalty program at the time of the discovery.  Our
contracts specify that royalties are to be paid in physical product (oil and
gas) to the ANH.


53




We
currently purchase all physical product delivered by producers of crude oil and
natural gas as royalty payments to the ANH at prices set forth in Law 756 of
2002 and Resolution 18-1709 of 2003.  The purchase price is calculated
on a reference price for crude oil and natural gas at the wellhead and varies
depending on prevailing international prices.  We have an interagency
agreement or Convenio with the ANH, whereby we collect all in kind and cash
royalties owed to the ANH by the oil and gas companies in
Colombia.  The ANH may extend offers to sell such physical product and
we, at our option, may accept such offers to purchase the royalty
volume.  We sell the physical product purchased from the ANH as part
of our ordinary business.




Regulation
of Refining and Petrochemical Activities




Refining
and petrochemical activities are considered a public service and are subject to
Governmental regulation.  Article 58 of the Petroleum Code
establishes that oil refining activities can be developed throughout
Colombia.  Oil refineries must comply with the technical
characteristics and requirements established by the existing
regulations.




The
Ministry of Mines and Energy is responsible for regulating, supervising and
overseeing all activities related to the refining of crude oil, import of
refined products, storage, transport and distribution.




Decree 2657
of 1964 regulated the oil refining activities and created the Oil Refining
Planning Committee which is responsible for studying industry problems and
implementing short and long-term refining planning policies.  The
Committee is also responsible for evaluating and reviewing new refining projects
or expansion of existing infrastructure.  Prior to deciding on a new
project, the Committee must take into account the significance of the project
and the economic impact, the sources of financing, profitability, social
contribution, the effects on Colombia’s balance of payments and the price
structure of the refined products.




Pursuant
to Resolution 18 0966 of 2006 issued by the Ministry of Mines and Energy and
Article 58 of the Petroleum Code, any refining company operating in
Colombia must provide a portion or, if needed, the total of its production to
supply local demand prior to exporting any production.  If the
regulated production income, the principal item in the price formula, becomes
lower than the export parity price, the price paid for the refined products will
be equivalent to the price for those products in the U.S. Gulf Coast
market.  If there is a need of local demand for imported crudes, the
refining company may charge additional transportation costs in proportion to the
crudes delivered to the refinery.




The
Ministry of Mines and Energy establishes the safety standards for LPG, storage
equipment, maintenance and distribution.  Regulations issued in 1992
established that every local, commercial and industrial facility with a storage
capacity of LPG greater than 420 pounds must receive an authorization for
operations from the General Directorate of Hydrocarbons of the Ministry of Mines
and Energy.




Regulation
of Transportation Activities




Hydrocarbon
transportation activity is considered a public service in Colombia and therefore
is under governmental supervision and control.  Transportation and
distribution of crude oil, natural gas and refined products must comply with the
Petroleum Code.




Transport
systems, classified as crude oil pipelines and multipurpose pipelines, can be
owned by private parties.  The building, operation and maintenance of
the pipelines must comply with environmental, social, technical and economic
requirements under national and international
standards.  Transportation networks must follow specific conditions
regarding design and specifications, while complying with the quality standards
demanded by the oil and gas industry.




According
to Law 681 of 2001, multipurpose pipelines owned by us must be open to
third-party use and we must offer their capacity on the basis of equal access to
all.




The
hydrocarbon transport activity can be developed by third parties and must meet
all requirements established by law.




The
Ministry of Mines and Energy is responsible for:


54




·
            Studying
      and approving the design and blueprints for private pipelines and
      approving the construction of all
pipelines;




·
            Establishing
      the hydrocarbon transport tariffs based on the information furnished by
      the service provider;




·
            Issuing
      the hydrocarbon transport
regulations;




·
            Verifying
      the calculation and payment of transport related taxes;
  and




·
            Managing
      the information system for the oil product distribution
    chain.




The
construction of transportation systems requires Government licenses and local
permits awarded by the Ministry of the Environment as well as licenses from the
regional environmental authorities.




Regulation
on selling, distributing, transporting and marketing of natural gas




The sale
of natural gas and its by-products is subject to certain controls and
limitations under Colombian law such as maximum prices to be charged to
wholesalers, retailers and distributors.




The
distribution of natural gas and its by-products is considered a domiciliary
public service and is therefore subject to Government regulation.  The
transportation and marketing of natural gas production, although not classified
as domiciliary public services, are considered complementary activities to the
distribution service and therefore, are also governed by Law 142 of
1994.  In addition, each of these activities is governed by specific
regulations established by the CREG and the Ministry of Mines and
Energy.




CREG’s
Resolution 057 of 1996 delineates and separates the different activities
related to the natural gas market.  It defines transportation as an
independent activity.  As such, transporters of natural gas are not
allowed to (i)  perform production, commercialization or distribution
activities or (ii) participate in companies whose main purpose is to perform one
of said activities.  Transporters also cannot have an economic
interest in electricity generating companies.  In addition, companies
whose corporate purpose is to sell, commercialize or distribute natural gas
cannot be transporters and cannot have an economic interest in any
transportation company.  Moreover, producers and distributors of
natural gas are allowed to commercialize natural gas as well.




CREG’s
Resolution 057 of 1996 also establishes that whenever producers of natural gas
require natural gas for their own use or for the use of their subsidiaries, they
must acquire it from the market or from their own production at a market
price.  However, producers are allowed to re-inject natural gas in the
crude of the oil fields operated by them.




CREG’s
Resolution 093 of 2006, as modified by CREG’s Resolution 095 of 2008,
establishes that partners to a natural gas field are not allowed to jointly
commercialize their product without the prior authorization of the CREG, except
for commercialization in the form of auctions by the seller.




The CREG
also regulates the type of agreements that can be used for the marketing,
production, distribution and transportation of natural gas.  CREG’s
Resolutions 070 of 2006 and 095 of 2008 provide three types of contracts that
can be used:




·
            Take-or-Pay
      Agreements.  The buyer agrees to purchase a specific
      amount or percentage of production of natural gas and the producer
      guarantees the availability of 100% of the agreed
  amount.




·
            Optional Purchase
      Agreements.  The buyer agrees to pay a premium for its
      right to take a fixed amount of natural gas and agrees to pay an exercise
      price for the amount of natural gas made available.  The
      producer guarantees to have available 100% of the agreed-on
      amount.




·
            Interruptible Supply
      Agreements.The parties may enter into contracts which
      are interruptible if certain market conditions
  exist.


55




The
export of natural gas is not considered a public service under Colombian law and
therefore is not subject to Law 142 of 1994.  The export of natural
gas is governed by Decree 3428 of 2003 which provides, among other things, that
an importer of natural gas who acquires such natural gas through the national
pipeline system is subject to CREG’s regulatory framework.  Export
prices and transportation of natural gas for export are not subject to price
controls.  Natural gas producers must first supply the local
consumers.




Decree
3428 of 2003 provides that producers of natural gas may freely dispose of their
proved reserves of natural gas when the R-Factor of the proved reserves is
higher than seven years.  If the R-Factor is lower than seven years,
producers of natural gas are not allowed to enter into new agreements or
increase the amounts of previous agreements for the production of natural
gas.The
R-factor will be published by the Ministry of Mines.




Notwithstanding
the foregoing, it is important to highlight that Decree 2687 of 2008, as
modified by Decree 4670 of 2008, establishes that internal demand for natural
gas will take precedence over external demand.  Also CREG’s Resolution
095 of 2008 establishes the conditions under which foreign bidders can
participate in natural gas auctions.




Regulation
for sales of liquid fuels




The sale
and transport of liquid fuels (excluding natural gas liquids) is considered a
public service under Colombian law and is therefore subject to the supervision
and control by the Ministry of Mines and Energy.




Decrees
283 and 1521 of 1990 and 1998, respectively, each with its respective
modifications, establish minimum technical requirements for the construction of
storage plants and service stations and regulate the distribution of liquid
fuels establishing the minimum requirements for distributors and the activities
and types of agreements permitted for these agents.  The Ministry also
regulates the types of liquid fuels that can be sold and purchased and the
penalties for noncompliance with governmental regulations.




The
Ministry of Mines and Energy fixes the price that we can charge for the sale of
gasoline and fuel oil to wholesalers.  The Ministry of Mines and
Energy issues periodic price adjustments and each municipality imposes
additional surcharges applicable to the price.




The price
of gasoline and fuel oil is composed by a set of items such as freights, volume
conversion ratios, import and export tariffs, transportation tariffs and income
tax.  Such items are adjusted periodically depending on the fuel oil
and gasoline market.  Each municipality may impose additional
surcharges depending on their economic needs.




Wholesalers
sell the product based on the price set by the Ministry and the local
municipalities to retailers, earning a distribution margin set by the Ministry
of Mines and Energy.  Retailers are free to set a sale price for the
fuel oil and gasoline to be charged to the public.




The
distribution of fuels in areas near Colombian borders is subject to specific
regulations that impose stringent control procedures and
requirements.




Regulation
of biofuel and related activities




The sale
and distribution of biofuels is regulated by the Ministry of Mines and
Energy.  Regulations establish the quality and pricing standards for
biofuels and impose minimum requirements for mixing ethanol with gasoline and
biodiesel with diesel.




Environmental
Matters




Regulation




Law 99 of
1993 imposes on any company, including crude oil and natural gas companies, the
obligation to obtain an environmental license prior to undertaking any activity
that could negatively impact the environment.  Crude oil companies
must file an environmental plan with the Ministry of Environment which includes,
among others, an environmental impact assessment, and mechanisms established to
prevent, mitigate, correct and compensate any activity that may harm the
environment.  The number of licenses required for a crude oil or
natural gas field may vary depending on the background of the field and the
number of wells.  In certain cases, the Ministry of Environment will
require a license for each well, and in other cases will require only one
license per field.  Obtaining a license may take between 90 and 145
business days depending on whether or not the Ministry of Environment requires
the applicant to file additional information.


56




The
Ministry of Environment is the highest environmental authority in Colombia and
is in charge of issuing Nation-wide environmental regulations, policies, and
programs.  At the regional level, regional environmental authorities
such as the Corporaciones
Autónomas Regionales, are the highest environmental authorities of the
region and are in charge of executing and overseeing all regulations, policies
and programs issued by the Ministry of Environment.




The use
of natural resources is also regulated.  Companies that use large
amounts of water for consumption; that discharge industrial wastes into the
coastlines or rivers; that exploit forests reserves or that produce atmospheric
emissions of gases, must obtain a permit from the regional environmental
authorities.  Decree 1900 of 2006 provides that any company that uses
water resources and that requires an environmental license to the use of such
resources must assign 1% of its investment to the recovery, conservation,
preservation and supervision of the water resources used.




A company
that does not comply with the environmental regulations, or does not follow the
environmental plan filed before the Ministry of Environment, or that ignores the
requirements imposed by an environmental license, may be subject to an
administrative procedure initiated by the Ministry of Environment or the
regional environmental authorities, as it may be the case, which may result in
oral or written warnings, penalties, license revocation or even temporary or
permanent suspension of the activity being undertaken.




As of
May 5, 2009, we were party to 42 administrative
proceedings.  During 2008, 14 administrative proceedings were opened
and four were closed.  Of the four proceedings which closed during
2008, we qualified for an exemption in two of them and we were subject to
monetary fines in the remaining two.  It is not possible for us to
determine the material effect of these proceedings.  Most of our fines
have been between Ps$6 and Ps$25 million.




Environmental
Practices




We have
implemented aggressive environmental practices and standards throughout all the
activities performed by us and our workforce.  During 2008, we
invested Ps$430,200 million in environmental programs to increase our
environmental compliance levels.  These investments do not include
investments made through our business partners.  Such programs
include:




·
            Compliance.  The
      purpose of this program is to guarantee the compliance with all laws and
      regulations imposed by the Ministry of Environment and other regulatory
      bodies.  We undertake environmental impact assessments and
      constantly review our environmental plan.  During 2008, we
      maintained our compliance levels and had 100% of our permits and licenses
      in force or in the process of being renewed, Refinería de Cartagena S.A.
      was certified with ISO 14001 and we renewed the certification of our
      transportation vice-presidency and our operation center in
      Apiay.




·
            Contingency
      Planning.  This program implements the contingency plans
      in our operative areas to promote preventive activities and establish the
      steps that need to be followed in case of an emergency.  Our
      contingency planning program has had a positive impact in the number of
      environmental-related accidents.  We reduced the number of
      accidents in 2008 to 56 incidents, a 5% reduction when compared with a
      total of 59 incidents that took place in
2007.




·
            Eco-Efficiency.  This
      program is designed to minimize and mitigate the environmental impact
      resulting from deploying industrial residues into rivers and coastlines
      and from atmospheric emissions of
gases.




·
            Biodiversity.  This
      program implements initiatives to preserve endangered species in areas
      where our activities have strong influence in the
      community.  During 2007, we invested approximately
      Ps$1,200 million in investigation and rehabilitation projects for the
      recovery of ecosystems and environmental education in the areas where we
      operate.


57




·
            Environmental
      Culture.  This program seeks to promote an environmental
      culture in our organization, in our activities, and in our and daily
      life.  We initiated several environmental campaigns to educate
      our working force in areas such as occupational health and environmental
      practices.




·
            Alternative Energy
      Sources.  This program is designed to develop alternative
      energy sources, such as biodiesel and ethanol projects and
      activities.  During 2008, we invested approximately
      US$16 million in alternative energy projects related to
      ethanol.  As a first endeavor into the ethanol business, we
      acquired 80% of Bioenergy, a company that will produce
      ethanol in Colombia’s Llanos Orientales Region.  The
      project is being developed in partnership with a company that has
      experience in biofuel projects.  The plant has an estimated cost
      of US$140 million, is expected to begin operations in 2011 and will
      have a sugar-cane based ethanol production capacity of 330,000 liters per
      day.  In addition, we have continued to construct a
      biodiesel plant in Barrancabermeja, Ecodiesel Colombia S.A, of which we
      currently own 50%.  We plan on purchasing the biodiesel
      production of Ecodiesel Colombia S.A. in order to mix this biodiesel
      production with other refined products to be sold into the
      market.  The total cost of this project is approximately
      US$31 million and the plant is expected to have a production of
      approximately 100,000 tons of biodiesel per year.  We expect
      Ecodiesel Colombia S.A. will begin commercial production during the fourth
      quarter of 2009.




Health,
Safety and the Environment or HSE




We are
devoted to improving our HSE practices.  We have several programs in
place to increase our industrial safety and minimize the number of accidents of
our workforce or our contractors.  The frequency of accidents taking
place within our premises has declined significantly since 2005, to 1.73
accidents per million of hours worked in 2008 from 5.77 accidents per million of
hour worked in 2005, representing a 70% reduction.  These programs
include, among others, the standardization of HSE protocols and procedures,
drafting safety manuals, compliance with existing regulations on industrial
safety and the study of HSE benchmarks among oil companies.




During
2008, we improved the safety standards of our processes through the use of
rigorous methods and new technologies, the performance of risk assessments to
each stage of our process, the implementation of new technologies in our
projects, including emergency shut down systems and conducted safety integrity
level studies and alarm systems.




Human
Rights Initiatives




We have a
strong commitment for the protection of human rights in the areas where we
operate.  We have developed a set of security and human rights
principles or Principios
Voluntarios en Seguridad y Derechos Humanosthat we use as basis for a
risk analysis of our company and the communities where we operate.  We
use this set of principles to influence local communities and strengthen their
relationship with local authorities, our third party contractors and
us.  In particular, under the Colombian Constitution and legal
framework, we are required to enter into formal consultations with indigenous
communities whenever we are making plans to commence projects or operations
in lands under their control.




Insurance




Ecopetrol,
in compliance will all its legal and contractual obligations, has a
comprehensive corporate insurance program covering the main insurance risks of
the Company, which include but are not limited to the following:  all
risks associated with property damage and business interruption, sabotage and
terrorism, general liability, directors and officers, cargo, crime and other
minor operational risks.  In addition, under our corporate insurance
program, all our reinsurers must comply with a credit risk rating of A- by
Duff & Phelps, or equivalent.




However,
our insurance coverage does not imply that every risk to which Ecopetrol is
exposed is insured in the commercial market.




All our
projects and installations under construction are insured against loss in
compliance with the terms of the relevant agreements, usually through a
performance bond in connection with completion of the contract and/or other
damage and liability insurance.


58




ITEM 4C
            Organizational
      Structure




We are a
mixed economy company and have a number of subsidiaries both in Colombia and
abroad.  Our subsidiaries are either directly owned by us or
indirectly owned by us through one of our other subsidiaries.  At
May 31, 2009, we had 18 subsidiaries directly owned by us, of which 9 were
incorporated in Colombia and 9 were incorporated abroad, and 20 subsidiaries
indirectly owned by us.  Some of our subsidiaries have subsidiaries of
their own.


59


The
following diagram sets forth our significant subsidiaries by business segment at
May 31, 2009.




ORGANIZATIONAL
STRUCTURE




ECOPETROL
S.A.










See
Exhibit 8.1 to this annual report for a complete list of our significant
subsidiaries, their respective countries of incorporation, our percentage
ownership in each (both directly and indirectly through our other subsidiaries)
and our voting ownership in each.




ITEM 4D
            Property,
      Plant and Equipment




Under
Colombian law, the Nation owns all crude oil and natural gas reserves within
Colombia and we have certain rights to explore and produce those reserves in
areas awarded by the ANH after public bidding.  Most of our property,
consisting of refineries and storage, production and transportation facilities,
is located in Colombia.  Our main assets consist of our wells,
refining facilities and our pipelines.  See Item 4 — “Information
on the Company — Reserves” for a description of our reserves, sources
of crude oil and natural gas, main tangible assets and material plans for
expansion and improvements in our facilities.




ITEM 4.A
            Unresolved
      Staff Comments




None.




ITEM 5
            Operating
      and Financial Review and Prospects




The
following discussion presents our financial results and prospects as well as
factors that affect our results of operation under Colombian Government Entity
GAAP, unless otherwise indicated.




Overview




We are a
vertically integrated crude oil and natural gas company engaged in exploration,
development and production of crude oil and natural gas.  We are also
engaged in refining, wholesaling and distribution of crude oil, natural gas and
refined products.  We are in the process of building a refinery to
process palm oil for biofuels.  We own and have interest in companies
which own 8,433 kilometers of crude oil pipelines and multi-purpose
transportation pipelines.  For the year ended December 31, 2008,
our average daily production of crude oil was 362 thousand bpd and 487
mcfpd of natural gas.  Almost all of our crude oil and natural gas
production and refining capacity is located in Colombia.  In 2006, we
began hydrocarbon exploration and production activities outside Colombia in
partnership with regional and international oil companies and through the
acquisition of exploration and production companies abroad.  We export
crude oil and refined products mainly to North America and the
Caribbean.




60




We refine
crude oil and other hydrocarbons in our refineries and in the Cartagena Refinery
in Colombia into a variety of products, including gasoline, diesel, jet fuel,
petrochemicals and industrial products.  Crude oil, natural gas and
refined products are transported mainly through pipelines to our customers and
the refineries.  On April 7, 2008, we purchased Propilco, the
main polypropylene supplier in Colombia.  As a result of this
acquisition, we entered the petrochemicals business and started taking advantage
of the synergies between our refining and supplying activities.




Since our
IPO in November 2007, 10.1% of our capital stock has been publicly handled
by private investors and, in September 2008, we listed our ADSs on the New
York Stock Exchange.  As a result of our initial public offering, we
are now subject to the mixed economy regime, which among other aspects, excludes
us from the Government budgetary rules, the national procurement regime and
salary caps for state-owned companies.




Recent
Acquisitions




The
following acquisitions were funded mainly through cash on hand and cash flow
from our operations:




In
February 2009, we, in partnership with Korea National Oil Corporation
(KNOC), acquired a 100% stake (50% for each participating company) in Offshore
International Group Inc. (OIG) for the purchase price of
US$900 million.  OIG is the U.S. parent of Petrotech Peruana
S.A., which carries out crude oil exploration and production activities in
Peru.




In
February 2009, we entered into a memorandum of understanding with Glencore
International A.C. pursuant to which we acquired in May 2009 all of its stake in
Refinería de Cartagena S.A. through our subsidiary Andean Chemicals for the
purchase price of US$549 million, thereby becoming the sole indirect owner
of Refinería de Cartagena S.A. Through this acquisition, we will continue the
development of the expansion and modernization plan for the Cartagena refinery,
which includes increasing refining capacity and improving the quality of the
fuels produced.




In
March 2009, we entered into an agreement with Maurel and Prom pursuant to
which we acquired in May 2009 100% of its stake in its subsidiary in
Bermuda, Hocol Petroleum Limited, for the purchase price of US$580 million
plus US$168 million for working capital.  Hocol Petroleum
Limited’s most important assets are Hocol and Homcol, two companies incorporated
in the Cayman Islands and with branches in Colombia involved in crude oil and
natural gas exploration and production activities in Colombia.




In
March 2009, we entered into an agreement with Enbridge Inc., a Canadian
company, pursuant to which we acquired 100% of its stake in Oleoducto Central
S.A. (Ocensa) for the purchase price of approximately US$418 million,
thereby increasing our ownership of Ocensa from 35.3% to 60%.




Transformation
from a wholly state-owned entity




We have
been undergoing a two-step transformation process since 2003, first from a
wholly state-owned entity to a state-owned entity characterized by shares,
and then with our initial public offering in November 2007, to a mixed
economy company, which incorporates private capital.  This two-step
process has resulted in a substantial change in the legal framework to which we
are subject and in the nature of our relationship to the Nation, including a
number of changes that have had a significant effect on our results of
operations.  The most important changes are described
below.


Role
of Ecopetrol in managing Colombia’s hydrocarbon reserves
  Prior to
2003, we were an Empresa
Industrial y Comercial del Estado or state-owned commercial and
industrial national entity responsible for the administration and exploitation
of Colombia’s hydrocarbon reserves, including managing relationships with
regional and international oil companies doing business in
Colombia.  As a result, we are the counterparty to a large number of
contracts to exploit Colombia’s hydrocarbon reserves that predate the beginning
of our transformation process.




61




In 2003,
the Congress of Colombia created the ANH, which became the governmental agency
responsible for managing Colombia’s hydrocarbon reserves and awarding
exploration and production blocks to oil and gas companies.  Since the
creation of the ANH, any company, including us, wishing to explore, develop and
produce hydrocarbon reserves in Colombia must sign contracts with the ANH and
not with us.  As a result, we became an operator like any other
company, competing with all other regional and international oil companies in
Colombia for exploration and production opportunities under the same conditions
and without any special privileges.  Nevertheless, we have remained as
counterparty to the contracts which we signed prior to the creation of the
ANH.




The
contracts on which we are the counterparty all have clauses which provide, at
our sole option, for extensions.  If we do not extend the contracts,
the right to exploit the hydrocarbon reserves which are the subject of the
contract revert to us, and we have the right to exploit them for an indefinite
period at no additional cost to us.  If we decide to extend a specific
contract and have come to an agreement with the other parties on the terms of
such extension, a copy of the final agreement is submitted to the ANH for its
review.  The ANH’s review focuses on assuring that the terms of the
extension benefits the Nation more than if the contract were not extended, the
production rights reverted to us and we undertook their
development.




In 2010,
the “Santiago de las Atalayas Contract”, one of the most important exploration
and production contracts due to its current production level and to the amount
of crude oil and natural gas reserves, will terminate and the right to exploit
the hydrocarbon reserves subject to this Contract will revert back to
us.




All
exploration and production contracts entered into after January 1, 2004, in
the event they are not extended by the ANH, revert to the ANH and not to
us.




Accounting
for reserves and production




Under
Colombian law, the Nation owns all hydrocarbon reserves within Colombia, and we
have the right to explore and produce those reserves as detailed in Item 4
— “Information on the Company — Overview of Exploration and Production
Contractual Arrangements”.  In connection with our transformation
process we changed our accounting for all reserves other than reserves that
arose in connection with the reversion of concessions.




Prior to
March 2007 and in accordance with Decree 2625 of 2000, we recorded a cost
of sales in the line-cost of sales of contributions in kind, for every barrel
produced (other than from reverted concessions) pursuant to a pricing formula
specified in the decree and we recorded a contribution to capital from the
Nation for the amount expensed.  Since March 2007 and in
accordance with Decree 727 of 2007, we no longer record a cost of sales or a
capital contribution from the Nation in respect of our production (other than
from reverted concessions).  We account for production from reverted
concessions by recording a depletion charge on our income statement and a
reduction in the related asset.  At the time we received the reverted
concession, we placed the asset in our books at the book value carried by the
party holding the concession.




FAEP




In 1995,
the Government established a macroeconomic stabilization fund to manage excess
export earnings from the sale of crude oil from three major oil fields in which
we were a partner.  As a result, some of our export earnings from
these fields were required to be deposited into a fund, the FAEP, which we owned
and recorded on our balance sheet as an asset, but which was held at the
Colombian Central Bank, which acted as the FAEP’s portfolio
manager.  The amount we recognized as current revenues was determined
by a specific formula contained in the law based on the amount of production and
sales prices of specified fields.  The remaining amount was retained
in the FAEP account at the Colombian Central Bank and was recorded in our
balance sheet as deferred income with the related liability and the FAEP account
as a long-term asset.  We recognized the deferred income as revenue
when such funds were distributed to us from time to time.  In
August 2007, in connection with our corporate transformation prior to our
initial public offering, we distributed to the Government all of the deferred
income in the FAEP account and we removed from our balance sheet the asset and
the liability attributable to the FAEP, and our FAEP account ceased to
exist.  As a result, since that date, we recognize all of our export
earnings as current revenues.


62




Gasoline
and diesel subsidies




The
Government regulates domestic prices of liquid fuels according to international
market conditions in order to align domestic prices with trends in international
prices, with a one month lag.  When domestic prices of liquid fuels
are lower than international parity prices, the Government is responsible for
reimbursing refiners for the difference, which difference is called the fuel
subsidy pursuant to Law 1151 of 2007.  As of the beginning of 2007,
following our transformation to a state-owned entity, we charge the domestic
prices established by the Government to wholesalers and, at the same time, we
accrue as revenues the amount of the fuel subsidy and record an account
receivable from the Government.  Each month the Government issues a
resolution setting forth the fuel subsidy payment to be made in
cash.  However, the calculation and payment by the Government of the
2008 fuel subsidy was significantly delayed.




In 2008,
following international trends, domestic prices of liquid fuels reached
historical highs.  By the end of 2008, international prices had
decreased but the Government decided not to lower domestic
prices.  Instead, the Government kept domestic prices high and
allocated the excess amount (paid in the domestic market with respect to
international parity prices) to a Fuels Stabilization Fund (Fondo de Estabilización de Precios
de los Combustibles).  Similar to the approach followed by
other countries, this Fund is funded with these excess payments when
international prices are low and depleted when international prices are high in
order to mitigate domestic price volatility.




Pursuant
to a regulation issued by the Ministry of Mines and Energy and the Petroleum
Code, producers of liquid fuels must first supply the local market before
exporting any refined products.  Please refer to Item 4B —
“Business Overview —Regulatory Framework”
for a description of the local market priorities.




Transfer
of the Cartagena Refinery assets to Refinería de Cartagena S.A




Prior to
the transfer of Refinería de Cartagena S.A. to Glencore, the results of the
Cartagena Refinery were included in our consolidated results.  In
April 2007, we initiated a process to upgrade and expand our Cartagena
Refinery.  As part of the process we selected Glencore as our
strategic partner to undertake the expansion of the refinery and contributed the
refinery’s assets in exchange for a 49.0% of the equity in Refinería de
Cartagena S.A.  At December 31, 2007 Glencore held the remaining
51.0% interest in the company.  As of April 1, 2007, following
the transfer of Refinería de Cartagena
S.A. to Glencore, under Colombian Government Entity GAAP as in effect for
2007 and 2006, we started recording our 49.0% interest in Refinería de Cartagena
S.A. as an investment at cost.  As such, we started recording as
revenues the delivery of crude oil to the Cartagena Refinery and stopped
recording as revenues sales of the refined products from the Cartagena
Refinery.   However, under Colombian Government Entity GAAP as in
effect for fiscal year 2008,  we began treating our 49.0% interest in
Refinería de Cartagena S.A. as an investment under the equity
method.




Under
U.S. GAAP, we quantified the effects of the transfer by recording a
Ps$579,241 million gain equal to 51% of the difference between the book
value of the transferred assets and the fair value of the assets received, which
we determined to be a more reliable indicator of the value of the
exchange.  The gain also includes Ps$27,812 million corresponding
to the amortization of the deferred gain.  The remaining 49% or
Ps$556,236 million is to be amortized over 20 years.




In May
2009 we reacquired 100% of the Cartagena Refinery through the purchase of
Glencore’s 51% stake for the purchase price of
US$549 million.  As of such date, Refinería de Cartagena S.A.’s
results will again be consolidated into our results.  Therefore, sales
of crude oil and gas to the Cartagena Refinery will no longer be recorded as
revenues, while sales of products from the Cartagena Refinery will
be.  In addition, under U.S. GAAP, we will record the effects of this
business combination by applying FAS 141 regarding the determination of goodwill
and FAS 141(R) regarding the determination of the purchase price
allocation.


63




Payments
of tariffs of the build, operate, maintain and transfer contracts or BOMTs
transferred to Ecogás as part of its spin-off from us




As a
result of Law 401 of 1997, in 1998, we were required to spin-off all of our
natural gas transportation assets to Ecogás, a newly created natural gas
transportation company.  Prior to the spin-off of the natural gas
transportation assets, we had entered into a number of BOMT contracts for the
construction, operation, maintenance and transfer of the gas
pipelines.  As part of the spin-off we were required to transfer all
rights under the BOMT contracts to Ecogás, while remaining obliged for 100% of
the tariffs.  Nevertheless, pursuant to Decree 958 of 1998 Ecogás was
responsible for reimbursing us for 70% of the tariffs.




During
2007, in connection with the sale by the Government of Ecogás to Empresa de
Energía de Bogotá, Ecogás’ obligation was cancelled.  We made a
calculation of the present value of the future tariff payments corresponding to
Ecogás’ 70% reimbursement obligation, and the Government delivered to us the
future tariff payments in cash to cover these future BOMT obligations which
totaled Ps$729,588 million at December 31, 2007.  We
recorded this payment as a deferred income and as we make payments under the
BOMTs, we record an expense and a reduction in the related deferred income
liability.  We will make all future tariff payments under the BOMT
contracts until their expiration.  This arrangement should not have a
negative effect on our operating expenses, as the 70% expense which was
previously compensated by Ecogás’ reimbursement, is offset by our recording the
deferred income arising from the lump-sum payment.




Pre-IPO
distribution of retained earnings




On
April 27, 2007, we distributed as dividends retained earnings and other
reserves amounting to Ps$4,475,399 million to our shareholders in
cash.




Development
of a Strategic Plan




We have
developed the 2008–2015 Strategic Plan aimed at producing one million boe by
2015, placing special emphasis on the production of heavy crude
oil.  We intend to invest heavily in our exploration and production
activities, and in acquisition of reserves in Colombia and abroad to reach our
goal.  As part of our strategic plan, we are upgrading and expanding
the Barrancabermeja and the Cartagena Refinery, increasing their capacity and
conversion rate.  Finally, we entered into an agreement for the
purchase of Propilco which we completed during the second quarter of 2008 to
further enhance integration of our product lines.




Factors
Affecting our Operating Results




Our
operating results are affected by international prices for crude oil and natural
gas, production volumes and product mix.  Higher crude oil and natural
gas prices have a positive impact on our results of operations in both our
exploration and production segments due to our export revenues
increasing.  Results from our refining activities are also affected by
conversion ratios, utilization rates, refining capacity and operating costs, all
of which affect our refining margins.  Currently, we have relatively
low, although improving, conversion ratios in our refineries which results in us
producing and selling refined products, particularly fuel oil, below
costs.  Finally, changes in the value of foreign currencies,
particularly the U.S. dollar against the Peso, have a significant effect on our
financial statements.




Sales
volumes and prices




Our
exploration and production segments depend on production levels and average
local and international prices for crude oil and natural gas that we market and
sell to our customers locally and abroad.  Additionally, sales volumes
depend on our purchases of crude oil and natural gas from our business partners
and the ANH.




We sell
crude oil in the international market and since April 2007 to the Cartagena
Refinery.  In addition, we process crude oil in our Barrancabermeja
refinery and sell refined products in the local and international
markets.  Although sales of refined products have increased in
recent years, production and sale of crude oil continues to be the driver
of our financial performance.


64




Local
sales and prices




We have a
number of crude oil and natural gas long-term supply contracts with local
customers, including the Cartagena Refinery and gas-fired power
plants.  Local sale prices are determined in accordance with existing
regulations, contractual arrangements and the spot market linked to
international benchmarks.  Starting in April 2007, we started
recording sales of crude oil to the Cartagena Refinery as related-party sales
and not as internal sales.




International
sales and prices




We export
crude oil, natural gas and refined products at prices which are set by reference
to international benchmarks and negotiation with our buyers.  We
export any crude oil and refined products surplus after we have fulfilled our
supply commitments with the refineries and local buyers.




Exploration
costs




We plan
to spend approximately US$11billion in drilling, directly and with our business
partners, approximately 300 gross wells from 2008 to 2015.  We account
for exploratory drilling using the successful efforts method whereby all costs
associated with the exploration and drilling of productive wells are
capitalized, while costs incurred in exploring and drilling of dry wells are
expensed in the period.  The number of exploratory wells we declared
as dry negatively affects our results.  Therefore, the significant
expansion of our drilling can be expected to result in higher dry well
expenses.




Labor
costs




We expect
our future labor costs to increase as we adjust the salaries of our employees to
industry standards in the region and hire new personnel required to expand our
exploration and production segments.




Royalties




We are
obliged by law to pay a percentage of our production to the ANH as
royalties.  Each production contract has its own royalty
arrangement.  In 1999, a modification to the royalty system
established a sliding scale for royalty payments linked to the production level
of crude oil and natural gas fields discovered after July 29, 1999 whether
the production is crude oil or natural gas, and the quality of the crude oil
produced.  Since 2002 the royalties system has ranged from 8% for
fields producing up to 5,000 bpd to 25% for fields producing in excess of
600 thousand bpd.  Changes in royalty programs only apply to new
discoveries and do not alter fields already in their production
stage.  Producing fields pay royalties in accordance with the
applicable royalty program at the time of the discovery.  Our
contracts specify that royalties are to be paid in physical product (crude oil
or natural gas).




Purchases
of hydrocarbons from the ANH




We
currently purchase all physical product delivered by producers of crude oil and
natural gas as royalty payments to the ANH at prices set forth in Law 756 of
2002 and Resolution 18-1709 of 2003.  The purchase price is calculated
on a reference price for crude oil and natural gas at the wellhead and varies
depending on prevailing international prices.  We have an interagency
agreement or Convenio with the ANH, whereby we collect all in kind and cash
royalties owed to the ANH by the oil and gas companies in
Colombia.  The ANH may extend offers to sell such physical product and
we, at our option, may accept such offers to purchase the royalty
volume.  We sell the physical product purchased from the ANH as part
of our ordinary business.




Effect
of taxes and exchange rate variation on our income




Income
tax




We are
subject to tax on our income at statutory rate of 33%, the standard corporate
rate in Colombia since 2008.  The statutory income tax rate during
2007 and 2006 was 34% and 38.5%, respectively.  The income tax rate in
2006 includes a 10% surcharge over the 35% statutory rate.


65




Exchange
rate variation




Since
1999, the Government has allowed the Peso to float freely against all major
currencies, including the U.S. dollar.  A strong depreciation or
revaluation of the Peso, particularly against the U.S. dollar, has multiple
effects on our financial results.  Our results are reported in Pesos,
and we maintain our financial records in Pesos.  During 2008, 2007 and
2006, the Peso has appreciated (depreciated) on average 5.4%, 11.9% and (1.6%)
respectively against the U.S. dollar.




Almost
all of our exports of crude oil, natural gas and refined products are made in
U.S. dollars at prices determined by reference to international
benchmarks.  If the Peso depreciates against the U.S. dollar, our
revenues from exports expressed in Pesos increase.  Imported goods,
however, including imported services denominated in U.S. dollars, will by the
same token increase.




The
opposite effect occurs when the Peso appreciates against the U.S. dollar as has
been the case in 2007 and 2008 based on average exchange rates.  Our
revenues from exports of crude oil and natural gas have been reduced in Pesos as
a result of the appreciation of the Peso.  The appreciation of the
Peso also results in lower cost of products, services supplied and contracted
abroad as these are denominated in U.S. dollars.




Furthermore, most of our financial
investments are denominated in U.S. dollars and we have substantially no debt so
the appreciation of the Peso against the U.S. Dollar during 2007 and 2008
resulted in substantial exchange losses.




ITEM 5A
            Operating
      Results




The
following discussion is based on information contained in our audited
consolidated financial statements and should be read in conjunction
therewith.  Our consolidated financial statements have been prepared
in accordance with Colombian Government Entity GAAP, which differs in
certain significant respects from U.S. GAAP.  See Note 33 to
our consolidated financial statements for a description of the principal
differences.


66


Results
of operations for the year ended December 31, 2008, compared to the year
ended December 31, 2007, and compared to the year ended December 31,
2006.




The
following table sets forth components of our income statement for the years
ended December 31, 2008, 2007 and 2006.




For the Year ended
                      December 31,
                  
                  
                  For the Year ended2008/2007
                  
                  
                  December 31,
                  
                  
                  2007/20062008
                  
                  
                  2007
                  
                  
                  % change
                  
                  
                  2006
                  
                  
                  % change(Pesos in millions)
                  
                  
                  (Pesos in millions)Revenues:Total
      Revenue
                  
                  
                  33,896,669
                  
                  
                  
                  22,332,320
                  
                  
                  
                  52
                  %
                  
                  
                  18,389,965
                  
                  
                  
                  21
                  %Cost
      of Sales
                  
                  
                  19,023,649
                  
                  
                  
                  12,058,527
                  
                  
                  
                  58
                  %
                  
                  
                  12,756,563
                  
                  
                  
                  (5
                  )%Gross
      Profit
                  
                  
                  14,873,020
                  
                  
                  
                  10,273,793
                  
                  
                  
                  45
                  %
                  
                  
                  5,633,402
                  
                  
                  
                  82
                  %Operating
      Expenses:
                  
                  
                  2,217,719
                  
                  
                  
                  1,341,956
                  
                  
                  
                  65
                  %
                  
                  
                  997,570
                  
                  
                  
                  35
                  %Operating
      Income
                  
                  
                  12,655,301
                  
                  
                  
                  8,931,837
                  
                  
                  
                  42
                  %
                  
                  
                  4,635,832
                  
                  
                  
                  93
                  %Non-operating
      income(expenses):
                  
                  
                  3,355,903
                  
                  
                  
                  (1,866,533
                  )
                  
                  n.m.
                  
                  
                  
                  255,310
                  
                  
                  n.m.Income
      before income tax
                  
                  
                  16,011,204
                  
                  
                  
                  7,065,304
                  
                  
                  
                  127
                  %
                  
                  
                  4,891,142
                  
                  
                  
                  44
                  %Income
      tax:
                  
                  
                  4,381,982
                  
                  
                  
                  1,885,512
                  
                  
                  
                  132
                  %
                  
                  
                  1,499,769
                  
                  
                  
                  26
                  %Minority
      interest:
                  
                  
                  (455
                  )
                  
                  
                  -
                  
                  
                  n.m.
                  
                  
                  
                  -
                  
                  
                  n.m.Net
      Income
                  
                  $
                  11,629,677
                  
                  
                  $
                  5,179,792
                  
                  
                  
                  125
                  %
                  
                  $
                  3,391,373
                  
                  
                  
                  53
                  %







n.m.= Not
meaningful




During
2008, our principal sources of revenue were divided between the production and
market and supply segments.




The
following table sets forth our principal sources of revenue for the years
ended December 31, 2008, 2007 and 2006.




For the YearFor the Year ended
                        
                        
                        2008/2007
                        
                        
                        ended
                        
                        
                        2007/2006December 31,
                        
                        
                        % change
                        
                        
                        December 31,
                        
                        
                        % change2008
                        
                        
                        2007
                        
                        
                        2006(Pesos in
                          millions)
                        
                        
                        
                        
                        
                        
                        (Pesos in
                          millions)Production Segment:(1)Crude
      oil:Local
      sales
                        
                        
                        3,956,143
                        
                        
                        
                        2,220,287
                        
                        
                        
                        78
                        %
                        
                        
                        29,825
                        
                        
                        n.m.Other
      Income from local sales of crude oil (2)
                        
                        
                        140,464
                        
                        
                        
                        116,020
                        
                        
                        
                        21
                        %
                        
                        
                        133,815
                        
                        
                        
                        (13
                        )%Export
      sales
                        
                        
                        7,111,955
                        
                        
                        
                        3,243,769
                        
                        
                        
                        119
                        %
                        
                        
                        2,474,356
                        
                        
                        
                        31
                        %Total
      sales of crude oil
                        
                        
                        11,208,562
                        
                        
                        
                        5,580,076
                        
                        
                        
                        101
                        %
                        
                        
                        2,637,996
                        
                        
                        
                        112
                        %Natural
      Gas:Local
      sales
                        
                        
                        778,298
                        
                        
                        
                        468,290
                        
                        
                        
                        66
                        %
                        
                        
                        546,091
                        
                        
                        
                        (14
                        )%Other
      Income from local sales of natural gas
                        
                        
                        129,575
                        
                        
                        
                        6,614
                        
                        
                        n.m.
                        
                        
                        
                        15,132
                        
                        
                        n.m.Export
      sales
                        
                        
                        259,933
                        
                        
                        
                        29
                        
                        
                        n.m.
                        
                        
                        
                        -
                        
                        
                        n.m.Total sales of natural
      gas
                        
                        
                        1,167,806
                        
                        
                        
                        474,933
                        
                        
                        
                        146
                        %
                        
                        
                        561,223
                        
                        
                        
                        (15
                        )%Total production segment
      sales
                        
                        
                        12,376,368
                        
                        
                        
                        6,055,009
                        
                        
                        
                        104
                        %
                        
                        
                        3,199,219
                        
                        
                        
                        89
                        %




67




For the YearFor the Year ended
                    
                    
                    2008/2007
                    
                    
                    ended
                    
                    
                    2007/2006December 31,
                    
                    
                    % change
                    
                    
                    December 31,
                    
                    
                    % change2008
                    
                    
                    2007
                    
                    
                    2006(Pesos in
                      millions)
                    
                    
                    
                    
                    
                    
                    (Pesos in
                      millions)Refining
      segment:Refined
      Products:Local
      sales(3)
                    
                    
                    14,876,906
                    
                    
                    
                    11,517,000
                    
                    
                    
                    29
                    %
                    
                    
                    9,757,734
                    
                    
                    
                    18
                    %Sales
      of refined products allocated to our production segment(4)
                    
                    
                    (90,628
                    )
                    
                    
                    (94,734
                    )
                    
                    
                    (4
                    )%
                    
                    
                    (101,310
                    )
                    
                    
                    (6
                    )%Other
      income from local sales of refined products(5)
                    
                    
                    61,612
                    
                    
                    
                    49,646
                    
                    
                    
                    24
                    %
                    
                    
                    26,804
                    
                    
                    
                    85
                    %Export
      sales
                    
                    
                    3,273,018
                    
                    
                    
                    2,156,388
                    
                    
                    
                    52
                    %
                    
                    
                    4,194,044
                    
                    
                    
                    (49
                    )%Total
      refining segment sales:
                    
                    
                    18,120,908
                    
                    
                    
                    13,628,300
                    
                    
                    
                    33
                    %
                    
                    
                    13,877,272
                    
                    
                    
                    (2
                    )%Market
      and supply segment:Crude
      oil sales:Local
      sales
                    
                    
                    818,258
                    
                    
                    
                    784,342
                    
                    
                    
                    4
                    %
                    
                    
                    -
                    
                    
                    n.m.Export
      sales
                    
                    
                    1,584,327
                    
                    
                    
                    1,232,368
                    
                    
                    
                    29
                    %
                    
                    
                    1,195,724
                    
                    
                    
                    3
                    %Total
      crude oil sales
                    
                    
                    2,402,585
                    
                    
                    
                    2,016,710
                    
                    
                    
                    19
                    %
                    
                    
                    1,195,724
                    
                    
                    
                    69
                    %Natural
      gas sales:Local
      sales
                    
                    
                    123,116
                    
                    
                    
                    191,881
                    
                    
                    
                    (36
                    )%
                    
                    
                    171,788
                    
                    
                    
                    12
                    %Other
      income from local sales of natural gas
                    
                    
                    72,024
                    
                    
                    
                    60,471
                    
                    
                    
                    19
                    %
                    
                    
                    50,569
                    
                    
                    
                    20
                    %Export
      sales
                    
                    
                    53,414
                    
                    
                    
                    7
                    
                    
                    n.m.
                    
                    
                    
                    -
                    
                    
                    n.m.Total
      natural gas sales
                    
                    
                    248,554
                    
                    
                    
                    252,359
                    
                    
                    
                    (2
                    )%
                    
                    
                    222,357
                    
                    
                    
                    13
                    %Total
      market and supply segment sales
                    
                    
                    2,651,139
                    
                    
                    
                    2,269,069
                    
                    
                    
                    17
                    %
                    
                    
                    1,418,081
                    
                    
                    
                    60
                    %Transportation
      segment:Transportation
      sales
                    
                    
                    752,599
                    
                    
                    
                    695,268
                    
                    
                    
                    8
                    %
                    
                    
                    685,871
                    
                    
                    
                    1
                    %Sales
      of transportation services allocated to our other segments
                    
                    
                    (27,761
                    )
                    
                    
                    (17,330
                    )
                    
                    
                    60
                    %
                    
                    
                    (19,376
                    )
                    
                    
                    (11
                    )%Total
      transportation sales
                    
                    
                    724,838
                    
                    
                    
                    677,938
                    
                    
                    
                    7
                    %
                    
                    
                    666,495
                    
                    
                    
                    2
                    %Other
      sales(6)
                    
                    
                    308,702
                    
                    
                    
                    139,188
                    
                    
                    
                    122
                    %
                    
                    
                    108,693
                    
                    
                    
                    28
                    %Adjustment
      to other sales(7)
                    
                    
                    (285,286
                    )
                    
                    
                    (120,687
                    )
                    
                    
                    (136
                    )%
                    
                    
                    (105,635
                    )
                    
                    
                    14
                    %FAEP
                    
                    
                    -
                    
                    
                    
                    (316,497
                    )
                    
                    n.m.
                    
                    
                    
                    (774,160
                    )
                    
                    
                    (59
                    )%Total
      sales
                    
                    
                    33,896,669
                    
                    
                    
                    22,332,320
                    
                    
                    
                    52
                    %
                    
                    
                    18,389,965
                    
                    
                    
                    21
                    %





n.m.=Not
meaningful.


(1)
            Corresponds
      to sales of crude oil, natural gas and refined products to third parties
      excluding intergroup sales.


(2)
            Corresponds
      to sales of refined products, transportation services and industrial
      services allocated to our production
segment.


(3)
            Prior
      to 2007, we were not reimbursed by the Government for motor fuel
      subsidies.  Includes motor fuel subsidy reimbursements by the
      Government amounting to Ps$1,778,050 million in 2007 and
      Ps$3,070,479 million in 2008.


(4)
            Corresponds
      to sales of refined products from our Apiay and Orito refineries allocated
      to our production segment.


(5)
            Corresponds
      to sales of transportation services and industrial services allocated to
      our refining segment.


(6)
            Includes
      insurance premiums and sales of industrial services in
      Colombia.


(7)
            Corresponds
      to sales of industrial services allocated to our production
      segment.




Total
Revenues




In 2008,
total revenues increased by 52% as compared to 2007, mainly due to higher sales
of crude oil, sales of crude oil to the Cartagena Refinery and the increase in
the average price of crude oil.  The 21% increase in total revenues in
2007 compared to 2006 was due to higher exported volumes of crude oil, sales of
crude oil to the Cartagena Refinery beginning in April 2007 and an increase
in the average sale price of crude oil of approximately 21%, which was partially
offset by lower sales of refined products, since during 2008 we did not take
into account the sales of refined products by Refinería de Cartagena S.A. (the
“Cartagena Refinery”) from April 2007.


68




Starting
in 2008, we created a separate segment for our market and supply sales within
the calculation of total revenues.  Market and supply sales had
previously been classified under the total sales component of the production
segment.  For comparison purposes, we amended the table above to show
what the market and supply sales were for the years 2007 and 2006.  In
2008, market and supply sales increased by 22% due to the increase in the sales
prices of refined products.




The
following table sets forth our export and local sales of crude oil, natural gas
and refined products for the years ended December 31, 2008, 2007 and
2006.




For the Year ended
                    December 31,
                
                
                2008/2007
                    % change
                
                
                For the Year
                    ended
                    December 31,
                
                
                2007/2006
                    % change2008
                
                
                2007
                
                
                2006Crude
      oil:Local
      sales (barrels)(1)
                
                
                26,981,442
                
                
                
                20,859,714
                
                
                
                29
                %
                
                
                333,003
                
                
                n.m.Export
      sales (barrels)
                
                
                54,592,797
                
                
                
                34,724,093
                
                
                
                57
                %
                
                
                29,056,837
                
                
                
                20
                %Average
      price per local barrel (in U.S. dollars)
                
                
                89.99
                
                
                
                69.30
                
                
                
                30
                %
                
                
                37.98
                
                
                
                82
                %Average
      price per export barrel (in U.S. dollars)(2)
                
                
                81.01
                
                
                
                62.02
                
                
                
                31
                %
                
                
                53.57
                
                
                
                16
                %Weighted
      average price per local and export barrel (in U.S.
dollars)
                
                
                83.98
                
                
                
                64.76
                
                
                
                30
                %
                
                
                53.39
                
                
                
                21
                %Natural
      gas:Local
      sales (mbtu)
                
                
                146,955,743
                
                
                
                160,056,709
                
                
                
                (8
                )%
                
                
                148,977,334
                
                
                
                7
                %Export
      sales (mbtu)(3)
                
                
                35,491,468
                
                
                
                6,555
                
                
                n.m.
                
                
                
                -
                
                
                n.m.Average
      local price (mbtu) (in U.S. dollars)
                
                
                3.12
                
                
                
                1.98
                
                
                
                79
                %
                
                
                2.04
                
                
                
                (3
                )%Average
      export price (mbtu) (in U.S. dollars)
                
                
                4.49
                
                
                
                2.64
                
                
                
                70
                %
                
                
                -
                
                
                n.m.Refined
      products:Product
      local sales (barrels)
                
                
                69,312,065
                
                
                
                71,191,548
                
                
                
                (3
                )%
                
                
                79,635,684
                
                
                
                (11
                )%Export
      sales (barrels)
                
                
                18,380,770
                
                
                
                19,335,063
                
                
                
                (5
                )%
                
                
                34,401,773
                
                
                
                (44
                )%Average
      local price per barrel (U.S. dollars)
                
                
                109.16
                
                
                
                65.82
                
                
                
                66
                %
                
                
                51.96
                
                
                
                27
                %Average
      export price per barrel (U.S. dollars)
                
                
                90.56
                
                
                
                53.66
                
                
                
                69
                %
                
                
                51.7
                
                
                
                4
                %





n.m. =
Not meaningful.


(1)
            Starting
      in April 2007, we started recording crude oil sales to the Cartagena
      Refinery, an affiliated entity.


(2)
            Amounts
      stated in U.S. dollars have been translated at 1,966.26 for 2008, 2,078.35
      for 2007 and 2,357.98 for 2006.


(3)
            We
      initiated exports of natural gas to Venezuela in the third quarter of
      2007




Production
segment sales




Crude
oil




Local
sales




Since
April 2007, our local sales reflect the recognition of sales of crude oil
to the Cartagena Refinery.  Prior to April 2007 we did not have
meaningful local sales of crude oil.  Local sales of crude oil, which
mainly reflect sales to the Cartagena Refinery, increased by 78% in 2008 as
compared to 2007 due to a 29% increase in volumes as a result of (i) the
recognition of sales for the twelve months instead of nine months in 2007 and
(ii) higher demand for crude oil from the Cartagena Refinery because of the
lower local prices compared to higher import prices.  The increase of
local sales of crude oil in 2007 when compared to 2006 is due to the fact that
in 2006 there were no meaningful local sales of crude oil.


69




Export
Sales




In 2008,
our revenues from exports of crude oil increased by 119% due to a 57% increase
in volumes and a 31% increase in the average export price of crude oil,
partially offset by a 5.4% appreciation in the average exchange rate for the
Peso against the U.S. Dollar.  The increase in revenues in 2007
compared to 2006 from exports of crude oil including revenues deposited in the
FAEP was due to a 20% increase in export volumes and a 16% increase in export
prices, which in turn was partially offset by an 11.9% appreciation in the
average exchange rate for the Peso against the U.S. Dollar.




Natural
gas




Local
sales




Local
sales of natural gas increased by 66% in 2008 primarily due to an increase in
the average sale price of natural gas, partially offset by an 8% reduction in
volumes as a result of lower consumption in the thermal power generation sector
and scheduled maintenance programs.  The decrease in revenues in 2007
from local sales of natural gas was attributable to a 3% decrease in local
prices for natural gas as a result of prices for natural gas from the La Guajira
field being regulated and tied to the average fuel oil export price for the
prior six months (which for the last six months of 2006 was relatively
depressed), offset by a 7% increase in local sales volumes.




Export
Sales




In 2008,
export sales of natural gas reflect the first complete year of natural gas
exports to Venezuela.  In 2007, export sales of natural gas only
reflected the start of our sales of natural gas to Venezuela.  Prior
to 2007, we did not export any natural gas.




Refining
segment sales




Local
sales




Revenue
from local sales of refined products in 2008 as compared to 2007 increased by
29% as a result of higher average sales prices resulting from an increase in
international oil prices, partially offset by a 3% decrease in volumes sold as a
result of the decrease in domestic consumption of refined
products.  The increase in revenue in 2007 compared to 2006 was
attributable to a 29% increase in average local prices resulting from higher
international oil prices and an improvement in our product slate, partially
offset by an 11% decrease in volumes sold.




Export
Sales




The
increase in revenues from exports of refined products in 2008 as compared to
2007 was due to a 69% increase in average sales prices which resulted from
the increase in international oil prices.  The decrease in revenues
from the export of refined products in 2007 compared to 2006 was attributable to
the transfer of the Cartagena Refinery, as a result of which we no longer
recorded sales of refined products from said refinery in our financial
statements.




Market
and Supply segment sales




Local
sales




Revenues
from local sales of crude oil increased by 4% in 2008 as compared to 2007 as a
result of an increase in sales to the Cartagena Refinery and higher average
sales prices for crude oil, as a result of the increase in international oil
prices.  Revenues from local sales of natural gas in 2008 as compared
to 2007 decreased due to the reduction in volumes sold, which resulted from
lower domestic consumption of natural gas.  In 2007 as compared to
2006 revenue from local sales of natural gas increased primarily as a result of
higher volumes sold.




Export
Sales




Revenues
from exports of crude oil increased in 2008 as compared to 2007 as a result of
higher average international crude oil prices and an increase in volumes sold
internationally, partially offset by a 5.4% appreciation in the average exchange
rate for the Peso against the U.S. Dollar.  Revenues from exports of
crude oil in 2007 as compared to 2006 increased as a result of higher average
international crude oil prices.


70




Transportation
segment sales




Revenues
from transportation activities in 2008 as compared to 2007 increased by 8% as a
result of higher volumes transported and an increase in average tariffs for
crude oil.  Revenues from the transportation segment for 2007 compared
to 2006 remained stable as transported volumes did not vary
significantly.




Cost
and Expenses




The
following table sets forth elements of our cost of sales, operating expenses and
operating income for the years ended December 31, 2008, 2007 and
2006.




For the Year ended
                  December 31,
              
              
              
              2008/2007
              
              
              For the Year ended
                  December 31,
              
              
              
              2007/20062008
              
              
              2007
              
              
              % change
              
              
              2006
              
              
              % change(Pesos in millions)
              
              
              
              
              
              
              (Pesos in millions)Cost
      of sales
              
              
              19,023,649
              
              
              
              12,058,527
              
              
              
              58
              %
              
              
              12,756,563
              
              
              
              (5
              )%Operating
      expenses
              
              
              2,217,719
              
              
              
              1,341,956
              
              
              
              65
              %
              
              
              997,570
              
              
              
              35
              %Operating
      Income
              
              
              12,655,301
              
              
              
              8,931,837
              
              
              
              42
              %
              
              
              4,635,832
              
              
              
              93
              %





Cost
of sales—consolidated




As a
result of the increase in international prices for crude oil, our costs of sales
have been affected by a number of factors.  The most important factors
are described below:




·
            Purchases
      of hydrocarbons from the ANH in 2008 as compared to 2007 increased to
      Ps$5,584,474 million as a result of higher average prices on an
      increased number of barrels purchased and an increase of 12% in production
      as compared to 2007.  Purchases of hydrocarbons from the ANH in
      2007 compared to 2006 increased to Ps$3,912,315 million for the same
      reason.




·
            Purchases
      of crude oil from our business partners increased during 2008 to
      Ps$3,193,690 million as a result of higher volume purchased to meet
      existing supply obligations, which amounted to 19 million barrels in
      2008 compared to 12.9 million barrels in 2007 and increases in
      average prices for crude oil.  The increase in costs from
      purchases of crude oil from our business partners in 2007 compared to 2006
      were due to higher purchase volumes which amounted to
      Ps$1,513,683 million in 2007 and increase in average crude oil
      prices.




·
            Purchases
      of natural gas and other products increased during 2008 to
      Ps$257,691 million as a result of our obligation to supply natural
      gas to our long-term purchasers and to purchases of refined products from
      the Cartagena Refinery.  Increases in costs related to purchases
      of natural gas and other products in 2008 compared to 2007 were due to
      purchases of natural gas to meet supply commitments with our
      customers.




·
            Purchase
      of imported products increased during 2008 to Ps$2,552,231 as a result of
      higher volumes purchased in order to mix such imports with the local
      production of gasoline and diesel in order to decrease the content of
      sulphur in our fuels and a higher average international price for gasoline
      and diesel.




·
            Services
      contracted with associations, which are pro rata expenses for our joint
      ventures, increased to Ps$1,202,435 million in 2008 as a result of an
      increase in exploration activities and increases in the price of oil
      services as a result of a worldwide increase in demand for oil
      services.  In 2007 compared to 2006, joint venture expenses
      increased to Ps$1,019,043 million as a result of an increase in our
      exploration and maintenance
activities.


71




·
            Labor
      costs in 2008 as compared to 2007 increased as a result of increases in
      wages, labor benefits and bonuses paid as part of our personnel retention
      policies and an increase in the number of our employees who are eligible
      to receive these benefits.  Labor costs in 2007 compared to 2006
      increased as a result of higher wages, labor benefits and bonuses paid as
      part of our personnel retention
policies.




Principal
elements of our cost of sales by business segments are as follows:




Production
segment’s cost of sales




Cost of
sales affecting our production segment are mainly cost of sales of purchases of
crude oil and natural gas volumes from the ANH, purchases of crude oil and
natural gas from other oil companies to meet our supply commitments and services
contracted with joint venture partners.  Our production segment’s cost
of sales are also affected by the depreciation and amortization of production
assets and the depletion of hydrocarbon reserves that have reverted to us from
concessions.




Refining
segment’s cost of sales




Cost of
sales affecting our refining segment are primarily for the purchase of crude oil
and natural gas to upload and feed the refineries, services contracted for the
maintenance of the refineries, and amortization and depreciation of refining
assets.




Transportation
segment’s cost of sales




Cost of
sales affecting our transportation segment are:  depreciation and
amortization of our transportation assets and project costs, which relate to
costs associated with the maintenance of transportation networks and
construction and conversion of existing pipelines to the transportation of heavy
crude oil.




Operating
expenses




Our
operating expenses increased in 2008 compared to 2007 as well as in 2007
compared to 2006, as a result of the following factors:




·
            Studies
      and projects in 2008 compared to 2007 and compared to 2006 increased as a
      result of higher maintenance expenses for production projects, an increase
      in developed wells inversion and accounting for dry wells and exploration
      costs.




·
            Oil
      pipeline transportation tariff payments increased in 2008 compared to 2007
      as a result of higher volume transported and maintenance of back-up
      product pipelines, offset in part by a decrease in
  tariffs.




Our
operating expenses by business segments increased in 2008 compared to 2007 and
in 2007 compared to 2006.  Such expenses by business segment are
described below.




Exploration
segment’s operating expenses




Operating
expenses affecting our exploration segment are primarily for studies and
projects, which correspond to expensing dry wells and labor expenses in
connection with salaries and benefits paid to personnel assigned to our
exploration segment.




Production
segment’s operating expenses




Operating
expenses affecting our production segment are related to depreciation and
amortization of assets dedicated to production activities, studies and projects
relating to production of crude oil and natural gas and labor expenses relating
to salaries and benefits paid to personnel assigned to our production
segment.


72




Refining
segment’s operating expenses




Operating
expenses affecting our refining segment are primarily for labor expenses
relating to salaries and benefits paid to personnel assigned to our refining
segment.




Transportation
segment’s operating expenses




Operating
expenses affecting our transportation segment are primarily for transportation
tariffs paid in connection with crude oil and natural gas transportation and
labor expenses relating to salaries and benefits paid to personnel assigned to
our transportation segment.




Non-operating
income (expenses)




The
following table sets forth our non-operating income (expenses) for the years
ended December 31, 2008, 2007 and 2006.




At December 31,2008
              
              
              2007
              
              
              2006(Pesos in millions)Non-operating income(expenses):Financial
      income, net
              
              
              4,101,252
              
              
              
              93,628
              
              
              
              683,436Pension
      expenses
              
              
              (1,144,925
              )
              
              
              (1,090,343
              )
              
              
              (829,191
              )Inflation
      gain
              
              
              30,473
              
              
              
              41,132
              
              
              
              56,166Other
      income (expenses), net
              
              
              369,103
              
              
              
              (910,950
              )
              
              
              344,899





Financial income,
net.  Financial income, net, includes foreign exchange gains,
valuation of investments, dividends received and profit from sale of
investments.  Financial income, net increased significantly in 2008
when compared to 2007 mainly due to a net exchange gain and an increase in net
income from the valuation of our investment portfolio.  In 2007,
financial income, net decreased when compared to 2006 mainly as a result of our
holding a large portion of our investments in U.S. dollar denominated
securities.  The yield on these securities decreased as a result of
the reduction of interest rates in the United States and the appreciation of the
average exchange rate of the Peso against the U.S. dollar.




Pension
expenses.  Pension expenses increased by 5% in 2008 compared to
2007, principally due to an increase of 5.69% in monthly pension payments;
salary increases of 6.53% (pension benefits are affected by salary
levels).  Pension expenses increased by 31% in 2007 compared to 2006
principally due to increases of 5.69% in monthly pension payments; salary
increases of 6.53% (pension benefits are affected by salary levels) and
increases in health services per beneficiary of 22% as this service was
contracted with a third-party in 2007 while it was provided internally in
2006.




Other income (expenses),
net.  Other income (expenses), includes BOMT expenses, recovery
of provisions, other revenues and other recoveries.  Other expenses
include legal and other provisions and taxes unrelated to income.




Other
income (expenses) increased in 2008 as compared to 2007 mainly due to an
increase in the recovery of provisions for legal proceedings and to lower
provision expenses in 2008.




Other
income (expenses) increased in 2007 compared to 2006 as a result of higher
provisions for legal proceedings as a result of a new accounting rule issued by
CGN, which provided that a provision was to be recorded for a contingent event
if the outcome was considered to be probable.  The term probable, as
used in the rule, has been interpreted in practice under Colombian Government
Entity GAAP to mean more-likely-than-not.  As a result, the provision
for legal proceedings included in Estimated Liabilities and Provisions was
increased by Ps$951,158 million during 2007 to reflect the implementation
of the new rule.  Prior to September 5, 2007, under Colombian
Government Entity GAAP, a provision was recorded for a contingent event at the
time a judgment was issued against us, without reference to the evaluation of
the outcome.  The principal portion of the increase related to
contingencies that were in existence at the date of the rule
change.  See Note 28 to our consolidated financial
statements.


73




Income
before income tax




Income
before income taxes increased by 126.6% in 2008, compared to 2007, and by 44.5%
in 2007 compared to 2006, as a result of higher revenue due to a higher average
price of crude oil without a comparable increase in cost of sales and operating
expenses.




Income
tax




The
effective income tax rate for 2008 was 27.3%, compared to 26.7% in 2007 and
30.7% in 2006.  Our effective tax rates were lower than the statutory
rate as a result of tax benefits mainly related to an income tax deduction equal
to 30% of all capital expenditures in 2006 that was increased to 40% for 2007
and subsequent years.




Net
Income




As a
result of the foregoing, net income increased by 124.5% in 2008, compared to
2007, and by 52.7% in 2007 when compared to 2006.




Principal
differences between Colombian Government Entity GAAP and U.S.
GAAP




We
prepare our financial statements in accordance with Colombian Government Entity
GAAP.  These principles and regulations differ in certain significant
respects from U.S. GAAP.  The following is a description of the most
relevant differences between Colombian Government Entity GAAP and U.S.
GAAP.  Note 33 to our consolidated financial statements presents
reconciliations of net income and shareholders’ equity determined under
Colombian Government Entity GAAP to those same amounts as determined according
to U.S. GAAP, as well as a complete description of the differences between the
two accounting standards.  The principal differences between Colombian
Government Entity GAAP and U.S. GAAP are as follows:




FAEP




Under
Colombian Governmental Entity GAAP, contributions to FAEP were recorded as
increases to deferred income and an asset account for the same
amount.  No revenue was recognized for contributions to
FAEP.  Distributions from the FAEP to us were recorded as ordinary
revenue with corresponding decreases in the deferred income and the FAEP asset
accounts.




Under
U.S. GAAP, the FAEP amount is recognized as current income and not as deferred
income.  U.S. GAAP requires us to recognize the FAEP as revenue
even though it was a Government savings program with the purpose of maintaining
macro-economic stability in the country.  Therefore, the amounts
recognized as current income under U.S. GAAP had the effect of increasing
retained earnings and when the distribution of the amounts deposited in the FAEP
was made by us to the Government in August 2007, for U.S. GAAP purposes,
the distribution was treated as a dividend payment to the sole
shareholder.




Advances
received from Ecogás for BOMT Contracts (Build, Operate, Maintain and
Transfer)




Under
Colombian Government Entity GAAP, payment obligations under the BOMT contracts
were treated as equivalent to an operating lease.  Under U.S. GAAP the
obligations are treated as capital leases, and an asset and liability were
recognized and payments under the BOMT contracts serve to reduce the liability
and the asset is depreciated.  Subsequently, we subleased the same
asset to Ecogás, with the corresponding treatment of the payments receivable
from Ecogás as direct financing lease for U.S. GAAP purposes.




Contributions
in kind




Under
Colombian Government Entity GAAP, contributions of the Nation in kind (the
produced reserves) pursuant to Decree 2625 of 2000 were recognized as a cost of
production during the years Decree 2625 was in force and a contribution to
equity.  Under U.S. GAAP, costs associated with these contributions
were reversed to reflect retained earnings that were later distributed to the
Nation as a stock dividend.


74




Reversal
of concessions




Under
Colombian Government Entity GAAP, we recorded an asset for the contributions of
the Nation of crude oil and natural gas reserves deriving from the reversal of
concessions of oilfield areas in favor of the Nation, given before the
effectiveness of Decree 1760 of 2003. Reserves were valued by means of the
technical-economic model where the value per barrel resulted from the relation
of the net present value obtained at a discount rate and the total proved
reserves on the contribution date. For U.S. GAAP purposes, these reversions were
considered a transfer of assets between entities under common control. Ecopetrol
as the entity that received the net assets, should have initially recognized the
assets transferred at their carrying amounts in the accounts of the transferring
entity at the date of transfer, which in this case is zero as the transferring
entity did not recognize a carrying value.




Reserves




Under
Colombian Government Entity GAAP, as in effect for fiscal years ended December
2007 and 2006, the estimates for reserves at December 31, 2007 and 2006 were
prepared using average prices for each period. In contrast, U.S. GAAP requires
the calculation of reserves using year-end prices. As a result, the quantity of
estimated proved reserves for these two periods differs from the estimated
quantities of proved reserves in accordance with U.S. GAAP and SEC Rule 4-10 of
Regulation S-X. The main differences between Colombian Government Entity GAAP
and U.S. GAAP are presented in Note 33 to our consolidated financial
statements.




Effects
of inflation on financial information




The
accompanying consolidated financial statements have been prepared from the
accounting records, which are maintained under the historical cost convention,
modified since 1992 to comply with the legal provisions of the CGN to recognize
the effect of inflation on non-monetary balance sheet accounts until December
31, 2001, including equity. The CGN authorized us not to apply the inflation
adjustment system from January 1, 2002 onwards. The accumulated inflation
adjustments were eliminated in the process of reconciling our financial
statements to U.S. GAAP.




Valuation
surplus




Under
Colombian Government Entity GAAP, property, plant and equipment are revalued
every three years in accordance with market value and the investments in
unconsolidated investees are revalued by using the equity intrinsic value
(percentage of ownership of the company in the equity of the investee). The
excess of these amounts over the carrying amount is treated as valuation surplus
with a corresponding amount in equity (valuation surplus). Revaluation of these
assets is not done for purposes of U.S. GAAP.




Variable
interest entity




Under
Colombian Government Entity GAAP consolidation with significant subsidiaries is
required when there is control by having more than 50% ownership or majority of
the voting rights in the subsidiary. Under U.S. GAAP (FIN 46(R)) if an entity
has variable interests whereby one party absorbs losses or benefits from net
profits in excess of its ownership interest then those variable interests must
be evaluated. Under this analysis Ocensa represents a variable interest entity
of which we are the primary beneficiary and therefore we are required to
consolidate it in our financial statements for U.S. GAAP purposes. See Note 33
to our consolidated financial statements for a description of our
analysis.




Equity
method accounting




Under
Colombian Government Entity GAAP as in effect for fiscal years 2007 and 2006,
equity method is only applied when control exists. Under U.S. GAAP, equity
method is required for investments where significant influence exists (generally
ownership higher than 20%) but the investment is not controlled.




Under
Colombian Government Enity GAAP as in effect for fiscal year 2008, equity method
is applied for investments where significant influence exists but the investment
is not controlled. However, unlike U.S. GAAP, there is no 20% ownership
requirement.




75




Employee
benefit plans




There are
significant differences in the measurement of expense and balance sheet amounts
for employee benefit plans between Colombian Government Entity GAAP and U.S.
GAAP. See Note 33 to our consolidated financial statements.




Investment
securities




There are
significant differences in the measurement of expense and balance sheet amounts
for investments between Colombian Government Entity GAAP and U.S. GAAP. See Note
33 to our consolidated financial statements.




Provisions
- allowances and contingences




There are
significant differences in the measurement of expense and balance sheet amounts
for provisions - allowances and contingences between Colombian Government Entity
GAAP and U.S. GAAP. See Note 33 to our consolidated financial
statements.




ITEM
      5B
            Liquidity
      and Capital Resources




History




Prior to
our corporate transformation and initial public offering, the Government limited
our capital expenditure program and access to the credit markets as it was
making decisions for us based on its own budgetary needs and concerns and not on
the growth prospects of the Company. Furthermore, we were required to make
macroeconomic stabilization payments to the FAEP, which negatively affected our
cash flow from the export of crude oil. As a result of our sale of shares to
private investors, we became a mixed economy company, which provides us
budgetary autonomy and access to credit markets.




Liquidity




Our
principal sources of liquidity in 2008 were cash flows from operations amounting
to Ps$11,792,900 million. In addition, we received Ps$832,919 million as a
result of additional shares bought by investors pursuant to the installment
option we offered during our initial public offering in Colombia, which took
place during the third quarter of 2007. Our principal uses of liquidity in 2008
were Ps$9,890,505 million in capital expenditures, which included investments in
natural and environmental resources and reserves, additions to our property,
plant and equipment and dividend payments for the fiscal year 2007 amounting to
Ps$4,654,340 million.




At
December 31, 2008, we had consolidated indebtedness of Ps$289,499 million, which
corresponded mainly to Propilco’s indebtedness of Ps$278,107.




For 2009,
major cash needs include planned capital expenditures amounting to approximately
Ps$14,315,200 million, of which Ps$2,295,400 million correspond to exploration
activities and acquisition of reserves, Ps$6,244,500 million correspond to
production activities, Ps$1,872,200 million correspond to refining activities,
Ps$1,375,400 million for transportation activities, Ps$526,700 million for other
capital expenditures, Ps$2,001,000 for acquisitions and Ps$8,122,918 million for
dividend distributions. In addition, we use cash to finance the Government’s
motor fuel subsidy program for which the Government reimburses us in cash. Under
current market conditions, we expect our existing and anticipated working
capital and capital expenditure requirements to be met through our cash flows
from operations and through debt proceeds raised in the local and international
financial markets.




We
recently entered into a Ps$2,200 billion (approximately US$1 billion) syndicated
loan facility with a syndicate of local banks in May 2009. This loan facility
has a term of seven years with a two year grace period. The interest rate under
the facility equals the fixed term deposit rate (DTF) plus an additional 4% (the
anticipated quarterly interest rate). Amortization is bi-annual under the loan.
In addition, as guarantee for the loan, we pledged our stock in Refinería de
Cartagena S.A. (Reficar), Oleoducto Central S.A. (Ocensa) and Propileno del
Caribe (Propilco). We intend to use the proceeds from this loan to finance our
strategic plan.




76




In
addition, ODL, our indirect Panamanian subsidiary, through its Colombian branch
office, Oleoducto de los Llanos Orientales Sucursal Colombia, entered into a
Ps$520,000 million (approximately US$200 million) loan facility with Banco de
Bogota S.A., Banco de Occidente S.A., Banco Popular S.A. and Banco AV Villas
S.A., which together comprise the Grupo Aval, in March 2009. This loan
facility has a term of five years. The interest rate under the facility equals
the fixed term deposit rate (DTF) plus an additional 5% (the anticipated
quarterly interest rate). The principal amount will be amortized in 17 equal
quarterly payments, beginning in June 2010. In addition, as guarantee for the
loan, Oleoducto de los Llanos Orientales Sucursal Colombia pledged its economic
rights to the finance tariffs included in its Ship-or-Pay Contracts. Oleoducto
de los Llanos Orientales Sucursal Colombia intends to use the proceeds from this
loan to finance part of the Rubiales pipeline described in Item 4B – “Business
Overview – Transportation – Pipelines – Oleoducto de los Llanos Orientales”
above.
  Use
of Funds
  Capital
Expenditures
  The
following table sets forth our consolidated capital expenditures for each of our
business segments for 2008, 2007 and 2006.
  For
      the Year ended December 31,2008
                
                
                2007
                
                
                2006(Pesos
      in millions)Exploration
      & production
                
                
                4,911,487
                
                
                
                2,678,684
                
                
                
                1,309,361Refining
      and Petrochemicals
                
                
                776,080
                
                
                
                234,462
                
                
                
                435,498Transportation
                
                
                939,996
                
                
                
                92,344
                
                
                
                72,765Corporate
                
                
                69,483
                
                
                
                23,760
                
                
                
                40,784Marketing
      and Supply
                
                
                7,549
                
                
                
                31,472
                
                
                
                45,310Total
                
                
                6,704,595
                
                
                
                3,036,962
                
                
                
                1,862,934
 
 Our
2008-2015 budget capital expenditure is approximately US$57.7 billion
distributed by business segment. See Item 4B — “Business Overview —
Strategy”.
  We plan
to meet our budgeted capital expenditures for the next two to three years mainly
through existing cash on hand and cash from operating activities. We also expect
to access local and international financial markets to fund part of our capital
expenditures. Furthermore, we may decide to access the equity markets through
the issuance of an additional 9.9% of our common stock as authorized by law 1118
of 2006.
  Cash
from operating activities
  Net cash
provided by operating activities increased by 19.2% in 2008 compared to 2007 and
by 54.8% in 2007 compared to 2006 as a result of an 80.3% and a 23.8% increase
in sales of crude oil and natural gas in 2007 and 2006, respectively as a result
of an 82% and 59% increase in the export price of crude oil in 2007 and
2006.
  Cash
used in investing activities
  Net cash
used in investing activities increased in 2008 compared to 2007 and to 2006 as a
result of the need to finance our exploration and production activities
necessary to maintain our current crude oil production levels. We invested
heavily in 2008 in the development of mature fields, drilling campaigns and
participations in new exploratory fields.
  Cash
used in financing activities
  Net cash
provided by financing activities decreased in 2008 compared to 2007 as a result
of the decrease in cash received from our initial public offering in Colombia in
2007 which did not reoccur in 2008. Net cash used in financing activities in
2007 compared to 2006 increased as a result of our initial public offering in
Colombia, partially offset by the dividend payment to our
shareholders.
  77
  Dividends
  In 2008,
we paid dividends of Ps$4,654,340 million to our shareholders, including the
Nation. On March 26, 2009, our shareholders at the ordinary general
shareholders’ meeting approved dividends for the fiscal year ended December 31,
2008 amounting to Ps$8,122,917 million, divided into an ordinary dividend of
Ps$115.00 per share and an extraordinary dividend of Ps$105.00 per share, based
on the number of outstanding shares at December 31, 2008. Dividends declared
will be paid in three installments. The first payment was made in April, the
second dividend payment will be made in August and the third dividend payment
will be made in December.
  ITEM
      5C
              Research
      and Development, Patents and Licenses,
etc.
  Our
research and development activities are conducted by the Instituto Colombiano de
Petróleos or the Institute, our research and development unit. Our
activities are focused on developing technology solutions for us and the
Colombian oil industry, and development of technical tests and analyses to
evaluate our business. Our research and development increased during the last
three years to approximately Ps$93 billion in 2008, from approximately Ps$65
billion in 2007 and approximately Ps$54 billion in 2006.
  The
Institute has 29 locations and 21 research and development laboratories. During
2008 our research and development laboratories rendered services to other
companies including Shell, British Petroleum, Exxon Mobil as well as the
ANH.
  We
currently own 17 patents in Colombia, United States, Venezuela, Ecuador and
Brazil. In 2008, we filed for 15 new patents, eight of them in Colombia and
seven new patents abroad. One of our most significant patents is an anti-theft
patent which allowed us to reduce fuel oil and crude oil theft by 31% in 2008
when compared to 2007. Most of our patents will expire between 2015 and
2017.
  ITEM
      5D
              Trend
      Information
  See Item
5 — “Operating and Financial Review and Prospects — Overview”
  ITEM
      5E
              Off-Balance
      Sheet Arrangements
  Under
Colombian Government Entity GAAP we do not have any off-balance sheet
arrangements. Under U.S. GAAP Oleoducto Central S.A. is a variable interest
entity pursuant to FIN 46 and has been included in our consolidated results. See
Note 33 to our consolidated financial statements for a description of our
treatment of Oleoducto Central S.A. under U.S. GAAP.
  ITEM
      5F
              Tabular
      Disclosure of Contractual
Obligations
  Contractual
Obligations
  We enter
into various commitments and contractual obligations that may require future
cash payments. The following table summarizes our contractual obligations at
December 31, 2008.
  Payments
      due by periodLess
      than 1
                
                
                1-3
                
                
                3
      to 5
                
                
                More
      than
                  5Total
                
                
                year
                
                
                years
                
                
                years
                
                
                years(Pesos
      in millions)Contractual
      Obligations:Pension
      Plan Obligations
                
                
                19,907,143
                
                
                
                546,649
                
                
                
                1,235,993
                
                
                
                1,351,925
                
                
                
                16,772,576Contract
      Service Obligations
                
                
                2,505,385
                
                
                
                883,561
                
                
                
                1,470,298
                
                
                
                79,601
                
                
                
                71,924Operating
      Lease Obligations
                
                
                11,142
                
                
                
                6,813
                
                
                
                4,329
                
                
                
                0
                
                
                
                0Natural
      Gas Supply Agreements
                
                
                2,924,937
                
                
                
                300,950
                
                
                
                955,391
                
                
                
                951,010
                
                
                
                717,586Oil
      Transport Agreements
                
                
                6,576
                
                
                
                6,576
                
                
                
                0
                
                
                
                0
                
                
                
                0Energy
      Supply Agreements
                
                
                1,227,950
                
                
                
                178,714
                
                
                
                958,024
                
                
                
                44,200
                
                
                
                47,012Capital
      expenditures
                
                
                338,441
                
                
                
                275,284
                
                
                
                63,157
                
                
                
                0
                
                
                
                0Build,
      Operate, Maintain and Transfer contracts (BOMT)
                
                
                1,040,199
                
                
                
                197,340
                
                
                
                415,238
                
                
                
                200,917
                
                
                
                226,705Capital
      (Finance) Lease obligations
                
                
                438,058
                
                
                
                25,431
                
                
                
                74,554
                
                
                
                72,188
                
                
                
                265,885Total
                
                
                28,399,831
                
                
                
                2,421,318
                
                
                
                5,176,984
                
                
                
                2,699,842
                
                
                
                18,101,687
  78
  Critical
accounting policies and estimates
  The
following discussion sets forth our critical accounting policies. Critical
accounting policies are those policies that require us to exercise the most
judgment or involve a higher degree of complexity in the application of the
accounting policies that currently affect our financial condition and results of
operations. The accounting estimates we make in these contexts require us to
calculate variables and make assumptions about matters that are highly
uncertain. In each case, if we had made other estimates, or if changes in the
estimates occur from period to period, our financial condition and results of
operations could be materially affected. This information should be read
together with Note 1 to our consolidated financial statements for a summary of
the economic entity and principal accounting policies and practices. There are
many other areas in which we use estimates about uncertain matters, but the
reasonably likely effect of changed or different estimates is not material to
our financial presentation.
  Oil
and gas reserves
  When
accounting for our reserves we use a similar method to the internationally
recognized “successful efforts” method of accounting for investments in
exploration and production areas. These investments are amortized using the
technical units-of-production method on the basis of proved developed reserves
by field. The reserves are based on technical studies prepared internally by our
Department of Reservoirs and approved by our reserves committee, which follow
estimation methodologies recommended by international organizations of
specialists in hydrocarbon reserves and that in accordance with their
certification meet the guidelines followed by the SEC.
  Oil and
gas reserves are divided between proved and unproved reserves. Proved reserves
are estimated quantities of crude oil, natural gas and natural gas liquids that
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved reserves can also be divided in two categories:
developed and undeveloped. Developed proved reserves are expected to be
recovered from existing wells including line pack, or when the costs necessary
to put them in production are relatively low. For undeveloped proved reserves,
significant investments are necessary, including drilling new wells and
installing production or transportation facilities.
  The
estimation of hydrocarbon reserves is subject to several uncertainties inherent
to the determination of proved reserves, production recovery rates, the
timeliness with which investments are made to develop the reservoirs and the
degree of maturity of the fields.
  Under
Colombian Government Entity GAAP as in effect for fiscal years 2007 and 2006, we
used the average WTI reference price to estimate our total reserves. Under
Colombian Government Entity GAAP as in effect for fiscal year 2008, we used the
year-end WTI reference price to estimate our total reserves. Required
investments are based on technical and financial conditions for the field at the
time reserves are estimated. For U.S. GAAP purposes, we used the WTI year end
price.
  Crude oil
prices have traditionally fluctuated as a result of a variety of factors such as
changes in international prices of natural gas and refined products, long-term
changes in the demand for crude oil, natural gas and refined products,
regulatory changes, inventory levels, increase in the cost of capital, economic
conditions, development of new technologies, economic and political events, and
local and global demand and supply.
  79
  Revisions
to proved reserves estimates of crude oil and gas and the effect of such price
variations are presented in Note 33.xxviii to our consolidated financial
statements. Changes in the crude oil price may affect our estimates in the
future.
  The
calculation of units-of-production depreciation and depletion is a critical
accounting estimate that measures the depreciation and depletion of upstream
assets. The units of production are equal to the ratio of actual volumes
produced to total proved developed reserves (those proved reserves recoverable
through existing wells with existing equipment and operating methods) and
applied to our asset cost.
  Financial
derivative instruments
  Occasionally
we enter into hedging agreements to protect our exposure from the fluctuations
of international crude prices. The difference between amounts paid and income
received under hedging operations is recognized as financial income/expense. We
do not enter into hedging contracts for speculative purposes.
  Under
Colombian Government Entity GAAP, our estimates are based on current spot prices
subject to market variations. The differences between our estimates and current
payments have been immaterial. We do not foresee material variations in the near
future that may significantly impact our financial condition or results of
operations. Our transactions with financial derivatives have not been
significant during the last three years.
  Under
U.S. GAAP, we used fair values to measure our financial derivative instruments.
Fair values were based on market quotes. There have not been material variations
between fair values that have impacted significantly our financial condition or
operating performance in the past.
  Pension
plans and other retirement benefits
  The
determination of the expense and liability relating to our pension and other
retirement benefits require us to use judgment in the determination of actuarial
assumptions. These include active employees with indefinite term contracts,
retirees and their heirs, pension benefits, healthcare and education expenses;
number of temporary employees who will remain with us until retirement,
voluntary retirement plans and pension bonuses. The calculation of retirement
bonds posted by us to meet our pension obligations is regulated by Decrees 1748
of 1995, 1474 of 1997 and 876 of 1998, as well as Law 100 of 1993 and its
regulatory decree.
  These
actuarial assumptions include estimates of future mortality, withdrawal, changes
in compensation and discount rate to reflect the time value of money as well as
the rate of return on pension bonds and other plan assets. These assumptions are
reviewed at least annually and may differ materially from actual results due to
changing market and economic conditions, regulatory events, judicial rulings,
higher or lower withdrawal rates or longer or shorter life spans of
participants.
  Most of
our assumptions have been based on historical trends. Actuarial gains and losses
a result of differences between estimates and actual calculations and
differences between Colombian Government Entity GAAP and U.S. GAAP are disclosed
in Note 33.vii to our consolidated financial statements. Changes in interest
rates and amendments to plan conditions have affected prior estimates. We
believe that the assumptions used in recording our obligations under the plans
are reasonable based on our experience and market conditions.
  Litigation
and tax assessments
  We are
subject to claims for substantial amounts, regulatory and arbitration
proceedings, tax assessment and other claims arising in the normal course of
business. Management and legal counsel evaluate these situations based on their
nature, the likelihood that they materialize, and the amounts involved, to
decide on any changes to the amounts accrued and/or disclosed. This analysis
includes current legal processes against the company and claims not yet
initiated. In accordance with management’s evaluation and guidance provided by
Colombian Government Entity GAAP, we created reserves to meet these costs when
it is probable that a liability has been incurred and reasonable estimates of
the liability can be made. At December 31, 2008, we had created a provision of
Ps$551,224 million for litigation contingencies. We also maintain insurance
policies to cover specific operational risks and asset protection.
  80
  Estimates
are based on legal counsel’s evaluation of the cases and management’s judgment.
In the past our estimates have been accurate and have not varied substantially
compared to final judgments. We believe that payments required to settle the
amounts related to the claims, in case of loss, will not vary significantly from
the estimated costs, and thus will not have a material adverse effect on our
results of operations or cash flows. Litigation and tax assessment differences
between Colombian Government Entity GAAP and U.S. GAAP are disclosed in Note 33
to our consolidated financial statements.
  Income
taxes are accounted for under the assets and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the carrying amounts of existing assets and
liabilities in the financial statements and their respective tax base. Deferred
taxes on assets and liabilities are calculated based on statutory tax rates that
we believe will be applied to our taxable income during the years in which
temporary differences between the carrying amounts are expected to be
recovered.
  Abandonment
of fields
  We are
required by law to remove equipment and restore the land or seabed at the end of
operations at production sites. To estimate this obligation, we include plugging
costs and abandonment of wells, dismantling of facilities and environmental
recovery of areas and wells. Changes resulting from new estimates of the
liability for abandonment can occur as a result of changes in economic
conditions. We accrue the estimated discounted costs of dismantling and removing
these facilities at the time of installation of the assets. The related
liability is estimated in foreign currency and is adjusted for exchange
difference at the end of each year.
  We use
economic factors from different sources and develop our own internal estimates
of future inflation rates and discount rates. There have not been significant
disparities between estimates and asset retirement costs paid. We believe that
the assumptions used in recording our asset retirement costs and obligations are
reasonable based on our experience and market conditions.
  Differences
between Colombian Government Entity GAAP and U.S. GAAP are disclosed in Note 33
to our consolidated financial statements.
  Recognition
and measurement of assets recognized and liabilities assumed upon business
combinations
  Under
U.S. GAAP, we account for businesses acquired using the purchase method of
accounting which requires that the assets acquired and liabilities assumed be
recorded at the date of acquisition at their respective fair values. The
application of the purchase method requires certain estimates and assumptions
especially concerning the determination of the fair values of the acquired
intangible assets, property, plant and equipment as well as the liabilities
assumed at the date of the acquisition. In addition, the useful lives of the
acquired intangible assets, property, plant and equipment have to be determined.
The judgments made in the context of the purchase price allocation can
materially impact our future results of operations. Accordingly, for significant
acquisitions, we obtain assistance from third-party valuation specialists. The
valuations are based on information available at the acquisition date and
different methodologies are used for each intangible identified
above.
  Goodwill
  Under
U.S. GAAP, Ecopetrol tests goodwill for impairment at least annually using a
two-step process that begins with an estimation of the fair value of a reporting
unit. The first step is a screen for potential impairment and the second step
measures the amount of impairment, if any. However, if certain criteria are met,
the requirement to test goodwill for impairment annually can be satisfied
without a re-measurement of the fair value of a reporting unit. Fair value is
determined by reference to market value, if available, or by a qualified
evaluator or pricing model. Determination of a fair value by a qualified
evaluator or pricing model requires management to make assumptions and use
estimates. Management believes that the assumptions and estimates used are
reasonable and supportable in the existing market environment and commensurate
with the risk profile of the assets valued. However, different assumptions and
estimates could be used which would lead to different results. In 2008, the most
significant amounts of goodwill relate to the acquisitions of Propilco, Comai
and Bioenergy. The valuation models used to determine the fair value of these
companies are sensitive to changes in the underlying assumptions. For example,
the prices and volumes of product sales to be achieved and the prices which will
be paid for the purchase of raw materials are assumptions which may vary in the
future. Adverse changes in any of these assumptions could lead us to record a
goodwill impairment charge.
  81
  ITEM
      5G
              Safe
      Harbor
  See —
“Forward Looking Statements.”
  ITEM
      6
              Directors,
      Senior Management and Employees
  ITEM
      6A
              Directors
      and Senior Management
  The
information below sets forth the names and business experience of each of our
Directors, officers and senior management, as of the date hereof.
  Directors
of Ecopetrol
  The
following are our current Directors as elected at the shareholders’ meeting held
on March 26, 2009:
  Hernan Martínez(67) has been a member of our Board of
Directors since September 25, 2006. Mr. Martínez has served as Minister of Mines
and Energy of Colombia since 2006. Prior to holding this position, Mr. Martínez
worked as Manager of Corporate Planning for Esso Colombiana S.A.; President of
International Colombia Resources Corporation; President of Exxon Mobil Colombia
S.A., and as representative of the President of Colombia before the ANH. He has
been a member of various Boards of Directors, including Carton Colombia S.A.,
Empresa de Interconexión Eléctrica S.A. ESP, Transmisión Eléctrica S.A. and
Inversura S.A. Mr. Martinez earned a degree in chemical engineering from
Universidad Pontificia Bolivariana and obtained a specialization degree in
petroleum management from Northwestern University. Mr. Martínez was appointed as
a director by the Nation.
  Oscar I. Zuluaga (50) has
been a member of our Board of Directors since March 26, 2007. Mr. Zuluaga has
served as Minister of Finance of Colombia since 2007. From 1988 to 1990, Mr.
Zuluaga was a member of the Council of Pensilvania (Caldas-Colombia), and in
1990 became the Mayor of this municipality. He served in the Senate of Colombia
from 2002 to 2004. He is a founding member of the “U” Political Party, and
served as the Advisor Minister for the Office of the President of Colombia in
2006. Mr. Zuluaga was also a Vice-President and President of Acerías de Colombia
S.A. from 1992 to 2001. Mr. Zuluaga has been a member of the Board of Directors
of Banco de la Republica – Colombia’s central bank, Fenalco or Federación Nacional de
Comerciantes, Fedemetal, and the Colombo-Venezuelan Chamber of Commerce.
Mr. Zuluaga earned a degree in economics from Pontificia Universidad Javeriana
and a master’s degree in public finance from Exeter University, England. Mr.
Zuluaga was appointed as a director by the Nation.
  Esteban Piedrahíta (38) has
been a member of our Board of Directors since May 2009. Mr. Piedrahíta has
served as Director of the National Planning Agency of Colombia since May 4,
2009. He has worked for the Inter-American Development Bank and the Colombian
Embassy in Washington. He has also held positions at Poder Magazine, Semana Publishing House,
Estartegias Corporativasand Salomon Brothers
Inc. Mr. Piedrahíta earned a degree in economics from Harvard University
and a master’s degree with honors in Philosophy and Science History from the
London School of Economics and Political Science. Mr. Piedrahíta was appointed
as a director by the Nation.
  Fabio Echeverri (76) has been
a member of our Board of Directors since September 16, 2002. From 1957 to 1962,
Mr. Echeverri worked as the President of Banco de Colombia and Banco Comercial
Antioqueño. Since then, he has held various positions in the private and public
sectors, serving as President of Siderurgica de Medellin, Director of ANDI
(National Association of Industries), AILA (Latin American Association of
Industries) and CONANDI (Andean Confederation of Industries), and as a member of
the Inter-American Council of Commerce and Production, a position that he held
for over 18 years. Mr. Echeverri is currently a member of the Board of Directors
of the Shaio Clinic, Telecom-Colombia and Firogríficos Ganaderos de Colombia
S.A. During his career, Mr. Echeverri has been a chairman of the Board of
Directors of Fondo Ganadero de Antioquia; and chairman of the board of Siemens
S.A., among others. Mr. Echeverri earned degrees in economics from Gimnasio
Moderno and Universidad Jorge Tadeo Lozano. Mr. Echeverri was appointed as an
independent director by the Nation.
  82
  Joaquin Moreno (60) has been
a member of our Board of Directors since March 27, 2008. Mr. Moreno worked for
33 years for the Royal Dutch/Shell Group. He held various positions such as
Project Manager in Colombia; Project and Operations Manager and Marketing and
Operations Manager of Shell Química de Venezuela; Director of Marketing for
agrochemical products and Global Marketing Manager for petrochemical products at
Shell Centre–Shell International Chemicals Company in London; Director of Shell
Venezuela S.A.; Director of Shell Colombia S.A. and Director of Cerromatoso
S.A., and Strategic Planning Director for Exploration and Production in Europe
and the Middle East at the Shell offices in the Netherlands. Mr. Moreno has also
served as Country Chairman and President for Shell in Mexico, Colombia and
Venezuela. Mr. Moreno has been a member of various Boards of Directors of local
and international companies. Mr. Moreno earned a degree in civil engineering
from Universidad Industrial de Santander and completed a program in advanced
management at Harvard University. He was appointed as an independent director by
the Nation.
  Ignacio Sanín (61) has been a
member of our Board of Directors since September 16, 2002. Mr. Sanín is
currently the managing partner of the law firm Ignacio Sanín Bernal & Cia,
Asociados. Mr. Sanín is a recognized professor of law having taught in various
universities in Colombia at the undergraduate and postgraduate levels. Mr. Sanín
earned a law degree and a degree in political science from Universidad
Pontificia Bolivariana.
He has completed postgraduate studies in commercial and tax law at the
Polytechnic School, London School of Economics and King’s College in London. He
obtained a master’s degree in private law and a master’s degree in commercial
law from Universidad Pontificia Bolivariana. Mr. Sanín was appointed as an
independent director by the Nation.
  Maria E. Velásquez (51) has
been a member of our Board of Directors since December 16, 2004. Mrs. Velásquez
has served as Vice- President of Tecnocquimicas S.A. since February 2008. Prior
to her current position, Mrs. Velásquez held the positions of Vice-President and
President of Imusa S.A. from 2002 to 2007. She has also held positions in
marketing at Andeco Ltda. and Diriventas Ltda. Mrs. Velásquez has been a member
of various Boards of Directors including those of the Colombian-American Chamber
of Commerce and the Chamber of Commerce of Medellin. Mrs. Velásquez earned a
business degree from Universidad de Medellin and specialization degrees in
marketing from Universidad EAFIT and management from Universidad de la Sabana.
Mrs. Velásquez was appointed as an independent director by the
Nation.
  Germán Bernal Gutiérrez(56)has been a member of
our Board of Directors since March 26, 2009. Mr. Bernal has served as General
Manager of Tecminas Ltda. and Tecniaéreas Ltda. He served as General Secretary
of the Ministry of Mines and Energy. He was appointed as Geoconsult ZT GMBH’s
(an Austrian company) Representative for Latin America and the Caribbean from
1997 to 2005. Since 1997, he has been a permanent advisor to Foster Engineering.
Mr. Bernal earned a mechanical engineering degree from Universidad Nacional de
Colombia, two specializations in high management and corporate communications
from Universidad de los Andes and Universidad de la Sabana, respectively. Mr.
Bernal served as advisor for the Economic Policy Council for the Pacific Rim
Countries in 1993. Mr. Bernal was appointed by the Nation as an independent
director representing the hydrocarbon production departments of
Colombia.
  Mauricio Cárdenas (47) has
been a member of our Board of Directors since March 27, 2008. Mr. Cárdenas has
served as the executive director of Fedesarrollo (Fundación para la Educación Superior
y el Desarrollo) since 2003. Mr. Cardenas served as President of Empresa
de Energía de Bogota in 1993. He left this position to become the Minister of
Economic Development of Colombia. He then worked as an investigator and
executive director of Fedesarrollo. In 1998, Mr. Cárdenas was appointed the
Minister of Transportation and later became the Director of the National
Planning Agency of Colombia. Mr. Cárdenas was also a visiting professor for the
Center of International Development at Harvard University from March to June
2001 and has held several positions as a researcher and professor at various
universities. Mr. Cárdenas has served as a member of the Board of Directors of
various organizations, including the Latin American and Caribbean Economic
Association, LACEA, Universidad de los Andes and the BVC. Mr. Cárdenas has
published various economic treatises, articles and research papers. Mr. Cárdenas
earned a degree and a master’s degree in economics from Universidad de los Andes
and later obtained a Ph.D. in economics from the University of California,
Berkeley. In accordance with the Declaration of the Nation dated July 26, 2007,
Mr. Cárdenas was appointed by the Nation as an independent director representing
the ten largest minority shareholders.
  None of
our Directors, or executive officers has any family relationship with any other
director or executive officer.
  83
  Officers
and Senior Management of Ecopetrol
  The
following presents information concerning our executive officers and senior
management.
  Javier G. Gutiérrez(58) has served as our
President and Chief Executive Officer since January 22, 2007. Prior to becoming
our CEO, Mr. Gutiérrez served as CEO of Empresa de Interconexión Eléctrica
S.A. ESPorISA
since 1992 where he started in the planning department in 1975. Mr. Gutiérrez
also worked as Vice-President of the Colombian Commission for Regional Electric
Integration from 1995 to 1997. In 2002, Mr. Gutiérrez received an award from the
Portafolio economic
journalas the “Best
Enterprise Leader in Colombia”. In 2005 the América Economía Journal granted Mr. Gutiérrez
an award of excellence and in the same year La República, a renowned
financial journal in Colombia, ranked Mr. Gutiérrez among Colombia’s top 10
executives. In 2008, Mr. Gutiérrez was recognized as the enterprise leader with
the best reputation in Colombia by the Spanish Monitor of Corporate Reputation
(MERCO). Mr. Gutiérrez earned a degree in civil engineering, a master’s degree
in industrial engineering from Universidad de los Andes and a specialization
degree in finance from Universidad EAFIT. Mr. Gutierrez has worked as a
part-time professor of statistics and research at Universidad de los Andes and
as a professor of operational research at UniversidadEAFIT.
  Adriana M. Echeverri
(38)joined us in
1994, and has served as our Chief Financial Officer since September 2006. Prior
to being appointed as our CFO, Mrs. Echeverri worked as Chief of the Finance and
Treasury Unit from September 2003 to September 2006. She earned a degree in
finance and foreign affairs and an MBA from Universidad Externado de
Colombia.
  Margarita Obregon (52)joined Ecopetrol in 2000 and
has served as the Secretary of the Board of Directors and as Chief to the
Support Office of the Chief Executive Officer since 2008. Prior to joining us,
Mrs. Obregon worked in the supply department of Previsora S.A: Compañía de Segurosand as legal advisor of lands for British Petroleum Company – BP in Alvaro Rengifo y Cia. Mrs.
Obregon also served as the head of the Business and Administration department of
the Fiduciaria del
Estado. Mrs. Obregon earned a law degree from Colegio Mayor de Nuestra
Señora del Rosario with specialization degrees in financial law and
administration law.
  Nelson Navarrete (47)has
served as our Exploration and Production Executive Vice-President since February
2008. Mr. Navarrete joined us in 1986. Prior to becoming our Exploration and
Production Executive Vice-President, he held several positions within the
operations department, such as Management Coordinator of the Cusiana oil field,
Director of Reserves & Production, Regional Manager of fields located in the
Piedemonte, and Chief
of Production. Mr. Navarrete earned a degree in petroleum engineering from
Universidad America and a master’s degree in petroleum engineering from Tulsa
University.
  Pedro A. Rosales (46)joined
us in 1989, and has served as our Downstream Executive Vice-President since
February 2008. Mr. Rosales is responsible for the following businesses:
refining, petrochemicals, transportation and logistics, marketing and
distribution, biofuels and gas. Mr. Rosales has held several positions in the
Company within the areas of maintenance, operations, projects, planning and
administration. Prior to becoming our Downstream Executive Vice-President, Mr.
Rosales served as our Vice-President of Transportation since January 2003 and as
our Chief Operation Officer since 2006. Mr. Rosales is a member of the board of
directors of Refinería de Cartagena S.A. (Reficar), Oleoducto Central S.A.
(Ocensa), Propileno del Caribe (Propilco) and Empresa de Energía de Bogotá
(EEB). Mr. Rosales earned a degree in mechanical engineering and an MBA from
Universidad de los Andes.
  Diego A. Carvajal (56)has served as our
Vice-President of Exploration since 2005. Mr. Carvajal has extensive technical
and managerial experience in projects of exploration and production of
hydrocarbons, both in Colombia and overseas. Former President of the Colombian
Association of Petroleum Geologists and Geophysicists, affiliated to AAPG. From
1984 to 1993, Mr. Carvajal worked as an Exploration Geologist for the Texas
Petroleum Company – TEXACO, and from 1993 to 2005 he worked as Exploration Team
Leader for the BP Exploration Co. Colombia Ltd. He joined Ecopetrol in 2005 as
our Vice-President of Exploration. Mr. Carvajal earned a degree in geology from
Universidad Nacional de Colombia.
  Alvaro E. Vargas (48)joined us in 1995 and has
served as our Vice-President of Strategy since 2006. Prior to becoming our
Vice-President of Strategy, Mr. Vargas served as Ecopetrol’s Chief of the
Budgetary Unit; Chief of the Finance and Treasury Unit; Financial Manager; and
Director of the Planning and Risk unit. Mr. Vargas earned a degree in economics
from Universidad de la Salle and has completed postgraduate studies in
management and economics from Universidad de los Andes and economics from the
University of London.
  84
  Federico Maya (44)has served
as our Vice-President of Refining and Petrochemicals since December 2005. Mr.
Maya has held various positions at Ecopetrol over the last 20 years, including
Marketing and Contract Coordinator for Ecopetrol’s Gas Department, member of the
Corporate Planning Directory, and Chief of Supply and Marketing. Mr. Maya earned
a degree in chemical engineering from Pontificia Universidad Bolivariana and a
specialization degree in marketing from Universidad EAFIT.
  Camilo Marulanda (30)joined us in 2003, and has
served as our Vice-President of Supply and Marketing since December 2005. He
worked for Procter & Gamble Colombia from August 2001 to February 2003 as
Category Manager. Mr. Marulanda was Chief of the Supply and Marketing department
since September 2003 and Director of the National Commercialization unit since
December 2004 and until December 2005. Mr. Marulanda earned a degree in
economics and a specialization degree in marketing from Universidad de los
Andes.
  Oscar Trujillo (49)has
served as our Vice-President of Transportation since February 2008. He has been
in the transportation unit at Ecopetrol for 24 years. Within this unit, Mr.
Trujillo has served as Chief of the Mid-Magdalena Technical Department, Chief of
the Mid-Magdalena Maintenance Department, and the Chief of the Northern Area
Operations Department of Pipelines. Prior to becoming our Vice-President of
Transportation, Mr. Trujillo served as the Refined Products Pipelines National
Manager. Mr. Trujillo earned a degree in civil engineering from Universidad de
Medellin, and obtained a master’s degree in management from Instituto
Tecnológico de Monterrey (TEC), Mexico.
  Gabriel Osorio (47) joined us
in 1986 and has served as Vice-President of Production since February, 2008. Mr.
Osorio has held several positions in Ecopetrol working as Manager of heavy crude
oils in the Central region; Regional Manager of the Cusiana and Cupiagua fields;
Manager of the Mid-Magdalena Valley Region and Chief of the joint venture
division, among others. Mr. Osorio earned a degree in petroleum engineering and
a specialization degree in reservoir engineering from Universidad Nacional de
Colombia and a master’s degree in Earth Resources Management from the University
of South Carolina.
  Oscar A. Villadiego (45)joined us in 1986, and has served as Vice-President of Services and
Technology since February 2008. He has held several positions in the Production
Vice-Presidency in such areas as the crude oil reserves, development and human
resources unit. He served as manager for the Central region for a period of 2.5
years, and as Technical Manager for the production Vice-Presidency for four
years. Mr. Villadiego earned a degree in Petroleum Engineering from Universidad
America in 1987.
  Mauricio Echeverry (53)joined us in November 1999, and has served as our General Counsel since
then. Mr. Echeverry held the positions of Dean, Associate Dean and Professor at
Universidad de los Andes Law School. He was also Colombia’s Deputy General
Prosecutor and Plenipotentiary Minister for Colombia’s Embassy in the U.S. Mr.
Echeverry earned a law degree and a specialization degree in commercial law from
Universidad de los Andes.
  ITEM
      6B
              Compensation
  The total
compensation paid to our Directors, executive officers and senior management
during 2008 amounted to Ps$7,674 million.
  The
compensation paid to our Directors for each ordinary and extraordinary Board
meeting in 2008 for in-person sessions was Ps$1,846,000 and for on-the-phone
sessions was Ps$923,000. This amount was paid under the authorization granted by
our shareholders at our annual shareholders’ meeting.
  Our
Directors are not eligible to receive pension and retirement benefits from us.
The total amount set aside to provide pension and retirement benefits to our
eligible executive officer totals Ps$9,556,649,171.
   85
  ITEM
      6C
              Board
      Practices
  Our Board
of Directors is composed of nine members and is responsible for, among other
things, establishing our general business policies. The members of the Board of
Directors are elected at the annual shareholders’ meeting for one-year terms and
may be reelected indefinitely. Pursuant to our by-laws, persons holding the
posts of Minister of Finance, Minister of Mines and Energy and Director of the
National Planning Agency are members of our Board of Directors. Our Directors
were elected on March 26, 2009. Our executive officers are appointed by our
Board of Directors.
  None of
the service contracts of any of our Directors contain provisions for benefits
upon termination of such director’s services.
  Pursuant
to our by-laws, our Board of Directors is divided in three committees of three
members each, an audit committee, an appointment and compensation committee, and
a corporate governance committee. The following table sets forth the current
members of our audit, appointment and compensation, and corporate governance
committees:
  Audit
      Committee(1)
                
                Nominating
      and Compensation
                    Committee
                
                Corporate
      Governance
                    CommitteeJoaquin
      Moreno
                
                Hernan
      Martínez
                
                Ignacio
      SanínMauricio
      Cárdenas
                
                Fabio
      Echeverri
                
                German
      Bernal GutierrezMaria
      E. Velásquez
                
                German
      Bernal Gutierrez
                
                Oscar
      Ivan ZuluagaIgnacio
      Sanín
 
 (1)
              All
      members of our audit committee must be
  independent.
  Audit
Committee
  Our audit
committee, comprised of four independent Directors, is the highest internal
control body of our company and provides support to our Board of Directors in
accounting and financial matters.
  Compensation
Committee
  Our
compensation and nominating committee, comprised of at least one independent
director, provides general guidelines for selection and compensation of our
executive officers.
  Corporate
Governance Committee
  Our
corporate governance committee, comprised of at least one independent director,
makes good corporate governance proposals to our Board of
Directors.
  Business
Committee
  In
December 2007, our Board of Directors established a Business Committee
which is comprised of five members.  This committee is responsible for
advising and consulting our Board of Directors in connection with new business
ventures.  The current members of this committee are Hernan Martinez,
Esteban Piedrahíta, Joaquin Moreno, Maria E. Velasquez and Mauricio
Cardenas.
  ITEM 6D
              Employees
  At
December 31, 2008 we had 6,517 employees.  Our employees are
regulated under either a collective bargaining agreement or under
Agreement 01 of 1997.  The collective bargaining agreement
governs the labor relations of our unionized
employees.  Agreement 01 of 1997 governs the labor relations of
our employees devoted to technical and trustworthy activities.  The
collective bargaining agreement and Agreement 01 of 1997 do not vary
significantly in benefits or economic benefits.  Employees hired
before January 29, 2003 have a special retirement plan and those hired
after January 29, 2003, are subject to Law 100 with respect to their
retirement scheme.
  86
  In 2008,
we modified our employee organizational structure.  As a result of
said reorganization, certain of our employees report directly to the Executive
Vice President of Exploration and Production while others are under the
supervision of the Executive Vice President of Downstream
Activities.
  As a
result of our corporate growth strategy, we increased our total number of
employees by 11.15% from 5, 863 in 2007 to 6,517 in 2008.  The table
below presents the number of employees and the average number of employees by
business segments for the years ended December 31, 2008, 2007 and
2006:
  December 2008(a)
                            
                            Direct Employees (full
time)
                            
                            
                            Direct Employees average(2)
                            
                            
                            Temporary EmployeesExploration
      and ProductionExploration
                            
                            
                            108
                            
                            
                            
                            100
                            
                            
                            
                            -Production
                            
                            
                            1,343
                            
                            
                            
                            1,305
                            
                            
                            
                            94Others
                            
                            
                            215
                            
                            
                            
                            124
                            
                            
                            
                            -Total
      Exploration and  Production
                            
                            
                            1,666
                            
                            
                            
                            1,529
                            
                            
                            
                            94DownstreamRefining
                            
                            
                            2,056
                            
                            
                            
                            1,991
                            
                            
                            
                            212Transport
                            
                            
                            580
                            
                            
                            
                            812
                            
                            
                            
                            65Marketing
                            
                            
                            141
                            
                            
                            
                            123
                            
                            
                            
                            0Others
                            
                            
                            14
                            
                            
                            
                            9
                            
                            
                            
                            0Total
      Downstream
                            
                            
                            3,061
                            
                            
                            
                            2,935
                            
                            
                            
                            277Corporate
                            
                            
                            1,790
                            
                            
                            
                            1,700
                            
                            
                            
                            130TOTAL(1)
                            
                            
                            6,517
                            
                            
                            
                            6,154
                            
                            
                            
                            501December  2007(b)
                            
                            Direct Employees (full
time)
                            
                            
                            Direct Employees average(2)
                            
                            
                            Temporary EmployeesExploration
      and ProductionExploration
                            
                            
                            100
                            
                            
                            
                            97
                            
                            
                            
                            8Production
                            
                            
                            1,278
                            
                            
                            
                            1,298
                            
                            
                            
                            85Others
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Total
      Exploration and Production
                            
                            
                            1,378
                            
                            
                            
                            967
                            
                            
                            
                            93DownstreamRefining
                            
                            
                            1,979
                            
                            
                            
                            1,936
                            
                            
                            
                            81Transport
                            
                            
                            762
                            
                            
                            
                            768
                            
                            
                            
                            23Marketing
                            
                            
                            113
                            
                            
                            
                            113
                            
                            
                            
                            9Others
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Total
      Downstream
                            
                            
                            2,854
                            
                            
                            
                            939
                            
                            
                            
                            113Corporate
                            
                            
                            1,631
                            
                            
                            
                            1,638
                            
                            
                            
                            114TOTAL(1)
                            
                            
                            5,863
                            
                            
                            
                            5,850
                            
                            
                            
                            320December 2006(c)
                            
                            Direct Employees (full
time)
                            
                            
                            Direct Employees average(2)
                            
                            
                            Temporary EmployeesExploration
      and ProductionExploration
                            
                            
                            95
                            
                            
                            
                            92
                            
                            
                            
                            8Production
                            
                            
                            1,269
                            
                            
                            
                            1,397
                            
                            
                            
                            94Others
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Total
      Exploration and Production
                            
                            
                            1,364
                            
                            
                            
                            746
                            
                            
                            
                            102DownstreamRefining
                            
                            
                            1,928
                            
                            
                            
                            1,972
                            
                            
                            
                            53Transport
                            
                            
                            753
                            
                            
                            
                            726
                            
                            
                            
                            20Marketing
                            
                            
                            113
                            
                            
                            
                            113
                            
                            
                            
                            11Others
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Total
      Downstream
                            
                            
                            2,794
                            
                            
                            
                            1,397
                            
                            
                            
                            84Corporate
                            
                            
                            1,643
                            
                            
                            
                            1,677
                            
                            
                            
                            117TOTAL(1)
                            
                            
                            5,801
                            
                            
                            
                            5,977
                            
                            
                            
                            303
 
 (1)
              At
      the last day of each month.
 (2)
              Averages
      are calculated on a monthly basis from January to December of
      each year.
 (a)
              60
      persons employed by us during 2008 were not included in our 2008 employee
      statistics as they were involved in intermittent, non-regular activities
      and do not classify as temporary
employees.
  87
  (b)
              211
      persons employed by us during 2007 were not included in our 2007 employee
      statistics as they were involved in intermittent, non-regular activities
      and do not classify as temporary
employees.
 (c)
              15
      persons employed by us during 2006 were not included in our 2006 employee
      statistics as they were involved in intermittent, non-regular activities
      and do not classify as temporary
employees.
  Labor
Unions
  We
currently have three industry-wide labor unions and one company labor
union:
  1.
              Unión
      Sindical Obrera de la Industria del Petróleo — USO (Industry labor
      union)
  2.
              Asociación
      de Directivos Profesionales, Técnicos y Trabajadores de las Empresas de la
      Rama de Actividad Económica del Recurso Natural del Petróleo y sus
      Derivados de Colombia — ADECO (Industry labor
  union)
  3.
              Sindicato
      Nacional de Trabajadores de Empresas Operadoras, Contratistas,
      Subcontratistas de Servicios y Actividades de la Industria del Petróleo y
      Similares — SINDISPETROL  (Industry labor
  union)
  4.
              Sindicato
      Nacional de Trabajadores de Ecopetrol — Sincopetrol (Company labor
      union)
  Our
employees and any employee working for a company in the oil and gas industry may
join the USO, ADECO or Sindispetrol.  Sincopetrol may only be joined
by our employees.
  In 2006,
we negotiated a new collective bargaining agreement with the USO.  As
a result of these negotiations we entered into a three-year collective
bargaining agreement with USO, ADECO and Sindispetrol.  The collective
bargaining agreement expired on June 8, 2009 but will remain in force until a
new agreement is reached.  Consensual negotiations on a new collective
bargaining agreement are expected to begin on July 14, 2009 and we expect that
they will extend until August 2009.  If an agreement has not been
reached by August 2009, the parties must submit themselves to arbitration in
order to reach a solution.  While failure or delays in reaching a new
collective bargaining agreement through consensual negotiations could result in
labor unrest, including a strike or work stoppages, we have developed a
contingency plan which should enable us to maintain our current levels of
production during any related strike or work stoppage.
  The
following are the most representative benefits of the agreement currently in
force:
  ·
              Transportation
      Subsidy.  Monthly transportation subsidy depends on the
      employee’s location and ranges between Ps$1,130 and
    Ps$78,454;
  ·
              Food
      Subsidy.  Daily food subsidy ranges between Ps$1,093 and
      Ps$8,485 depending on the employee’s
location;
  ·
              Lodging Subsidy. Monthly lodging
      subsidy to employees that do not own their own homes for
      Ps$179,908;
  ·
              Subsidy for
      Education.  Subsidy that covers 90% of tuition and board
      expenses and variable amounts for transportation, textbooks, lodging and
      food;
  ·
              Stability
      Clause.  Employees who as of December 1, 2004 had
      worked over 16 months cannot be fired without just
  cause;
  ·
              Retirement
      Benefit.  A retirement benefit is paid to our employees
      who meet the following requirements:  have worked for us for at
      least 20 years and have reached the specific retirement age.  In
      order for employees to be eligible to receive the benefit, the number of
      years working for us (in excess of 20), plus their age must be equal to or
      exceed 68 years in the case of women and 70 years in the case of
      men.  The retirement benefit paid is equal to 75% of the average
      compensation received by the employee during the last 12
      months.  This benefit expires on July 31, 2010 and
      approximately 1,700 of our current employees will be eligible to receive
      the above mentioned payments.  After July 31, 2010, we will
      transfer to pension funds the amounts accrued under this benefit for each
      employee who did not meet the requirements established by
    law;
  88
  ·
              Retirement plan for new
      employees.  Employees hired after July 1, 2004 are
      not covered by our retirement scheme and are covered by the general social
      security system;
  ·
              Five-year
      bonus.  A cash benefit bonus accrued on a yearly basis
      and paid for every 5-year period worked in the Company according to the
      following scale:
  5
      years worked
              Bonus
      equivalent to 9 days of basic payment plus
  Ps$159,717
 10
      years worked
              Bonus
      equivalent to 14 days of basic payment plus
  Ps$159,717
 15
      years worked
              Bonus
      equivalent to 19 days of basic payment plus
  Ps$159,717
 20
      years worked
              Bonus
      equivalent to 24 days of basic payment plus
  Ps$159,717
 25
      years worked
              Bonus
      equivalent to 29 days of basic payment plus
  Ps$159,717
 30
      years worked
              Bonus
      equivalent to 34 days of basic payment plus
  Ps$159,717
  Labor
Relations
  As part
of our challenge to improve workplace morale we implemented a number of
initiatives to strengthen on-site training and improve the general welfare of
our employees.  Our initiatives also sought to strengthen
communication processes, and start performance-based compensation.
  Our
corporate plan seeks to generate an organizational culture aiming to recruit
employees with the highest talent.  The Human Resources Vice
Presidency defined our new human resources model, which was implemented through
the human resources and payroll project.
  As part
of the actions to improve quality of life, 997 home loans were extended to
our employees for a total of Ps$84,483 million and 1,402 loans for
computers were extended averaging Ps$5.9 million per
beneficiary.
  We
provided on-site and external training and development courses to our
employees.  At December 31, 2008, our employees had received an
average of 61.4 hours of training per employee.  We offered 22,980
training activities or 3.84 activities on average per employee.
  We
undertook a number of initiatives to retain our current employees and decrease
attrition rate, which amounted to approximately 1.09% in 2008, due to
significant changes in the labor market, particularly demand for qualified
personnel in the oil and gas sector.
  Labor
Regulation
  Until
November 13, 2007, all of our employees were official employees, as defined
by Colombian labor laws except for the President and the Internal Control
Officer, who were public employees.  When we became a mixed economy
company, our relationship with all of our employees started being governed by
the provisions of the Colombian Labor Code.
  ITEM 6E
              Share
      Ownership
  The
disclosure of the beneficial ownership of shares by any of our Directors or
executive officers is not provided as no Director or executive officer
beneficially owns more than 1% of our outstanding shares.
  ITEM 7
              Major
      Shareholders and Related Party
Transactions
  ITEM 7A
              Major
      Shareholders
  The
following table sets forth the names of our major shareholders, and the number
of shares and the percentage of outstanding shares owned by them at
December 31, 2008, 2007 and 2006.
  89
  At
      December 31,2008
                  
                  
                  2007
                  
                  
                  2006Shareholders
                  
                  Number
                      of shares
                  
                  
                  %
                      Ownership
                  
                  
                  Number
                      of shares
                  
                  
                  %
                      Ownership
                  
                  
                  Number
                      of shares
                  
                  
                  %
                      OwnershipNation
                  
                  
                  36,384,788,817
                  
                  
                  
                  89.9%
                  
                  
                  
                  36,384,788,817
                  
                  
                  
                  89.9%
                  
                  
                  
                  42,449.825
                  
                  
                  
                  100
                  %Public
      float
                  
                  
                  4,087,723,771
                  
                  
                  
                  10.1%
                  
                  
                  
                  4,087,723,771
                  
                  
                  
                  10.1%
                  
                  
                  
                  –
                  
                  
                  
                  –Total
                  
                  
                  40,472,512,588
                  
                  
                  
                  100%
                  
                  
                  
                  40,472,512,588
                  
                  
                  
                  100%
                  
                  
                  
                  42,449,825
                  
                  
                  
                  100
                  %
 
 All our
common shares have identical voting rights.
  ITEM 7B
              Related
      Party Transactions
  Agreements
  We engage
in a variety of transactions with related parties in the ordinary course of
business.  Set forth below is a description of material related party
transactions.  For additional information about transactions with
related parties see Note 15 to our consolidated financial
statements.
  Ocensa
  As of
December 31, 2008, we had entered into the following agreements with
Ocensa, a company in which we have a 60% equity interest since
March 2009:
  In
March 1995, we entered into an agreement for the transportation of crude
oil through the Ocensa pipeline.  Pursuant to the terms of the
agreement, we are required to make monthly payments that vary depending on the
volumes of crude oil we transport through the pipeline and a tariff calculated
by Ocensa on the basis of Ocensa’s financial projections and their expected
volumes of crude oil.  In 2008, payments made by us under this
agreement amounted to US$276.5 million.  This agreement expires
in December 2093 or upon liquidation of Ocensa.
  In
December 1995, we leased the Porvenir and Miralflores terminals to
Ocensa.  Pursuant to the terms of the agreement we receive monthly
payments of approximately US$490,000 plus applicable taxes.  The
duration of the agreement is indefinite.
  In
November 1996, we leased the Cravo Norte port to
Ocensa.  Pursuant to the terms of the agreement we receive monthly
payments of US$25,000, plus applicable taxes.  The duration of this
agreement is indefinite.
  In
September 1999, we entered into a joint operation agreement for the TLU-3
Coveñas buoy with Ocensa, ODC and the Cravo Norte joint
venture.  Pursuant to the terms of the agreement we are required to
make monthly payments of a fixed amount of US$75,000 plus a variable amount
depending of the volumes exported through the buoy.  There have not
been variable payments in the last three years.  The duration of this
agreement is indefinite.
  In
December 1999, we entered into an operation and maintenance agreement for
the Porvenir, Miralflores and Vasconia pumping stations.  Pursuant to
the terms of the agreement, we receive monthly payments of approximately
US$349,000 plus applicable taxes and variable costs.  This agreement
expires on December 1, 2010.
  In
December 2004 we entered into a natural gas supply
agreement.  Pursuant to the terms of the agreement, we receive
variable monthly payments based on the volumes of natural gas delivered and a
fixed tariff.  In June 2008, this contract was renewed for an
additional two years.  During 2008, we received monthly payments of
approximately US$535,027 under this contract.
  Oleoducto
de Colombia S.A. or ODC
  We
entered into the following agreements with ODC, a company where we have a 43.85%
equity interest:
  In
July 1992, we entered into a take-and-pay agreement for the transportation
of hydrocarbons.  Pursuant to the agreement, we must pay a previously
agreed tariff over the volume of hydrocarbons transported.  The
duration of this agreement is indefinite.
  90
  In
August 1992, we entered into an operation and maintenance agreement for the
Vasconia and Coveñas terminals.  Pursuant to the terms of the
agreement, ODC is required to make monthly payments amounting of approximately
US$1.1 million per year plus any other expenses incurred by us in the
performance of the agreement, including a variable surcharge between 5% and 12%
on such expenses, plus any applicable taxes.  The duration of this
agreement is indefinite.
  In
July 2006, we entered into an operation and maintenance agreement for the
Caucasia Station and the Vasconia-Coveñas pipeline system.  Pursuant
to the terms of the agreement, ODC is required to make monthly payments of
US$508,500 per year, plus any other expenses incurred by us in the performance
of the agreement, including a variable surcharge of between 5% and 12% on such
expenses, plus any applicable taxes.  The duration of this agreement
is indefinite.
  In
March 2007, we entered into a services agreement to guarantee the
protection and safety of the Cusiana-Coveñas and Vasconia-Coveñas pipeline
systems.  Under the terms of the agreement, ODC must pay us
Ps$51 million per year.  This agreement expires in
March 2011.
  Refinería
de Cartagena S.A.
  In
conjunction with our transfer of the Cartagena Refinery assets in
April 2007, we entered into a maintenance and administration agreement for
the Cartagena Refinery with Refinería de Cartagena S.A., a company in which we
have a 49.0% equity interest.  Pursuant to the terms of the agreement,
we provide them with maintenance and administration services and Refinería de
Cartagena S.A. pays us a monthly fee equal to Ps$2.9 billion and a variable
annual fee that may not exceed Ps$6.96 billion.  This agreement
expires in April 2011 and may be extended for additional one-year periods
until the upgrade and modernization of the Cartagena Refinery’s facilities are
completed.
  Also, as
part of the transfer, we extended a ten-month commercial offer to Refinería de
Cartagena for the supply of crude oil.  The commercial offer was
renewed in December 2008 for a two-month period and renewed again in
February 2009 for an additional one-year period.  Pursuant to the
terms of the offer, the Cartagena Refinery has the option to purchase from us up
to 85 thousand bpd of crude oil from our Caño Limón, Vasconia Blend,
Ayacucho Blend, Cusiana and Castilla production.  As we continue to
operate the Cartagena Refinery, our operations committee evaluates and decides
monthly the refinery’s crude oil mix needs including the need for foreign crudes
which we import from West Africa, the North Sea and the
Caribbean.  The purchase price for the delivered volumes is equal to
an international benchmark index, subject to certain adjustments.  At
March 30, 2009, we had received aggregate payments of approximately Ps$0.73
billion for the supplied amounts.
  Other
Agreements
  We
entered into a supply agreement with Ecodiesel, a company in which we have a
50.0% equity interest.  This agreement is not yet operative and will
begin once the Ecodiesel plant starts its activities.  Pursuant to the
terms of the agreement, Ecodisesel must deliver and we must purchase specific
amounts of biodiesel each month.  Payments vary depending on the
purchased volumes of biodiesel.  This agreement expires on
December 31, 2017.
  In
April 2002, we entered into a service agreement with Sociedad Colombiana de
Servicios Portuarios S.A. or Serviport, a company in which we have a 49% equity
interest.  Pursuant to the terms of the agreement, Serviport assists
us in our maritime operations in the Coveñas port in exchange for which we pay
it approximately US$155,000 per month.  This agreement expires on
November 30, 2009 but is renewable annually.
  Transactions
with other state-controlled entities
  We are a
state-owned oil and gas company and operate in an industry regulated by the
Governmental authorities, agencies and other organizations.
  In the
ordinary course of business we enter into transactions with other state-owned
entities which include but are not limited to the following:
  ·
              sales
      and purchase of goods, properties and other
  assets;
  ·
              rendering
      and receiving services;
  91


·
              lease
      of assets;
  ·
              depositing
      and borrowing money; and
  ·
              use
      of public utilities.
  These
transactions are conducted in the ordinary course of business on terms
comparable to the terms of transactions with private parties.  We have
also established procurement policies and approval processes for purchases of
products and services, which do not depend on whether the counterparties are
state-owned entities or not.
  Loans
to our Directors and Executive Officers
  We extend
loans to our employees as part of our compensation scheme, including our
executive officers.  We do not extend loans to our
Directors.  We grant loans for housing and
computers.  Housing loans to our executive officers are approved by a
housing loans committee composed of the Human Resources and Strategy
vice-presidents, and the Compensation manager.  Executive officers may
apply for housing loans after their third year in tenure.  The
principal amount of the loan depends on the applicant’s tenure and cannot exceed
59 times the applicant’s monthly salary.  We do not guarantee any
loans made by third parties to our executive officers or
employees.  At December 31, 2008 the total amount of outstanding
loans granted to our executive officers was Ps$844.6 million.
  The
following table sets forth a description of the loans outstanding to our
executive officers at December 31, 2008.
  Executive
                      Officer
                  
                  Nature of the
                      Loan and Date
                      of
                      Disbursement
                  
                  Principal
                      Amount of
                      the Loan
                  
                  
                  Amount
                      Outstanding at
                      December 31,
                      2008
                  
                  
                  Largest
                      Amount
                      Outstanding
                      during period
                  
                  Termination
                      Date
                  
                  Applicable
                      Interest
                      Rate(Pesos
      in millions)Javier
      G. Gutiérrez
                  
                  Housing,
      July 2008
                  
                  729
                  
                  
                  575.8
                  
                  
                  729
                  
                  June 2028
                  
                  UVRAdriana
      M. Echeverri
                  
                  Housing,
      June  2002
                  
                  37.5
                  
                  
                  50.1
                  
                  
                  56.6
                  
                  October,
      2018
                  
                  UVR
      + 1%Pedro
      A. Rosales
                  
                  Housing,
      April 1997 and September 2003
                  
                  279.2
                  
                  
                  218.7
                  
                  
                  247.5
                  
                  September 2018
                  
                  UVR
 
 ITEM 7C
              Interests
      of Experts and Counsel
  Not
applicable.
  ITEM 8
              Financial
      Information
  ITEM 8A
              Consolidated
      Statements and Other Financial
Information
  Our
Annual Consolidated Financial Statements are filed as part of this annual report
starting on page F-1.
  ITEM 8B
              Significant
      Changes
  There
have not been any significant changes since the date of our Annual Consolidated
Financial Statements for the year ended December 31, 2008.
  92
  ITEM 9
              The
      Offer and Listing
  ITEM 9A
              Offer
      and Listing Details
  American
Depositary Receipts
  We
entered into a deposit agreement with JPMorgan Chase Bank, N.A., as depositary,
for the issuance of ADRs evidencing ADSs.  Each of the ADSs will
represent 20 of our common shares or evidence of the right to receive 20 of our
common shares.
  On
September 12, 2008, we submitted to the Securities and Exchange Commission
an application to register our company and to register and list our ADSs
evidenced by ADRs on the New York Stock Exchange or NYSE.  Our ADSs
began trading on the NYSE under the symbol “EC” on September 18,
2008.
  Common Shares
  In
November 2007, we conducted an initial public offering of 10.1% of our
common shares in Colombia.  As a result of such offering, our
common shares trade on the BVC under the symbol ECOPETROL.
  Price
Information
  The
following table sets forth reported high and low closing prices in Pesos for our
shares and the reported average daily trading volume of our shares on the BVC
for the periods indicated.  The table also sets forth information on
the trading price of our shares in Pesos and U.S. dollars, as well as the
average trading volume.
  Shares
      Traded on the BVCPesos
      per share
                
                
                U.S.
      dollars per share(1)
                
                
                Averagenumber
      ofHigh
                
                
                Low
                
                
                High
                
                
                Low
                
                
                shares
      traded
                  per day2007
                
                
                2,080
                
                
                
                1,400
                
                
                
                1.0187
                
                
                
                0.6701
                
                
                
                19,706,3372008
                
                
                2,895
                
                
                
                1,575
                
                
                
                1.6638
                
                
                
                0.7647
                
                
                
                21,063,806Most
      recent quartersFourth
      quarter 2007
                
                
                2,080
                
                
                
                1,400
                
                
                
                1.0187
                
                
                
                0.6701
                
                
                
                19,706,337First
      quarter 2008
                
                
                2,095
                
                
                
                1,575
                
                
                
                1.1543
                
                
                
                0.8003
                
                
                
                18,601,066Second
      quarter 2008
                
                
                2,895
                
                
                
                2,095
                
                
                
                1.6638
                
                
                
                1.1417
                
                
                
                25,198,314Third
      quarter 2008
                
                
                2,730
                
                
                
                2,390
                
                
                
                1.5557
                
                
                
                1.1640
                
                
                
                19,266,325Fourth
      quarter 2008
                
                
                2,600
                
                
                
                1,825
                
                
                
                1.1911
                
                
                
                0.7647
                
                
                
                21,214,848First
      quarter 2009
                
                
                2,150
                
                
                
                1,990
                
                
                
                0.9384
                
                
                
                0.7833
                
                
                
                10,121,571Most
      recent six monthsDecember 2008
                
                
                2,120
                
                
                
                1,960
                
                
                
                0.9412
                
                
                
                0.8399
                
                
                
                16,771,745January 2009
                
                
                2,090
                
                
                
                1,990
                
                
                
                0.9384
                
                
                
                0.8548
                
                
                
                8,846,255February 2009
                
                
                2,150
                
                
                
                2,015
                
                
                
                0.8777
                
                
                
                0.7833
                
                
                
                11,886,044March 2009
                
                
                2,140
                
                
                
                2,050
                
                
                
                0.9142
                
                
                
                0.7936
                
                
                
                9,927,071April 2009
                
                
                2,185
                
                
                
                2,085
                
                
                
                0.9072
                
                
                
                0.8773
                
                
                
                6,580,214May 2009
                
                
                2,185
                
                
                
                2,120
                
                
                
                1.0888
                
                
                
                0.9263
                
                
                
                11,856,088
 
 (1)
              U.S.
      dollars per common share translated at the Representative Market Rate for
      each period.
  The
following table sets forth reported high and low closing prices in U.S. Dollars
for our ADRs and the reported average daily trading volume of our ADRs on the
NYSE for the periods indicated.  The table also sets forth information
on the trading price of our ADRs in U.S. dollars, as well as the average trading
volume.
  93
  ADRs
      Traded on NYSEU.S.
      dollars per share(1)
                
                
                Average
      number of
                    shares
      traded per dayHigh
                
                
                Low2008
                
                
                27.25
                
                
                
                15.04
                
                
                
                42,074Most
      recent quartersThird
      quarter 2008
                
                
                27.25
                
                
                
                23.52
                
                
                
                120,235Fourth
      quarter 2008
                
                
                24.50
                
                
                
                15.04
                
                
                
                31,219First
      quarter 2009
                
                
                19.50
                
                
                
                15.31
                
                
                
                42,277Most
      recent six monthsDecember 2008
                
                
                21.50
                
                
                
                16.79
                
                
                
                47,823January 2009
                
                
                19.50
                
                
                
                16.81
                
                
                
                37,534February 2009
                
                
                17.50
                
                
                
                15.31
                
                
                
                39,453March 2009
                
                
                18.70
                
                
                
                15.66
                
                
                
                51,176April 2009
                
                
                18.73
                
                
                
                17.24
                
                
                
                39,216May 2009
                
                
                22.29
                
                
                
                18.90
                
                
                
                50,105
 
 (1)
              Each
      ADR represents the right to receive 20 of our common
    shares.
  ITEM 9B
              Plan
      of Distribution
  Not
applicable.
  ITEM 9C
              Markets
  Bolsa
de Valores de Colombia – BVC
  The BVC
was created in 2001 as a result of the merger of the Bogotá, Medellín and
Occidental Stock Exchanges, the largest exchanges in Colombia.  The
BVC is the largest stock exchange in Colombia for trading securities and
derivatives.  The BVC has over 500 shareholders and is a member of the
World Federation of Exchanges and the Federación Iberoamericana de
Bolsas.
  The BVC
is the only exchange where our common shares trade in Colombia.  The
BVC is highly volatile compared to other major world stock
exchanges.  The table below sets forth the reported aggregate market
capitalization of the BVC, as of December 31, 2008.
  Aggregate
      Market Capitalization on BVCMarket
      Capitalization
                
                
                Market
      Capitalization(Ps$
      in billions)
                
                
                (US$
      in billions)(1)December 31,
      2008
                
                
                195,700
                
                
                
                99.53
 
 (1)
              Representative  Market
      Rate at December 31, 2007.
  There are
three basic indexes that measure the BVC’s performance.  The principal
and most important is the IGBC.  The BVC is calculated on the price
variation of the stock of the companies with the highest capitalization and
highest trading volumes.
  Another
index used to measure the performance of the BVC, is the COLCAP.  The
COLCAP includes the price variations of the 20 companies having the highest
trading volumes in the BVC, where the adjusted market capitalization of each
company determines its weighted value.
  94
  The
COL20, an index measuring the performance of the BVC, was introduced in
2008.  The COL20 measures the liquidity of the 20 stocks having the
highest trading volumes in the BVC, which in turn determines their weight on the
index.
  New
York Stock Exchange
  Since
September 18, 2008, our ADRs have been trading on the New York Stock
Exchange as a result of our ADR listing.  The average traded volume of
our ADRs has increased since we began the program.
  Transfer
and Registration of Shares
  In
general, the following transfers do not need to be effected through the
BVC:  transfers between shareholders having the same beneficial owner;
transfers of shares owned by financial institutions that are in process of
liquidation under the control and supervision of the Superintendency of Finance;
repurchase of shares; transfers of shares made by the Nation; transfers of
shares issued abroad by Colombian companies, provided they take place outside
Colombia; transfers of shares issued abroad by foreign companies, provided they
take place outside Colombia; and any other transaction authorized to be effected
outside the BVC by the Superintendence of Finance.
  Pursuant
to Colombian law, purchases of 25% or more of the outstanding shares with voting
rights (including ADSs) of a listed company, or the purchase of 5% or more of
the outstanding shares with voting rights (including ADSs) by a shareholder or
group shareholders beneficially owning 25% or more of the outstanding capital
stock of a listed company, should be made pursuant to public tender offer
rules.
  Certain
exemptions apply to tender offer rules including, transfers made through an
auction on the BVC as a result of privatization procedures; transfers authorized
in writing by 100% of the shareholders; repurchase of shares by the issuer in
open market transactions; transfers by virtue of law including
donations, liquidation processes, judicial decisions, among
others.  In any case, the Superintendency of Finance must be notified
of any transfer that is deemed to be an hecho relevante or a
significant event, under Colombian law.
  Under
Colombian law, shares may be traded either in physical form or electronic
form.  Transfers of shares are subject to a registry system which
differs depending on whether the shares are evidenced by electronic form or
physical form.  Transfers of shares evidenced by electronic
certificates must first be registered with Depósito Centralizado de
Valores or DECEVAL through the relevant stockbroker.  DECEVAL’s
main purpose is to receive, safekeep and manage share certificates issued by
corporations in order to keep a record of the transactions undertaken over such
securities, including but not limited to transfers, pledges and
withdrawals.  Accordingly, DECEVAL is not allowed to hold, invest or
otherwise use the securities held under its custody.
  Transfer
of shares evidenced by electronic and physical certificates must be registered
on the Issuer’s stock ledger.  Only those holders registered on the
stock ledger are recognized by us and third parties as
shareholders.  Registration requires endorsement of the certificates
or a written instruction from the holder.  In the case of electronic
certificates, DECEVAL notifies us regarding the transfer of shares after
registering it in its system.
  Transfer
of shares do not give rise to any fee for us but they may be subject to certain
taxes, stamp duties or other governmental charges which the shareholder may be
required to pay.
  ITEM 9D
              Selling
      Shareholders
  Not
applicable.
  ITEM 9E
              Expenses
      of the Issue
  Not
applicable.
  ITEM 10
              Additional
      Information
  ITEM 10A
              Share
      Capital
  Not
applicable.
  95


ITEM 10B
              Memorandum
      and Articles of Incorporation
  Corporate
Purpose
  Pursuant
to article 4 of our by-laws, we may engage in the exploration, production,
refining, transportation, storage, distribution and commercialization of crude
oil and its by-products in Colombia and abroad.  Our by-laws also
authorize us to perform activities for the exploration and production of crude
oil in areas that prior to January 1, 2004 were operated by us directly or
were subject to agreements subscribed by us; to directly or indirectly explore
and produce crude oil in areas assigned to us by the ANH; to directly or
indirectly explore and produce crude oil in areas assigned to us by a foreign
regulatory entity; to buy, sell, import, export, store, blend, or distribute
hydrocarbons and its by-products in Colombia or abroad; to undertake research
for developing and commercializing alternative energy sources; and in general,
to undertake any other activity instrumental or required to develop our
corporate purpose.  Our corporate purpose includes administering and
managing all properties that were formerly part of the De Mares
concession.
  Directors
  Pursuant
to our by-laws, our Board of Directors is comprised of nine members with no
alternates.  Directors are elected for one-year terms by the general
shareholders’ meeting and may be reelected indefinitely.  Our by-laws
require our Board of Directors to have at least three independent
members.  Pursuant to our by-laws, persons holding the posts of
Minister of Finance, Minister of Mines and Energy and Director of the National
Planning Agency are members of our Board of Directors.
  Our
by-laws provide for three committees of our Board of Directors, comprised of
three members each: an audit committee, comprised of three independent
Directors, is the highest internal control body of our company and provides
support to our Board of Directors in accounting and financial matters; a
compensation and nominating committee, comprised of at least one independent
director, provides general guidelines for selection and compensation of our
executive officers; and a corporate governance committee, comprised of at least
one independent director, makes good corporate governance proposals to our Board
of Directors.
  According
to Colombian law, Directors must be elected in accordance with a proportional
representation system similar to cumulative voting.  Directors may be
removed without cause at any moment by a majority of the shareholders present at
a general shareholders’ meeting.
  Under
Colombian law, a director or executive officer must disclose any transaction
involving a conflict of interest to the general shareholders’
meeting.  The general shareholders’ meeting may approve or reject the
transaction giving rise to the conflict with the vote of the majority of the
shares present at the shareholders’ meeting.  If the director or
executive officer with a conflict is a shareholder, his or her vote will be
excluded.
  The
compensation of our Directors is set annually and exclusively by the general
shareholders’ meeting.  Directors are compensated for attending board
meetings and committee meetings.  A Board meeting requires a quorum of
at least five members and decisions are approved with a majority of the members
present.
  Neither
our by-laws nor our code of corporate governance provide a minimum retirement
age for our Directors.  Under our by-laws there is no requirement for
a person to have a minimum number of shares to be considered as a
director.  Colombian law provides that Directors willing to sell or
purchase shares in our company require a prior authorization of the Board of
Directors.  Colombian law does not impose any limitation as to the
number of shares that may be acquired by a director.
  Colombian
law prohibits Directors from receiving corporate loans.
  Preference
Rights and Restrictions Attaching to Our Shares
  We have
only one class of stock without special rights or restrictions.  Our
shareholders do not have any type of preemptive rights.
  Under
Colombian law, our shareholders have the following economic privileges and
voting rights:
  96
  ·
              To
      participate and vote in the decisions of the general shareholders
      meeting;
  ·
              To
      receive dividends based on the financial performance of the company in
      proportion to their share
ownership;
  ·
              To
      transfer and sell shares according to our by-laws and Colombian
      law;
  ·
              To
      inspect corporate books and records 15 business days prior to the ordinary
      meeting of shareholders where the year-end financial statements are to be
      approved;
  ·
              Upon
      liquidation, to receive a proportional amount of the corporate assets
      after the payment of external liabilities;
and
  ·
              To
      sell the shares, known as derecho de retiro, if a
      corporate restructuring affects the economic or voting rights of the
      shareholders in the terms and conditions established under Colombian
      law.
  Our
by-laws and corporate governance code provide additional rights to our minority
shareholders.  These rights include:
  ·
              Sale of
      Assets.  For a ten-year period counted from the date of
      adoption of our by-laws or until the Nation loses its status as majority
      shareholder, the Nation guarantees that any sale of 15% or more of our
      assets requires the approval of the general shareholders’ meeting and that
      the Nation would only be allowed to vote its shares in favor of the
      proposal if 2% or more of our minority shareholders accept the
      proposal.
  ·
              Candidate
      List.  Pursuant to our by-laws and law 1118 of 2006, the
      Nation will include in its candidate list for election of members of the
      Board of Directors one member selected by the departments that produce
      hydrocarbons.  In addition, pursuant to the declaration of the
      Nation dated July 26, 2007, the Nation will include in its candidate
      list for election of members of the Board of Directors one member selected
      by the ten largest minority shareholders.  The right of minority
      shareholders to select a candidate to be included in the Nation’s list
      would only be available for ten years counted from the date of the
      adoption of our by-laws.
  ·
              Extraordinary
      Meetings.  Our by-laws provide that shareholders holding
      at least 5% of the total number of shares outstanding may call an
      extraordinary shareholders’
meeting.
  ·
              Office for the Attention of
      Shareholders.  We created an office for the attention of
      shareholders, our specialized unit responsible for receiving complaints
      from our shareholders.  Pursuant to our by-laws, shareholders
      holding at least 5% of the total number of shares outstanding may request
      that the office for the attention of shareholders a special audit of the
      following documents:  the income statement; the proposal for the
      distribution of profits; the report of the Board of Directors as to the
      economic and financial status of our company; the report from our general
      counsel as to the legal status of our company; and the report from the
      independent auditors.  Special audits cannot be made of
      documents that contain scientific, technological or statistical
      information of our company, or agreement that gives us competitive and
      economic advantages over our competitors, or in respect of any document
      related to intellectual property.  Shareholders also have the
      right to propose good corporate governance recommendations to the office
      for the protection of investors.
  ·
              Others.  Pursuant
      to our by-laws, shareholders holding at least 5% of the total number of
      shares outstanding may propose recommendations to our Board of Directors
      pertaining to the management of our company.  Any shareholder
      may file a written petition to our Board of Directors to investigate
      corporate governance violations that the shareholder believes to have been
      committed.
  Amendments
to Rights and Restrictions to Shares
  The
rights and restrictions given to our shareholders may only be modified through
an amendment to our by-laws.  The general shareholders’ meeting has
full and exclusive authority to modify or amend our by-laws.
  97
  General
Shareholders’ Meeting
  Shareholders’
meetings may be ordinary or extraordinary.  Ordinary meetings will
take place in our legal domicile located in Bogota, Colombia, within the first
three months following the end of each fiscal year, on the day and at the time
set forth in the notice for the general shareholders’ meeting.  The
call for the general shareholders’ meeting may be made electronically or by
written communication sent to each shareholder.  In both cases the
call must be published in a newspaper of wide circulation 20 business days prior
to the date on which the meeting will take place.
  In the
ordinary general shareholders’ meeting, our Board of Directors and the external
auditor are appointed and our annual financial statements, profit distribution,
audit and management reports and any other matter provided under applicable law
or our corporate by-laws are approved.
  Extraordinary
meetings of shareholders may be called by our Board of Directors, by our
president or chief executive officer, by our external auditor, or by
shareholders holding at least 5% of the shares outstanding.  Calls to
extraordinary meetings should be made at least eight days prior to the date of
the meeting, and may be made electronically or by written communication to each
shareholder or be published in a newspaper of wide circulation.  The
meeting notice must specify the agenda for the meeting.
  The
required quorum for both ordinary and extraordinary meetings is 50% plus one
share entitled to vote and decisions are approved with a majority of the members
present.  This quorum is exempted in the case of “second-call
meetings,” which may take place when a meeting fails to obtain the required
quorum and is called within a period between 10 business days and 30 business
days from the first date, in which case decisions may be adopted by a majority
of the shares present regardless of the number represented.
  Unless
Colombian law requires a super majority, decisions made at the shareholders’
meeting must be approved by a majority of the shares
present.  Colombian law requires super majorities in the following
cases:
  ·
              the
      vote of at least 70% of the shares present and entitled to vote at the
      ordinary shareholders’ meeting is required to approve the issuance of
      stock not subject to preemptive
rights;
  ·
              the
      vote of at least 78% of the shares represented entitled to vote is
      required to approve the distribution of less than 50% of the annual net
      profits.  If the sum of all legal reserves (statutory, legal and
      optional) exceeds the amount of the outstanding capital, the company must
      distribute at least 70% of the annual net
  profits;
  ·
              the
      vote of at least 80% of the shares represented is required to approve the
      payment of dividends in shares; and
  ·
              the
      vote of 100% of the outstanding and issued shares is required to replace a
      vacancy on the Board of Directors without applying the electoral quotient
      system.
  Shareholders
may be represented by proxies provided that the proxy:  (i) is in
writing (faxes and electronic documents are valid), (ii) specifies the name
of the representative, (iii) specifies the date or time of the meeting for
which the proxy is given and (iv) is not issued to a legal representative
of the company.  Proxies granted abroad do not require legalization or
an apostille.
  Limitations
to the Rights to Hold Securities
  There are
no limitations in our by-laws or Colombian law on the rights of Colombian
residents or foreign investors to own the shares of our company, or on the right
to hold or exercise voting rights with respect to those shares.
  98
  Restrictions
on Change of Control Mergers, Acquisitions or Corporate Restructuring of the
Company
  Under
Colombian law and our by-laws, the general shareholders’ meeting has full and
exclusive authority to approve any corporate restructuring including, any
mergers, acquisitions or spin-offs.  Corporate restructurings are also
subject to the requirement that the Nation must hold a minimum of 80% of our
common stock at all times.  While Law 1118 of 2006 is in effect, there
cannot be any restructuring that results in a change of control of our
company.
  Ownership
Threshold Requiring Public Disclosure
  Our
corporate governance code provides that we must disclose periodically in our web
page the name of all shareholders of our company, indicating at least, the
twenty shareholders with the highest number of shares.  We must also
disclose this information to the Superintendency of Finance at the end of each
fiscal year.
  Colombian
securities regulations set forth the obligation to disclose any material event
or hecho
relevante.  Any transfer of shares equal or greater than 5% of
our capital stock or any person acquiring a percentage of shares that would make
him the beneficial owner of 5% or more of our capital stock, is a material
event, and therefore, must be disclosed to the Superintendency of
Finance.
  Changes
in the Capital of the Company
  There are
no conditions in our by-laws governing changes in our capital stock that are
more stringent than those required under Colombian law, with the exception that
the Nation must hold a minimum of 80% of our capital stock at all
times.
  ITEM 10C
              Material
      Contracts
  Transportation
Agreement between Ecopetrol and ECOGAS/TGI
  On
October 6, 2006, we entered into a natural gas transportation agreement
with Ecogás for the transportation of natural gas from the Ballena terminal
located in the La Guajira fields to the Barrancabermeja terminal.  The
agreement is set to expire in November 30, 2012.  Pursuant to the
terms of the agreement, Ecogás will transport natural gas produced by us upon
our request, up to the available capacity set forth in the
agreement.  According to the agreement, Ecogás should undertake two
overhauling stages to expand the pipeline’s capacity.  After its first
capacity expansion completed in June 2007 the pipeline’s capacity was
increased to 190,000 thousand cfpd expanding its transportation capacity to
134,066 thousand cfpd.  Once Ecogás executes the second expansion
to 262,000 thousand cfpd we will have transportation availability of up to
175,000 thousand cfpd.
  In
February 27, 2007, Ecogás transferred the rights and obligations under this
agreement to Transportadora de Gas del Interior S.A. ESP or TGI.
  Pursuant
to the terms of the agreement, we pay TGI a regulated transportation tariff
composed of a fixed fee, a variable fee depending on transported volumes and an
administration, operation and maintenance fee.  Payments for
transported volume are made in Pesos.  During 2008 we paid
Ps$113,141,350,000 for the transportation services provided to us by TGI and at
March 31, 2009, we had paid TGI Ps$22,069,495,748.
  Please
see Exhibit 4.2 to this annual report for a full description of this
agreement.
  Transportation
Agreement between Ecopetrol and Ocensa
  On
March 31, 1995 we entered into a crude oil transportation agreement with
Ocensa.  Pursuant to the terms of the agreement, Ocensa agreed to
transport this pipeline our production of crude oil from the Cusiana and
Cupiagua fields.
  We are
required to make monthly payments that vary depending on the volumes shipped
through the Ocensa pipeline and a tariff calculated by Ocensa based on its
financial projections and its expected transportation
volume.  Payments to Ocensa are made in cash in accordance with the
agreement.  In 2007, payments made by us to Ocensa under this
agreement amounted to US$245.7 million and to US$276.5 million in
2008.
  This
agreement expires in December 2093 or upon liquidation of
Ocensa.
  Please
refer to Exhibit 4.1 to this annual report for a full description of this
agreement.
  99
  ITEM 10D
              Exchange
      Controls
  Payments
in foreign currency with respect to certain foreign exchange transactions
including international investments between Colombian residents and
non-Colombian residents must by law be conducted through the commercial exchange
market.  Therefore, any foreign currency income or expenses under the
ADRs must be channeled through that market.  Transactions conducted
through the commercial exchange market are made at market rates freely
negotiated with authorized intermediaries (banks, financial corporations and
others).
  Colombian
law provides that the Colombian Central Bank may intervene in the foreign
exchange market if the value of the Colombian Peso experiences significant
volatility.  Likewise the Colombian government introduces from time to
time amendments to the International Investment Statute.  For example,
on May 23, 2007, the Colombian government introduced a new deposit
requirement related to portfolio investments made by foreign
investors.  Decrees 1801 of 2007 and 1888 and 3264 of 2008 required
foreign investors making portfolio investments in securities other than shares
or mandatory convertible bonds to make a non-interest bearing deposit with the
Colombian Central Bank for a term of six months from the date of such
investment, for an amount equivalent to 40% of the value of investment converted
at the representative market rate then in effect.  Nevertheless, since
June 29, 2007, when the Colombian government issued Decree 2466 of 2007
setting forth that portfolio investments made pursuant to ADR programs were
exempt from the deposit requirement, ADRs were not affected by the requirement
of Decree 1801 of 2007.  As a result, neither Ecopetrol nor the
purchasers of ADRs had to comply with the 40% deposit
requirement.  Furthermore, in 2008, pursuant to Decree 3913 of
October 8, 2008, the Colombian government eliminated the 40% deposit
requirement for all investors.  See Item 3D “Risk Factors — Risks
relating to the ADRs”.
  The
Colombian Central Bank may also limit the remittance of dividends and/or
investments of foreign currency received by Colombian residents whenever the
international reserves fall below an amount equal to three months of
imports.  Since the creation of the current foreign exchange regime in
1991, the Colombian Central Bank has never taken such
action.  However, we cannot assure you that the Colombian Central Bank
will not intervene in the future.  See Item 3D — “Risk Factors —
Risks Relating to Colombia.”
  Registration
of foreign investment represented in underlying shares
  Colombia’s
International Investment Statute, which has been amended from time to time
through related decrees and regulations, regulates the manner in which
non-Colombian resident entities and individuals can invest in Colombia and
participate in the Colombian securities markets.  Among other
requirements, the statute mandates registration of certain foreign exchange
transactions with the Colombian Central Bank and specifies procedures to
authorize and administer certain types of foreign investments.
  Foreign
investors who acquire ADRs are not required to register before Colombian
authorities.  Holders of ADRs who wish to withdraw the underlying
shares will have to comply with certain registration and reporting procedures,
among other requirements.  Under these foreign investment regulations,
the failure of a foreign investor to report or register with the Colombian
Central Bank foreign exchange transactions relating to investments in Colombia
on a timely basis may prevent the investor from obtaining remittance rights,
constitute an exchange control infraction and result in a fine.
  Holders
of ADRs will benefit from the registration to be obtained by the custodian for
our common shares underlying the ADRs in Colombia, which permits the custodian
to convert dividends and other distributions with respect to the common shares
into foreign currency and remit the proceeds abroad.  If investors in
ADRs choose to surrender their ADRs and withdraw common shares, they would have
to register their investment in the common shares as a foreign direct
investment, provided that the investor does not own a portfolio of investments
in Colombia; or as a portfolio investment, in the event the investor delivers
such shares to a registered foreign capital investment
fund.  Non-Colombian residents cannot directly hold portfolio
investments in Colombia, but are able to do so through a registered foreign
capital investment fund.  Holders of ADRs that surrender their ADRs
may also deliver the underlying common shares to a foreign investment capital
fund authorized to operate in Colombia.
  100


In
obtaining its own foreign investment registration, an investor who surrendered
its ADRs and withdrew common shares may incur expenses and/or suffer delays in
the application process.  Investors would only be allowed to transfer
dividends abroad or transfer funds received as distributions relating to our
common shares after their foreign investment registration procedure with the
Colombian Central Bank has been completed.  In addition, the depositary’s
foreign investment registration may also be adversely affected by future
legislative changes, but its rights to transfer abroad dividends or profits
arising from distributions relating to our common shares must be maintained,
according to Colombian law and foreign investment treaties entered into by
Colombia, except when the Colombian international reserves fall below an amount
equivalent to three months worth of imports.
  ITEM 10E
              Taxation
  Colombian
Tax Considerations
  The
following is a description of the Colombian tax considerations for investments
in common shares in Colombia or for the purchase of ADSs in a foreign securities
market.  This description is based on the applicable law in effect as of
the date of this annual report.  Prospective purchasers of common shares or
ADSs should consult their own tax advisors for a detailed analysis of the tax
consequences resulting from the acquisition, ownership and disposition of common
shares or ADSs.
  General
Considerations
  Income
tax and complementary taxes are considered a single tax with two
components:  income and sporadic earnings.  Taxes are accrued on a
calendar basis.
  Pursuant
to the Colombian Tax Code, Colombian corporations and public entities are
subject to Colombian taxes on income earned in Colombia and worldwide; while
foreign entities are liable only for income earned in Colombia.
  Tax
Treatment of a Non-Resident of Colombia who Purchases an ADR in a Foreign
Securities Market
  Dividends
  In
general, dividends paid to foreign companies or other foreign entities,
non-Colombian residents or successors of non-Colombian residents are subject to
Colombian income tax.
  To avoid
double taxation, corporate and branch profits are taxed at the corporate or
branch level.  If the accounting earnings and profits of a Colombian
corporation exceed the tax profits subject to income tax, the excess is subject
to income tax at the shareholder level.  If the shareholder is a
non-resident, the applicable tax rate is 33%.
  Therefore,
provided all distributions, including the payment of dividends, are made by
Ecopetrol to non-resident holders of ADRs through the Depositary, such payments
will be exempted from income, withholding and remittance tax in Colombia. 
This exception would not apply in the case of distributions paid out of
non-taxed earnings made by Ecopetrol which would be subject to income tax at the
33% rate.
  Dividends
paid to foreign investment capital funds are subject to a 33% withholding income
tax.
  Taxation
on Capital Gains for the sale of ADRs
  Under
Colombian law, capital from the sale of ADRs is not subject to income tax in
Colombia as they are considered foreign sourced income.
  Similarly,
capital gains earned by foreign capital investment funds arising from the
purchase or sale of securities are not subject to income taxes in
Colombia.  The remittance of capital gains to the Depositary is not subject
to income tax in Colombia.
  Tax
Treatment in Colombia of Non-Residents who Purchase Ecopetrol’s shares in
Colombia’s securities market
  Dividends
  Dividends
paid to foreign companies, other foreign entities, non-Colombian residents or
successors of non-Colombian residents are subject to Colombian income
tax.
 
 101
 
 To avoid
double taxation, corporate and branch profits are taxed at the corporate or
branch level.  If the accounting earnings and profits of a Colombian
corporation exceed the tax profits subject to income tax, the excess is subject
to income tax at the shareholder level.  If the shareholder is a
non-Colombian resident, the applicable tax rate is 33%.
  Therefore,
all distributions, including the payment of dividends, made by Ecopetrol to
shareholders not resident in Colombia, will be exempted from income, withholding
and remittance taxes.  This exception would not apply in the case of
distributions paid out of non-taxed earnings made by Ecopetrol which would be
subject to the 33% income tax rate.
  Taxation
on Capital Gains for the sale of shares
  Capital
gains obtained in the sale of shares listed on the BVC and owned by the same
beneficial owner, are not subject to income tax in Colombia, provided that the
shares sold during the taxable year do not represent more than 10% of the
outstanding shares of the listed company.  However, a seller of shares must
file an income tax return for each transaction involving a sale of shares within
the month following the sale, even when such sale is not subject to any
tax.
  Tax
treatment by Non-Residents who purchase Ecopetrol’s shares in the BVC market and
exchange them for ADRs
  Dividends
  Dividends
paid to ADRs are not subject to income, withholding or remittance taxes. 
In the event Ecopetrol distributes dividends from such taxes, the dividends are
paid to the Depositary of ADRs.  In any case, the Depositary of ADRs is
only subject to income tax or complementary taxes and non-taxed earnings. 
The dividend payments would be taxed at the 33% rate.
  Material
U.S. Federal Income Tax Consequences
  The
following discussion is a summary of the material U.S. federal income tax
consequences of acquiring, holding and disposing of our common shares or
ADSs.  This discussion applies only to beneficial owners of common shares
or ADSs that are “U.S. Holders,” as defined below, that hold the common shares
or ADSs as “capital assets” (generally, property held for investment). 
This discussion is based on the U.S. Internal Revenue Code of 1986, as amended,
or the Code, its legislative history, existing final, temporary and proposed
Treasury Regulations, administrative pronouncements by the U.S. Internal Revenue
Service, or IRS, and judicial decisions, all as currently in effect and all of
which are subject to change (possibly on a retroactive basis) and to different
interpretations.
  This
discussion is also based in part on the representations of the Depositary and
the assumption that each obligation in the deposit agreement and any related
agreement will be performed in accordance with its terms.
  This
discussion does not purport to address all U.S. federal income tax consequences
that may be relevant to a particular U.S. Holder and you are urged to consult
your own independent tax advisor regarding your specific tax situation. 
The discussion does not address the tax consequences that may be relevant to
U.S. Holders in special tax situations, including, for example:
  ·
              insurance
      companies;
  ·
              tax-exempt
      organizations;
  ·
              broker-dealers;
  ·
              traders
      in securities that elect to mark to
market;
  ·
              banks
      or other financial institutions;
  ·
              partnerships
      or other pass-through entities;
 
 102
 
 ·
              persons
      whose functional currency for U.S. federal income tax purposes is not the
      U.S. dollar;
  ·
              real
      estate investment trusts, regulated investment companies or grantor
      trusts;
  ·
              persons
      that received our common stock or ADSs as compensation for the performance
      of services;
  ·
              U.S.
      expatriates;
  ·
              persons
      that hold our common shares or ADSs as part of a hedge, straddle,
      conversion or other integrated transaction;
or
  ·
              persons
      that own, directly, indirectly or constructively, 10% or more of the total
      combined voting power of our
shares.
  Except
where specifically described below, this discussion assumes that we are not a
passive foreign investment company, or PFIC, for U.S. federal income tax
purposes.  See “—Passive Foreign Investment Companies.”  Further, this
discussion does not address U.S. federal estate and gift tax or the alternative
minimum tax consequences of holding common shares or ADSs or the indirect
consequences to holders of equity interests in partnerships (or any other entity
treated as a partnership for U.S. federal income tax purposes) that own our
common shares or ADSs.  In addition, this discussion does not address the
state, local and non-U.S. tax consequences of holding our common shares or
ADSs.
  You
should consult your own tax advisor regarding the U.S. federal, state and local,
as well as non-U.S., income and other tax consequences of purchasing, owning and
disposing of our common shares or ADSs in your particular
circumstances.
  You are a
“U.S. Holder” if you are a beneficial owner of common shares or ADSs and you are
for U.S. federal income tax purposes:
  ·
              an
      individual, who is a citizen or resident of the United
    States;
  ·
              a
      corporation, or any other entity taxable as a corporation, created or
      organized in or under the laws of the United States, any state thereof or
      the District of Colombia;
  ·
              an
      estate, the income of which is subject to U.S. federal income tax
      regardless of its source; or
  ·
              a
      trust if (i) a court within the United States is able to exercise
      primary supervision over its administration and one or more U.S. persons
      have the authority to control all substantial decisions of the trust or
      (ii) if the trust has a valid election in effect under current U.S.
      Treasury regulations to be treated as a U.S.
  person.
  If a
partnership holds common shares or ADSs the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership.  A partner of a partnership considering the purchase of our
common shares or ADSs should consult its own independent tax advisor regarding
the U.S. federal income tax consequences of investing in our common shares or
ADSs through a partnership.
  For U.S.
federal income tax purposes, if you are a holder of ADSs, you generally will be
treated as the owner of our common stock represented by such ADSs.
  Distributions
on Common Shares or ADSs
  If you
are a U.S. Holder, for U.S. federal income tax purposes, distributions made by
us of cash or property with respect to common shares or ADSs generally will be
treated as a dividend for U.S. federal income tax purposes to the extent paid
out of our current or accumulated earnings and profits (as determined under U.S.
federal income tax principles).  A U.S. Holder of common shares or ADSs
generally will be taxed on such dividend as ordinary income.  Distributions
in excess of our current or accumulated earnings and profits will be treated
first as a tax-free return of capital reducing such U.S. Holder’s adjusted tax
basis in the common shares or ADSs.  Any distribution in excess of such
adjusted tax basis will be treated as capital gain and will be either long-term
or short-term capital gain depending upon whether the U.S. Holder held the
common shares or ADSs for more than one year.  Distributions of additional
common shares or ADSs to U.S. Holders that are part of a pro rata distribution
to all of our shareholders generally will not be subject to U.S. federal income
tax.  We do not maintain calculations of our earnings and profits under
U.S. federal income tax principles, and, therefore, U.S. Holders should expect
that any distributions generally will be reported as dividends for U.S. federal
income tax purposes.  As used below, the term “dividend” means a
distribution that constitutes a dividend for U.S. federal income tax
purposes.
 
 103
 
 A U.S.
Holder will be entitled, subject to a number of complex limitations and
conditions, to claim a U.S. foreign tax credit in respect of any Colombian
income taxes withheld on dividends received on common shares or ADSs.  U.S.
Holders who do not elect to claim a credit for any foreign income taxes paid
during the taxable year may instead claim a deduction in respect of such
Colombian income taxes.  Dividends received with respect to the common
shares or ADSs will be treated as foreign source income, subject to various
classifications and other limitations.  For purposes of the U.S. foreign
tax credit limitation, foreign source income is separated into different
“baskets,” and the credit for foreign taxes on income in any basket is limited
to the U.S. federal income tax allocable to such income.  Dividends paid
with respect to our common shares or ADSs generally will constitute “passive
category income” in most cases.  The U.S. Treasury Department has expressed
concerns that parties to whom depositary shares such as the ADSs are released
may be taking actions that are inconsistent with the claiming of foreign tax
credits by U.S. Holders of such ADSs.  Accordingly, the analysis of the
creditability of Colombian income taxes described above could be affected by
future actions that may be taken by the U.S. Treasury Department.  The
rules relating to computing foreign tax credits or deducting foreign income
taxes are extremely complex, and U.S. Holders are urged to consult their own
independent tax advisors regarding the availability of foreign tax credits with
respect to any Colombian income taxes withheld.
  Dividends
paid by us generally will not be eligible for the “dividends received deduction”
available under the Code to certain U.S. corporate shareholders.  Also,
dividends paid by us generally are not expected to qualify for the preferential
tax rates available to U.S. non-corporate shareholders for certain “qualified
dividend income”.
  The
amount of any cash distribution paid in Pesos will be included in your gross
income in an amount equal to the U.S. dollar value of the distribution,
calculated by reference to the exchange rate in effect at the time the
distribution is received by the U.S. Holder, in the case of our common shares,
or by the depositary, in the case of ADSs, regardless of whether the payment is
in fact converted to U.S. dollars at that time.  A U.S. Holder should not
recognize any foreign currency gain or loss in respect of such distribution if
such Pesos are converted into U.S. dollars on the date they are received by
the U.S. Holder, in the case of our common shares, or by the depositary, in the
case of ADSs.  If the Pesos are not converted into U.S. dollars on the date
of receipt, however, gain or loss may be recognized upon a subsequent sale or
other disposition of the Pesos.  Such foreign currency gain or loss, if
any, will be U.S. source ordinary income or loss.  U.S. Holders should
consult with their own independent tax advisors regarding the treatment of any
foreign currency gain or loss if any Pesos received as a dividend are not
converted into U.S. dollars on the date of receipt.
  Sale,
Exchange or Other Taxable Dispositions of Common Shares or ADSs
  A U.S.
Holder generally will recognize capital gain or loss upon the sale, exchange or
other taxable disposition of common shares or ADSs in an amount equal to the
difference between the amount realized on the sale, exchange or other taxable
disposition of the common shares or ADSs and the U.S. Holder’s adjusted tax
basis in the common shares or ADSs.  Any gain or loss will be long-term
capital gain or loss if the common shares or ADSs have been held for more than
one year.  Certain non-corporate U.S. Holders (including individuals) may
be eligible for preferential rates of U.S. federal income tax in respect of
long-term capital gains (which rates are scheduled to increase on January 1,
2011).  The deductibility of capital losses is subject to limitations under
the Code.
  If you
are a U.S. Holder of common shares or ADSs, the initial tax basis of your common
shares or ADSs will be the U.S. dollar value of the Peso-denominated purchase
price determined on the date of purchase.  If the common shares or ADSs are
treated as traded on an “established securities market,” a cash basis U.S.
Holder, or, if it elects, an accrual basis U.S. Holder, will determine the
dollar value of the cost of such common shares or ADSs by translating the amount
paid at the spot rate of exchange on the settlement date of the purchase. 
If you convert U.S. dollars to Pesos and immediately use that currency to
purchase common shares or ADSs, such conversion generally will not result in
taxable gain or loss to you.
 
 104
 
 With
respect to the sale or exchange of common shares or ADSs, the amount realized
generally will be the U.S. dollar value of the payment received determined on
(i) the date of receipt of payment in the case of a cash basis U.S. Holder
and (ii) the date of disposition in the case of an accrual basis U.S.
Holder.  If the common shares or ADSs are treated as traded on an
“established securities market,” a cash basis taxpayer, or, if it elects, an
accrual basis taxpayer, will determine the U.S. dollar value of the amount
realized by translating the amount received at the spot rate of exchange on the
settlement date of the sale.
  If a
Colombian income tax is withheld or otherwise imposed on the sale, exchange or
other taxable disposition of common shares or ADSs, the amount realized by a
U.S. Holder will include the gross amount of the proceeds of that sale or other
disposition before deduction of the Colombian income tax.  Capital gain or
loss, if any, realized by a U.S. Holder on the sale, exchange or other taxable
disposition of common shares or ADSs generally will be treated as U.S. source
income or loss for U.S. foreign tax credit purposes.  Consequently, in the
case of a disposition of a common share or ADS that is subject to Colombian
income tax imposed on the gain, the U.S. Holder may not be able to benefit from
the foreign tax credit for the Colombian income tax (because the income or loss
on the disposition would be U.S. sourced), unless the U.S. Holder can apply
the credit against U.S. federal income tax payable on other income from foreign
sources.  Alternatively, the U.S. Holder may take a deduction for the
Colombian income tax if it does not elect to claim a foreign tax credit for any
foreign income taxes paid or accrued during the taxable year.
  Deposits
and withdrawals of common shares in exchange for ADSs will not result in the
realization of gain or loss for U.S. federal income tax purposes.
  Passive
Foreign Investment Companies
  Special
U.S. federal income tax rules apply to U.S. Holders owning shares in a
PFIC.  A non-U.S. corporation generally will be classified as a PFIC for
U.S. federal income tax purposes in any taxable year in which, after applying
certain look-through rules with respect to the income and assets of
subsidiaries, either:
  ·
              at
      least 75% of its gross income is passive income;
  or
  ·
              at
      least 50% of the average value of its gross assets is attributable to
      assets that produce passive income or are held for the production of
      passive income.
  Passive
income for this purpose generally includes, among other things, dividends,
interest, royalties, rent, gains from the disposition of passive assets and
gains from commodities transactions (other than gains from commodities
transactions derived in the active conduct of a trade or business and not
derived from a related person).
  Based on
current estimates of our income, assets and the nature of our business, we do
not believe that we were classified for our most recently ended taxable year, or
will be classified for our current taxable year, as a PFIC and we intend to
continue our operations in such a manner that we do not expect that we would
become a PFIC in the future.  However, there can be no assurance in this
regard, because the PFIC determination is made annually and is based on the
portion of our assets (including goodwill) and income that is characterized as
passive under the PFIC rules, and further because our business plans may be
subject to change.  If we are or become a PFIC, unless a U.S. Holder elects
to be taxed annually on a mark-to-market basis with respect to its common shares
or ADSs, as described below, any gain realized on a sale or other taxable
disposition of our common shares or ADSs and certain “excess distributions”
(generally distributions in excess of 125% of the average distribution over a
three-year period or, if shorter, the holding period for our common shares or
ADSs) will be treated as ordinary income and will be subject to tax as if
(i) the excess distribution or gain had been realized ratably over the
U.S. Holder’s holding period for our common shares or ADSs, (ii) the
amount deemed realized in each year had been subject to tax in each such year at
the highest marginal rate for such year, and (iii) the interest charge
generally applicable to underpayments of tax had been imposed on the taxes
deemed to have been payable in those years.  Income allocated to the
current period or any taxable period before we became a PFIC, would be subject
to tax at the U.S. Holder’s regular ordinary income rate for the current year
and would not be subject to the interest charge discussed above.
 
 105
 
 If we are
treated as a PFIC, the rules above can be avoided by a U.S. Holder that makes a
mark-to-market election.  A U.S. Holder may make a mark-to-market election
for our common shares or ADSs if our common shares or ADSs constitute
“marketable stock” as defined in the Treasury Regulations.  Our common
shares and ADSs will be “marketable stock” if they are “regularly traded” on a
“qualified exchange or other market.”  We cannot provide any assurance that
our common shares or ADSs are or will be considered “marketable stock” for this
purpose.  In particular, it is unclear whether the BVC would meet the
requirements for a “qualified exchange or other market.”  If a
mark-to-market election were made, a U.S. Holder would take into account each
year the appreciation or depreciation in value of its common shares or ADSs as
if the common shares or ADSs were sold at fair market value at the end of the
year.  Such appreciation or depreciation generally would be treated as
ordinary income or ordinary loss, as would gains or losses on actual
dispositions of common shares or ADSs.  A U.S. Holder will be entitled to
deduct as an ordinary loss each year the excess of such holder’s adjusted tax
basis in the common shares over their fair market value at the end of the year,
but only to the extent of the net amount previously included in income as a
result of the mark-to-market election.  A mark-to-market election under the
PFIC rules with respect to shares would not apply to a subsidiary PFIC, and a
U.S. Holder would not be able to make such a mark-to-market election in respect
of its indirect ownership interest in that subsidiary PFIC.  Consequently,
U.S. Holders of shares could be subject to the PFIC rules with respect to income
of the subsidiary PFIC, the value of which already had been taken into account
indirectly via mark-to-market adjustments.
  Any U.S.
Holder who owns common shares or ADSs during any year that we are a PFIC would
be required to file IRS Form 8621.  U.S. Holders should consult their
own independent tax advisors regarding the application of the PFIC rules to the
common shares or ADSs and the availability and advisability of making a
mark-to-market election should we be considered a PFIC for any taxable
year.
  Backup
Withholding and Information Reporting
  In
general, dividends on common shares or ADSs, and payments of the proceeds of a
sale, exchange or other taxable disposition of common shares or ADSs, paid
within the United States, by a U.S. payor or through certain U.S.-related
financial intermediaries to a U.S. Holder are subject to information reporting
and may be subject to backup withholding at a current rate of 28% unless the
holder (i) establishes that it is a corporation or other exempt recipient
or (ii) with respect to backup withholding, provides an accurate taxpayer
identification number and certifies that it is a U.S. person and that no loss of
exemption from backup withholding has occurred.
  Backup
withholding is not an additional tax.  The amount of any backup withholding
tax from a payment to a U.S. Holder will be allowed as a credit against the U.S.
Holder’s U.S. federal income tax liability, provided that the required
information is timely furnished to the IRS.  A U.S. Holder generally may
obtain a refund of any amounts withheld under the backup withholding rules that
exceed its U.S. federal income tax liability by timely filing a refund claim
with the IRS.
  Non-U.S.
Holders
  The above
discussion does not address the U.S. federal income tax consequences of
acquiring, holding and disposing of our common shares or ADSs for holders of the
common shares or ADSs that are not U.S. Holders.  If you are such a
non-U.S. holder, you should consult your own independent tax advisor regarding
the U.S. federal income tax consequences, if any, of acquiring, owning and
disposing of our common shares or ADSs in your particular
circumstances.
  ITEM 10F
              Dividends
      and Paying Agents
  Not
applicable.
  ITEM 10G
              Statement
      by Experts
  Not
applicable.
 
 106
 
 ITEM 10H
              Documents
      on Display
  We have
filed this annual report on Form 20-F/A with the SEC under the Securities
Exchange Act of 1934, as amended, with respect to our common stock.  You
may read and copy all or any portion of this annual report or other information
in the SEC’s public reference room at 100 F. Street, NE, Washington, D.C.
20549.  You can also request copies of these documents upon payment of a
duplicating fee, by writing the SEC.  Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms. 
The SEC maintains a web site (http://www.sec.gov) that
contains all of our filings with the SEC.
  ITEM 10I
              Subsidiary
      Information
  Not
applicable.
  ITEM 11
              Quantitative
      and Qualitative Disclosures About Market
Risk
  Risk
Management and Financial Instruments
  We are
subject to a number of risks.  The most important risk we face is crude oil
price volatility.  Other exposures include currency and interest rate risk
as we hold in our treasury investment portfolios a number of foreign
currency-denominated instruments.
  Oil price
risk results from our day-to-day operations as we export and import crude oil
and refined products.
  Currently
we manage our exposure to oil price variation risk using the cash flow at risk
methodology.  Our exposure tool prices fluctuations, which are measured
based on the impact such price variations have on our cash flow. 
Specifically, we implemented CF@R or cash flow-at-risk methodology to determine
the impact of oil price variations on our cash flow.
  Currency
risk is mainly an accounting risk as we have to report our financial statements
in Pesos whereas 30% of our operations are denominated in U.S. dollars.  We
manage our currency risk by maintaining funds in U.S. dollars and in
Pesos.  We use our U.S. dollar funds to meet our U.S. dollar denominated
expenses and liabilities and our Peso funds to meet our Peso denominated
expenses.
  Interest
rate risk results from our exposure value of our floating-rate investments held
in our investment portfolio.  As interest rates vary, the value of our
floating-rate investments held in our investment portfolio can experience
fluctuations as a result of market movements.
  With
respect to interest rate risk, the effective duration of our fixed income
portfolio in U.S. dollars vary between +/- 25% versus the portfolio’s
benchmark.
  Since
2007 we have been using a financial model based on key rate durations to measure
our portfolio’s sensitivity to interest rate changes from each segment of the
curve.
  Through
this model, risk managers try to recognize the fact that yield curve movements
are caused by multiple market factors and do not depend on a curve equilibrium
model.  Also, the model allows us to calculate value at risk versus a
previously defined benchmark.
  Finally,
at December 2008 we did not have any off-balance sheet debt.  As a
result of this, our exposure to passive interest rate is only
marginal.
  From time
to time we enter into derivative contracts as we deem necessary to hedge our
exposure to oil price, exchange rate and interest rate risks.
  Investment
Guidelines
  Following
Decree 648 of 2001, our management established investment guidelines for our
investment portfolios.  In general terms, our guidelines determine that we
should invest our excess cash in fixed-income securities of issuers rated A+ or
higher according to the rating issued by a recognized rating agency.  We
have no limitation to invest in securities issued or guaranteed by the U.S.
government and we may invest in securities issued by OECD member countries so
long as they are rated A+ or higher.
 
 107
 
 Our
investment portfolio in U.S. dollars is segmented in four tranches, each one
matching our liquidity needs.  Working capital is calculated taking into
account our cash flow needs for the next 60 days.  The liquidity
tranche is calculated as the contingent cash flow needs over the working capital
taking into account the development of capital expenditure projects.  The
asset liability tranche is built to match our off-balance debt.  Finally,
the investment tranche is composed of the remaining resources from the total
portfolio after deducting the above mentioned tranches.
  Sensitivity
Analysis
  The
following table provides information about our financial statements as of
December 31, 2008 that may be sensitive to changes in WTI prices and
exchange rates:
  Income
                    Statement
                    2008
                
                
                Income
                    Statement
      Case
                    WTI(1)
      + US$1
                
                
                Differs
                    Between
                    Real
      2008
                    and
      Case
                    WTI
                
                
                Income
                    Statement
                    Case
                    TRM
      - 1%
                
                
                Differs
                    Between
      Real
                    2008
      and
                    Case
      TRM(Pesos
      in billions)Local
      Revenue
                
                
                21,598.00
                
                
                
                21,670.78
                
                
                
                72.78
                
                
                
                21,598.00
                
                
                
                0.00Export
      Revenue
                
                
                12,298.67
                
                
                
                12,412.55
                
                
                
                113.88
                
                
                
                12,182.94
                
                
                
                (115.73
                )Total
      Revenue
                
                
                33,896.67
                
                
                
                34,083.33
                
                
                
                186.66
                
                
                
                33,780.94
                
                
                
                (115.73
                )Cost
      of Sales
                
                
                19,023.65
                
                
                
                19,093.50
                
                
                
                69.85
                
                
                
                18,957.36
                
                
                
                (66.29
                )Selling
      Operating Expenses
                
                
                1,944.61
                
                
                
                1,944.61
                
                
                
                0.00
                
                
                
                1,944.61
                
                
                
                0.00Administrative
      Operating Expenses
                
                
                382.10
                
                
                
                382.10
                
                
                
                0.00
                
                
                
                382.10
                
                
                
                0.00Operating
      Profit
                
                
                12,546.31
                
                
                
                12,663.12
                
                
                
                116.81
                
                
                
                12,496.87
                
                
                
                (49.44
                )Non-Operating
      Income(Expenses)
                
                
                3,464.89
                
                
                
                3,464.89
                
                
                
                0.00
                
                
                
                3,592.84
                
                
                
                0.00Profit
      before Income Tax
                
                
                16,011.20
                
                
                
                16,128.01
                
                
                
                116.81
                
                
                
                15,961.76
                
                
                
                (49.44
                )Income
      Tax
                
                
                4,381.53
                
                
                
                4,413.45
                
                
                
                31.92
                
                
                
                4,368.02
                
                
                
                (13.51
                )Net
      Income
                
                
                11,629.68
                
                
                
                11,714.56
                
                
                
                84.89
                
                
                
                11,593.75
                
                
                
                (35.93
                )
 
 WTI= West
Texas Intermediate.
 (1)
              Average
      WTI for 2008 was US$99.71 for barrel.  Average Market Representative
      Rate for 2008 was $1,996.94 per
US$1.
  Assumptions
for the sensitivity analysis of Financial Statements
  ·
              The
      base scenario on which our sensitivity analysis is made corresponds to the
      Consolidated Statements of Financial, Economic and Social Activity or
      Income Statement for 2008 as presented elsewhere in this annual
      report.
  ·
              The
      sensitivity of the WTI price index is the increase/decrease of one dollar
      per barrel of crude oil in the average WTI reference price based on a
      366-day year, for 2008.  Prices assumed correspond to real prices for
      crude oil, natural gas and refined products for
  2008.
  ·
              The
      WTI sensitivity analysis maintains the price differentials for products
      against WTI prices, with the exception of price-regulated products for
      which real prices are taken.
  ·
              The
      sensitivity of our results to changes in the exchange rates, is the
      decrease by 1% on the average exchange rate for 2008 on a calendar day
      basis.
  ·
              Local
      sales are only affected by the variation in the exchange rates when their
      reference price is determined in U.S.
Dollars.
 
 108
 
 The table
below sets forth the line items that are being affected by the variation on the
reference prices or the average exchange rate.
  VARIATION
      ON WTI REFERENCE PRICE
                    
                    VARIATION
      ON AVERAGE EXCHANGE RATEOPERATING
      INCOMELocal
      Sales
                    
                    Local
      SalesCrude
      Oil
                    
                    Crude
      OilRegular
      gasoline and diesel
                    
                    Jet
      fuelLocal
      non-regulated product (Indirect effect)
                    
                    Natural
      gasRegular
      gasoline and dieselExports
                    
                    ExportsCrude
      Oil
                    
                    Crude
      OilRefined
      products
                    
                    Refined
      productsNatural
      gas
                    
                    Natural
      gasCOST
      OF SALESLocal
      purchases
                    
                    Local
      purchasesPurchases
      from business partners
                    
                    Purchases
      from business partnersPurchases
      of hydrocarbons from the ANH
                    
                    Purchases
      of hydrocarbons from the ANHImports
                    
                    ImportsCrude
      Oil
                    
                    Crude
      OilProducts
                    
                    ProductsNON-OPERATING
      INCOMEExchange
      incomeExchange
      loss
 
 ITEM 12
              Description
      of Securities Other than Equity
Securities
  Not
applicable.
  ITEM 12A
              Debt
      Securities
  Not
applicable.
  ITEM 12B
              Warrants
      and Rights
  Not
applicable.
  ITEM 12C
              Other
      Securities
  Not
applicable.
  ITEM 12D
              American
      Depositary Shares
  Not
applicable.
  ITEM 13
              Defaults,
      Dividend Arrearages and
Delinquencies
  None.
  ITEM 14
              Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds
  None.
 
 109
 
 ITEM 15
              Controls
      and Procedures
  Disclosure
Controls and Procedures
  We
carried out an evaluation under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2008.  There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures.  Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives.  Based upon and as of the date of our
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures are effective to provide reasonable
assurance that information required to be disclosed in the reports we file and
submit under the Securities Exchange Act is recorded, processed, summarized and
reported as and when required.
  Management’s
Annual Report on Internal Control over Financial Reporting
  This
annual report does not include a report of management’s assessment regarding
internal control over financial reporting due to a transition period established
by rules of the Securities and Exchange Commission for newly public
companies.
  Attestation
Report of the Registered Public Accounting Firm
  This
annual report does not include an attestation report of the company’s registered
public accounting firm due to a transition period established by rules of the
Securities and Exchange Commission for newly public companies.
  Changes
in Internal Control over Financial Reporting
  There
have been no changes in our internal controls over financial reporting or in
other factors during the fiscal year ended December 31, 2008, that have
materially affected, or is reasonably likely to materially affect, 
internal controls over financial reporting.
  ITEM 16
              [Reserved]
  ITEM 16A
              Audit
      Committee Financial Expert
  On
April 17, 2009, our Board of Directors determined that Mauricio Cardenas, a
member of our Audit Committee, meets the requirements of an “audit committee
financial expert” as defined by the Securities and Exchange
Commission.
  ITEM 16B
              Code
      of Ethics
  We
currently have a code of ethics which complies with the requirements of U.S. and
Colombian law.  Our Code of Ethics is available on our website at
http://www.ecopetrol.com.co/english/documentos/42238_CARTILLA_CODIGO_DE_ETICA-12-03-09.pdf.
  ITEM 16C
              Principal
      Accountant Fees and Services
  Principal
Accountant Fees
  Our
consolidated financial statements for fiscal year ended December 31, 2008
were audited by PricewaterhouseCoopers Ltda. (“PwC”) and our consolidated
financial statements for fiscal years ended December 31, 2007, 2006, 2005
and 2004 were audited by Ernst & Young Audit Ltda (“E&Y”).  The
following table sets forth the fees billed to us by PwC, during fiscal year
ended December 31, 2008, and E&Y, during fiscal years ended
December 31, 2008 and 2007:
  At December 31,2008 (PwC)
                    
                    
                    2008 (E&Y)
                    
                    
                    2007 (E&Y)(in
      millions of pesos, excluding 16% value added
                      tax)Audit
      fees
                    
                    
                    2,117
                    
                    
                    
                    3,465
                    
                    
                    
                    1,073Audit
      – related fees
                    
                    
                    168
                    
                    
                    
                    0
                    
                    
                    
                    0Total
                    
                    
                    2,285
                    
                    
                    
                    3,465
                    
                    
                    
                    1,073
 
 110
 
 Audit
Fees
  The audit
fees listed in the table above are the aggregated fees billed by
PricewaterhouseCoopers Ltda. and Ernst & Young Audit Ltda. in connection
with their audits of our annual consolidated financial statements (under
Colombian GAAP and U.S. GAAP), interim consolidated financial statements (under
Colombian GAAP), subsidiary audits (under Local GAAP) and review of periodic
documents filed with the SEC.  In addition, these audit fees include fees
related to our independent auditors’ audits of our internal controls over
financial reporting.
  Audited
– Related Fees
  The audit
– related fees listed in the table above are the fees billed by
PricewaterhouseCoopers Ltda. in connection with their audit of our variable
compensation bonus system.
  Audit
Committee Approval Policies and Procedures
  Our audit
committee has not established pre-approval policies and procedures for the
engagement of our independent auditors for services.  Our audit committee
expressly approves on a case-by-case basis any engagement of our independent
auditors for audit and non-audit services provided to us.
  ITEM 16D
              Exemptions
      from the Listing Standards for Audit
Committee
  Not
applicable.
  ITEM 16E
              Purchases
      of Equity Securities by the Issuer and Affiliated
    Purchasers
  None.
  ITEM 16F
              Change
      in Registrant’s Certifying
Accountant
  Not
Applicable.
  ITEM 16G
              Corporate
      Governance
  On
November 4, 2003, the NYSE established new corporate governance standards
(“NYSE standards”) that are applicable to NYSE-listed companies, including
non-U.S. issuers.  These standards were then amended on November 3,
2004.  Under these standards, non-U.S. issuers are permitted, in general,
to follow their home country corporate governance practices in lieu of most of
the new NYSE corporate governance requirements (the “NYSE Sections”) codified in
Section 303A of the NYSE’s Listed Company Manual.  Non-U.S. issuers
must comply with NYSE Sections 303A.06, 303A.11 and 303A.12(b) and
(c).  Section 303A.11 requires that non-U.S. issuers disclose any
significant ways in which their corporate governance practices differ from those
followed by U.S. companies in accordance with the NYSE Sections.
  Pursuant
to the requirements of Section 303A.11 of the NYSE’s Listed Company Manual,
the following is a summary of the significant differences between our corporate
governance standards and those required of U.S. companies in accordance
with the NYSE Sections:
 NYSE
Section 303A.01
  Requirement: 
Listed companies must have a majority of independent directors on their board of
directors.
 111
  Colombian
Requirement:  Law No. 964/2005 establishes that (i) listed companies
must be comprised of a minimum of five directors and a maximum of 10 directors
and (ii) at least 25% of board members must be independent.  Under our
corporate governance guidelines, our board of directors must be comprised of
nine directors, of which at least three must be independent.  As of the
date of this annual report, we have six independent directors.
  NYSE
Section 303A.02
  Requirement: 
Establishes general standards to evaluate directors’ independence (no director
qualifies as “independent” unless the board of directors affirmatively
determines that the director has no material relationship with the listed
company; directly or as a partner, shareholder or officer of an organization
that has a relationship with the company), and emphasizes that the concern is
independence from management.  The board of directors is also required to
express an opinion with regard to the independence or lack of independence of
each individual director.
  Colombian
Requirement:  Law No. 964/2005 sets forth the requirements under
which a board member is considered independent.  Law No. 964/2005 is
primarily concerned with independence from management and that no material
related-party relationship exists between the director and the company.  In
accordance with Law No. 964/2005, our corporate governance guidelines
establish the minimum independence requirements for our directors, requiring
them to maintain their independent status while holding such position. 
Once a director becomes non-independent, he or she must tender their
resignation.
  NYSE
Section 303A.03
  Requirement: 
The non-management directors of each listed company must meet at regularly
scheduled executive sessions without management.
  Colombian
Requirement:  A comparable rule does not exist under Colombian
law.  Except for our Audit Committee, our Board of Directors does not meet
without management.
  NYSE
Section 303A.04
  Requirement: 
Listed companies must have a nominating/corporate governance committee composed
entirely of independent directors, with a written charter that covers certain
minimum specified duties.
  Colombian
Requirement: Colombian law does not require the establishment of a
nominating/corporate governance committee composed entirely of independent
directors.  Pursuant to our by-laws, we have a three-member corporate
governance committee comprised of at least one independent director which acts
pursuant to a written charter that covers specific duties.
  NYSE
Section 303A.05
  Requirement: 
Listed companies must have a compensation committee composed entirely of
independent directors, with a written charter that covers certain minimum
specified duties.
 
 Colombian
Requirement: Colombian law does not require the establishment of a
compensation committee composed entirely of independent directors. 
Pursuant to our by-laws, we have a three-member compensation committee comprised
of at least one independent director which acts pursuant to a written charter
that covers specific duties.
 NYSE
Section 303A.06
  Requirement: 
Listed companies must have an “audit committee” that satisfies the requirements
of Rule 10A-3 under the Securities Exchange Act of 1934.  Foreign
private issuers must satisfy the requirements of Rule 10A-3 under the
Securities Exchange Act of 1934 by July 31, 2005.
  Colombian
Requirement:  According to Law No. 964/2005, Colombian companies
that are authorized to issue securities by the Superintendency of Finance must
have an audit committee that satisfies the requirements of Law No. 964/2005,
including its minimum number of members, independence criteria and audit-related
duties.  Our audit committee is composed by Mauricio Cardenas, María
Velasquez and Joaquín Moreno, all of whom are independent directors, and the
committee meets the requirements of Law No. 964/2005 and Rule 10A-3 under
the Securities Exchange Act of 1934
 112
  NYSE
Section 303A.07(a)
  Requirement:  An
audit committee shall consist of at least three members.  All of its
members must satisfy the requirements for independence set out in
Section 303A.02 and shall be financially literate or must acquire such
financial knowledge within a reasonable period and at least one of its members
shall have experience in accounting or financial administration.
  Colombian
Requirement: Colombian law requires that a company’s audit committee be
comprised of at least three members who must all be independent and have
adequate experience in accounting or financial administration in order to
adequately carry out the functions of an audit committee member.  All four
of our audit committee members are independent and financially literate. 
In addition, Mauricio Cardenas, a member of our audit committee, meets the
requirements of an “audit committee financial expert” as defined by the
SEC.
  NYSE
Section 303A.07(b).
  Requirement:  If
a member of the audit committee is simultaneously a member of the audit
committee of more than three public companies, and the listed company does not
limit the number of audit committees on which its members may serve, then, in
each case the board of directors shall determine whether the simultaneous
service would prevent such members from effectively serving on the listed
company’s audit committee, and shall disclose its decision in the annual proxy
statement of the company or in the company’s annual report on Form 10-K,
which is filed with the SEC.
  Colombian
Requirement:  A comparable rule does not exist under Colombian law
nor our corporate governance guidelines.  However, under our by-laws, a
member of our board of directors cannot sit on the board of more than five
companies.
  NYSE
Section 303A.07(c)
  Requirement:  An
audit committee shall have a written charter establishing the duties and
responsibilities of its members, including the duties and responsibilities
required, at a minimum, by Rule 10A-3(b)(2-5) of the Securities Exchange
Act of 1934.
  Colombian
Requirement:  Law No. 964/2005 establishes the functions and
responsibilities of an audit committee, which are substantially similar to those
required under Rule 10A-3 of the Securities Exchange Act of 1934.  Our
audit committee acts pursuant to a written charter which establishes the
specific duties and responsibilities of our audit committee members.  These
duties and responsibilities are essentially the same as those required under
Rule 10A-3 of the Securities Exchange Act of 1934.
  NYSE
Section 303A.07(c)(iii)(A)
  Requirement: 
Provides that the audit committee must, at least annually, obtain and review
report by the independent auditor describing:  the firm’s internal
quality-control procedures; any material issues raised by the most recent
internal quality-control review, or peer review, of the firm, or by any inquiry
or investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits carried out by
the firm, and any steps taken to deal with any such issues; and all
relationships between the independent auditor and the company.
  Colombian
Requirement:  Decree No. 410/1971 and Law No. 222/1995 regulate the
contents of the reports prepared by the independent auditors and compliance with
the recommendations set forth therein.  Pursuant to our by-laws, our audit
committee must review our independent auditor’s reports, including its
assessment of our internal control over financial reporting.
 
 113
 
 NYSE
Section 303A.07(c)(iii)(B-C)
  Requirement: 
Provides that the audit committee shall:  meet to review and discuss the
company’s annual audited consolidated financial statements and quarterly
financial statements with management and the independent auditor, including
reviewing the company’s specific disclosures under “Operating and Financial
Review and Prospects,” and discuss the company’s earnings press releases, as
well as financial information and earnings guidance provided to analysts and
rating agencies.
  Colombian
Requirement: Pursuant to Law No. 964/2005, the audit committee is
responsible for reviewing the company’s annual audited consolidated financial
statements and quarterly financial statements.  Our audit committee reviews
our annual audited consolidated financial statements and quarterly financial
statements as well as our public disclosures about the Company’s financial
information.
  NYSE
Section 303A.07(c)(iii)(D-H)
  Requirement: 
Provides that the audit committee shall:  discuss policies with respect to
risk assessment and risk management; meet separately, periodically, with
management, with internal auditors (or other personnel responsible for the
internal audit function) and with independent auditors; review with the
independent auditor any audit problems or difficulties and management’s
response; set clear policies for hiring external auditors’ employees; and report
regularly to the board of directors.
  Colombian
Requirement:  Law No. 964/2005 requires the audit committee to
supervise a company’s risk assessment and internal quality-control
program.  Our audit committee supervises our risk assessment and internal
quality-control program and makes recommendations related to such program,
presents any quality-control risk to the Company’s shareholders and reports
regularly to our board of directors.
  NYSE
Section 303A.07(d)
  Requirement: 
Provides that each company must have an internal audit function to provide
management and the audit committee with ongoing assessments of the company’s
risk management processes and system of internal control.
  Colombian
Requirement:  Law No. 87/1993 requires state-owned companies to have
an internal audit function in order to provide ongoing assessments of the
company’s risk management processes and system of internal control.  Since
becoming a mixed economy company on November 13, 2007, Law No. 87/1993 no
longer applies to us.  However, we do have an internal audit department
that provides ongoing assessments about our risk management processes and system
of internal control.  Our internal audit department follows the standards
set forth by the Committee of Sponsoring Organizations (COSO).
  NYSE
Section 303A.08
  Requirement: 
Shareholders must be given the opportunity to vote on equity compensation plans
and material revisions thereto, with limited exemptions set forth in the NYSE
standards.
  Colombian
Requirement:  No similar opportunity to vote on equity compensation
plans and material revisions thereto is given to shareholders under Colombian
law.  We do not give our shareholders the right to vote on equity
compensation plans and material revisions thereto.
  NYSE
Section 303A.09
  Requirement: 
Listed companies must adopt and disclose corporate governance
guidelines.
  Colombian
Requirement: The Superintendency of Finance does recommend the adoption
of corporate governance guidelines.  However, according to Superintendency
of Finance Circular No. 056/2007, the adoption of corporate governance
guidelines is voluntary.  Nevertheless, listed companies must annually
publish a corporate governance survey comparing their corporate governance
standards with those recommended by the Superintendency of Finance.  Our
corporate governance guidelines are listed on our website at 
http://www.ecopetrol.com.co.
 
 114
 
 NYSE
Section 303A.10
  Requirement: 
Listed companies must adopt and disclose a code of business conduct and ethics
for directors, officers and employees, and promptly disclose any waivers of the
code for directors or executive officers.
  Colombian
Requirement:  Colombian law requires that companies adopt a code of
ethics for directors, officers and employees.  We have adopted a code of
ethics which applies to our directors, officers and employees.  Our code of
ethics can be found on our website at
http://www.ecopetrol.com.co/english/documentos/42238_CARTILLA_CODIGO_DE_ETICA-12-03-09.pdf.
  NYSE
Section 303A.12(a)
  Requirement: 
The CEO must certify to the NYSE each year that he or she is not aware of any
violation by the company of NYSE corporate governance listing standards,
qualifying the certification to the extent necessary.
  Colombian
Requirement:  No such requirement exists under Colombian
law.
  NYSE
Section 303A.12(b)
  Requirement: 
The CEO shall notify the NYSE in writing whenever any executive officer of the
company becomes aware of any material noncompliance with of any applicable
provision of NYSE Section 303A.
  Colombian
Requirement:  No such requirement exists under Colombian
law.
  NYSE
Section 303A.12(c)
  Requirement: 
Listed companies must submit an executed Written Affirmation annually to the
NYSE.  In addition, listed companies must submit an interim Written
Affirmation each time a change occurs to the board or any of the committees
subject to Section 303A.
  Colombian
Requirement:  No such requirement exists under Colombian
law.
  ITEM 17
              Financial
      Statements
  Not
applicable.
  ITEM 18
              Financial
      Statements
  See page
F-1 through F-109.
  ITEM 19
              Exhibits
  Exhibit No.
                  
                  Description1.1
                  
                  By-laws
      of Ecopetrol S.A. dated November 6, 2007 as recorded under Public Deed No.
      5314 of November 14, 2007 (incorporated by reference to Exhibit 1.1 on
      Form 20-F filed with the U.S. Securities and Exchange Commission on
      September 12, 2008 (File No. 001-34175)).4.1
                  
                  Transportation
      Agreement between Ecopetrol S.A. and Ocensa S.A., dated March 31, 1995
      (incorporated by reference to Exhibit 4.1 on Form 20-F filed with the U.S.
      Securities and Exchange Commission on September 12, 2008 (File No.
      001-34175)).
 
 115
  4.2
              
              Natural
      Gas Transportation Agreement between Ecopetrol S.A. and Empresa Colombiana
      de Gas-Ecogás, dated October 6, 2006 (incorporated by reference to Exhibit
      4.2 on Form 20-F filed with the U.S. Securities and Exchange Commission on
      September 12, 2008 (File No. 001-34175)).8.1
              
              Subsidiaries
      of Ecopetrol S.A.12.1
              
              Section 302
      Certification of the Chief Executive Officer.12.2
              
              Section 302
      Certification of the Chief Financial Officer.13.1
              
              Section 906
      Certification of the Chief Executive Officer.13.2
              
              Section 906
      Certification of the Chief Financial
Officer.
  116
  SIGNATURES
  The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F/A and that it has duly caused and authorized the undersigned to
sign this annual report on its behalf.
  ECOPETROL
      S.A.By:
                /s/ Adriana M.
    EcheverriName: 
      Adriana M. EcheverriTitle: 
       Chief Financial OfficerBy:
                /s/ Javier G.
    GutiérrezName: 
        Javier G. GutiérrezTitle: 
          Chief Executive Officer
  Date: 
June 30, 2009
 
 117
  ANNEX
I
 DESCRIPTION
OF EXPLORATION AND PRODUCTION CONTRACTS
  Region
                  
                  Contract
                    Name
                  
                  Type
      of
                    Agreement
                  
                  Purpose
                  
                  Operator
                  
                  Partners
                  
                  Ownership
                    Percentage
                  
                  Term
      of
                    Contract
                  
                  Expiration
                    Date
                  
                  Right
      of
                    Reversion
                    upon
                    Termination
                  
                  RoyaltySouthern
                  
                  Abanico
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Kappa
      Resources Colombia Limited
                  
                  Kappa
      Resources Colombia Limited
                  
                  50%
                  
                  28 years
                  
                  October 10,
      2024
                  
                  Yes
                  
                  5%
      to 25%Catatumbo-Orinoquía
                  
                  Alcaravan
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Harken
      de Colombia Ltd.
                  
                  Harken
      de Colombia Ltd.
                  
                  50%
                  
                  28 years
                  
                  February 13,
      2021
                  
                  No
                  
                  20%Southern
                  
                  Ambrosia
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Interoil
                  
                  Interoil
                  
                  30%
                  
                  28 years
                  
                  December 27,
      2027
                  
                  Yes
                  
                  8%
      to 25%Mid
      – Magdalena Valley
                  
                  Arjona
                  
                  Discovered
      Undeveloped Field
                  
                  E&P-
      Discovered and Undeveloped Field
                  
                  Vetra-
      NCT
                  
                  Vetra-
      NCT Consortium
                  
                  35%
                  
                  10 years
                  
                  March 9,
      2017
                  
                  Yes
                  
                  8%
      to 25%Southern
                  
                  Armero
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Interoil
                  
                  Interoil
                  
                  50%
                  
                  28 years
                  
                  December 31,
      2010
                  
                  Yes
                  
                  20%Mid
      – Magdalena Valley
                  
                  Barranca
      lebrija
                  
                  Discovered
      Undeveloped Field
                  
                  Develop
      Field
                  
                  Union
      Temporal Mocam
                  
                  Union
      Temporal Mocam
                  
                  8%
                  
                  10 years
                  
                  December 31,
      2013
                  
                  Yes
                  
                  20%Mid
      – Magdalena Valley
                  
                  Bocachico
                  
                  Joint
      Venture- Sole Risk
                  
                  E&P
                  
                  Harken
      de Colombia S.A.
                  
                  Harken
      de Colombia S.A.
                  
                  0%
                  
                  28 years
                  
                  March 7,
      2022
                  
                  Yes
                  
                  20%Catatumbo-Orinoquía
                  
                  Bolivar
                  
                  Joint
      Venture- Sole Risk
                  
                  E&P
                  
                  Harken
      de Colombia Ltda.
                  
                  Harken
      de Colombia Ltda. and Harken Energy Corporation
                  
                  0%
                  
                  28 years
                  
                  June 12,
      2024
                  
                  Yes
                  
                  20%Southern
                  
                  Boqueron
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Petrobras
                  
                  Petrobras
                  
                  50%
                  
                  28 years
                  
                  October 2,
      2023
                  
                  Yes
                  
                  5%
      to 25%Southern
                  
                  Caguan
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Petrobras
                  
                  Petrobras
                  
                  50%
                  
                  28 years
                  
                  December 31,
      2011
                  
                  Yes
                  
                  20%Central
                  
                  Camoa
                  
                  Discovered
      Undeveloped Field
                  
                  E&P-Discovered
      and Undeveloped Field
                  
                  Drilling
      and Workeover Services Ltda
                  
                  Drilling
      and Workeover Services Ltda.
                  
                  20%
                  
                  10 years
                  
                  December 28,
      2013
                  
                  Yes
                  
                  6%
      to 25%Catatumbo-Orinoquía
                  
                  Campo
      Rico
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Emerald
      Energy PLC Sucursal Colombia
                  
                  Emerald
      Energy PLC Sucursal Colombia
                  
                  50%
                  
                  25 years
                  
                  May 24,
      2027
                  
                  Yes
                  
                  8%
      to 25%Catatumbo-Orinoquía
                  
                  Capachos
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Repsol
      YPF
                  
                  Repsol
      YPF
                  
                  50%
                  
                  28 years
                  
                  September 15,
      2025
                  
                  Yes
                  
                  5%
      to 25%Central
                  
                  Caracara
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Cepcolsa
                  
                  Cepcolsa
                  
                  30%
                  
                  28 years
                  
                  April 9,
      2029
                  
                  Yes
                  
                  8%
      to 25%Mid
      – Magdalena Valley
                  
                  Carare
      las Monas
                  
                  Joint
      Venture
                  
                  Production
                  
                  Petrosantander
                  
                  Petrosantander
                  
                  30%
                  
                  Until
      economic limit
                  
                  Until
      economic limit
                  
                  Yes
                  
                  20%Catatumbo-Orinoquía
                  
                  Carbonera
      la Silla
                  
                  Discovered
      Undeveloped Field
                  
                  E&P-
      Discovered and Undeveloped Fields
                  
                  Mompos
      Oil Company Inc.
                  
                  Mompos
      Construction
                  
                  6%
                  
                  10 years
                  
                  October 25,
      2014
                  
                  Yes
                  
                  20%Catatumbo-Orinoquía
                  
                  Casanare
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Perenco
                  
                  Perenco
      Hocol and Homcol
                  
                  64%
                  
                  28 years
                  
                  Until
      economic limit
                  
                  No
                  
                  20%Catatumbo-Orinoquía
                  
                  Cerrito
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Kappa
      Resources Colombia Ltda.
                  
                  Kappa
      Resources Colombia Ltda.
                  
                  0%
                  
                  27.5 years
                  
                  August 17,
      2029
                  
                  Yes
                  
                  20%Southern
                  
                  Chaparral
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Petrotesting
                  
                  Petrotesting
                  
                  50%
                  
                  28 years
                  
                  October 4,
      2012
                  
                  Yes
                  
                  8%
      to 25%Southern
                  
                  Chenche
                  
                  Discovered
      Undeveloped Field
                  
                  E&P
                  
                  Petrotesting
                  
                  Petrotesting
                  
                  70%
                  
                  10 years
                  
                  December 28,
      2013
                  
                  Yes
                  
                  8%
      to 25%Southern
                  
                  Chipalo
                  
                  Joint
      Venture Sole Risk
                  
                  E&P
                  
                  Kappa
      Resources Colombia Limited
                  
                  Kappa
      Resources Colombia Limited
                  
                  0%
                  
                  28 years
                  
                  February 27,
      2026
                  
                  Yes
                  
                  8%
      to 25%Catatumbo-Orinoquía
                  
                  Chipiron
                  
                  Joint
      Venture
                  
                  E&P
                  
                  Occidental
      de Colombia Inc.
                  
                  Occidental
      de Colombia Inc. and Occidental Andina
                  
                  30%
                  
                  25 years
                  
                  February 13,
      2028
                  
                  Yes
                  
                  8%
      to 25%
  A-1
 Region
                    
                    Contract
                      Name
                    
                    Type
      of
                      Agreement
                    
                    Purpose
                    
                    Operator
                    
                    Partners
                    
                    Ownership
                      Percentage
                    
                    Term
      of
                      Contract
                    
                    Expiration
                      Date
                    
                    Right
      of
                      Reversion
                      upon
                      Termination
                    
                    RoyaltyMid
      – Magdalena Valley
                    
                    Cocorna
                    
                    Joint
      Venture
                    
                    Production
                    
                    Mansarovar
      Energy Colombia Ltd.
                    
                    Mansarovar
      Energy Colombia Ltd.
                    
                    50%
                    
                    28 years
                    
                    September 1,
      2008
                    
                    Yes
                    
                    20%Catatumbo-Orinoquía
                    
                    Corocora
                    
                    Joint
      Venture
                    
                    E&P
                    
                    Perenco
                    
                    Hocol
      and Perenco
                    
                    50%
                    
                    28 years
                    
                    Until
      economic limit
                    
                    No
                    
                    8%
      to 25%Catatumbo-Orinoquía
                    
                    Cosecha
                    
                    Joint
      Venture
                    
                    E&P
                    
                    Occidental
      de Colombia Inc.
                    
                    Occidental
      de Colombia Inc.
                    
                    30%
                    
                    28 years
                    
                    October 31,
      2030
                    
                    Yes
                    
                    8%
      to 25%Southern
                    
                    CPR
      Santana
                    
                    Risk
      participation contract
                    
                    E&P
                    
                    Gran
      Tierra Colombia
                    
                    Gran
      Tierra Colombia
                    
                    65%
                    
                    28 years
                    
                    July 27,
      2015
                    
                    Yes
                    
                    20%Catatumbo-Orinoquía
                    
                    Cravo
      Norte
                    
                    Joint
      Venture
                    
                    E&P
                    
                    Occidental
      de Colombia Inc.
                    
                    Occidental
      de Colombia Inc.
                    
                    54.48%
                    
                    Until
      economic limit
                    
                    Until
      economic limit
                    
                    No
                    
                    5%
      to 25%Southern
                    
                    Dindal
                    
                    Joint
      Venture Sole Risk
                    
                    E&P
                    
                    SIPETROL
                    
                    SIPETROL
                    
                    0%
                    
                    28 years
                    
                    March 22,
      2021
                    
                    Yes
                    
                    20%Catatumbo-Orinoquía
                    
                    Entrerrios
                    
                    Discovered
      Undeveloped Field
                    
                    E&P
      Discovered and Undeveloped Field
                    
                    Union
      Temporal Andina composed by Rancho Hermoso S.A., Celsa S.A., Inversiones
      Valin Ltda & CIA S.C.A. and Saturde S.A.
                    
                    Union
      Temporal Andina composed by Rancho Hermoso S.A., Celsa S.A., Inversiones
      Valin Ltda & CIA S.C.A. and Saturde S.A.
                    
                    61%
                    
                    10 years
                    
                    December 28,
      2013
                    
                    Yes
                    
                    8%
      to 25%Southern
                    
                    Espinal
                    
                    Risk
      participation contract
                    
                    E&P
                    
                    Petrobras
                    
                    Petrobras
                    
                    55%
                    
                    28 years
                    
                    October,
      2015
                    
                    Yes
                    
                    20%Catatumbo-Orinoquía
                    
                    Estero
                    
                    Joint
      Venture
                    
                    E&P
                    
                    Perenco
                    
                    Perenco
      Hocol and Homcol
                    
                    50%
                    
                    28 years
                    
                    Until
      economic limit
                    
                    No
                    
                    20%Catatumbo-Orinoquía
                    
                    Garcero
                    
                    Joint
      Venture Sole Risk
                    
                    E&P
                    
                    Perenco
                    
                    Perenco
      Hocol and Homcol
                    
                    50%
                    
                    28 years
                    
                    Until
      economic limit
                    
                    No
                    
                    5%
      to 25%Catatumbo-Orinoquía
                    
                    Guachiria
                    
                    Joint
      Venture
                    
                    E&P
                    
                    Solana
                    
                    Solana
      Petroleum Exploration Colombia Limited
                    
                    13%
                    
                    28 years
                    
                    September 30,
      2031
                    
                    Yes
                    
                    8%
      to 25%Northeastern
                    
                    Guajira
                    
                    Joint
      Venture
                    
                    E&P
                    
                    Chevron
      Petroleum Company
                    
                    Chevron
      Petroleum Company
                    
                    57%
                    
                    Until
      economic limit
                    
                    Until
      economic limit
                    
                    No
                    
                    20%Catatumbo-Orinoquía
                    
                    Guarimea
                    
                    Discovered
      Undeveloped Field
                    
                    E&P
      Discovered and Undeveloped Field
                    
                    Petrotesting
      Colombia S.A.
                    
                    Petrotesting
      Colombia S.A.
                    
                    81%
                    
                    10 years
                    
                    January 17,
      2018
                    
                    Yes
                    
                    8%
      to 25%Southern
                    
                    Guayuyaco
                    
                    Joint
      Venture
                    
                    E&P
                    
                    Gran
      Tierra Colombia
                    
                    Gran
      Tierra Colombia
                    
                    30%
                    
                    28 years
                    
                    May 30,
      2030
                    
                    Yes
                    
                    8%
      to 25%Southern
                    
                    Hato
      Nuevo
                    
                    Discovered
      Undeveloped Field
                    
                    E&P
                    
                    NCT
      Consortium
                    
                    NCT
      Consortium
                    
                    41%
                    
                    10 years
                    
                    July 3,
      2016
                    
                    Yes
                    
                    32%Southern
                    
                    Hobo
                    
                    Joint
      Venture
                    
                    E&P
                    
                    Petrobras
                    
                    Petrobras
                    
                    50%
                    
                    28 years
                    
                    December 31,
      2011
                    
                    Yes
                    
                    20%Mid–
      Magdalena Valley
                    
                    La
      Cira
                    
                    Business
      Cooperation
                    
                    E&P
                    
                    Ecopetrol
      S.A.
                    
                    Occidental
      de Colombia and Ecopetrol S.A.
                    
                    52%
                    
                    Undetermined
                    
                    Undetermined
                    
                    No
                    
                    8%
      to 25%Catatumbo-Orinoquía
                    
                    La
      Punta
                    
                    Discovered
      Undeveloped Field
                    
                    E&P
      Discovered and Undeveloped Field
                    
                    Petrotesting
      Colombia S.A.
                    
                    Petrotesting
      Colombia S.A.
                    
                    70%
                    
                    10 years
                    
                    December 28,
      2013
                    
                    Yes
                    
                    8%
      to 25%Mid
      – Magdalena Valley
                    
                    Las
      Quinchas
                    
                    Joint
      Venture- Sole Risk
                    
                    E&P
                    
                    Kappa
      Resources Colombia Limited
                    
                    Kappa
      Resources Colombia Limited
                    
                    7%
                    
                    Until
      economic limit
                    
                    Until
      economic limit
                    
                    Yes
                    
                    20%Mid
      – Magdalena Valley
                    
                    Lebrija
                    
                    Joint
      Venture- Sole Risk
                    
                    E&P
                    
                    Petroleos
      del Norte S.A.
                    
                    Petroleos
      del Norte S.A.
                    
                    0%
                    
                    28 years
                    
                    August 26,
      2013
                    
                    Yes
                    
                    20%
 A-2
  Region
                      
                      Contract
                        Name
                      
                      Type
      of
                        Agreement
                      
                      Purpose
                      
                      Operator
                      
                      Partners
                      
                      Ownership
                        Percentage
                      
                      Term
      of
                        Contract
                      
                      Expiration
                        Date
                      
                      Right
      of
                        Reversion
                        upon
                        Termination
                      
                      RoyaltyMid–
      Magdalena Valley
                      
                      Magangué
                      
                      Joint
      Venture
                      
                      E&P
                      
                      Solana
      Petroleum Exploration (Colombia Limited)
                      
                      Solana
      Petroleum Exploration
                      
                      58%
                      
                      28 years
                      
                      January 1,
      2018
                      
                      Yes
                      
                      20%Southern
                      
                      Mana
                      
                      Joint
      Venture
                      
                      E&P
                      
                      Interoil
                      
                      Interoil
                      
                      30%
                      
                      28 years
                      
                      November 11,
      2028
                      
                      Yes
                      
                      8%
      to 25%Mid
      – Magdalena Valley
                      
                      Maracas
                      
                      Joint
      Venture Sole Risk
                      
                      E&P
                      
                      Texican
      Oil Ltd.
                      
                      Texican
      Oil Ltd.
                      
                      0%
                      
                      28 years
                      
                      March 5,
      2024
                      
                      Yes
                      
                      20%Southern
                      
                      Matambo
                      
                      Joint
      Venture
                      
                      E&P
                      
                      Emerald
      Energy PLC
                      
                      Emerald
      Energy PLC
                      
                      25%
                      
                      28 years
                      
                      November 29,
      2024
                      
                      Yes
                      
                      20%Mid
      – Magdalena Valley
                      
                      Mugrosa
                      
                      Discovered
      Undeveloped Field
                      
                      Develop
      Field
                      
                      Cosacol
      S.A.
                      
                      Cosacol
      S.A.
                      
                      53%
                      
                      10 years
                      
                      July 12,
      2015
                      
                      Yes
                      
                      20%Southern
                      
                      Nancy-Burdine-
      Maxime
                      
                      Discovered
      Undeveloped Field
                      
                      E
      &P
                      
                      Union
      Temporal II&B
                      
                      Union
      Temporal II&B
                      
                      41%
                      
                      10 years
                      
                      December 28,
      2013
                      
                      Yes
                      
                      20%Mid
      – Magdalena Valley
                      
                      Nare
                      
                      Joint
      Venture
                      
                      Production
                      
                      Mansarovar
      Energy Colombia Ltd.
                      
                      Mansarovar
      Energy Colombia Ltd.
                      
                      50%
                      
                      28 years
                      
                      November 4,
      2021
                      
                      Yes
                      
                      20%Southern
                      
                      Neiva
                      
                      Incremental
      Production
                      
                      E&P
                      
                      Ecopetrol
                      
                      Petrominerales
                      
                      31%
                      
                      22 years
                      
                      June 5,
      2023
                      
                      Yes
                      
                      8%
      to 25%Mid
      – Magdalena Valley
                      
                      Opon
                      
                      Joint
      Venture
                      
                      Production
                      
                      Compañía
      Operadora Petrocolombina
                      
                      Compañía
      Operadora Petrocolombina
                      
                      0%
                      
                      28 years
                      
                      July 14,
      2015
                      
                      Yes
                      
                      20%Mid
      – Magdalena Valley
                      
                      Opon-6
                      
                      Joint
      Venture- Sole Risk
                      
                      E&P
                      
                      Compañía
      Operadora Petrocolombina
                      
                      Compañía
      Operadora Petrocolombina
                      
                      0%
                      
                      N/A
                      
                      July 14,
      2015
                      
                      Yes
                      
                      20%Southern
                      
                      Orito
                      
                      Incremental
      Production
                      
                      E&P
                      
                      Ecopetrol
                      
                      Petrominerales
                      
                      21%
                      
                      22 years
                      
                      June 5,
      2023
                      
                      Yes
                      
                      8%
      to 25%Catatumbo-Orinoquía
                      
                      Orocue
                      
                      Joint
      Venture
                      
                      E&P
                      
                      Perenco
                      
                      Perenco
      and Hocol
                      
                      50%
                      
                      28 years
                      
                      Until
      economic limit
                      
                      No
                      
                      20%Southern
                      
                      Ortega
                      
                      Incremental
      Production
                      
                      E&P
                      
                      Ecopetrol
                      
                      Hocol
      S.A.
                      
                      31%
                      
                      22 years
                      
                      March 18,
      2023
                      
                      Yes
                      
                      8%Mid
      – Magdalena Valley
                      
                      Palagua
                      
                      Incremental
      Production
                      
                      Production
                      
                      Union
      Temporal IJP
                      
                      Union
      Temporal Isomocol, Joshi- Petcar- Parko
                      
                      50%
                      
                      22 years
                      
                      July 14,
      2023
                      
                      Yes
                      
                      20%Southern
                      
                      Palermo
                      
                      Joint
      Venture
                      
                      E&P
                      
                      Hocol
      S.A.
                      
                      Hocol
      S.A.
                      
                      50%
                      
                      28 years
                      
                      April 30,
      2012
                      
                      Yes
                      
                      20%Mid
      – Magdalena Valley
                      
                      Pavas-
      Cachira
                      
                      Discovered
      Undeveloped Field
                      
                      Develop
      Field
                      
                      Ismocol
      de Colombia S.A.
                      
                      Union
      Temporal Isomocol, Joshi- Petcar- Parko
                      
                      5%
                      
                      10 years
                      
                      December 29,
      2013
                      
                      Yes
                      
                      20%Northeastern
                      
                      Piedemonte
                      
                      Joint
      Venture
                      
                      E&P
                      
                      BP
                      
                      BP
                      
                      50%
                      
                      28 years
                      
                      February 29,
      2020
                      
                      Yes
                      
                      20%Central
                      
                      Piriri
                      
                      Joint
      Venture
                      
                      E&P
                      
                      Metapetroleum
                      
                      Tethys
      Petroleum Company Limited, and Metapetroleum
                      
                      50%
                      
                      28 years
                      
                      June 30,
      2016
                      
                      Yes
                      
                      20%Mid
      – Magdalena Valley
                      
                      Playon
                      
                      Discovered
      Undeveloped Field
                      
                      Develop
      Field
                      
                      Serinpet
                      
                      Representaciones
      y Servicios de Petroleos Serinpet
                      
                      54%
                      
                      10 years
                      
                      July 12,
      2015
                      
                      Yes
                      
                      20%Catatumbo-Orinoquía
                      
                      Puerto
      Barco
                      
                      Discovered
      Undeveloped Field
                      
                      E&P-
      Discovered and Undeveloped Fields
                      
                      Petrotesting
      Colombia S.A.
                      
                      Petrotesting
      Colombia S.A.
                      
                      6%
                      
                      10 years
                      
                      December 29,
      2013
                      
                      Yes
                      
                      20%Southern
                      
                      Puli
                      
                      Joint
      Venture
                      
                      E&P
                      
                      Interoil
                      
                      Interoil.
                      
                      50%
                      
                      28 years
                      
                      February 29,
      2012
                      
                      Yes
                      
                      20%Mid
      – Magdalena Valley
                      
                      Quebrada
      Roja
                      
                      Discovered
      Undeveloped Field
                      
                      Develop
      Field
                      
                      Campos
      de Producción Consortium
                      
                      Campos
      de Producción Consortium
                      
                      58%
                      
                      10 years
                      
                      July 12,
      2015
                      
                      Yes
                      
                      20%Northeastern
                      
                      Recetor
                      
                      Joint
      Venture
                      
                      E&P
                      
                      BP
                      
                      BP
                      
                      50%
                      
                      28 years
                      
                      May 29,
      2017
                      
                      Yes
                      
                      20%Northeastern
                      
                      Rio
      Chitamea
                      
                      Joint
      Venture
                      
                      E&P
                      
                      BP
                      
                      BP
                      
                      50%
                      
                      28 years
                      
                      January 31,
      2019
                      
                      Yes
                      
                      20%Catatumbo-Orinoquía
                      
                      Rio
      de Oro
                      
                      Discovered
      Undeveloped Field
                      
                      E&P-
      Discovered and Undeveloped Fields
                      
                      Petrotesting
      Colombia S.A.
                      
                      Petrotesting
      Colombia S.A.
                      
                      12%
                      
                      10 years
                      
                      December 29,
      2013
                      
                      Yes
                      
                      20%Southern
                      
                      Rio
      Opia
                      
                      Joint
      Venture
                      
                      E&P
                      
                      Interoil
                      
                      Interoil
                      
                      30%
                      
                      28 years
                      
                      June 23,
      2030
                      
                      Yes
                      
                      8%
      to 25%
  A-3
  Region
                    
                    Contract
                      Name
                    
                    Type
      of
                      Agreement
                    
                    Purpose
                    
                    Operator
                    
                    Partners
                    
                    Ownership
                      Percentage
                    
                    Term
      of
                      Contract
                    
                    Expiration
                      Date
                    
                    Right
      of
                      Reversion
                      upon
                      Termination
                    
                    RoyaltySouthern
                    
                    Río
      Paez
                    
                    Joint
      Venture- Sole Risk
                    
                    E&P
                    
                    Hocol
      S.A.
                    
                    Hocol
      S.A.
                    
                    0%
                    
                    28 years
                    
                    April 26,
      2029
                    
                    Yes
                    
                    5%Southern
                    
                    Río
      Seco
                    
                    Joint
      Venture Sole Risk
                    
                    E&P
                    
                    SIPETROL
                    
                    SIPETROL
                    
                    0%
                    
                    28 years
                    
                    August 21,
      2023
                    
                    Yes
                    
                    20%Mid
      – Magdalena Valley
                    
                    Rompida
                    
                    Discovered
      Undeveloped Field
                    
                    Develop
      Field
                    
                    Petrotesting
                    
                    Petrotesting
      Colombia S.A. - Vetra
                    
                    19%
                    
                    10 years
                    
                    December 30,
      2013
                    
                    Yes
                    
                    20%Catatumbo-Orinoquía
                    
                    Rondon
                    
                    Joint
      Venture
                    
                    E&P
                    
                    Occidental
      de Colombia Inc.
                    
                    Occidental
      de Colombia Inc.
                    
                    50%
                    
                    28 years
                    
                    January 8,
      2023
                    
                    Yes
                    
                    8%
      to 25%Central
                    
                    Rubiales
                    
                    Risk
      participation contract
                    
                    E&P
                    
                    Metapetroleum
                    
                    Tethys
      Petroleum Company Limited, and Metapetroleum
                    
                    60%
                    
                    28 years
                    
                    June 30,
      2016
                    
                    Yes
                    
                    20%Southern
                    
                    San
      Jacinto
                    
                    Joint
      Venture- Sole Risk
                    
                    E&P
                    
                    Hocol
      S.A.
                    
                    Hocol
      S.A.
                    
                    0%
                    
                    28 years
                    
                    December 22,
      2024
                    
                    Yes
                    
                    5%Southern
                    
                    San
      Luis
                    
                    Joint
      Venture
                    
                    E&P
                    
                    Petrotesting
                    
                    Petrotesting
                    
                    50%
                    
                    28 years
                    
                    May 8,
      2014
                    
                    Yes
                    
                    20%Northeastern
                    
                    Santiago
      de las Atalayas
                    
                    Joint
      Venture
                    
                    E&P
                    
                    BP
                    
                    BP ,
      Total, TEPMA
                    
                    50%
                    
                    28 years
                    
                    June 30,
      2010
                    
                    Yes
                    
                    20%Southern
                    
                    Suroriente
                    
                    Incremental
      Production
                    
                    E&P
                    
                    Colombia
      Energy
                    
                    Colombia
      Energy
                    
                    48%
                    
                    22 years
                    
                    June 11,
      2024
                    
                    Yes
                    
                    8%
      to 25%Central
                    
                    Tambaqui
                    
                    Joint
      Venture- Sole Risk
                    
                    E&P
                    
                    Hupecol
                    
                    Hupecol
                    
                    50%
                    
                    28 years
                    
                    February 28,
      2026
                    
                    Yes
                    
                    8%
      to 25%Catatumbo-Orinoquía
                    
                    Tapir
                    
                    Joint
      Venture- Sole Risk
                    
                    E&P
                    
                    Petrolco
                    
                    Petrolco
      and Doreal Energy
                    
                    0%
                    
                    28 years
                    
                    February 24,
      2023
                    
                    Yes
                    
                    20%Northeastern
                    
                    Tauramena
                    
                    Joint
      Venture
                    
                    E&P
                    
                    BP
                    
                    BP
                    
                    50%
                    
                    28 years
                    
                    July 3,
      2016
                    
                    Yes
                    
                    20%Catatumbo-Orinoquía
                    
                    Tibú
                    
                    Business
      Cooperation
                    
                    E&P
                    
                    Ecopetrol
      S.A.
                    
                    Tibú
      Consortium formed by Petrobras Colombia Limited and Petrobras Energía de
      Colombia
                    
                    60%
                    
                    Undetermined
                    
                    Undetermined
                    
                    No
                    
                    8%
      to 25%Mid
      – Magdalena Valley
                    
                    Tisquirama
                    
                    Joint
      Venture
                    
                    Production
                    
                    Petroleos
      del Norte S.A.
                    
                    Petroleos
      del Norte S.A – Petrosantander
                    
                    50%
                    
                    28 years
                    
                    March 1,
      2009
                    
                    Yes
                    
                    20%Mid
      – Magdalena Valley
                    
                    Toca
                    
                    Discovered
      Undeveloped Field
                    
                    Develop
      Field
                    
                    Campos
      de Producción Consortium
                    
                    Campos
      de Producción Consortium
                    
                    12%
                    
                    10 years
                    
                    July 12,
      2015
                    
                    Yes
                    
                    20%Southern
                    
                    Tolima
      B
                    
                    Joint
      Venture- Sole Risk
                    
                    E&P
                    
                    Petrotesting
                    
                    Petrotesting.
                    
                    0%
                    
                    28 years
                    
                    June 12,
      2014
                    
                    Yes
                    
                    20%Central
                    
                    Upia
      B
                    
                    Joint
      Venture
                    
                    E&P
                    
                    Petrobras
                    
                    Holifield
      International Colombia Inc.
                    
                    50%
                    
                    28 years
                    
                    March 1,
      2012
                    
                    Yes
                    
                    20%
 A-4
  Ecopetrol
S.A. and Subsidiaries
  Consolidated
Financial Statements
  Years
ended December 31, 2008, 2007 and 2006
 
 F-1
  Ecopetrol
S.A. and Subsidiaries
  Consolidated
Financial Statements
  Years
ended December 31, 2008, 2007 and 2006
  Contents
  Reports
      of Independent Registered Public Accounting Firms
                  F-3Consolidated
      Financial StatementsConsolidated
      Balance Sheets
                  F-5Consolidated
      Statements of Financial, Economic, Social and Environmental
      Activities
                  F-6Consolidated
      Statements of Changes in Shareholders’ Equity
                  F-7Consolidated
      Statements of Cash Flows
                  F-8Notes
      to Consolidated Financial Statements
                  F-10
 
 F-2
 
 Report
of Independent Registered Public Accounting Firm
 
 To the
Board of Directors and Shareholders of Ecopetrol S. A.
 
 We have
audited the accompanying consolidated balance sheet of Ecopetrol S. A. and its
subsidiaries (the “Company”) as of December 31, 2008 and the related
consolidated statements of financial, economic, social and environmental
activities, of changes in shareholders’ equity and of cash flows for the year
then ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
 
 We
conducted our audit in accordance with generally accepted auditing standards in
Colombia and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Ecopetrol S. A. and its
subsidiaries at December 31, 2008 and the results of their financial, economic,
social and environmental activities and their cash flows for the year ended, in
conformity with generally accepted accounting principles for Colombian
Government Entities issued by the Contaduría General de la Nación.
 
 Accounting
principles generally accepted for Colombian Government Entities vary in certain
significant respects from accounting principles generally accepted in the United
States of America. Information relating to the nature and effects of such
differences is presented in Note 33 to the consolidated financial
statements.
 
 PricewaterhouseCoopers
Ltda.
 
 Bogotá,
Colombia
 June 25,
2009
 
 F-3
  Report
of Independent Registered Public Accounting Firm
  To the Shareholders of Ecopetrol S.A.
and subsidiaries
 
 We have audited the accompanying
consolidated balance sheets of Ecopetrol S.A. and subsidiaries (“the Company”) as of December 31, 2007 and 2006, and
the related consolidated statements of financial, economic and social
activities, changes in equity, andcash flows for each of the three years in
the period ended December 31, 2007.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our
audits.
  Weconducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. We were not
engaged to perform an audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures  thatare appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting.  Accordingly, we
express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our auditsprovide a reasonable basis for our
opinion.
  In our opinion, the financial statements
referred to above present
fairly, in all material respects, the consolidated financial position of
Ecopetrol S.A. and subsidiaries at December 31, 2007 and 2006, and the
consolidated results of their financial, economic and social activities and
their cash flows for each of the three years in the period ended
December 31, 2007, in conformity with generally accepted accounting principles
for Colombian Governmental Entities issued by the Contaduría General de la Nación, which differ in certain respects from
accounting principles generally accepted in the United
States of America (see Note 33 to the consolidated financial
statements).
  ERNST
      & YOUNG AUDIT LTDA.
                Francisco
      J. González R.
                  Statutory
      Auditor
                  Professional
      Card 13442-T
                  Designated
      by Ernst & Young Audit Ltda. – TR
530
 
 Bogotá,
D.C., Colombia, February 15, 2008
 (except
for Notes 32 and 33 to which the date is May 30, 2008)
 F-4
 
 Ecopetrol
S.A.  and Subsidiaries
  Consolidated
Balance Sheets
  December 312008
                  
                  
                  2007(In
      millions of Colombian pesos)AssetsCurrent
      assets:Cash
      and cash equivalents (Note
3)
                  
                  $
                  2,113,803
                  
                  
                  $
                  3,749,899Investments
      (Note4)
                  
                  
                  3,749,919
                  
                  
                  
                  5,954,502Accounts
      and notes receivable, net (Note5)
                  
                  
                  5,877,282
                  
                  
                  
                  2,269,904Inventories,
      net (Note
      6)
                  
                  
                  1,611,296
                  
                  
                  
                  1,298,792Advances
      and deposits (Note
      7)
                  
                  
                  2,248,122
                  
                  
                  
                  1,979,614Pension
      plan assets (Note
      11)
                  
                  
                  80,263
                  
                  
                  
                  508,813Prepaid
      expenses (Note
      8)
                  
                  
                  24,215
                  
                  
                  
                  12,598Total
      current assets
                  
                  
                  15,704,900
                  
                  
                  
                  15,774,122Non-current
      assetsInvestments
      (Note
      4)
                  
                  
                  8,688,320
                  
                  
                  
                  3,844,819Accounts
      and notes receivable, net (Note
5)
                  
                  
                  194,912
                  
                  
                  
                  202,565Property,
      plant and equipment, net (Note
9)
                  
                  
                  8,077,488
                  
                  
                  
                  6,151,951Natural
      and environmental resources, net (Note
    10)
                  
                  
                  8,054,049
                  
                  
                  
                  5,128,917Pension
      plan assets (Note
      11)
                  
                  
                  -
                  
                  
                  
                  8,986,861Deferred
      charges (Note
      12)
                  
                  
                  1,595,683
                  
                  
                  
                  1,976,062Other
      assets (Note
      13)
                  
                  
                  1,207,099
                  
                  
                  
                  399,401Revaluations
      (Note
      21)
                  
                  
                  5,179,961
                  
                  
                  
                  5,647,382Total
      assets
                  
                  $
                  48,702,412
                  
                  
                  $
                  48,112,080Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Financial
      obligations (Note
      14)
                  
                  $
                  281,026
                  
                  
                  $
                  3,569Accounts
      payable and related parties (Note
    15)
                  
                  
                  1,708,647
                  
                  
                  
                  1,564,569Taxes
      payable (Note
      16)
                  
                  
                  3,906,468
                  
                  
                  
                  2,474,739Labor
      and pension plan obligations (Note
    17)
                  
                  
                  129,658
                  
                  
                  
                  586,964Estimated
      liabilities and provisions (Note
    18)
                  
                  
                  673,973
                  
                  
                  
                  1,435,943Total
      current liabilities
                  
                  
                  6,699,772
                  
                  
                  
                  6,065,784Long-term
      liabilities:Long-term
      accounts payable (Note
      14)
                  
                  
                  5,473
                  
                  
                  
                  -Labor
      and pension plan liabilities (Note
    17)
                  
                  
                  2,164,787
                  
                  
                  
                  10,316,041Estimated
      liabilities and provisions (Note
    18)
                  
                  
                  2,542,791
                  
                  
                  
                  2,742,052Other
      long-term liabilities (Note
    19)
                  
                  
                  2,426,921
                  
                  
                  
                  2,179,735Total
      liabilities
                  
                  
                  13,839,744
                  
                  
                  
                  21,303,612Minority
      Interest (Note
      20)
                  
                  
                  242,951
                  
                  
                  
                  1Shareholders’
      equity (Note 21 and see
      accompanying statement)
                  
                  
                  34,619,717
                  
                  
                  
                  26,808,467Total
      liabilities and shareholders’ equity
                  
                  $
                  48,702,412
                  
                  
                  $
                  48,112,080Memorandum
      accounts (Note
      22)
                  
                  $
                  118,874,631
                  
                  
                  $
                  64,180,245
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-5
 
 Ecopetrol
S.A. and Subsidiaries
  Consolidated
Statements of Financial, Economic, Social and Environmental
Activities
 
 Year
      ended December 312008
                        
                        
                        2007
                        
                        
                        2006(In
      millions of Colombian pesos, except for the net income per
                          share
      expressed in pesos)Revenue
      (Note 23)Local
      sales
                        
                        $
                        21,597,999
                        
                        
                        $
                        16,002,997
                        
                        
                        $
                        11,300,001Foreign
      sales
                        
                        
                        12,298,670
                        
                        
                        
                        6,645,820
                        
                        
                        
                        7,864,124FAEP
                        
                        
                        -
                        
                        
                        
                        (316,497
                        )
                        
                        
                        (774,160
                        )Foreign
      sales, net
                        
                        
                        12,298,670
                        
                        
                        
                        6,329,323
                        
                        
                        
                        7,089,964Total
      revenue
                        
                        
                        33,896,669
                        
                        
                        
                        22,332,320
                        
                        
                        
                        18,389,965Cost
      of sales (Note 24)
                        
                        
                        19,023,649
                        
                        
                        
                        12,058,527
                        
                        
                        
                        12,756,56314,873,020
                        
                        
                        
                        10,273,793
                        
                        
                        
                        5,633,402Operating
      expenses (Note 25)Administration
                        
                        
                        382,101
                        
                        
                        
                        322,044
                        
                        
                        
                        329,517Selling
                        
                        
                        1,835,618
                        
                        
                        
                        1,019,912
                        
                        
                        
                        668,053Operating
      income
                        
                        
                        12,655,301
                        
                        
                        
                        8,931,837
                        
                        
                        
                        4,635,832Non-operating
      income (expenses)Financial
      income, net  (Note 26)
                        
                        
                        4,101,252
                        
                        
                        
                        93,628
                        
                        
                        
                        683,436Pension
      expenses (Note 27)
                        
                        
                        (1,144,925
                        )
                        
                        
                        (1,090,343
                        )
                        
                        
                        (829,191
                        )Inflation
      gain (Note 28)
                        
                        
                        30,473
                        
                        
                        
                        41,132
                        
                        
                        
                        56,166Other
      income (expenses), net (Note 29)
                        
                        
                        369,103
                        
                        
                        
                        (910,950
                        )
                        
                        
                        344,899Income
      before income tax
                        
                        
                        16,011,204
                        
                        
                        
                        7,065,304
                        
                        
                        
                        4,891,142Income
      tax (Note 16)Current
                        
                        
                        3,611,020
                        
                        
                        
                        2,006,484
                        
                        
                        
                        1,494,794Deferred
      tax
                        
                        
                        770,962
                        
                        
                        
                        (120,972
                        )
                        
                        
                        4,9754,381,982
                        
                        
                        
                        1,885,512
                        
                        
                        
                        1,499,769Minority
      interest
                        
                        
                        (455
                        )
                        
                        
                        -
                        
                        
                        
                        -Net
      income
                        
                        $
                        11,629,677
                        
                        
                        $
                        5,179,792
                        
                        
                        $
                        3,391,373Net
      income per share
                        
                        $
                        287.35
                        
                        
                        $
                        168.71
                        
                        
                        $
                        79,891.00
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-6
 
 Ecopetrol
S.A. and Subsidiaries
  Consolidated
Statements of Changes in Shareholders’ Equity
  (In
millions of Colombian pesos, except the dividend per share)
 Year
ended on December 31, 2008, 2007 and 2006
  Subscribed
      and
                      paid-in capital
                  
                  
                  Additional
                      paid-in
      capital
                  
                  
                  Contribution
      of
                      Nation
      in kind
                  
                  
                  Legal
      and
                      other
                      reserves
                  
                  
                  Incorporated
                      institutional
                      equity
      and
                      other
                  
                  
                  Surplus
      from
                      equity
      method
                  
                  
                  Surplus
                      from
                      Revaluations
                  
                  
                  Public
                      accounting
                      application
                      effect
                  
                  
                  Retained
                      earnings
                  
                  
                  Total
      EquityBalance
      at December 31, 2006
                  
                  $
                  4,244,943
                  
                  
                  $
                  -
                  
                  
                  $
                  4,419,110
                  
                  
                  $
                  2,994,712
                  
                  
                  $
                  48,857
                  
                  
                  $
                  -
                  
                  
                  $
                  5,736,751
                  
                  
                  $
                  -
                  
                  
                  $
                  3,391,373
                  
                  
                  $
                  20,835,746Distribution
      of dividends ($97,863 per share)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,423,163
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,052,236
                  )
                  
                  
                  (4,475,399
                  )Capitalization
      of hydrocarbon reserves contributed by the Colombian
Nation
                  
                  
                  4,851,254
                  
                  
                  
                  -
                  
                  
                  
                  (4,851,254
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Capitalization
      (4,087,723,771 shares)
                  
                  
                  1,021,931
                  
                  
                  
                  4,700,882
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,722,813Subscribed
      capital receivable and additional paid-in capital
                  
                  
                  (4,794
                  )
                  
                  
                  (850,068
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (854,862
                  )Appropriation
      to reserves
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  339,137
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (339,137
                  )
                  
                  
                  -Hydrocarbon
      reserves contributed by the Colombian Nation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  432,144
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  432,144Addition
      to incorporated institutional equity
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  59,873
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  59,873Adjustment
      in translation of foreign subsidiaries
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,271
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,271
                  )Surplus
      from  revaluations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (89,369
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (89,369
                  )Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,179,792
                  
                  
                  
                  5,179,792Balance
      at December 31, 2007
                  
                  
                  10,113,334
                  
                  
                  
                  3,850,814
                  
                  
                  
                  -
                  
                  
                  
                  1,910,686
                  
                  
                  
                  108,730
                  
                  
                  
                  (2,271
                  )
                  
                  
                  5,647,382
                  
                  
                  
                  -
                  
                  
                  
                  5,179,792
                  
                  
                  
                  26,808,467Distribution
      of dividends ($115 per share)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,415
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (4,658,755
                  )
                  
                  
                  (4,654,340
                  )Subscribed
      capital receivable and additional paid-in capital
                  
                  
                  4,457
                  
                  
                  
                  824,607
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  829,064Addition
      to additional paid-in capital - execution of warranties
                  
                  
                  -
                  
                  
                  
                  3,855
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,855Appropriation
      to reserves
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  517,639
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (517,639
                  )
                  
                  
                  -Adjustment
      in translation of foreign subsidiaries
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  143,018
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,398
                  )
                  
                  
                  139,620Addition
      to incorporated institutional equity
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,635
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,635Surplus
      from revaluations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,340,356
                  
                  
                  
                  (1,479,650
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (139,294
                  )Revaluation
      in property, plant and equipment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  1,012,229
                  
                  
                  
                  (1,012,229
                  )
                  
                  
                  -
                  
                  
                  
                  -Pending
      responsibility rulings
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  814
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (781
                  )
                  
                  
                  -
                  
                  
                  
                  33Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  11,629,677
                  
                  
                  
                  11,629,677Balance
      at December 31, 2008
                  
                  $
                  10,117,791
                  
                  
                  $
                  4,679,276
                  
                  
                  $
                  -
                  
                  
                  $
                  2,432,740
                  
                  
                  $
                  112,179
                  
                  
                  $
                  1,481,103
                  
                  
                  $
                  5,179,961
                  
                  
                  $
                  (1,013,010
                  )
                  
                  $
                  11,629,677
                  
                  
                  $
                  34,619,717
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-7
 
 Ecopetrol
S.A. and Subsidiaries
 
 Consolidated
Statements of Cash Flows
  Year
      ended December 312008
                                                  
                                                  
                                                  2007
                                                  
                                                  
                                                  2006(In
      millions of Colombian pesos)Operating
      activitiesCash
      received from customers
                                                  
                                                  $
                                                  27,884,424
                                                  
                                                  
                                                  $
                                                  21,683,589
                                                  
                                                  
                                                  $
                                                  18,410,244Cash
      from interest income
                                                  
                                                  
                                                  2,374,871
                                                  
                                                  
                                                  
                                                  968,899
                                                  
                                                  
                                                  
                                                  519,309Cash
      received from FAEP fund and others
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,167,534
                                                  
                                                  
                                                  
                                                  80,611Other
      payments
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (1,089,550
                                                  )
                                                  
                                                  
                                                  259,106Interest
      expense and other payments
                                                  
                                                  
                                                  (773
                                                  )
                                                  
                                                  
                                                  (875,270
                                                  )
                                                  
                                                  
                                                  1,424Cash
      paid to suppliers and contractors
                                                  
                                                  
                                                  (8,570,096
                                                  )
                                                  
                                                  
                                                  (4,630,295
                                                  )
                                                  
                                                  
                                                  (5,154,051
                                                  )Payment
      of hydrocarbon purchases and other contributions
                                                  
                                                  
                                                  (5,587,223
                                                  )
                                                  
                                                  
                                                  (4,153,060
                                                  )
                                                  
                                                  
                                                  (4,101,696
                                                  )Payment
      of income, sales and equity taxes
                                                  
                                                  
                                                  (2,962,274
                                                  )
                                                  
                                                  
                                                  (1,409,720
                                                  )
                                                  
                                                  
                                                  (2,040,025
                                                  )Payment
      of salaries, fringe benefits and social security
                                                  
                                                  
                                                  (851,186
                                                  )
                                                  
                                                  
                                                  (703,003
                                                  )
                                                  
                                                  
                                                  (735,537
                                                  )Payment
      of retirement pensions and transfers to trust funds
                                                  
                                                  
                                                  (494,843
                                                  )
                                                  
                                                  
                                                  (1,122,170
                                                  )
                                                  
                                                  
                                                  (885,695
                                                  )Net
      cash provided by operating activities
                                                  
                                                  
                                                  11,792,900
                                                  
                                                  
                                                  
                                                  9,836,954
                                                  
                                                  
                                                  
                                                  6,353,690Investing
      activitiesNet
      increase in investments
                                                  
                                                  
                                                  (3,185,910
                                                  )
                                                  
                                                  
                                                  (5,031,216
                                                  )
                                                  
                                                  
                                                  (1,358,094
                                                  )Investment
      in natural and environmental resources
                                                  
                                                  
                                                  (5,234,947
                                                  )
                                                  
                                                  
                                                  (2,013,948
                                                  )
                                                  
                                                  
                                                  (1,162,165
                                                  )Additions
      to property, plant and equipment
                                                  
                                                  
                                                  (1,469,648
                                                  )
                                                  
                                                  
                                                  (1,023,014
                                                  )
                                                  
                                                  
                                                  (700,769
                                                  )Net
      cash used in investing activities
                                                  
                                                  
                                                  (9,890,505
                                                  )
                                                  
                                                  
                                                  (8,068,178
                                                  )
                                                  
                                                  
                                                  (3,221,028
                                                  )Financing
      activitiesDividends
      paid
                                                  
                                                  
                                                  (4,654,340
                                                  )
                                                  
                                                  
                                                  (4,475,399
                                                  )
                                                  
                                                  
                                                  (2,000,000
                                                  )Increase
      (decrease) of financial obligations
                                                  
                                                  
                                                  282,930
                                                  
                                                  
                                                  
                                                  (39,305
                                                  )
                                                  
                                                  
                                                  (120,013
                                                  )Subscribed
      capital receivable and additional paid-in capital -
      capitalization
                                                  
                                                  
                                                  832,919
                                                  
                                                  
                                                  
                                                  4,867,951
                                                  
                                                  
                                                  
                                                  -Disbursements
      of contributions to ANH
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (106,672
                                                  )Net
      cash (used in) provided by financing activities
                                                  
                                                  
                                                  (3,538,491
                                                  )
                                                  
                                                  
                                                  353,247
                                                  
                                                  
                                                  
                                                  (2,226,685
                                                  )Net
      (decrease) increase in cash and cash equivalents
                                                  
                                                  
                                                  (1,636,096
                                                  )
                                                  
                                                  
                                                  2,122,023
                                                  
                                                  
                                                  
                                                  905,977Cash
      and cash equivalents at the beginning of the year
                                                  
                                                  
                                                  3,749,899
                                                  
                                                  
                                                  
                                                  1,627,876
                                                  
                                                  
                                                  
                                                  721,899Cash
      and cash equivalents at the end of the year
                                                  
                                                  $
                                                  2,113,803
                                                  
                                                  
                                                  $
                                                  3,749,899
                                                  
                                                  
                                                  $
                                                  1,627,876
  The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-8
 
 Ecopetrol
S.A. and Subsidiaries
  Attachment
1 – Cash and cash equivalents detail
 
 2008
                
                
                2007
                
                
                2006Cash
                
                $
                408
                
                
                $
                399
                
                
                $
                536Banks
      and savings entities
                
                
                1,395,199
                
                
                
                1,160,069
                
                
                
                596,018Special
      and in-transit funds
                
                
                703,577
                
                
                
                123,251
                
                
                
                36,148Temporary
      investments
                
                
                14,619
                
                
                
                2,466,180
                
                
                
                995,174Total
      cash and cash equivalents
                
                $
                2,113,803
                
                
                $
                3,749,899
                
                
                $
                1,627,876
 
 Attachment
2 - Reconciliation of net income to net cash provided by operating
activities
 
 2008
                
                
                2007
                
                
                2006Net
      income
                
                $
                11,629,677
                
                
                $
                5,179,792
                
                
                $
                3,391,373Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
      of property, plant and equipment
                
                
                700,301
                
                
                
                750,074
                
                
                
                773,610Amortization
      of natural and environmental resources
                
                
                947,788
                
                
                
                572,743
                
                
                
                455,831Amortization
      of facility abandonment costs
                
                
                139,795
                
                
                
                92,716
                
                
                
                61,669Amortization
      of deferred charges
                
                
                108,328
                
                
                
                215,372
                
                
                
                100,064Deferred
      income tax
                
                
                770,962
                
                
                
                (189,265
                )
                
                
                (760,638
                )Amortization
      of retirement pensions
                
                
                748,832
                
                
                
                695,057
                
                
                
                535,022Crude
      oil and natural gas contributed by the Colombian Nation
                
                
                -
                
                
                
                432,105
                
                
                
                2,374,512Inflation
      gain
                
                
                (30,506
                )
                
                
                (41,132
                )
                
                
                (56,166
                )Provision
      for expenses
                
                
                114,034
                
                
                
                1,240,400
                
                
                
                561,633Provisions
      reduction
                
                
                (999,866
                )
                
                
                (555,438
                )
                
                
                (152,512
                )Adjustment
      in translation of subsidiaries
                
                
                1,480,800
                
                
                
                2,271
                
                
                
                -Incorporated
      institutional equity
                
                
                2,635
                
                
                
                -
                
                
                
                29,723Subsidies
                
                
                (3,070,479
                )
                
                
                (1,778,050
                )
                
                
                -Decrease
      (increase) in accounts receivable
                
                
                (529,246
                )
                
                
                740,803
                
                
                
                (416,866
                )Decrease
      (increase) in inventories
                
                
                (312,504
                )
                
                
                (302,431
                )
                
                
                (248,141
                )Decrease
      (increase) in pension plan assets
                
                
                9,415,411
                
                
                
                (534,777
                )
                
                
                -Decrease
      (increase) in advances and deposits
                
                
                (269,108
                )
                
                
                (325,264
                )
                
                
                (314,839
                )Decrease
      (increase) in advanced paid expenses
                
                
                (11,617
                )
                
                
                2,858
                
                
                
                19,632Decrease
      (increase) in deferred charges
                
                
                12,841
                
                
                
                986,204
                
                
                
                (269,864
                )Decrease
      (increase) in other assets
                
                
                (807,664
                )
                
                
                -
                
                
                
                (265,501
                )(Decrease)
      increase in accounts payable
                
                
                562,351
                
                
                
                384,576
                
                
                
                85,013(Decrease)
      increase in taxes payable
                
                
                1,013,456
                
                
                
                855,264
                
                
                
                302,637(Decrease)
      increase in labor obligations
                
                
                (9,254,330
                )
                
                
                25,942
                
                
                
                (138,653
                )(Decrease)
      increase in estimated liabilities and provisions
                
                
                (586,328
                )
                
                
                139,541
                
                
                
                311,784(Decrease)
      increase in other liabilities
                
                
                17,337
                
                
                
                1,240,800
                
                
                
                (25,633
                )Other
      amounts that do not involve cash
                
                
                -
                
                
                
                6,793
                
                
                
                -Net
      cash provided by operating activities
                
                $
                11,792,900
                
                
                $
                9,836,954
                
                
                $
                6,353,690
 
 F-9
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  (Amounts
expressed in millions of Colombian pesos, unless otherwise stated, except
amounts in other currencies, exchange rates and income per share, which are
expressed in unit pesos – throughout these financial statements pesos or Ps
refer to Colombian pesos and US Dollar refers  to United States
Dollar)
  1.
              Economic
      Entity and Principal Accounting Policies and
  Practices
  Reporting
Entity
  Ecopetrol
S.A., (hereinafter Ecopetrol or the Company) was organized by Law 165 of 1948
and transformed through Extraordinary Decree 1760 of 2003 (added by Decree 409
of 2006) and Law 1118 of 2006 into a state-owned company by shares and then into
a mixed economy entity of a commercial character, at national level, related to
the Ministry of Mines and Energy, for an indefinite period. Ecopetrol’s
corporate purpose is the development, in Colombia or abroad, of commercial or
industrial activities corresponding to or related with exploration, production,
refining, transportation, storage, distribution, and selling of hydrocarbons,
their by-products and associated products, and of subsidiary operations,
connected or complementary to these activities in accordance with applicable
regulations. Ecopetrol’s principal domicile is Bogotá, D.C. and it may establish
subsidiaries, branches and agencies in Colombia or abroad.
  By means
of the transformation Decree 1760 of June 27, 2003, the integral administration
of the hydrocarbon reserves owned by the Colombian Nation (the Nation), and the
administration of non-strategic assets, represented by shares and the
participation in companies were separated from Ecopetrol. In addition,
Ecopetrol’s basic structure was changed and two entities were created: a) the
Agencia Nacional de Hidrocarburos (ANH) was created to hereinafter issue and
develop the Colombian petroleum policy (formerly the responsibility of
Ecopetrol), and b) Sociedad Promotora de Energía de Colombia S.A., which
received the non-strategic assets owned by Ecopetrol.
  Law 1118
of December 27, 2006 changed the legal nature of Ecopetrol S.A., and authorized
the Company to issue shares to be placed in the equity market and acquired by
Colombian individuals or legal entities. Once the shares were issued and
placed,  corresponding to 10.1% of the authorized capital, at the end
2007, the Company became a Mixed Economy Entity of a commercial nature, at a
national level, controlled by the Ministry of Mines and Energy.
  Ecopetrol
entered into a deposit agreement with JPMorgan Chase Bank, N.A., as depositary,
for the issuance of ADRs evidencing ADSs.  Each of the ADSs will
represent 20 of Ecopetrol’s common shares or evidence of the right to receive 20
of Ecopetrol’s common shares.
  On
September 12, 2008, Ecopetrol submitted to the Securities and Exchange
Commission or SEC an application to register the Company and to register and
list the Company’s ADSs evidenced by ADRs on the New York Stock Exchange or
NYSE.  The Company’s ADSs began trading on the NYSE under the symbol
“EC” on September 18, 2008.
 
 F-10
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  The
subsidiaries consolidated by Ecopetrol are:
  Subsidiaries
                
                Participation
                    Percentage
                    Ecopetrol
                
                Activity
                
                SubsidiariesEcopetrol
      Oleo é Gas do
                
                
                
                Exploration,
      production, transportation, storage,distribution
      and selling of hydrocarbons, by-products
      and products, as well as research,development
      and selling of energy sourcesBrasil
      Ltda.
                
                100Ecopetrol
      del Perú S.A.
                
                100
                
                
                -Ecopetrol
      America Inc.
                
                100Manage
      all business associated with the total orpartial,
      direct or indirect execution of insuranceand
      reinsurance of Ecopetrol’s and of its affiliateand/or
      subsidiary company risks.Black
      Gold Re Ltd.
                
                100
                
                
                -Manage
      all business associated with Ecopetrol’s,Propilco’s
      and its affiliate companies’ operations.Andean
      Chemicals Ltd.
                
                100
                
                
                -Design,
      construct, operate, sell, exploit and be thedirect
      or indirect owner of crude oil pipelinesystems
      for hydrocarbon transportation of privateuse
      in Colombia.ODL
      S.A.ODL
      Finance S.A.
                
                65
                
                
                ODL
      - ColombiaBranch officePropilco
      S.A.
                
                100
                
                Production
      and selling of polypropylene resin
                
                Comai
      S.A.Construction
      and operation of biofuel productionplants,
      and others relatedBioenergy
      S.A.
                
                79.14
                
                
                -
  At
December 31, 2008, the Company and its subsidiaries maintain current obligations
related to 158 exploration and production contracts, of which it is the operator
in 36 and 122 are operated by third parties, of the following
types:
  Number
      of ContractsContract
      type
                  
                  Ecopetrol
      S.A.
                  
                  
                  Ecopetrol
      Oleo é
                      Gas
      do Brasil
                      Ltda.
                  
                  
                  EcopetrolAmerica
      Inc.
                  
                  
                  Ecopetrol
      delPeru S.A.Exploration
                  
                  
                  62
                  
                  
                  
                  6
                  
                  
                  
                  1
                  
                  
                  
                  2Production
                  
                  
                  42
                  
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  -Discovered
      undeveloped fields
                  
                  
                  18
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Sole
      risk
                  
                  
                  15
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Incremental
      production
                  
                  
                  5
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Production
      service with risk
                  
                  
                  3
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Business
      collaboration
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Services
      and technical collaboration
                  
                  
                  1
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -148
                  
                  
                  
                  6
                  
                  
                  
                  2
                  
                  
                  
                  2
 
 Ecopetrol
S.A. carries out production operations in 288 fields, of which it is the
operator in 112 fields and 176 fields are operated by third parties. Ecopetrol
Oleo é Gas do Brasil Ltda has entered into 6 exploration contracts in which
Petrobras is the operator.
 
 F-11
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Ecopetrol
America Inc. has a 9.2% participation in a production contract known as “K2”
located in the Gulf of Mexico, which is operated by Anadarko.  It has
also entered into an exploration contract known as “Will K”, where it is not an
operator.
  Ecopetrol
del Peru S.A. has two exploration contracts knows as “101” and “134”, which are
both operated by Talisman.
  Principal
accounting policies and practices
  The
Contaduría General de la Nación or CGN adopted new accounting principles for
Colombian state-owned entities in September 2007.  These accounting
principles are known as the Régimen de Contabilidad Pública(Regime of Public Accounting or RCP).  Pursuant to CGN
Communication No. 0079-101345 of September 28, 2007, RCP became effective for
Ecopetrol beginning with fiscal year ended December 31,
2008.  Ecopetrol’s consolidated financial statements at and for the
year ended December 31, 2008 have been prepared under
RCP.  Ecopetrol’s consolidated financial statements for all prior
years were prepared under the Plan General de Contabilidad
Pública (General Governmental Accounting Plan or PGCP), the former
accounting principles issued by the CGN for Colombian state-owned
entities.  Both RCP and PGCP are referred to as Colombian Government
Entity GAAP.
  RCP
modified various aspects of Colombian Government Entity GAAP.  The
main modifications pertain to the following items:
  ·
                Investments,
 ·
                Property,
      plant and equipment,
 ·
                Intangibles,
 ·
                Retirement
      pensions and
 ·
                Provisions.
  A more
detail discussion of these RCP modifications is hereinafter provided for each of
the above-listed items.
  Principles
of Consolidation
  The
consolidated financial statements include those of Ecopetrol S.A. (as Home
Office), Black Gold Re Ltd., Oleo é Gas Do Brasil Ltda., Ecopetrol del Perú,
Ecopetrol América Inc., Andean Chemicals Ltd., ODL Finance S.A., Propilco S.A.
and Bioenergy S.A. (collectively, “the Subsidiaries”), where Ecopetrol’s
combined direct and indirect, participation, is 100%, 100%, 100%, 100%, 100%,
65%, 100% and 79.14%, respectively. These financial statements were consolidated
line by line and all transactions and significant intercompany balances between
companies have been eliminated.
  Presentation
Basis
  The
preparation of the financial statements was carried out under Colombian
Government Entity GAAP standards and principles issued by the CGN and other
legal provisions. These principles may differ in certain aspects from those
established by other standards and other control authorities and the opinions on
specific matters issued by CGN prevail over Colombian Government Entity GAAP.
The accrual method was applied for the accounting recognition of financial,
economic and social facts.
  In
accordance with the rules for the inspection, supervision, and/or control of
Ecopetrol, a normative decision-making structure was established to define the
accounting treatment of operations not envisaged by the CGN, which is as
follows:  i) Principal and permanent inspection, supervision, and
control:  Residential Public Services Superintendency;
ii) Residual control:  Companies Superintendency  and
iii) Concurrent control:  Financial Superintendency, on the activities
of the company in its capacity as issuer in the stock
market.  International Standards of Financial Information (NIIF) are
used to measure the normative gap and the accounting principles generally
accepted in the United States are applied to operations related to crude oil and
natural gas.
 
 F-12
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Segments
  The
Company operates in five primary segments of activity: exploration and
production, refining, transportation, corporate and all others. The RCP does not
require disclosure of information by segment.
  Materiality
Concept
  An
economic fact is material when due to its nature and amount, and taking into
account the surrounding circumstances, knowing or not knowing it could
significantly alter the economic decisions of informed users.
  The
consolidated financial statements include specific headings in accordance with
legal requirements, or those representing 5% or more of total assets, current
assets, total liabilities, current liabilities, working capital, equity and
results of operations, as appropriate. In addition, lower amounts are shown when
they are deemed to contribute to a better interpretation of financial
information.
  Use
of Estimates
  The
preparation of the consolidated financial statements in accordance with the RCP
requires that the Company’s management make estimates and assumptions that could
affect the recorded amounts of assets, liabilities, results of activities and
the attached notes. Current or market values could differ from such
estimates.
  Transactions
in Foreign Currency
  Transactions
in foreign currency are entered into in accordance with applicable regulations
and they are recorded at appropriate exchange rates on the transaction date.
Balances denominated in foreign currency are reflected in Colombian pesos at the
representative market exchange rates of $2,243.59 and $2,014.76 per US$1 at
December 31, 2008 and 2007, respectively.
  The
adjustment from exchange differences generated by foreign currency assets and
liabilities is recorded against results of operations, except when such
adjustment is charged to acquisition cost of assets in construction and up to
the time these assets are placed in service.
  The
Company in developing its crude oil exploration and production activities can
freely retain foreign currency received. In addition, it can acquire the foreign
currency it requires in the local market to pay its foreign
obligations.
  With
respect to those subsidiaries whose financial statements were originally in a
currency other than the Colombian peso, the financial statements were first
translated to US dollars and then to Colombian pesos.  Market exchange
rates at December 31, 2008 were used to translate balance sheet accounts,
weighted average exchange rates were used to translate  income
statement accounts and historical exchange rates were used to translate equity
statement accounts.
  Joint
Operation Contracts
  Joint
venture or common-interest operation contracts are entered into between
Ecopetrol and third parties in order to share the risk, secure capital, maximize
operating efficiency and optimize the recovery of reserves.  In these
joint ventures, one party is designated as the operator and each party takes its
share of the crude oil production according to its agreed participation.
Ecopetrol records these investments, revenues, costs and expenses on a timely
basis based on information reported by the operators. When Ecopetrol directly
operates the facilities, it records assets, revenues, costs and expenses,
recognizing at the same time the accounts receivable of the third party for
joint interest billings.
  Cash
and Cash Equivalents
  Cash and
cash equivalents are represented by cash in banks and highly liquid investments
maturing within three months following their acquisition.
 
 F-13
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Financial
Derivative Instruments
  The
Company enters into hedging agreements to protect itself from the fluctuations
of international crude oil prices.  The difference between amounts
paid and income received under hedging operations is recognized as financial
expense in the statements of financial, economic and social activities.
Ecopetrol does not use these financial instruments for speculative
purposes.
  Hedging
operations are carried out with banks and other counterparties with a credit
risk rating higher than or equal to A+.
 
 The
Company makes periodic evaluations based on the market risk of hedging
operations and together with the Board of Directors and management, determines
the need for extension or early termination of the subscribed contracts, when
the result is ineffective vis-á-vis the hedged items. In the event of
settlement, the financial and contractual effects are recognized in the results
of operations.
  Investments
  The
investments are classified as: i) Liquidity Management Investments ii)
Investments for policy purposes and, iii) Equity Investments.
  Liquidity
management investments correspond to resources invested in debt and
participatory securities with the objective of obtaining profits through
short-term price fluctuations.  Their initial recording corresponds to
their historical cost and they are updated based upon valuation methodologies
issued by the Finance Superintendency.
  Policy
purpose investments are made up of debt securities of national or foreign
entities, acquired in compliance with macroeconomic or internal policies of the
entity, which include investments held through their maturity date and those
available for sale, the former being those which are kept for at least (1) a
year, as of the first day on which they were classified for the first time, or
when they were reclassified.
  Investments
held to maturity are updated based on the Internal Rate of Return (TIR) included
in the methodologies adopted by the Finance Superintendency and the investments
for the purpose of macroeconomic policy and available for sale should be updated
based on methodologies adopted by the Finance Superintendency for tradeable
investments.
  Equity
investments are classified in controlled and uncontrolled
entities.  Equity investments in controlled entities are recognized at
their acquisition cost whenever it is less than the net book value; otherwise,
they are recognized at the net book value and the difference between the cost of
purchase and the net book value corresponds to goodwill.  Their values
are updated through the equity method, as established in Resolution 145 of
2008, issued by the CGN.
  Beginning
in 2008, the RCP incorporated the concept of significant influence for the
recognition of investments in associated entities and established the equity
method to update the value of these investments.  Until 2007, the
investments in associated entities had been recognized pursuant to the cost
method.
  Significant
influence is defined as the power that the entity has, regardless if the
percentage of ownership is less than or equal to 50%, to participate in the
setting and overseeing of financing and operational policies of another entity
for the purpose of obtaining profits from that entity.
 
 F-14
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Significant
influence may be present in one or more of the following aspects:
  ·
                Representation
      on the Board of Directors or equivalent regulatory organ of the associated
      entity.
 ·
                Participation
      in policy-making processes.
 ·
                Significant
      transactions between the investor and the associated
    entity.
 ·
                Secondment
      of officers, or
 ·
                Supply
      of essential technical
information.
  Equity
investments in uncontrolled entities include shares of low or minimum liquidity
or without any trading on an exchange which do not permit any type of control or
to exert significant influence and are recognized at historical cost; their
updating arises from the periodic comparison of the cost of the investment
compared to its net book value or its value in the stock market.
  In
accordance with the Technical Standard Related to Assets of the RCP, the
investments made in foreign currency should be recognized applying the
representative market exchange rate (TRM) of the transaction
date.  The value must be re-expressed periodically based on the TRM.
For foreign subsidiaries, the equity method should be applied in Colombian
pesos, following the translation of the financial statements.
  Receivables
and Provision for Doubtful Accounts
  Receivables
are recognized at their original amount or at the amount accepted by the debtor,
which is subject to periodic updating in accordance with current legal
provisions or agreed contractual terms.
  The
provision for doubtful accounts is reviewed and updated periodically in
accordance with the aged analysis of balances, and the evaluation of the
recoverability of individual accounts. The Company carries out the necessary
administrative and legal procedures to recover delinquent accounts receivable as
well as the collection of interest from customers that do not comply with
payment policies.
  Inventories
  Inventories
include assets extracted, transformed and acquired for any reason, to be sold,
intended for transformation and consumed in the production process, or as a part
of services rendered. Ecopetrol uses the perpetual inventory system to account
for raw material.
  Inventories
are recorded at historical costs or at purchase cost, which includes direct and
indirect charges incurred to prepare the inventory for sale or production
conditions.
  This
valuation is measured under the weighted average method, considering the
following parameters:
  ·
              Crude
      oil inventories for the Company’s own production at production costs at
      year end
  ·
              Crude
      oil purchases, at acquisition costs, including transportation and delivery
      costs incurred.
  ·
              Finished
      goods inventory, at total production costs (at each
    refinery).
  ·
              Work
      in process inventory, at production
costs.
  ·
              Raw
      material inventory, at weighted average
cost.
 
 F-15
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Raw
materials and supplies in joint ventures are controlled by the operator and
reported in a joint account at acquisition costs (recorded in the original
currency at average costs). Work in process inventories are recorded as an
expense or are capitalized, depending of their nature.  Inventory
consumption is charged to the joint venture as expense or property, plant and
equipment or natural environment properties, as appropriate.
  Additionally,
inventories are valued at the lower of market value and the average cost; and
the actual cost incurred for in-transit inventories. At the end of the year,
provisions are calculated to recognize impairment, obsolescence, excess or
slow-moving or for the loss of market value.
  Property,
Plant and Equipment and Depreciation
  Property,
plant and equipment are recorded at cost, adjusted for inflation until 2001,
which includes financial expenses and exchange differences from foreign currency
financing incurred until the asset is placed in service.  When an
asset is sold or retired, the adjusted cost and accumulated depreciation are
written off and any gain or loss is recognized in results of
operations.
  Depreciation
is calculated on the total acquisition cost using the straight-line method,
based on the assets useful life.  Annual depreciation rates used
are:
  %Buildings
      and pipelines
                  
                  
                  5Plants
      and equipment
                  
                  
                  10Transportation
      equipment
                  
                  
                  20Computers
                  
                  
                  33.3
 
 Regular
disbursements for maintenance and repairs are included in expenses and those
that improve efficiency or extend the asset’s useful life are
capitalized.
  Until
2007, devaluation had been recorded as the lesser value of the revaluations of
assets and in equity without effect on the results of the
period.  However, under the RCP, for 2008 revaluations were
reclassified to the equity account known as “Effect of the Application of the
Rules for Public Accounting”.  Beginning in 2009, devaluation of
property, plant and equipment is to be charged to results.
  Natural
and Environmental Resources
  The
Company applies a method similar to the internationally recognized successful
efforts method of accounting for investments in exploration and production
areas. The acquisition of geological and geophysical seismic information is
expensed as incurred, before the discovery of proved
reserves.  Acquisition costs are initially capitalized until such time
as either exploratory drilling is determined to be successful or unsuccessful
and all costs are written off. Once a project is sanctioned for development, the
carrying value of the acquisition cost and exploration costs are transferred to
Amortizable Crude Oil Investments. Costs capitalized also include asset
retirement cost. Asset and liability balances related to asset retirement costs
are updated annually.  Production and support equipment are accounted
for on a cost basis and are part of the Property, Plant and Equipment subject to
depreciation.
 
 These
investments are amortized using the technical units-of-production method on the
basis of proved developed reserves without royalties by field. The reserves are
based on technical studies prepared internally by the Company’s Department of
Reservoirs and approved by the Company’s Reserves Committee, which follow
estimation methodologies recommended by international organizations of
specialists in hydrocarbon reserves.  Proved reserves consist of
estimated quantities of crude oil and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions, that is, prices and costs as of the date the estimate is
made.
 
 F-16
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 When a
well is declared productive, in compliance with the information provided by the
Exploration Vice-Presidency of Ecopetrol, tangible property (property, plant and
equipment) is capitalized and intangible assets are recognized as an investment
in natural and environmental properties.
  When it
is determined that a well located in an exploration zone has no proved reserves,
it is considered a dry or not commercial well and accumulated costs are expensed
in the same year this is known. Costs incurred in geology, seismic and similar
activities are recorded in the income statement when incurred.
  The
estimation of hydrocarbon reserves is subject to several uncertainties inherent
to the determination of proved reserves, production recovery rates, the
timeliness with which investments are made to develop the reservoirs and the
degree of maturity of the fields.
  Support
equipment and other property and equipment are depreciated over their estimated
useful lives.
  On the
retirement of a complete unit of a proved fields the cost and related
accumulated depreciation, depletion, and amortization are eliminated from the
property accounts, and the resultant gain or loss is recognized. On the
retirement of a partial unit of proved field, the cost is charged to accumulated
depreciation, depletion, and amortization with a resulting gain or loss
recognized as income. The Company does not sell any interest in
properties.
  The
Company recorded as reserves within the account “natural and environmental
resources” the contributions of the Nation represented by crude oil and natural
gas reserves deriving from the reversions of concessions of oilfield areas in
favor of the Nation, given before the effectiveness of Decree 1760 of 2003.
Reserves were valued by means of the technical-economic model where the value
per barrel resulted from the relation of the net present value obtained at a
discount rate and the total proved reserves on the contribution date. Depletion
is calculated using the units of production method.
  Since
Ecopetrol became an issuer in the Bolsa de Valores de Colombia or BVC and the
NYSE, the Company has used the methodology approved by the SEC for the
calculation of reserves.  Under the SEC methodology, amortization for
crude oil-producing investments was affected as a result of the change in the
base price that is used for the calculation of reserves, which changed from the
price of the crude portfolio of the Company in 2007 to the price of crude WTI at
the close of 2008.  This change generates an immaterial decrease in
expenses for amortization of petroleum investments in the financial statements
for fiscal year 2008.
  On
March 7, 2007 Decree 727 was issued replacing Decree 2625 of 2000, which
includes regulations related to reserves valuation and accounting for
hydrocarbons reserves of the Nation in the Company’s financial
statements.  In addition, it orders Ecopetrol to register the value of
the hydrocarbons exploration or production rights that it owns.  This
recording is carried out in memorandum accounts in compliance with the opinion
issued by the CGN; however, these memorandum accounts are not included in the
company’s balance sheet.
  Impairment
of Long-Lived Assets
  At the
end of each year, the net value of long-lived assets held and in use is
reviewed, including those to be dismantled,  when circumstances or
changes occur indicating that the book value may not be recoverable. The
recording of provisions usually coincides with the formalization of an action
plan by Ecopetrol, including, among others, the offer of such assets to third
parties.
  Deferred
Charges
  Deferred
charges include deferred income tax, which results from the temporary
differences arising due to the different ways of determining book profit and
taxable income at the end of each period.
 
 F-17
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  It also
includes the investments made while negotiating the business collaboration
contract between Ecopetrol and Schlumberger for the purpose of obtaining
incremental production in the Casabe field.  Such investments are
amortized based on the on the units-of-production of the field.  In
addition, they include the costs incurred in the Sensor project, which is
amortized using the straight line method over five (5) years.
  Monetary
correction attributable to non-monetary accounts (including equity) related to
exploration and development activities, was recorded as a deferred asset or
liability through December 31, 2001 and is transferred to results during
the amortization and/or depreciation period of the assets originating
it.
  Other
Assets
  Other
assets includes goodwill, which corresponds to the difference between the value
of purchase of the equity investments in controlled entities and their net book
value, which reflects the economic benefits hoped to be achieved from the
investment, originated in good name, specialized personnel, reputation of
privileged credit, prestige due to sale of better products and services,
favorable location and expectations of new businesses, among
others.
  Goodwill
is amortized based on generally accepted methodologies during the term in which
the investment recovery is expected.
  Advances
received from Ecogas to cover Build, Operate, Maintain and Transfer (BOMT)
obligations
  As a
result of the recognition of an account receivable from Ecogas and following
specific instructions from CGN, the Company recognized as deferred income the
net present value of the future payments scheme, in connection with Ecopetrol ́s
liability related to BOMT contractors. These liabilities are due in 2017, the
year when the contractual obligations end.  Due to the payment of this
amount in 2007, the corresponding deferred income was recognized as a component
of other income.
  Revaluations
  a.
              Investments
  Revaluations
and surplus from revaluations correspond to the difference between the
historical cost and the investment’s net book value or its price quoted on a
stock exchange.
  b.
              Property,
      Plant and Equipment
  Valorizations
and valorization surplus of property, plant and equipment in the equity
correspond to the difference between net book value and the market value for
real estate or the current value in use for plant and equipment, determined by
specialists registered with the Colombian Real Estate Control entity or by
suitable technical personnel, respectively.
  Following
the guidelines established by the (CGN) under the RCP, the methodology used to
appraise property, plant and equipment is the present value of the assets in use
by going concerns (VAU), considering the current condition of the assets and
their useful lives in terms of production capability and ability to generate
income.
  The
revaluation of the property, plant, and equipment includes the excess difference
between the respective appraisal value of these assets and their net book value,
except for assets classified as computers, furniture and fixtures.
  Accounts
Payable – Suppliers
  Correspond
to obligations incurred by Ecopetrol with third parties in order to comply with
its corporate purpose.
 
 F-18
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Income
Tax
  The
provision for income tax is calculated at the official rate of 33% in 2008 (34%
in 2007) by the accrual method, on the greater of presumptive or taxable
income.
  The
effect of timing differences involving the payment of a lower or higher income
tax in the current year is recorded as a deferred tax liability or asset,
respectively, provided that a reasonable expectation exists that such
differences will reverse and in the case of the deferred tax asset, that
sufficient taxable income will be generated to recover the tax.  The
deferred tax balance was calculated at the rate of 33%.
  The
Company uses the special deduction for investment in real productive fixed
assets equivalent to 40% of the effective investment carried out during the
fiscal year.  If such assets are sold, or they are no longer used in
income producing activity prior to the expiration of their useful lives, the
Company must reimburse the proportional value of the deduction taken in the
income tax return in the corresponding fiscal period in which such fact
arises.
  Labor
and Pension Obligations
  The
system for salaries and fringe benefits for Ecopetrol personnel is governed by
the Collective Labor Agreement, Agreement 01 of 1977, and in the absence
thereof, by the Labor Code. In addition to fringe benefits, Ecopetrol employees
are entitled to receive additional benefits covered by previous regulations that
depend on the place, type of work, length of service, and basic salary. Annual
interest of 12% is paid on accumulated severance amounts in favor of each
employee and the payment of indemnities is provided for when special
circumstances arise that result in the non voluntary termination of the
contract, and in periods other than the qualifying period.
  The
actuarial calculation includes active employees with indefinite contract term,
pensioners and heirs, for the pension, health care and education plan;
temporary, active employees, and voluntary retirees, for pension
bonuses.
  All
social benefits of employees who joined the Company before 1990 are the direct
responsibility of Ecopetrol, without the involvement of the Colombian social
security entity or institution. The cost of health services of the employee and
his/her relatives registered with the Company is determined by means of the
morbidity table, prepared on the basis of facts occurring during 2008. Likewise,
the experience of Ecopetrol is considered for the calculation of educational
allowances, based on the annual average cost of each business segment,
subdivided in accordance with the class of studies: pre-school, primary, high
school and university.
  For
employees who joined the Company as of the effectiveness of Law 50 of 1990, the
Company makes periodic contributions for severance, pensions and labor related
injuries to the respective funds that assume all these obligations. Likewise,
Law 797 of 2003 determined that Ecopetrol employees who joined the Company as of
January 29, 2003 will be subject to the provisions of the General Pension
Regime.
  Pursuant
to Decree 941 of 2002, once the actuarial calculation for pension obligations
was approved by the Ministry of Finance in October 2008 and once the mechanism
for transfer (“commutation”) of the corresponding liability was approved by
Ministry of Social Security on December 29, 2008, the Company, as of
December 31, 2008, transferred (“commuted”) the amounts corresponding to its
pension liabilities to autonomous pension trust funds (PAP).
  The
amount transferred as of December 31, 2008 was $10,092,528 million, which
also implied removing the pension trust fund assets and their corresponding
pension liabilities for the same amount from the balance sheet and transferring
them to the  memorandum accounts.
  The
transferred funds, as well as their earnings, cannot change their destination
nor be restored to the Company until all the pension obligations have been
fulfilled.
  The
transferred assets and liabilities correspond only to the pension obligations;
those relating to health care and education services remain Ecopetrol’s direct
obligations.
 
 F-19
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Purchase
of hydrocarbons
  The
Company purchases hydrocarbons that the ANH receives from all the production in
Colombia, at prices established according to the section four of Law 756 of
2002 and Resolution 18-1709 of 2003 of the Ministry of Mines and Energy,
considering the international prices of reference.
  Additionally,
it purchases hydrocarbons both from business partners as well as from other
producers in Colombia and abroad to meet the needs and operating plans of the
Company.
  Recognition
of Income
  Income
from crude oil and natural gas sales is recognized at the time of transfer of
title to the buyer, including its risks and benefits.  In the case of
refined and petrochemical products, income is recognized when products are
shipped by the refinery; subsequently, they are adjusted in accordance with the
volumes actually delivered.  Income from transportation services are
recognized when products are transported and delivered to the buyer in
accordance with the sale terms.  In other cases, income is recognized
at the time it is earned and a true, probable and quantifiable right to demand
its payment arises.
  Late
payment interest income on the collection of accounts receivable is recognized
following prudence and realization principles.
  Starting
March 2007, subsidies for gasoline and diesel are granted by the Nation to
refiners such as Ecopetrol, as provided in Law 1111 of 2006 (Budgets
Law).  Income from said subsidies corresponds to the difference
between the regulated price and the international parity price and is recorded
by the Company in 2008 in accordance with the Ministry of Mines and Energy
Resolution No. 181496 of September 2008, which replaced resolution
180414 of March 2007.  Under the new resolution, interest income
relating to these subsidies was recorded for 2008.  In addition, in
2008, both the value of an interest on the subsidies were calculated in US
dollars, generating a net gain due to the difference in the Colombian peso/US
dollar exchange rate.  Furthermore, Resolution 182439 and
Decree 4839 of December 2008 established the procedure for the
recognition of the subsidies when it is negative (negative value existing
between the parity price and the regulated price).  In 2007, the
income from said subsidies was recognized in Colombian pesos and interest was
not recognized.
  In 2009,
the subsidy and related interest income will again be calculated in Colombian
pesos.
  Cost
of Sales and Expenses
  Costs are
recognized at their historic value both for goods purchased for sale and goods
produced for sales.  Costs are disclosed according to the sales
operation generating such cost.
  Expenses
correspond to amounts required for the development of the ordinary activity and
include those caused by extraordinary events.  Expenses are disclosed
in accordance with their nature and the occurrence of extraordinary
events.
  Costs and
expenses are recognized upon receipt of goods or services or when there is
certainty of the occurrence of the economic fact.  Fuel shortages and
losses due to thefts and explosions are recorded as non- operating
expenses.
  Abandonment
of Fields
  The
Company recognizes the liability for future environmental obligations and its
corresponding entry is capitalized as a greater value of natural and
environmental resources.  The estimation includes plugging costs and
abandonment of wells, dismantling of facilities and environmental recovery of
areas and wells.  Amortization is imputed to production costs, using
the technical units-of-production method based on proved developed
reserves.  Changes resulting from new estimates of the liability for
abandonment and environmental restoration are capitalized to the respective
asset.  The related liability is estimated in foreign currency and is
adjusted for exchange difference at the end of each year, and a greater or
lesser value of the asset.
  Based on
the extension of certain association contracts, the abandonment costs are
assumed by the associates in the percentages of participation established in
each contract.  Ecopetrol has not allocated funds in order to cover
these obligations, with the exception of those association contracts detailed in
Note 13 numeral 5; however, to the extent that activities are generated
which are related to abandonment, these will be covered by the
Company.
 
 F-20
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Accounting
for Contingencies
  As of the
date the consolidated financial statements are issued, conditions might exist
that result in losses for the Company, which will only be known if future
specific circumstances arise.  Management, the legal Vice Presidency
and legal counsel evaluate these situations based on their nature, the
likelihood that they materialize, and the amounts involved, to decide on any
changes to the amounts accrued and/or disclosed.  This analysis
includes current legal proceedings against the Company.
  After the
change to RCP in 2007, the Company began adjusting the methodology used to
evaluate its legal proceedings and any contingent liability there
under.  Such methodology was completed in 2008 and is based on the
credit system of the Nation, which is used by the Ministry of the Interior and
of Justice.  Up to October 31, 2008, Ecopetrol recognized its
legal proceedings under the methodology it had used in the past, however, the
new methodology was applied at December 31, 2008.
  Risks
and Uncertainties
  The
Company is subject to certain operational risks which are customary to the
industry in Colombia, such as terrorism, product theft, crude oil international
price changes, environmental damages, and variations in the estimations of
hydrocarbon reserves.
  Net  Income
per Share
  Net
income per share is calculated on the weighted average of outstanding shares of
the Company during the year.
  Memorandum
Accounts
  These
accounts represent facts or circumstances from which rights or obligations could
derive and affect the Company. However, these memorandum accounts are not
included in the company’s balance sheet.
  Reclassifications
  Certain
figures in the financial statements of 2007 and 2006 were reclassified for
comparative purposes with those of 2008, as a result of the establishment of new
account parameters resulting from the operational reorganization of certain
areas, such as those related to administrative resources, operating expenses,
the costs of sales and the RCP modifications to Colombian Government Entity
GAAP.
  2.
              Assets
      and liabilities denominated in foreign
currency
  Transactions
and balances in foreign currency are translated into Colombian pesos at the
exchange rate certified by the Finance Superintendency of Colombia.
  At
December 31, 2008 and 2007, the consolidated financial statements of
Ecopetrol included the following assets and liabilities denominated in foreign
currency (which are translated into Colombian pesos at the closing exchange
rates, $2,243.59 and $2,014.76 per US$1 for 2008 and 2007,
respectively).
 
 F-21
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  2008
                    
                    
                    2007(Thousands
      of
                        US$ dollars)
                    
                    
                    (Equivalent
                        millions
      of
                        Col pesos)
                    
                    
                    (Thousands
      of
                        US$ dollars)
                    
                    
                    (Equivalent
                        millions
      of
                        Col pesos)Assets:Cash
      and cash equivalents
                    
                    
                    1,504,857
                    
                    
                    $
                    3,376,282
                    
                    
                    
                    565,783
                    
                    
                    $
                    1,139,916Investments
                    
                    
                    4,243,339
                    
                    
                    
                    9,520,313
                    
                    
                    
                    3,445,552
                    
                    
                    
                    6,941,960Accounts
      and notes receivable
                    
                    
                    1,930,970
                    
                    
                    
                    4,332,306
                    
                    
                    
                    276,878
                    
                    
                    
                    557,842Advances
      and deposits
                    
                    
                    171,040
                    
                    
                    
                    383,744
                    
                    
                    
                    257,869
                    
                    
                    
                    519,5447,850,206
                    
                    
                    $
                    17,612,645
                    
                    
                    
                    4,546,082
                    
                    
                    $
                    9,159,262Liabilities:Financial
      obligations
                    
                    
                    103,171
                    
                    
                    $
                    231,473
                    
                    
                    
                    -
                    
                    
                    $
                    -Accounts
      payables and related parties
                    
                    
                    347,603
                    
                    
                    
                    779,876
                    
                    
                    
                    143,114
                    
                    
                    
                    288,340Taxes
      payable
                    
                    
                    354
                    
                    
                    
                    794
                    
                    
                    
                    -
                    
                    
                    
                    -Estimated
      liabilities and provisions
                    
                    
                    926,695
                    
                    
                    
                    2,079,124
                    
                    
                    
                    758,589
                    
                    
                    
                    1,528,374Other
      liabilities
                    
                    
                    557,331
                    
                    
                    
                    1,250,422
                    
                    
                    
                    626,927
                    
                    
                    
                    1,263,1071,935,154
                    
                    
                    $
                    4,341,689
                    
                    
                    
                    1,528,630
                    
                    
                    $
                    3,079,821
 
 3.
              Cash
      and cash equivalents
  2008
                  
                  
                  2007Banks
      and saving entities
                  
                  $
                  1,395,199
                  
                  
                  $
                  1,160,069Special
      and revolving funds (1)
                  
                  
                  703,577
                  
                  
                  
                  110,728Sight
      investments (2)
                  
                  
                  14,619
                  
                  
                  
                  2,466,180Cash
                  
                  
                  408
                  
                  
                  
                  399In-transit
      funds
                  
                  
                  -
                  
                  
                  
                  12,523$
                  2,113,803
                  
                  
                  $
                  3,749,899
 
 (1)
              Includes
      investments in overnight operations of $4,597; trust commissions of
      $11,869; and savings in Fondo Corredores Asociados, Fondo Correval and
      Fondo Citi Institutional Cash Reserves totaling $687,111, which are
      destined to be used as working capital in order to cover short-term
      obligations.  The increase in special and revolving funds
      results from the favorable rates offered by these types of investments as
      opposed to other investments.
  (2)
              At
      December 31, 2007 these investments had maturities of 90 days or
      less.
  Restrictions on banks and
corporations
  In
December 2008 there was an embargo for $73 from the 9° Civil Court of
Neiva, in order to back a presumed obligation derived from the breach of payment
of a public deed lien.  At present, the Company is preparing a
response to the claim arguing that the project originally planned in the
property will not be carried out.
 
 F-22
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  4.
              Investments
  2008
                    
                    
                    2007Current:Fixed
      yield:Investment
      Funds administered by third parties (1)
                    
                    $
                    2,077,218
                    
                    
                    $
                    447,249Bonds
      and securities of private or foreign entities (2)
                    
                    
                    1,099,487
                    
                    
                    
                    1,168,723Resources
      delivered for administration (3)
                    
                    
                    326,941
                    
                    
                    
                    3,686,431Bonds
      issued by the Colombian Government
                    
                    
                    224,053
                    
                    
                    
                    115,714Specific
      destination fund
                    
                    
                    10,212
                    
                    
                    
                    331,900Treasury
      Securities – TES
                    
                    
                    6,970
                    
                    
                    
                    8,780Time
      deposits
                    
                    
                    5,038
                    
                    
                    
                    195,699Other
      investments
                    
                    
                    -
                    
                    
                    
                    6Total
      Current
                    
                    $
                    3,749,919
                    
                    
                    $
                    5,954,502Long
      termVariable
      yield – shares (4)
                    
                    $
                    2,404,695
                    
                    
                    $
                    1,125,945Fixed
      yield:Bonds
      and securities of foreign entities (2)
                    
                    
                    5,094,596
                    
                    
                    
                    2,264,230Bonds
      issued by the Colombian Government
                    
                    
                    754,054
                    
                    
                    
                    521,997Fund
      for legal contingencies
                    
                    
                    378,461
                    
                    
                    
                    2,287Treasury
      Securities- TES
                    
                    
                    56,529
                    
                    
                    
                    60,878Self
      insurance fund
                    
                    
                    -
                    
                    
                    
                    258,688,335
                    
                    
                    
                    3,975,362Less
      allowance for protection of investments
                    
                    
                    (15
                    )
                    
                    
                    (130,543
                    )Total
      long term
                    
                    $
                    8,688,320
                    
                    
                    $
                    3,844,819
 
 (1)
              On
      March 31, 2008, US$400 million were delivered to firms specialized in
      the administration of financial
resources.
  In
      December 2008 Ecopetrol received funds from some of its subsidiaries
      to be given for delegated Management.  Ecopetrol, in turn,
      entrusted the management of these resources to a portfolio
      manager.
  (2)
              Corresponds
      to bonds and securities in foreign entities, such as term
      deposits.
  The
      classification of investments depends on the nature of such investments,
      their purpose and maturities.  Short-term investments have
      maturities of less than one year.
  (3)
              The variation with regard to the
      previous year is a result of the dividend payments to the Ministry of
      Finance and Public Credit in the months of April, July, October, and
      December.
  (4)
                A
      summary of long-term investments of variable yield, valued under the cost
      method, is set forth below:
  Number
      of
                    shares
      and/or
                    quotas
                
                
                Participation
                    percentage
                
                Valuation
      date
                
                Historical
                    Cost
                
                
                Intrinsic
                    Market
      Value
                
                
                Revaluations
                    (Provisions)StrategicSociedad
      Portuaria de Oleofinas
                
                
                249,992
                
                
                
                49.99
                
                Dec-08
                
                $
                250
                
                
                $
                339
                
                
                $
                89Zona
      Franca de Cartagena S.A.
                
                
                244
                
                
                
                8.18
                
                Dec-08
                
                
                239
                
                
                
                509
                
                
                
                270Sociedad
      Portuaria del Dique
                
                
                10
                
                
                
                0.50
                
                Dec-08
                
                
                -
                
                
                
                -
                
                
                
                -Los
      Arces Group Corp. (a)
                
                
                10,000
                
                
                
                100
                
                Dec-08
                
                
                6,000
                
                
                
                6,000
                
                
                
                -Amandine
      Holdings Corp  (a)
                
                
                500
                
                
                
                100
                
                Dec-08
                
                
                6,657
                
                
                
                6,657
                
                
                
                -Total
      Strategic
                
                
                
                
                
                
                
                
                
                
                
                13,146
                
                
                
                13,505
                
                
                
                359
  F-23
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Number
      ofshares
      and/or
                                                  
                                                  
                                                  Participation
                                                  
                                                  
                                                  
                                                  Historical
                                                  
                                                  
                                                  Intrinsic
                                                  
                                                  
                                                  Revaluationsquotas
                                                  
                                                  
                                                  percentage
                                                  
                                                  Valuation
      date
                                                  
                                                  Cost
                                                  
                                                  
                                                  Market
      Value
                                                  
                                                  
                                                  (Provisions)Non-Strategic
      (b)Empresa
      de Energía de Bogotá
                                                  
                                                  
                                                  6,310,980
                                                  
                                                  
                                                  
                                                  7.35
                                                  
                                                  Nov-08
                                                  
                                                  
                                                  169,421
                                                  
                                                  
                                                  
                                                  437,550
                                                  
                                                  
                                                  
                                                  268,129Interconexión
      Eléctrica S.A. E.S.P.
                                                  
                                                  
                                                  58,925,480
                                                  
                                                  
                                                  
                                                  5.48
                                                  
                                                  Dec-08
                                                  
                                                  
                                                  69,549
                                                  
                                                  
                                                  
                                                  418,371
                                                  
                                                  
                                                  
                                                  348,822Propaise
      S.A.
                                                  
                                                  
                                                  18,744,883
                                                  
                                                  
                                                  
                                                  0.99
                                                  
                                                  Dec-08
                                                  
                                                  
                                                  30
                                                  
                                                  
                                                  
                                                  15
                                                  
                                                  
                                                  
                                                  (15
                                                  )Total
      Non-strategic
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  239,000
                                                  
                                                  
                                                  
                                                  855,936
                                                  
                                                  
                                                  
                                                  616,936Total
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  252,146
                                                  
                                                  
                                                  $
                                                  869,441
                                                  
                                                  
                                                  $
                                                  617,295
 
 (a)
              At
      December 31, 2008, these companies were in liquidation proceedings
      and therefore were not incorporated in the Company’s consolidated
      financial statements.
  (b)
                  Sale
      of Shares ofColombia
      Telecomunicaciones S.A., E.S.P.: On December 29, 2008, the
      Regional Channel TV Andina purchased 100 shares that Ecopetrol owned in
      Colombia Telecommunications S.A., E.S.P - Telecom; the sale price
      per share
      was the net book value as of November 30, 2008
      ($2,069).
  In
accordance with the RCP, in 2008, Ecopetrol’s investments in associated
companies in which it has significant influence were valued under the equity
method.  Significant influence is defined as the power that the entity
has, regardless if the percentage of ownership is less than or equal to 50%, to
participate in the setting and overseeing of financing and operational policies
of another entity for the purpose of obtaining profits from that
entity.  The effect of the application of the equity method was an
increase in income of $56,118 (net of the corresponding income tax) which
includes the accumulated retained earnings of the associated
companies.  Until 2007, Ecopetrol’s investments in these associated
companies were valued under the cost method.
  A summary
of variable yield long-term investments, valued under the equity method, is set
forth below:
  STRATEGIC
                
                Number of
                    shares
                    and/or
                    quotas
                
                
                Participation
                    percentage
                
                Valuation
                    date
                
                Historical
                    Cost
                
                
                Adjusted
                    cost
                
                
                Equity
                    method
                    effectSignificant
      InfluenceSociedad
      Refinería de Cartagena S.A.
                
                
                979,999
                
                
                
                49.00
                
                Dec-08
                
                $
                239,271
                
                
                $
                1,294,819
                
                
                $
                1,055,548Oleoducto
      Central S.A.
                
                
                1,820,824
                
                
                
                35.29
                
                Dec-08
                
                
                396,021
                
                
                
                636,010
                
                
                
                239,989Ecodiesel
      Colombia S.  A. (a)
                
                
                7,750,000,000
                
                
                
                50.00
                
                Nov-08
                
                
                7,750
                
                
                
                7,790
                
                
                
                40Invercolsa
      S.A. (b)
                
                
                889,410,047
                
                
                
                31.76
                
                Nov-08
                
                
                60,282
                
                
                
                159,453
                
                
                
                99,171Oleoducto
      de Colombia S.A.
                
                
                15,925
                
                
                
                43.85
                
                Dec-08
                
                
                181,569
                
                
                
                48,221
                
                
                
                (133,348
                )Serviport
      S.A.
                
                
                53,714,116
                
                
                
                49.00
                
                Nov-08
                
                
                2,081
                
                
                
                6,256
                
                
                
                4,175Total
                
                
                
                
                
                
                
                
                
                
                $
                886,974
                
                
                $
                2,152,549
                
                
                $
                1,265,575
  (a)
                  Ecodiesel
      Colombia S.A. was incorporated on April 19, 2007 to construct and operate
      a plant in Barrancabermeja that will produce
      100,000 tons of bio-diesel fuel per year, equivalent to 2,000 barrels per
      day.  Ecopetrol’s initial contribution   was
      $2,000.
  (b)
              Restrictions
      over variable yield long-term
investments
  In
accordance with the judgment of February 8, 2007, issued by the 28th Bogota
Civil Court, Mr. Fernando Londoño was required to return the shares of
Inversiones de Gases de Colombia S.A. (Invercolsa), as well as the amount paid
in 1997.  This judgment was appealed and the second instance decision
is pending.  On June 8, 2007, the 28th Court ordered the seizure
of the 145 million Invercolsa shares held by Mr.  Fernando Londoño and
deposited them into an escrow account.  In addition, the collection of
any dividends or distribution in connection therewith was assigned to a
custodian.
  In
reviewing a constitutional action filed by two citizens, the Council of State
ruled in favor of Ecopetrol granting it the control of the shares under
litigation, a decision that was confirmed by a tutela action and which, in turn,
was reviewed by the Constitutional Court in August 2007.  The
Company will only recognize dividends income once the final sentence in its
favor is delivered and the recoverability of the resulting amounts can be
assured.
  A summary
of the balances as of December 31, 2008 of Ecopetrol’s consolidated subsidiaries
is set forth below:
 
 F-24
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 Company
                  
                  Assets
                  
                  
                  Liabilities
                  
                  
                  Equity
                  
                  
                  Results of
                      the periodBlack
      Gold Re Ltd
                  
                  $
                  245,470
                  
                  
                  $
                  13,277
                  
                  
                  $
                  232,193
                  
                  
                  $
                  18,515Ecopetrol
      Oleo é Gas do Brasil Ltda.
                  
                  
                  17,727
                  
                  
                  
                  20
                  
                  
                  
                  17,707
                  
                  
                  
                  (1,907
                  )Ecopetrol
      America Inc.
                  
                  
                  1,294,425
                  
                  
                  
                  30,068
                  
                  
                  
                  1,264,357
                  
                  
                  
                  (243,317
                  )Ecopetrol
      del Perú S.A.
                  
                  
                  25,588
                  
                  
                  
                  6,103
                  
                  
                  
                  19,485
                  
                  
                  
                  (43,333
                  )Andean
      Chemicals Limited
                  
                  
                  392,795
                  
                  
                  
                  15,816
                  
                  
                  
                  376,979
                  
                  
                  
                  8,255Polipropileno
      del Caribe S.A.
                  
                  
                  970,285
                  
                  
                  
                  410,340
                  
                  
                  
                  559,945
                  
                  
                  
                  53,346ODL
      Finance S.A.
                  
                  
                  680,004
                  
                  
                  
                  3,376
                  
                  
                  
                  676,628
                  
                  
                  
                  186
 
 A summary
of the balances as of December 31, 2007 of Ecopetrol’s consolidated subsidiaries
is set forth below:
  Assets
                  
                  
                  Liabilities
                  
                  
                  Equity
                  
                  
                  Results of
                      the periodBlack
      Gold Re Ltd.
                  
                  $
                  199,499
                  
                  
                  $
                  10,172
                  
                  
                  $
                  189,327
                  
                  
                  $
                  8,646Ecopetrol
      del Perú S.A.
                  
                  
                  53,234
                  
                  
                  
                  5,846
                  
                  
                  
                  47,388
                  
                  
                  
                  -Ecopetrol
      America Inc.
                  
                  
                  40,295
                  
                  
                  
                  -
                  
                  
                  
                  40,295
                  
                  
                  
                  -Ecopetrol
      Oleo é Gas do Brasil Ltda
                  
                  
                  4,875
                  
                  
                  
                  22
                  
                  
                  
                  4,853
                  
                  
                  
                  -
 
 The net
results for years 2008 and 2007 for companies in which Ecopetrol has investments
is set forth below:
  Company
                
                Economic
      Activity
                
                Net
      result
                    2008
                
                
                Net
      result
                    2007Interconexión
      Eléctrica S.A. E.S.P. (1)
                
                Operation,
      maintenance and selling of electrical power.
                
                $
                179,495
                
                
                $
                226,021Empresa
      de Energía de Bogotá S.A.  E.S.P (2)
                
                Electrical
      energy power
                
                $
                230,756
                
                
                $
                625,602Refinería
      de Cartagena S.A.(2)
                
                Construction
      and operation of refineries, refining of hydrocarbons, production, selling
      and distribution of crude oil, natural gas and
by-products.
                
                $
                9,478
                
                
                $
                (20,790
                )Oleoducto
      Central S.A. - Ocensa
                
                Construction
      and operation of a pipeline system, which Terminal is the Coveñas
      embarkation port, Municipality of Tolú, Colombia
                
                $
                47,821
                
                
                $
                25,555Invercolsa
      S.A. (1)
                
                Investments
      in energy sector companies including activities inherent to the industry
      and commerce of hydrocarbons and mining.
                
                $
                111,773
                
                
                $
                58,081Oleoducto
      de Colombia S.A. (2)
                
                Construction
      and operation of a pipeline system, which terminal is the Coveñas
      embarkation port, Municipality of Tolú, Colombia
                
                $
                (23,862
                )
                
                $
                (10,714
                )
  F-25
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 Company
                
                Economic
      Activity
                
                Net
      result
                    2008
                
                
                Net
      result
                    2007Serviport
      S.A (2)
                
                Rendering
      to the public in general of the necessary services for the loading and
      unloading support of crude oil ships, supply of equipment for the same
      purpose, load inspections and measurements
                
                $
                (500
                )
                
                $
                (207
                )Ecodiesel
      Colombia S.A. (2)
                
                Construction
      and operation of plants for the production of bio-fuels and oleo -
      chemicals and their mixes with hydrocarbon derivative fuels, in addition
      to the production and distribution of them.
                
                $
                76
                
                
                $
                2
 
 (1)
              Information
      as of November 30, 2008
 (2)
              Preliminary
      information as of December 31,
2008.
  Investments
with maturities of less than one year and those which will be utilized within
the next business cycle are classified as current assets.
  A summary
of the Company’s main long-term fixed yield investments at December 31, 2008 to
be redeemed during the next five years is set forth below:
  Maturity
                  
                  1
      –3 Years
                  
                  
                  3
      - 5 Years
                  
                  
                  >
      5 Years
                  
                  
                  TotalPrivate
      Bonds
                  
                  $
                  4,145,510
                  
                  
                  $
                  757,805
                  
                  
                  $
                  191,281
                  
                  
                  $
                  5,094,596Bonds
      and other government securities
                  
                  
                  144,180
                  
                  
                  
                  442,297
                  
                  
                  
                  167,577
                  
                  
                  
                  754,054Treasury
      securities TES
                  
                  
                  31,317
                  
                  
                  
                  13,863
                  
                  
                  
                  11,349
                  
                  
                  
                  56,529Specific
      destination fund
                  
                  
                  131,250
                  
                  
                  
                  159,726
                  
                  
                  
                  87,485
                  
                  
                  
                  378,461$
                  4,452,257
                  
                  
                  $
                  1,373,691
                  
                  
                  $
                  457,692
                  
                  
                  $
                  6,283,640
 
 A summary
of the Company’s main long-term fixed yield investments at December 31, 2007 to
be redeemed during the next five years is set forth below:
  Maturity
                  
                  1
      –3 Years
                  
                  
                  3
      - 5 Years
                  
                  
                  >
      5 Years
                  
                  
                  TotalPrivate
      Bonds
                  
                  $
                  1,731,704
                  
                  
                  $
                  457,753
                  
                  
                  $
                  74,773
                  
                  
                  $
                  2,264,230Bonds
      and other government securities
                  
                  
                  224,837
                  
                  
                  
                  50,016
                  
                  
                  
                  247,144
                  
                  
                  
                  521,997Treasury
      securities TES
                  
                  
                  17,721
                  
                  
                  
                  32,583
                  
                  
                  
                  10,574
                  
                  
                  
                  60,878Specific
      destination fund
                  
                  
                  2,287
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,287$
                  1,976,549
                  
                  
                  $
                  540,352
                  
                  
                  $
                  332,491
                  
                  
                  $
                  2,849,392
  F-26
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 5.
              Accounts
      and notes receivable
  2008
                  
                  
                  2007Current
      portionCustomers:Local
      (1)
                  
                  $
                  555,405
                  
                  
                  $
                  482,453Foreign
      (1)
                  
                  
                  530,495
                  
                  
                  
                  442,657Subsidies
      to be received from the Ministry of Mines and Energy (2)
                  
                  
                  3,970,115
                  
                  
                  
                  633,806Other
      debtors
                  
                  
                  350,227
                  
                  
                  
                  145,081Related
      parties (See Note 15)
                  
                  
                  237,236
                  
                  
                  
                  340,485Reimbursements
      and investment yields (3)
                  
                  
                  111,977
                  
                  
                  
                  111,935Associations
      contracts – Joint operations
                  
                  
                  52,821
                  
                  
                  
                  79,559Doubtful
      accounts
                  
                  
                  33,008
                  
                  
                  
                  28,665Accounts
      receivable from employees
                  
                  
                  29,951
                  
                  
                  
                  7,541Notes
      receivable
                  
                  
                  22,680
                  
                  
                  
                  19,642Industrial
      service customers
                  
                  
                  17,046
                  
                  
                  
                  6,7455,910,961
                  
                  
                  
                  2,298,569Less
      allowance  for doubtful accounts
                  
                  
                  (33,679
                  )
                  
                  
                  (28,665
                  )Total
      current portion
                  
                  $
                  5,877,282
                  
                  
                  $
                  2,269,904Long-term
      portionLoans
      to employees (4)
                  
                  $
                  149,051
                  
                  
                  $
                  137,629Credit
      portfolio (5)
                  
                  
                  41,010
                  
                  
                  
                  60,040Others
                  
                  
                  3,992
                  
                  
                  
                  4,896Local
      clients
                  
                  
                  859
                  
                  
                  
                  -Total
      long-term portion
                  
                  $
                  194,912
                  
                  
                  $
                  202,565
 
 (1)
              The
      classification of accounts and notes receivable between current and
      long-term is based upon Management’s estimation of the recoverability of
      accounts receivable.  When Management estimates that an account
      receivable will be recovered within the twelve months following the
      balance sheet date, it is classified as current; otherwise, it is
      classified as long-term.  Also, certain accounts receivable are
      always classified as long-term as a result of their nature, such as
      account receivables whose legal or contractual provisions require such
      long-term classification.
  The aging
determination and classification of the accounts receivable related to customers
at December 31, 2008, pursuant to maturity, is set forth
below:
  Maturity
      in Days0 – 180
                                        
                                        
                                        181 – 360
                                        
                                        More than 361*Current
      accounts receivable
                                        
                                        $
                                        1,036,244
                                        
                                        
                                        $
                                        2,131
                                        
                                        
                                        $
                                        -Past
      due accounts receivable
                                        
                                        
                                        47,525
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,507Long
      term accounts receivable
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        8591,083,769
                                        
                                        
                                        
                                        2,131
                                        
                                        
                                        
                                        2,366Local
      customers
                                        
                                        
                                        555,405
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Foreign
      customers
                                        
                                        
                                        530,495
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -$
                                        1,085,900
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
  (*)
              Customer
      receivables which are included in the allowance for doubtful
      accounts.
  (2)
              Corresponds
      to the accounts receivable from the Ministry of Mines and Energy regarding
      the recognition of the regular motor gasoline and diesel subsidies and the
      interest corresponding to the first eleven months of the
      year.  The balance is as follows: Subsidies for 2008 $3,070,479,
      opportunity cost $93,218 (4.48% annual yield), exchange difference
      $706,651 and $99,767 receivable corresponding to the subsidies of 2007,
      which will be settled with the Nation
dividens.
  (3)
              Made
      up of:  $1,988 dividends receivable from Interconexión Eléctrica
      S.A.E.S.P., $107,796 investment reimbursement and profit from investment
      and $2,193 surcharge for tariff adjustments for the first semester of 2008
      from Ecogas.
  F-27
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 (4)
              By
      means of Leg contracts 058-80 of 1980 and 4008928 of 2006, the
      administration, management and control of loans granted to employees by
      the Company were given to Cavipetrol.  In its capacity as
      administrator, Cavipetrol acts as custodian in its database and financial
      system of the detail by employee of said loans and their respective
      conditions.
  The
future collections of accounts receivable at December 31, 2008 from Cavipetrol
accounts are as follows:
  Year
                    
                    Amount2009
                    
                    $
                    25,4882010
                    
                    
                    27,7822011
                    
                    
                    30,2822012
                    
                    
                    33,0082013
      and following
                    
                    
                    31,573$
                    148,133
 
 Additionally,
there are accounts receivable for $918 from employees of the Companies’
subsidiaries Propilco S.A. and Comai Ltda.
  (5)
              A
      summary of the long-term recovery portfolio for each of the following five
      years is provided below:
  Long-term
      Recovery PortfolioYear
      1
                
                
                Year
      2
                
                
                Year
      3
                
                
                Year
      4
                
                
                Year
      5
                
                
                More
                    than
                    5
      yearsApplicable
      interest rate
                
                Dec-09
                    to
                    Nov-10
                
                
                Dec-10
                    to
                    Nov-11
                
                
                Dec-11
                    to
                    Nov-12
                
                
                Dec-12
                    to
                    Nov-13
                
                
                Dec-13
                    to
                    Nov-14DTF
      previous month
                
                $
                81
                
                
                $
                45
                
                
                $
                12
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -CPI
      + 6
                
                
                16
                
                
                
                19
                
                
                
                19
                
                
                
                16
                
                
                
                -
                
                
                
                -CPI
      + 6
                
                
                51
                
                
                
                61
                
                
                
                61
                
                
                
                61
                
                
                
                44
                
                
                
                -CPI
                
                
                37
                
                
                
                19
                
                
                
                19
                
                
                
                19
                
                
                
                19
                
                
                
                79ECP
      opportunity rate -Bank  Average
                
                
                303
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -DTF
      + 6 points
                
                
                9
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Greater
      between 6% EA and CPI for the semester starting
    July 2009
                
                
                6,500
                
                
                
                13,000
                
                
                
                13,000
                
                
                
                6,500
                
                
                
                -
                
                
                
                -Total
      annual recovery
                
                $
                6,997
                
                
                $
                13,144
                
                
                $
                13,111
                
                
                $
                6,596
                
                
                $
                63
                
                
                $
                79Total
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                39,990
 
 DTF:
                Average
      of interest rates for fixed term deposits, promulgated by the
      Superintendency of Finance.CPI:
                Consumer
      Price Index, as indicated by the Colombian GovernmentECP:
                EcopetrolEA:
                Effective
      Annual Rate
 
 Additionally,
the long-term credit portfolio includes $1,020 corresponding to benefits granted
to the employees of the Asociación Guajira and the Asociación Las Monas through
housing loans.
  Below is
the activity of the allowance for accounts receivable for each of the following
three years:
  2008
                  
                  
                  2007
                  
                  
                  2006Initial
      balance
                  
                  $
                  28,665
                  
                  
                  $
                  23,847
                  
                  
                  $
                  28,760Additions
      (new provisions)
                  
                  
                  3,100
                  
                  
                  
                  15,591
                  
                  
                  
                  937Adjustment
      of existing provisions
                  
                  
                  2,319
                  
                  
                  
                  3,064
                  
                  
                  
                  1,990Recoveries
                  
                  
                  (405
                  )
                  
                  
                  (13,837
                  )
                  
                  
                  (7,840
                  )Ending
      balance
                  
                  $
                  33,679
                  
                  
                  $
                  28,665
                  
                  
                  $
                  23,847
 
 No other
significant restrictions exist for the recovery of accounts and notes
receivable.
 
 F-28
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 6.
              Inventories
  2008
                  
                  
                  2007Finished
      Products:Fuels
                  
                  $
                  465,388
                  
                  
                  $
                  313,798Petrochemicals
                  
                  
                  108,352
                  
                  
                  
                  70,217Crude
      oil
                  
                  
                  602,210
                  
                  
                  
                  516,670Natural
      gas
                  
                  
                  41
                  
                  
                  
                  5,487Purchased
      Products:Crude
      oil
                  
                  
                  35,568
                  
                  
                  
                  14,780Fuel
                  
                  
                  132,295
                  
                  
                  
                  152,898Petrochemicals
                  
                  
                  31,934
                  
                  
                  
                  2,543Natural
      gas
                  
                  
                  -
                  
                  
                  
                  110Raw
      Materials:Crude
      oil
                  
                  
                  96,970
                  
                  
                  
                  127,262Petrochemicals
                  
                  
                  29,596
                  
                  
                  
                  -Natural
      gas
                  
                  
                  -
                  
                  
                  
                  2,244In-process
      Products:Fuel
                  
                  
                  203,328
                  
                  
                  
                  146,870Petrochemicals
                  
                  
                  3,826
                  
                  
                  
                  15,507In
      transit inventories
                  
                  
                  11,279
                  
                  
                  
                  -Materials
      for the production of assets
                  
                  
                  9,907
                  
                  
                  
                  10,483Packing
      material
                  
                  
                  2,144
                  
                  
                  
                  -In
      transit materials
                  
                  
                  5,922
                  
                  
                  
                  894Total
                  
                  
                  1,738,760
                  
                  
                  
                  1,379,763Less
      allowance for inventories
                  
                  
                  (127,464
                  )
                  
                  
                  (80,971
                  )Total
                  
                  $
                  1,611,296
                  
                  
                  $
                  1,298,792
 
 Below are
the adjustments made to the allowance for the inventories for the years ended
December 31, 2008, 2007 and 2006:
  2008
                
                
                2007
                
                
                2006Initial
      balance
                
                $
                80,971
                
                
                $
                752
                
                
                $
                243Adjustments
      to allowance, net
                
                
                46,493
                
                
                
                80,219
                
                
                
                509Ending
      balance
                
                $
                127,464
                
                
                $
                80,971
                
                
                $
                752
  7.
              Advances
      and Deposits
  2008
                  
                  
                  2007Official
      Entities (1)
                  
                  $
                  1,465,401
                  
                  
                  $
                  1,184,023Partners
      in Joint operations (2)
                  
                  
                  578,368
                  
                  
                  
                  577,792Advances
      to suppliers
                  
                  
                  82,623
                  
                  
                  
                  664Advances
      for asset acquisition
                  
                  
                  67,308
                  
                  
                  
                  -Advances
      to contractors
                  
                  
                  19,805
                  
                  
                  
                  23,274Agreements
      (3)
                  
                  
                  16,880
                  
                  
                  
                  17,163Customs
      agents
                  
                  
                  14,484
                  
                  
                  
                  15,049Related
      parties (see Note 15)
                  
                  
                  2,528
                  
                  
                  
                  161,422Advances
      to workers
                  
                  
                  725
                  
                  
                  
                  227Total
                  
                  $
                  2,248,122
                  
                  
                  $
                  1,979,614
  F-29
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 (1)
              Includes
      transactions with the National Tax and Customs Administration - DIAN for
      advance income tax for 2008 for the amount of $966,730 million, self
      withholdings, and others for the amount of
      $498,671 million.
  (2)
              Joint
      operations:
  2008
                  
                  
                  2007Contracts
      in which Ecopetrol is not the operator:BP
      Exploration Company Colombia
                  
                  $
                  112,230
                  
                  
                  $
                  278,827Meta
      Petroleum Ltd.
                  
                  
                  80,092
                  
                  
                  
                  31,051Other
      operations
                  
                  
                  64,961
                  
                  
                  
                  9,203Mansarovar
      Energy Colombia Ltd.
                  
                  
                  48,579
                  
                  
                  
                  54,370Occidental
      Andina LLC
                  
                  
                  36,996
                  
                  
                  
                  4,209Petrobras
      Colombia Limited
                  
                  
                  31,438
                  
                  
                  
                  31,267Anadarko
      Petroleum Corporation
                  
                  
                  25,410
                  
                  
                  
                  -Occidental
      de Colombia Inc.
                  
                  
                  16,997
                  
                  
                  
                  21,301BHP
      Billiton Petroleum Colombia
                  
                  
                  9,129
                  
                  
                  
                  10,330Hocol
      S.A.
                  
                  
                  7,370
                  
                  
                  
                  9,430Petrobras
      Internacional Braspetro B.V.
                  
                  
                  3,716
                  
                  
                  
                  5,420CEPSA
      Colombia S.A. (before Nexem Petroleum Ltd.)
                  
                  
                  2,228
                  
                  
                  
                  8,781Perenco
      Colombia Limited
                  
                  
                  1,770
                  
                  
                  
                  7,320Kappa
      Resources Colombia Ltd.
                  
                  
                  1,199
                  
                  
                  
                  5,788Chevron
      Texaco Petroleum Company
                  
                  
                  -
                  
                  
                  
                  486Contracts
      in which Ecopetrol is the Operator:Oleoducto
      Caño Limón
                  
                  
                  120,797
                  
                  
                  
                  95,799La
      Cira
                  
                  
                  8,303
                  
                  
                  
                  -Other
      Operations
                  
                  
                  3,094
                  
                  
                  
                  1,508Tibú
                  
                  
                  3,087
                  
                  
                  
                  -CRC
      2004 – 01
                  
                  
                  730
                  
                  
                  
                  -JOA
      Caño Sur
                  
                  
                  200
                  
                  
                  
                  -JOA
      Platanillo
                  
                  
                  22
                  
                  
                  
                  2,614Shared
      Risk Contracts:Catleya
                  
                  
                  20
                  
                  
                  
                  88Total
                  
                  $
                  578,368
                  
                  
                  $
                  577,792
 
 (3)
              Represents
      the amounts delivered to personnel as advances under the personnel
      education plan.
  8.
              Prepaid
      expenses
  2008
                  
                  
                  2007Insurance
      (*)
                  
                  $
                  14,247
                  
                  
                  $
                  10,396Others
                  
                  
                  9,968
                  
                  
                  
                  2,202Total
                  
                  $
                  24,215
                  
                  
                  $
                  12,598
 
 (*)
              The
      contracted insurance is effective until April 2009 and is made up
      of:  i) operating for the amount of $28,956 and an
      amortization to December 31, 2008 of $21,411, and
      ii) administrative for the amount of $4,334 and an amortization to
      the same date of $2,625.
  F-30
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 9.
              Property,
      Plant and Equipment, net
  2008
                  
                  
                  2007Plants
      and equipment
                  
                  $
                  11,291,735
                  
                  
                  $
                  10,116,645Pipelines,
      networks and lines
                  
                  
                  4,081,579
                  
                  
                  
                  3,700,446Construction
      in progress
                  
                  
                  3,435,379
                  
                  
                  
                  1,526,127Buildings
                  
                  
                  1,194,298
                  
                  
                  
                  1,007,769Equipment
      on deposit and in transit
                  
                  
                  949,724
                  
                  
                  
                  638,784Computer
      equipment
                  
                  
                  281,037
                  
                  
                  
                  268,598Transportation
      equipment and other fixed assets
                  
                  
                  286,864
                  
                  
                  
                  298,359Land
                  
                  
                  76,660
                  
                  
                  
                  64,789Total
                  
                  
                  21,597,276
                  
                  
                  
                  17,621,517Accumulated
      depreciation
                  
                  
                  (12,426,330
                  )
                  
                  
                  (11,364,448
                  )Allowance
      for property, plant and equipment (*)
                  
                  
                  (1,093,458
                  )
                  
                  
                  (105,118
                  )Total
      property, plant and equipment
                  
                  $
                  8,077,488
                  
                  
                  $
                  6,151,951
 
 (*)
              Pursuant
      to the RCP, the balance of 2007 was net of certain
      revaluations.  Starting in 2009, the provision for revaluation
      will be charged to results.
  Below is
the activity of the allowance for property, plant and equipment:
  2008
                
                
                2007
                
                
                2006Initial
      balance
                
                $
                105,118
                
                
                $
                97,227
                
                
                
                102,064Additions
      (new provisions)
                
                
                1,013,117
                
                
                
                9,037
                
                
                
                -Provision
      from business combination
                
                
                770
                
                
                
                -
                
                
                
                -Adjustment
      of existing provisions
                
                
                (6,733
                )
                
                
                (1,146
                )
                
                
                -Recoveries
                
                
                (18,813
                )
                
                
                -
                
                
                
                (4,837
                )Ending
      balance
                
                $
                1,093,458
                
                
                $
                105,118
                
                
                $
                97,227
  Depreciation
expense for the year 2008, 2007 and 2006 charged to results amounted to
$663,646, $750,074 and $773,338, respectively.
  Construction
in progress includes developing projects and are transferred to the
corresponding items, once the productive stage has begun and are considered
ready for use.  The most representative amounts correspond to
infrastructure projects for the Barrancabermeja fuel hydrotreatment plant, Campo
Castilla development project in Meta, heavy crude oil transportation pipeline
Apiay – Porvenir, construction of the nafta pipeline between Sutamarchan and
Apiay and well drilling for the development of reserves in La Cira.
  The
residual value is only considered in the valuation process for property, plant
and equipment and only in the eventuality in which the assets are totally
depreciated or are no longer in operating conditions.  A 5% general
average of the cost is applied, according to oil industry
practice.  This criterion is not applicable to assets classified as
pipelines and buildings, since it is considered that the recoverable costs are
equivalent to the costs of removal and transportation for their
retirement.  The assets are depreciated at 100% of their historical
cost adjusted by inflation.
 
 F-31
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 A summary
of property, plant and equipment at December 31, 2008 is set forth
below:
  Type
      of asset
                  
                  Adjusted
                      cost
                  
                  
                  Accumulated
                      depreciation
                  
                  
                  Revaluations
                  
                  
                  Allowances
                  
                  
                  Fair
      ValuePlants
      and equipment
                  
                  $
                  11,291,735
                  
                  
                  $
                  8,795,252
                  
                  
                  $
                  3,613,491
                  
                  
                  $
                  (636,241
                  )
                  
                  $
                  10,978,466Pipelines,
      networks and lines
                  
                  
                  4,081,579
                  
                  
                  
                  2,644,522
                  
                  
                  
                  308,518
                  
                  
                  
                  (158,006
                  )
                  
                  
                  714,405Construction
      in progress
                  
                  
                  3,435,379
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  12,224Buildings
                  
                  
                  1,194,298
                  
                  
                  
                  532,271
                  
                  
                  
                  529,766
                  
                  
                  
                  (270,227
                  )
                  
                  
                  1,008,253Equipment
      on deposit and in transit
                  
                  
                  949,724
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Computer
      equipment
                  
                  
                  281,037
                  
                  
                  
                  229,026
                  
                  
                  
                  25,617
                  
                  
                  
                  (20,789
                  )
                  
                  
                  25,581Transportation
      equipment and other fixed assets
                  
                  
                  286,864
                  
                  
                  
                  225,259
                  
                  
                  
                  73,950
                  
                  
                  
                  (8,195
                  )
                  
                  
                  74,915Land
                  
                  
                  76,660
                  
                  
                  
                  -
                  
                  
                  
                  11,668
                  
                  
                  
                  -
                  
                  
                  
                  26,635Total
                  
                  $
                  21,597,276
                  
                  
                  $
                  12,426,330
                  
                  
                  $
                  4,563,010
                  
                  
                  $
                  (1,093,458
                  )
                  
                  $
                  12,840,479
  A summary
of property, plant and equipment at December 31, 2007 is set forth
below:
  Type
      of asset
                
                Adjusted
                    cost
                
                
                Accumulated
      depreciation
                
                
                Revaluations
                
                
                Allowances
                
                
                Fair
      ValuePlants
      and equipment
                
                $
                10,116,645
                
                
                $
                7,903,317
                
                
                $
                3,027,351
                
                
                $
                44,120
                
                
                $
                10,324,281Pipelines,
      networks and lines
                
                
                3,700,446
                
                
                
                2,511,837
                
                
                
                192,738
                
                
                
                60,990
                
                
                
                242,013Construction
      in progress
                
                
                1,526,127
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Buildings
                
                
                1,007,769
                
                
                
                480,961
                
                
                
                263,157
                
                
                
                -
                
                
                
                736,633Equipment
      on deposit and in transit
                
                
                638,784
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Computer
      equipment
                
                
                268,598
                
                
                
                220,256
                
                
                
                4,360
                
                
                
                -
                
                
                
                14,660Transportation
      equipment and other fixed assets
                
                
                298,359
                
                
                
                248,077
                
                
                
                67,592
                
                
                
                8
                
                
                
                97,848Land
                
                
                64,789
                
                
                
                -
                
                
                
                11,668
                
                
                
                -
                
                
                
                11,668Total
                
                $
                17,621,517
                
                
                $
                11,364,448
                
                
                $
                3,566,866
                
                
                $
                105,118
                
                
                $
                11,427,103
  A summary
of non-operating assets is set forth below:
 
 December 31, 2008
                        
                        
                        December 31, 2007Asset
      Class
                        
                        No.
      of Units
                        
                        
                        Net
      book value
                        
                        
                        No.
      of Units
                        
                        
                        Net
      book valuePlant
      and equipment
                        
                        
                        41
                        
                        
                        $
                        -
                        
                        
                        
                        144
                        
                        
                        $
                        8Other
      fixed assets
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        89
                        
                        
                        
                        -Computers
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        9
                        
                        
                        
                        -Other
      equipment
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        12
                        
                        
                        
                        -
 
 In
accordance with the Company’s policy, assets not required for the Company ́s
operations are removed from the books and recorded in accordance with the means
of disposition defined, i.e., sale, assignment without cost, payment in kind or
scrapping.
 
 F-32
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 10.
              Natural
      and Environmental Resources, net
  2008
                    
                    
                    2007Amortizable
      crude oil investments
                    
                    $
                    13,727,384
                    
                    
                    $
                    10,289,578Less:  Accumulated
      amortization (1)
                    
                    
                    (7,007,255
                    )
                    
                    
                    (6,082,884
                    )6,720,129
                    
                    
                    
                    4,206,694Plugging
      and abandonment, dismantling of facilities and environmental recovery
      costs
                    
                    
                    1,965,902
                    
                    
                    
                    1,528,132Less:  Accumulated
      amortization
                    
                    
                    (1,091,504
                    )
                    
                    
                    (951,690
                    )874,398
                    
                    
                    
                    576,442Reservoirs
      and appraisals (2)
                    
                    
                    701,590
                    
                    
                    
                    701,590Less:  Accumulated
      depletion
                    
                    
                    (580,132
                    )
                    
                    
                    (556,014
                    )121,458
                    
                    
                    
                    145,576Exploration
      in progress
                    
                    
                    338,064
                    
                    
                    
                    200,205Total
                    
                    $
                    8,054,049
                    
                    
                    $
                    5,128,917
 
 (1)
              During
      2008 the SEC method price  (US$44 per barrel) was adopted for
      the calculation of this amortization, rather than the portfolio price of
      oil (US$49 per barrel).  The effect of this change was a net
      expense decrease of $69,000, net of the corresponding income
      tax.  Prior to 2008, the portfolio price of oil was applied
      (US$96 per barrel for 2007).
  (2)
              These
      reserves were received from the reversions of concession contracts for $
      520,218 currently administered by Gerencias Sur and $181,372 by Magdalena
      Medio.
  11.
              Pension
      Plan Assets
  Decree
2153 of 1999 required the Company to fund up to 70% of its pension liability
existing as of December 31, 1998.  In connection therewith, the
Company created the guarantee trust funds with the entities described below and
makes annual contributions thereto.
  Pursuant
to Decree 941 of 2002, once the actuarial calculation for pension obligations
was approved by the Ministry of Finance in October 2008 and once the mechanism
for transfer (“commutation”) of the corresponding liability was approved by the
Ministry of Social Security on December 29, 2008, the Company transferred
to pension trust funds an amount equal to the actuarial calculation for pensions
as estimated on December 31, 2008, with a remaining balance of
$80,263.
  During
2008, the trust funds earned a 12.59% annual yield compared to funds of a
similar nature which are required to earn a minimum of 12.05%.  In
2008, the guarantee trust funds generated net earnings of $1,171,960 as compared
to $432,745 in 2007.
  At
December 31, the Company had set up the following trusts:
  2008
                    
                    
                    2007Consorcio
      Fidubogotá – Fiducolpatria
                    
                    $
                    17,399
                    
                    
                    $
                    2,077,168Consorcio
      Fidupopular – Fiduoccidente
                    
                    
                    14,980
                    
                    
                    
                    1,767,901Consorcio
      Fiduagraria - Fiducoldex - Helm Trust
                    
                    
                    9,610
                    
                    
                    
                    1,135,703Consorcio
      BBVA - Corficolombiana – Fidubogotá
                    
                    
                    9,677
                    
                    
                    
                    1,140,656Consorcio
      Fiducafé - Fiduprevisora - Fidupetrol1
                    
                    
                    16,805
                    
                    
                    
                    1,982,653Consorcio
      Fiducolombia - Santander Investment
                    
                    
                    11,792
                    
                    
                    
                    1,391,593Total
                    
                    
                    80,263
                    
                    
                    
                    9,495,674Less:  short
      term redeemable portion
                    
                    
                    80,263
                    
                    
                    
                    508,813Long-
      Term portion
                    
                    $
                    -
                    
                    
                    $
                    8,986,861
 
 
 F-33
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 The trend
of the coverage of trust funds with reference to the pension liability is as
follows:
  2008
                  
                  
                  2007Transferred
                      amount
                  
                  
                  Non-
                      transferred
                      amountPension
      Liability (*)
                  
                  $
                  10,092,528
                  
                  
                  $
                  2,157,286
                  
                  
                  $
                  10,819,077Trust
      funds
                  
                  $
                  10,172,791
                  
                  
                  $
                  80,263
                  
                  
                  $
                  9,495,674Coverage
                  
                  
                  100.8
                  %
                  
                  
                  4
                  %
                  
                  
                  88
                  %
 
 (*)
              The
      Company’s pension liability includes health care and education reserves
      and the actuarial calculation of its joint operations personnel, using the
      participation percentage initially agreed to in each respective
      contract.  These amounts were not part of the transfer of
      pension liabilities.
  The table
below sets forth the adjustments made in the Company’s pension trust funds for
the years ended December 31, 2008 and 2007:
  2008
                  
                  
                  2007Initial
      balance
                  
                  $
                  9,495,674
                  
                  
                  $
                  8,960,897Capital
      contributions
                  
                  
                  -
                  
                  
                  
                  102,032Yields
                  
                  
                  1,171,960
                  
                  
                  
                  432,745Payments
                  
                  
                  (494,843
                  )
                  
                  
                  -Transfer
      of pension liability
                  
                  
                  (10,092,528
                  )
                  
                  
                  -Ending
      balance
                  
                  $
                  80,263
                  
                  
                  $
                  9,495,674
  12.
              Deferred
      Charges
  2008
                  
                  
                  2007Deferred
      income tax
                  
                  $
                  1,285,648
                  
                  
                  $
                  1,779,874Other
      deferred charges (net)
                  
                  
                  235,720
                  
                  
                  
                  111,556Charges
      of deferred monetary correction, net
                  
                  
                  66,279
                  
                  
                  
                  79,242Deferred
      reinsurance expenses
                  
                  
                  8,036
                  
                  
                  
                  5,390$
                  1,595,683
                  
                  
                  $
                  1,976,062
 13.
              Other
      Assets
  2008
                    
                    
                    2007Goodwill
      (1)
                    
                    $
                    668,614
                    
                    
                    $
                    -Retirement
      pension fund of personnel related with joint operations
(2)
                    
                    
                    271,121
                    
                    
                    
                    211,238National
      Royalties Fund (3)
                    
                    
                    82,147
                    
                    
                    
                    6,206Trust
      Fund (4)
                    
                    
                    77,255
                    
                    
                    
                    72,845Intangibles:  Trademarks,
      licenses, patents, software
                    
                    
                    45,968
                    
                    
                    
                    53,775Fund
      for the abandonment of facilities (5)
                    
                    
                    31,283
                    
                    
                    
                    21,651Deposits
      in administration
                    
                    
                    20,879
                    
                    
                    
                    29,092Other
      assets
                    
                    
                    9,832
                    
                    
                    
                    4,594$
                    1,207,099
                    
                    
                    $
                    399,401
  (1)
              Goodwill
      arose from the acquisition of the companies Andean Chemicals Limited and
      Polipropileno del Caribe S.A.  (See Note 4).  The
      estimated amortization term is 17 years and 8 months, which was determined
      based on the net present value of the investment minus the estimated
      future cash flows.  The straight line amortization methodology
      was applied to this goodwill, which will be reviewed and updated annually
      based on actual results and future projections.  In
      August 2008, an adjustment was recognized as a result of (i) the
      review of working capital changes as agreed in the initial contract and
      (2) the debt the Company accumulated for the period from the execution of
      the contract and the transaction
closing.
  F-34
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 (2)
              Corresponds
      to the pension fund in which Ecopetrol participates according to the
      percentage initially agreed to in each respective joint operations
      contract.  This pension fund was created to protect the pension
      liabilities arising under the contracts Casanare, Cravo Norte, Guajira and
      Las Monas.  In addition,  Caño Limón Coveñas crude oil
      pipeline is funded at 100%.
  (3)
              Corresponds
      to the FAEP deposits into the National Royalties Fund in favor of
      Ecopetrol.  Its sole purpose is the payment of debts and
      financing the development of projects and programs in hydrocarbon
      producing and non-producing municipalities and
      departments.  Ecopetrol disburses amounts after the Ministry of
      Finance issues the corresponding
approvals.
  (4)
              Includes
      i) Contribution of $61,911 into the National Hydrocarbons Fund which was
      created to support future hydrocarbon investment, exploration and
      production contracts in minor fields (projects which are managed by the
      Hydrocarbons Private Equity Fund of Colombia), ii) Contribution of $5,905
      into the Procuraduria Fund created for general benefit projects in
      municipalities near the Cicuco field under the Company’s direct
      operation:  Cicuco, Mompox and Talaigua Nueva (the objective of
      the fund is to disburse the amounts according to each project’s
      development, which will be carried out by the municipalities through
      agreements with Incoder and the Ministry of the Environment) and iii)
      Contribution of $9,439 into the Colpet, Condor and Sagoc Fund for the
      possible contingencies in the liquidation of these former
      subsidiaries.
  (5)
              The
      movement of funds administered by fiduciary entities and financial
      entities for activities related to the abandonment of wells in the joint
      operations of Casanare, Cravo Norte, Guajira and Cravo Norte Pipeline is
      shown below:
 
 Fund
                  
                  Balance
      2007
                  
                  
                  Contributions
                      2008
                  
                  
                  Interest
      2008
                  
                  
                  Balance
      2008
                  
                  Financial
      Entity/
                      Fiduciary
      entityCasanare
                  
                  $
                  4,412
                  
                  
                  $
                  -
                  
                  
                  $
                  482
                  
                  
                  $
                  4,894
                  
                  SkandiaCravo
      Norte
                  
                  
                  9,407
                  
                  
                  
                  1,824
                  
                  
                  
                  1,260
                  
                  
                  
                  12,491
                  
                  FiducolombiaGuajira
                  
                  
                  -
                  
                  
                  
                  3,285
                  
                  
                  
                  1,698
                  
                  
                  
                  4,983
                  
                  JP
      Morgan ChaseCravo
      Norte - Oleoducto
                  
                  
                  7,832
                  
                  
                  
                  -
                  
                  
                  
                  1,083
                  
                  
                  
                  8,915
                  
                  FiducolombiaTotal
                  
                  $
                  21,651
                  
                  
                  $
                  5,109
                  
                  
                  $
                  4,523
                  
                  
                  $
                  31,283
 
  14.
              Financial
      Obligations
  2008
                    
                    
                    2007Short
      termForeign
      currency debt
                    
                    $
                    231,015
                    
                    
                    $
                    -Local
      currency debt
                    
                    
                    11
                    
                    
                    
                    3,569Issued
      Bonds (*)
                    
                    
                    50,000
                    
                    
                    
                    -Total
      short term
                    
                    
                    281,026
                    
                    
                    
                    3,569Long
      termForeign
      currency debt
                    
                    
                    561
                    
                    
                    
                    -Local
      currency debt
                    
                    
                    4,912
                    
                    
                    
                    -Total
      long term
                    
                    
                    5,473
                    
                    
                    
                    -Total
                    
                    $
                    286,499
                    
                    
                    $
                    3,569
 
 The
details of Ecopetrol’s financial obligations are as follows:
  Entity
                    
                    Currency
                    
                    Interest Rate
                    
                    Thousands
                        of
                        US$ Dollars
                    
                    
                    Equivalent
                        Millions of
                        Col pesosShort
      termBancolombia
                    
                    Dollars
                    
                    Libor
      + 0.5 or + 0.6 m.v.
                    
                    
                    14,852
                    
                    
                    $
                    33,322Banco
      Davivienda
                    
                    Dollars
                    
                    Libor
      + 0.5 or + 0.6 m.v.
                    
                    
                    9,385
                    
                    
                    
                    21,057Banco
      de Bogotá
                    
                    Dollars
                    
                    Libor
      + 0.5 or + 0.6 m.v.
                    
                    
                    24,751
                    
                    
                    
                    55,532Banco
      de Crédito Helm Financial Services
                    
                    Dollars
                    
                    Libor
      + 0.5 or + 0.6 m.v.
                    
                    
                    8,728
                    
                    
                    
                    19,581Banco
      de Occidente
                    
                    Dollars
                    
                    Libor
      + 0.5 or + 0.6 m.v.
                    
                    
                    12,863
                    
                    
                    
                    28,858BBVA-
      Banco Bilbao Vizcaya Argenta
                    
                    Dollars
                    
                    Libor
      + 0.5 or + 0.6 m.v.
                    
                    
                    24,051
                    
                    
                    
                    53,959
  F-35
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 Entity
                    
                    Currency
                    
                    Interest Rate
                    
                    Thousands
                        of
                        US$ Dollars
                    
                    
                    Equivalent
                        Millions of
                        Col pesosSantander
      Overseas Bank Inc.
                    
                    Dollars
                    
                    Libor
      + 0.5 or + 0.6 m.v.
                    
                    
                    7,291
                    
                    
                    
                    16,359Issued
      Bonds (*)
                    
                    Pesos
                    
                    Return
      CPI + 8.10%
                    
                    
                    -
                    
                    
                    
                    50,000Other
      lesser in foreign currency
                    
                    Dollars
                    
                    
                    
                    
                    1,000
                    
                    
                    
                    2,244Other
      lesser in local currency
                    
                    Pesos
                    
                    
                    
                    
                    -
                    
                    
                    
                    114Total
      short term
                    
                    
                    
                    
                    
                    
                    102,921
                    
                    
                    
                    281,026Long
      termBancolombia
                    
                    Pesos
                    
                    DTF
      +8.3 E.A.
                    
                    
                    -
                    
                    
                    
                    4,800Banco
      de Bogotá
                    
                    Dollars
                    
                    Libor
      + 0.5 or + 0.6 m.v.
                    
                    
                    250
                    
                    
                    
                    561Other
      lesser in local currency
                    
                    Pesos
                    
                    
                    
                    
                    -
                    
                    
                    
                    112Total
      long term
                    
                    
                    
                    
                    
                    
                    250
                    
                    
                    
                    5,473103,171
                    
                    
                    $
                    286,499
 
 (*)
                Corresponds
      to bonds issued by Polipropileno del Caribe S.A. during 2002 through a
      registered public offering in the BVC.  The issuance included
      5,000 ordinary bonds with a par value of $10,000,000 each, a yield of CPI
      + 8.10%, and ratings of AAA grade by BRC Investor Services
      S.A.  The bonds will be redeemed in
      December 2009.
  15.
              Accounts
      payable and transactions with related
parties
  Accounts
Payable
 2008
                    
                    
                    2007Advances
      from Partners
                    
                    $
                    532,833
                    
                    
                    $
                    660,538Deposits
      received from third parties
                    
                    
                    397,731
                    
                    
                    
                    249,665Suppliers
                    
                    
                    386,237
                    
                    
                    
                    66,135Related
      parties
                    
                    
                    19,002
                    
                    
                    
                    14,591Purchase
      of hydrocarbons from the Agencia Nacional de Hidrocarburos - ANH
      (1)
                    
                    
                    210,056
                    
                    
                    
                    418,273Reimbursement
      of exploratory costs
                    
                    
                    120,627
                    
                    
                    
                    128,998Other
      payables
                    
                    
                    38,996
                    
                    
                    
                    26,170Dividends
      payable (2)
                    
                    
                    2,158
                    
                    
                    
                    -Insurance
      and reinsurance payable
                    
                    
                    1,007
                    
                    
                    
                    199Total
                    
                    $
                    1,708,647
                    
                    
                    $
                    1,564,569
 
 (1)
              The
      account payable to the Agencia Nacional de Hidrocarburos - ANH, was
      reclassified for 2008.  In 2007, it had been included as taxes,
      contributions and rates.  (See Note
  16)
  (2)
              Corresponds
      to the dividends payable to shareholders who bought the Company’s shares
      on an installment payment plan and are in arrears thereunder and whose
      economic and political rights have been suspended pursuant with
      article 397 of the Commerce Code and will be restored once the
      installment payments are brought up to
date.
  F-36
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 Balances
and Transactions with related parties
  A summary
of the most representative balances with related parties where Ecopetrol holds
direct investments or interests, and are included in debtors, suppliers and
accounts payable for years ended December 31, 2008 and 2007  is set
forth below:
  Accounts
      receivable
                
                
                Advances
      receivable
                
                
                Accounts
      payableOcensa
      S.A.
                
                $
                10,592
                
                
                $
                1,582
                
                
                $
                -Oleoducto
      de Colombia S.A.
                
                
                280
                
                
                
                946
                
                
                
                4,904Refinería
      de Cartagena S.A.
                
                
                212,759
                
                
                
                -
                
                
                
                13,774Accounts
      receivable
                
                
                Advances
      receivable
                
                
                Accounts
      payableEcodiesel
      Colombia S.A.
                
                
                31
                
                
                
                -
                
                
                
                -Serviport
      S.A.
                
                
                -
                
                
                
                -
                
                
                
                89Cavipetrol
                
                
                13,574
                
                
                
                -
                
                
                
                235Balance
      at December 31, 2008
                
                $
                237,236
                
                
                $
                2,528
                
                
                $
                19,002Balance
      at December 31, 2007
                
                $
                340,485
                
                
                $
                161,422
                
                
                $
                14,591
 
 Principal
transactions with related parties at December 31, 2008 and 2007 are as
follows:
  Sales
      and services
                            
                            
                            Leases
                            
                            
                            OtherRevenue:Refinería
      de Cartagena S.A.
                            
                            $
                            4,766,381
                            
                            
                            $
                            -
                            
                            
                            $
                            53,756Ocensa
      S.A.
                            
                            
                            9,400
                            
                            
                            
                            13,849
                            
                            
                            
                            198Ecodiesel
      Colombia S.A.
                            
                            
                            -
                            
                            
                            
                            221
                            
                            
                            
                            -Oleoducto
      de Colombia S.A.
                            
                            
                            2,548
                            
                            
                            
                            -
                            
                            
                            
                            -Cavipetrol
                            
                            
                            -
                            
                            
                            
                            2
                            
                            
                            
                            9,517Total
      at December 2008
                            
                            $
                            4,778,329
                            
                            
                            $
                            14,072
                            
                            
                            $
                            63,471Total
      at December 2007
                            
                            $
                            3,011,958
                            
                            
                            $
                            13,209
                            
                            
                            $
                            12,978
 Transportation
      cost
                
                
                Purchase
      of raw
                    materials
                
                
                OtherExpense:Ocensa
      S.A.
                
                $
                539,699
                
                
                $
                -
                
                
                $
                27,376Oleoducto
      de Colombia S.A.
                
                
                17,421
                
                
                
                -
                
                
                
                312Cavipetrol
                
                
                -
                
                
                
                -
                
                
                
                7,184Serviport
      S.A.
                
                
                -
                
                
                
                -
                
                
                
                30Refinería
      de Cartagena S.A.
                
                
                -
                
                
                
                121,079
                
                
                
                1,535Total
      at December 2008
                
                $
                557,120
                
                
                $
                121,079
                
                
                $
                36,437Total
      at December 2007
                
                $
                534,949
                
                
                $
                -
                
                
                $
                31,093
 
 There are
no special price conditions or non-arms’ length transactions with these related
companies.  However, for Ocensa S.A. and Oleoducto de Colombia S.A.,
there is a maximum tariff determined by the Ministry of Mines and Energy that
can be collected by both companies for the use of their pipeline
systems.  Their operation is based on the recovery of total operating
and administrative expenses and in the determination of the transportation unit
cost.  The cost per barrel is transferred to each shareholder that
uses the system based on the barrels transported.During 2008 no shareholder,
director, legal representative, officer or company carried out any material
operation with Ecopetrol.  In addition, no shareholder, director,
legal representative, officer or company is the beneficial owner of 10% or more
of the outstanding shares of the Company.
 
 F-37
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 16.
              Taxes
      Payable
  2008
                  
                  
                  2007Income
      tax and other taxes
                  
                  $
                  3,618,553
                  
                  
                  $
                  2,006,484Income
      and VAT withholdings
                  
                  
                  129,737
                  
                  
                  
                  127,121Special
      tax and surcharge on gasoline (*)
                  
                  
                  92,935
                  
                  
                  
                  100,866Industry
      and commerce and other minor taxes
                  
                  
                  20,917
                  
                  
                  
                  16,048Sales
      tax payable
                  
                  
                  44,326
                  
                  
                  
                  120,664Equity
      Tax
                  
                  
                  -
                  
                  
                  
                  103,556Total
                  
                  $
                  3,906,468
                  
                  
                  $
                  2,474,739
 
 (*)
              This
      tax is levied on sales and/or consumption of regular and premium gasoline
      and Diesel.  The funds collected for this tax are paid to the
      National Treasury Office of the Ministry of Finance.  The
      special tax is paid on the basis of the percentage participation of each
      beneficiary in the national monthly consumption of regular and premium
      gasoline.
  Income
tax returns may be reviewed by the tax authorities within two years of their
filing date.  To date, filings for the years 2006 and 2007 are open
for review.
  Currently,
differences exist with the National Tax and Customs Administration (DIAN)
regarding the calculation and payment method of the first installment of the
2003 and 2004 income tax returns because in the opinion of the DIAN the surtax
of such years should have been included in the base.  The result of
this process will not affect the Company’s cash flow since the amounts under
discussion have been directly compensated by the DIAN by positively adjusting
the Company’s balances, which adjustments the Company had previously requested
in unrelated cases.
  Additionally,
for the 1996 income tax return, the Council of State is evaluating the
applicability of exempt income of asphalts and the disallowance by the DIAN of
losses on the sales of accounts receivable.  The Company’s claims were
recognized in the first court decision as far as exempt income from asphalts,
and the interpretation of the DIAN was backed in connection with losses on sales
of accounts receivable, a decision that was appealed by
Ecopetrol.  However, Management does not expect significant
differences in the resolution of these actions.
  The
provision for income tax was determined on net taxable income, as
follows:
  2008
                
                
                2007
                
                
                2006Current
      income tax
                
                $
                3,611,020
                
                
                $
                2,006,484
                
                
                $
                1,494,794Deferred
      tax:Asset
                
                
                494,757
                
                
                
                (155,118
                )
                
                
                70,371Liability
                
                
                276,205
                
                
                
                34,146
                
                
                
                (65,396
                )770,962
                
                
                
                (120,972
                )
                
                
                4,975$
                4,381,982
                
                
                $
                1,885,512
                
                
                $
                1,499,769
  F-38
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 The
deferred tax liability arises mainly from (i) timing differences between the
amounts listed in the accounting records and the amounts accepted for tax
purposes and (ii) the differences in the valuation methods applied to crude
oil-related investments and fixed yield investments.  Whereas the
deferred tax asset arises mainly from the non-deductible accounting provisions
and the inflation adjustments of assets.  The balance of deferred
income tax is as follows:
  2008
                  
                  
                  2007Deferred
      tax asset:Initial
      balance
                  
                  $
                  1,779,874
                  
                  
                  $
                  1,624,756Net
      activity for the year
                  
                  
                  (494,757
                  )
                  
                  
                  155,118Balance
      from subsidiaries acquired in 2008
                  
                  
                  531
                  
                  
                  
                  -Ending
      balance
                  
                  $
                  1,285,648
                  
                  
                  $
                  1,779,874Deferred
      tax liability:Initial
      balance
                  
                  $
                  644,857
                  
                  
                  $
                  610,711Net
      activity for the year
                  
                  
                  276,205
                  
                  
                  
                  41,239Balance
      from subsidiaries acquired in 2008
                  
                  
                  23,754
                  
                  
                  
                  -Previous
      periods’ movements
                  
                  
                  -
                  
                  
                  
                  (7,093
                  )Ending
      balance
                  
                  $
                  944,816
                  
                  
                  $
                  644,857
 
 The
reconciliation of net taxable income is set forth below:
  2008
                  
                  
                  2007
                  
                  
                  2006Income
      before income taxes
                  
                  $
                  16,011,204
                  
                  
                  $
                  7,065,304
                  
                  
                  $
                  4,891,142Monetary
      correction gain
                  
                  
                  25,300
                  
                  
                  
                  23,711
                  
                  
                  
                  (89,940
                  )Effect
      of tax inflation adjustment
                  
                  
                  (87,788
                  )
                  
                  
                  (391,391
                  )
                  
                  
                  23,598Non
      deductible costs and expenses
                  
                  
                  813,248
                  
                  
                  
                  432,278
                  
                  
                  
                  227,812Special
      deductions and deductible tax expenses
                  
                  
                  (2,837,230
                  )
                  
                  
                  (1,176,608
                  )
                  
                  
                  (589,051
                  )Other
      taxable income
                  
                  
                  1,085,307
                  
                  
                  
                  55,972
                  
                  
                  
                  -Income
      not constituting income or capital gains
                  
                  
                  (907,847
                  )
                  
                  
                  (22,772
                  )
                  
                  
                  (30,324
                  )Non
      taxable income
                  
                  
                  (1,110,588
                  )
                  
                  
                  (594,954
                  )
                  
                  
                  (995,505
                  )Non
      deductible provisions
                  
                  
                  243,623
                  
                  
                  
                  1,184,895
                  
                  
                  
                  647,949Non
      taxable trust funds yields
                  
                  
                  (890,538
                  )
                  
                  
                  238,327
                  
                  
                  
                  482,255Net
      exempt income
                  
                  
                  (1,372,083
                  )
                  
                  
                  (863,946
                  )
                  
                  
                  (764,633
                  )Net
      effect of consolidation of  taxable income
                  
                  
                  (30,123
                  )
                  
                  
                  -
                  
                  
                  
                  -Net
      taxable income
                  
                  
                  10,942,485
                  
                  
                  
                  5,950,816
                  
                  
                  
                  3,803,303Tax
      on taxable income
                  
                  
                  3,611,020
                  
                  
                  
                  2,023,277
                  
                  
                  
                  1,464,271Tax
      discounts
                  
                  
                  -
                  
                  
                  
                  (16,793
                  )
                  
                  
                  (8,003
                  )Prior
      period taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  38,526Net
      current income tax
                  
                  $
                  3,611,020
                  
                  
                  $
                  2,006,484
                  
                  
                  $
                  1,494,794
 
 F-39
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  The
effective tax rate for the twelve-month periods ending December 2008, 2007
and 2006 was 27.37%, 26.69% and 30.66%, respectively.
  17. Labor
Obligations
  As a
result of a process that began in 2006, pursuant to Decree 941 of 2002, once the
actuarial calculation for pension obligations was approved by the Ministry of
Finance in October 2008 and once the mechanism for transfer (“commutation”) of
the corresponding liability was approved by Ministry of Social Security on
December 29, 2008, the Company, as of December 31, 2008, transferred
(“commuted”) the amounts corresponding to its pension liabilities to autonomous
pension trust funds (PAP).  The amount transferred as of
December 31, 2008 was $10,092,528 million.  Therefore, the
Company removed the assets represented in trust funds and their corresponding
pension liabilities from the balance sheet and transferred them to memorandum
accounts. Pursuant to current regulations, transferred funds, as well as their
earnings, cannot change their destination nor be restored to the Company until
all the pension obligations have been paid.  Moreover, Ecopetrol
continues to be financially responsible for the transferred pension
liability.
  2008
                  
                  
                  2007CurrentRetirement
      pensions and other benefits ECP (1)
                  
                  $
                  -
                  
                  
                  $
                  508,813Bonuses
      and allowances
                  
                  
                  40,773
                  
                  
                  
                  30,120Vacations
      (2)
                  
                  
                  37,593
                  
                  
                  
                  24,712Severance
      (3)
                  
                  
                  32,391
                  
                  
                  
                  17,620Salaries
      and pensions payable (4)
                  
                  
                  12,491
                  
                  
                  
                  3,582Interest
      on severance
                  
                  
                  2,996
                  
                  
                  
                  1,008Others
                  
                  
                  2,566
                  
                  
                  
                  733Pension
      bonds issued and interest
                  
                  
                  848
                  
                  
                  
                  376Total
      current
                  
                  
                  129,658
                  
                  
                  
                  586,964Long-termRetirement
      pensions and other benefits ECP (1)
                  
                  
                  2,082,072
                  
                  
                  
                  10,234,345Retirement
      pensions joint operations
                  
                  
                  75,215
                  
                  
                  
                  75,919Pension
      bonds issued and interest
                  
                  
                  7,500
                  
                  
                  
                  5,777Total
      long-term
                  
                  
                  2,164,787
                  
                  
                  
                  10,316,041Total
                  
                  $
                  2,294,445
                  
                  
                  $
                  10,903,005
 
 (1)
              The
      decrease in retirement pensions as compared to 2007 is due to the transfer
      (commutation) of the pension obligations as of December 31,
      2008.  The long-term portion of $2,082,072 comprises the
      actuarial health care and education reserve, an amount which cannot be
      transferred.
  To
calculate the pension and pension bond reserve for December 31, 2008
projections were prepared  according to the regulations promulgated by
the Ministry of Finance and Public Credit. This actuarial calculation was made
applying the technical rate of 4% for the transferred pension obligation and the
technical rate of 4.8% was used for the health care and education reserves,
based on personnel data as of December 31, 2008.
  (2)
              The
      increase in the vacations line-item  is a result of adjustments
      in the pending periods to be enjoyed with the current salary of each
      employee.
  (3)
              During
      2008 Severance payable increased as compared to 2007 because there were no
      monthly contributions to the National Savings l Fund due to the change in
      the legal nature of Ecopetrol.
  F-40
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 (4)
              During
      2008 Salaries and pensions payable included the salaries of temporary
      employees at refineries and the final payments of fixed term contracts
      which were pending payment.
  A summary
of the Company’s actuarial liability at December 31, 2008 and 2007 is set
forth below:
  2008
                  
                  
                  2007Health
      care
                  
                  $
                  1,666,558
                  
                  
                  $
                  1,392,584Education
                  
                  
                  415,514
                  
                  
                  
                  391,084$
                  2,082,072
                  
                  
                  $
                  1,783,668
  F-41
  Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 A summary
of personnel covered by the actuarial calculation for 2008 and 2007 is set forth
below:
  Headcount2008
                
                
                2007Bonds
      reserve – retired personnel
                
                
                10,391
                
                
                
                10,194Bonds
      reserve – persons retiring after 2010
                
                
                3,410
                
                
                
                2,699Health
      care and education reserve (active and pensioners)
                
                
                17,375
                
                
                
                16,782Pension
      reserve (active and pensioners)
                
                
                16,149
                
                
                
                16,222
 
 18.
              Estimated
      Liabilities and Provisions
  2008
                
                
                2007CurrentProvision
      for pension funds (1)
                
                $
                4,000
                
                
                $
                1,219Provision
      for legal proceedings (2) (see Note 30)
                
                
                551,224
                
                
                
                1,329,118Provisions
      for contingencies
                
                
                87,255
                
                
                
                80,679Other
      provisions
                
                
                31,494
                
                
                
                24,927Total
      current
                
                
                673,973
                
                
                
                1,435,943Long-
      termProvision
      for abandonment, dismantling of facilities and environmental recovery
      costs (3)
                
                
                1,964,756
                
                
                
                1,528,374Provision
      for pension obligations (4)
                
                
                178,594
                
                
                
                869,927Provision
      for royalties(5)
                
                
                388,674
                
                
                
                334,253Technical
      reserve
                
                
                10,767
                
                
                
                9,498Total
      long –term
                
                
                2,542,791
                
                
                
                2,742,052Total
                
                $
                3,216,764
                
                
                $
                4,177,995
 
 (1)
              Corresponds
      to the estimated pending pension contributions of employees who joined
      Ecopetrol after January 29, 2003 (Law 797 of 2003) and until the
      first quarter of 2004, who were covered by the General Pension
      Regulations.  There was an increase in this provision in 2008 as
      compared to 2007 due to the increase in principal and the past due
      interest for payment to these
employees.
  (2)
              As
      mentioned in Note 1 to these financial statements, the Company
      adopted a new methodology for the valuation of the provision for legal
      proceedings.  The application of said methodology resulted in
      the reversal of the provision of $425,376, net of the corresponding income
      tax.
  The
      table below sets forth a summary of the movements in the Company’s
      provision for legal proceedings during fiscal year
  2008:
  Number
      of cases
                  
                  
                  Provision
      amountFinal
      Balance December 2007
                  
                  
                  827
                  
                  
                  $
                  1,329,118Change
      of methodology effect (recovery)
                  
                  
                  (186
                  )
                  
                  
                  (463,769
                  )Change
      of methodology effect (provision)
                  
                  
                  114
                  
                  
                  
                  38,393Change
      in legal proceedings status effect
                  
                  
                  (129
                  )
                  
                  
                  (403,400
                  )Provision
      for legal proceedings (*)
                  
                  
                  1
                  
                  
                  
                  4,223Additions
                  
                  
                  203
                  
                  
                  
                  120,836Retirements
      and uses
                  
                  
                  (228
                  )
                  
                  
                  (74,177
                  )Final
      balance December 2008
                  
                  
                  601
                  
                  
                  $
                  551,224
 
 (*)
Additionally, the provision for legal proceedings includes a provision of $4,223
to cover the Arbitration related to the dispute  presented by
Mansarovar Energy Colombia Ltda. in regards to the parties’ disagreement over
the termination date of the Cocorná association contract.
 
 F-42
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 (3)
              During
      the month of December 2008, the Production Vice Presidency carried
      out the bi-annual analysis of the estimated liability for future
      abandonment disbursements, dismantling of facilities and environmental
      recovery costs; the increase in this line-item reflects the effects of the
      exchange rate and the costs related to the abandonment of Pozo Gavilán 1W
      and wells in the Casabe, La Cira, Infantas, Matanegra and La Yuca
      fields.
  Below are
the movements of the  provision for the abandonment costs, facility
dismantling and environmental recovery costs for the years 2008 and
2007:
  2008
                  
                  
                  2007
                  
                  
                  2006Initial
      Balance
                  
                  $
                  1,528,374
                  
                  
                  $
                  1,355,989
                  
                  
                  $
                  958,324Retirements
      and uses
                  
                  
                  (2,853
                  )
                  
                  
                  (1,296
                  )
                  
                  
                  (218,942
                  )Additions
                  
                  
                  54,418
                  
                  
                  
                  94,887
                  
                  
                  
                  244,916Changes
      in estimation
                  
                  
                  208,131
                  
                  
                  
                  214,485
                  
                  
                  
                  390,751Exchange
      rate effect
                  
                  
                  176,686
                  
                  
                  
                  (135,691
                  )
                  
                  
                  (19,060
                  )Final
      Balance
                  
                  $
                  1,964,756
                  
                  
                  $
                  1,528,374
                  
                  
                  $
                  1,355,989
 
 (4)
              The
      decrease in the balance of the provision for long-term pension obligations
      of $640,733 in 2008 as compared to 2007 is a result of the partial
      transfer of the Company’s pension and pension bond obligations, calculated
      at a technical rate of 4%.  The 2008 ending balance of $178,594
      represents the remaining portion after the
  transfer.
  (5)
              Includes
      a provision related to a claim of Comuneros of Santiago de las Atalayas
      and Pueblo Viejo of Cusiana, originated in Royalties Contracts Nos. 15,
      15a and 16 and 16a entered into with Ecopetrol but declared null and void
      by the Colombian Council of State.  Of this amount, $90,752
      corresponds to the initial claimed amounts and $297,922 corresponds to
      interest. The decision on the extraordinary appeal presented by the
      Comuneros is pending.
  19.
              Other
      long term liabilities
  The other
long term liabilities at December 31, 2008 and 2007 , correspond to the
following:
  2008
                  
                  
                  2007Advances
      received from Ecogas for BOMT obligations
                  
                  $
                  1,250,281
                  
                  
                  $
                  1,263,108Deferred
      income tax liability
                  
                  
                  944,816
                  
                  
                  
                  644,857Credit
      for deferred monetary correction
                  
                  
                  227,605
                  
                  
                  
                  271,355Other
      liabilities
                  
                  
                  2,789
                  
                  
                  
                  -Deferred
      commissions
                  
                  
                  1,430
                  
                  
                  
                  415Total
                  
                  $
                  2,426,921
                  
                  
                  $
                  2,179,735
 
 20.
              Minority
      Interest
  Subsidiary
                  
                  2008
                  
                  
                  2007
                  
                  
                  %
      of other shareholdersODL
      Finance S.A.
                  
                  $
                  234,269
                  
                  
                  $
                  -
                  
                  
                  
                  35
                  %Bioenergy
      S.A.
                  
                  
                  8,682
                  
                  
                  
                  -
                  
                  
                  
                  20.86
                  %Ecopetrol
      Oleo é Gas do Brasil (1)
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  0.01
                  %$
                  242,951
                  
                  
                  $
                  1
 
 (1)
              During
      2008,  Ecopetrol acquired all outstanding shares held by other
      shareholders in Ecopetrol Oleo é Gas do
Brasil.
  F-43
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 21.
              Equity
  2008
                  
                  
                  2007Authorized
      capital
                  
                  $
                  15,000,000
                  
                  
                  $
                  15,000,000Capital
      to be subscribed
                  
                  
                  (4,881,872
                  )
                  
                  
                  (4,881,872
                  )Subscribed
      capital
                  
                  
                  10,118,128
                  
                  
                  
                  10,118,128Subscribed
      capital pending payment
                  
                  
                  (337
                  )
                  
                  
                  (4,794
                  )Subscribed
      and paid-in capital
                  
                  
                  10,117,791
                  
                  
                  
                  10,113,334Additional
      paid-in capital
                  
                  
                  4,704,737
                  
                  
                  
                  4,700,882Additional
      paid-in capital receivable
                  
                  
                  (25,461
                  )
                  
                  
                  (850,068
                  )Additional
      paid-in capital
                  
                  
                  4,679,276
                  
                  
                  
                  3,850,814Surplus
      from revaluations
                  
                  
                  5,179,961
                  
                  
                  
                  5,647,382Devaluation
      of assets
                  
                  
                  (1,012,229
                  )
                  
                  
                  -Responsibilities
      from pending rulings
                  
                  
                  (781
                  )
                  
                  
                  (814
                  )Effects
      of RCP application
                  
                  
                  (1,013,010
                  )
                  
                  
                  (814
                  )Net
      income
                  
                  
                  11,629,677
                  
                  
                  
                  5,179,792Legal
      reserve
                  
                  
                  2,428,325
                  
                  
                  
                  1,910,686Appropriation
      for new explorations
                  
                  
                  4,415
                  
                  
                  
                  -Prior
      year adjustments
                  
                  
                  17,804
                  
                  
                  
                  17,804Surplus
      from equity method
                  
                  
                  1,481,103
                  
                  
                  
                  (2,271
                  )Incorporated
      institutional equity
                  
                  
                  94,375
                  
                  
                  
                  91,740Total
      equity
                  
                  $
                  34,619,717
                  
                  
                  $
                  26,808,467
 
 Subscribed
and Paid-in Capital
  The
authorized capital of Ecopetrol is $15,000,000 divided into 60,000,000,000
common shares, with $250 par value each, of which 40,472,512,588 shares have
been subscribed, represented by 10.1% held by private shareholders and 89.9%
held by the Colombian Nation.
  Regulatory
Decree 727 of March 7, 2007 superseded Decree 2625 of 2000 and authorized
the transfer to subscribed and paid-in capital of contributions in kind
(hydrocarbons) of the Colombian Nation that were recognized until March 9,
2007.  By means of Minutes No. 012 of March 26, 2007 of the
General Shareholders Meeting, formalized on April 27, 2007, the balance of
$4,851,215 was reclassified to subscribed and paid-in capital in the name of the
shareholder Ministry of Finance.  As of that date, field production is
an integral part of the Company’s operational income.
  Additional
paid-in capital
  Correspond
to (i) the excess over par value in the sale of shares at the 2007
capitalization for $4,700,882 and (ii) $3,855, which results from foreclosing on
shares purchased in installments that were not fully paid from past due debtors,
pursuant to article 397 of the Commerce Code.
  Effects
of RCP application
  Corresponds
to the transfer of negative balances originated from the devaluation of
property, plant and equipment required by the RCP in 2008.  Until 2007
devaluation was recognized in accordance with the former PGCP as a lesser value
of the surplus from revaluations.
 
 F-44
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  This
line-item also includes responsibilities from pending rulings related inventory
losses, as required by RCP.
  Legal
Reserve
 
 Legal
reserve is set up with 10% of net income and it may be used to absorb losses or
distributed at the liquidation of the Company.  At March 31,
2008, the results of the 2007 period were available for the General Shareholders
Meeting that took place on March 27, 2008.  The Meeting
determined to increase the legal reserve by $517,639 for a total of $ 2,428,325
in relation to the $1,910,686 at December 31, 2007.
 On the
other hand, $4,415 was destined to occasional reserves for new
explorations.
  Incorporated
Institutional Equity
  During
the second quarter of 2008, the Company adjusted the incorporated institutional
equity, based on the commerciality of the Orocué association contract well
(Guarilaque 7) in the amount of $2,635 million.
  Summary
of Revaluations and Surplus from Revaluations
  2008
                  
                  
                  2007Property,
      plant and equipment:Plant
      and equipment
                  
                  $
                  3,613,491
                  
                  
                  $
                  3,027,351Buildings
                  
                  
                  529,766
                  
                  
                  
                  263,157Pipelines
      and networks
                  
                  
                  308,518
                  
                  
                  
                  192,738Land
                  
                  
                  11,668
                  
                  
                  
                  11,668Communication
      and computer equipment
                  
                  
                  25,616
                  
                  
                  
                  4,360Other
      assets
                  
                  
                  73,951
                  
                  
                  
                  67,5924,563,010
                  
                  
                  
                  3,566,866Variable
      yield investments:Refinería
      de Cartagena S.A.
                  
                  
                  -
                  
                  
                  
                  1,135,766Interconexión
      Eléctrica S.A. E.S.P.
                  
                  
                  348,822
                  
                  
                  
                  348,822Empresa
      de Energía de Bogotá S.A. ESP.
                  
                  
                  268,129
                  
                  
                  
                  278,685Oleoducto
      Central - Ocensa S.A.
                  
                  
                  -
                  
                  
                  
                  247,828Invercolsa
      S.A.
                  
                  
                  -
                  
                  
                  
                  67,414Serviport
      S.A.
                  
                  
                  -
                  
                  
                  
                  2,000Ecodiesel
      Colombia S.A.
                  
                  
                  -
                  
                  
                  
                  1616,951
                  
                  
                  
                  2,080,516Total
                  
                  $
                  5,179,961
                  
                  
                  $
                  5,647,382
 
 22.
              Memorandum
      Accounts
  2008
                
                
                2007Rights:Exploitation
      Rights - Decree 727 of 2007 (1)
                
                $
                21,870,515
                
                
                $
                21,235,570Pension
      Trust funds “PAP” (2)
                
                
                10,092,528
                
                
                
                -Costs
      and expenses (deductible and non deductible) (3)
                
                
                9,763,156
                
                
                
                10,297,898Other
      contingent rights and debtor accounts  (4)
                
                
                5,420,473
                
                
                
                3,931,976Securities
      given in custody and guarantee (5)
                
                
                9,583,641
                
                
                
                86,547Execution
      of investment projects (6)
                
                
                761,276
                
                
                
                359,474Legal
      proceedings (7)
                
                
                602,436
                
                
                
                481,72658,094,025
                
                
                
                36,393,191Obligations:Contractual
      guarantees (8)
                
                
                26,187,641
                
                
                
                6,452,576Pension
      trust funds (2)
                
                
                10,092,528
                
                
                
                -Non-taxable
      liabilities (9)
                
                
                5,603,395
                
                
                
                10,379,696Non-taxable
      income  (10)
                
                
                4,197,768
                
                
                
                6,124,282Mandate
      contracts (11)
                
                
                1,576,785
                
                
                
                1,682,664Administration
      Funds - Dec 1939 of  2001 and  2652 of 2002
      (12)
                
                
                972,390
                
                
                
                971,728Legal
      proceedings (13)
                
                
                1,636,275
                
                
                
                946,527Goods
      received in custody (14)
                
                
                9,214,520
                
                
                
                78,563Future
      BOMT’s payments (15)
                
                
                713,099
                
                
                
                729,588Guarantees
      granted to Oleoducto Central S.A. (16)
                
                
                404,569
                
                
                
                343,075Securities
      received in guarantee and custody (17)
                
                
                -
                
                
                
                70,663Other
      contingent obligations (18)
                
                
                181,636
                
                
                
                7,69260,780,606
                
                
                
                27,787,054$
                118,874,631
                
                
                $
                64,180,245
 
 F-45
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 (1)
              During
      the first half of 2007 Ecopetrol performed a hydrocarbon reserves audit,
      the results of which were updated on December 31, 2007, without
      generating significant differences.  At December 31, 2008,
      the Company carried out and updated such reserves using the international
      methodology for reserves
calculations.
  (2)
              Reflects
      the contingent right (debtor account) on the resources delivered to PAP to
      pay the transferred pension liability in order to control the existence of
      liquid resources present in the trust fund.  And the contingent
      responsibility (creditor account) is economically responsible for the
      payment of the transferred pension liability.  A detail of the
      funds is set forth below:
 
 2008Consorcio
      Fidubogotá – Fiducolpatria
                  
                  $
                  2,187,742Consorcio
      Fidupopular – Fiduoccidente
                  
                  
                  1,883,653Consorcio
      Fiduagraria - Fiducoldex - Helm Trust
                  
                  
                  1,208,338Consorcio
      BBVA - Fidubogotá – Corficolombiana
                  
                  
                  1,216,868Consorcio
      Fiducafé - Fiduprevisora – Fidupetrol
                  
                  
                  2,113,131Consorcio
      Fiducolombia - Santander Investment
                  
                  
                  1,482,796Total
                  
                  $
                  10,092,528
 
 (3)
              Control
      of tax costs and expenses reported in the prior year income tax return and
      other non deductible expenses.
  (4)
              Control
      of tax balances of investments, inventories, property, plant and
      equipment, accounts receivable.  Additionally, this line-item
      includes capital commitments on sole risk
  contracts.
  (5)
              Securities
      given in custody represent the control account for securities given in
      custody to Deceval for their custody as well as transportation costs
      relating to third party custody
arrangements.
  (6)
              Execution
      of investment projects correspond to the control of accumulated capital
      expenditures incurred in the following extended association
      contracts:  Guajira, Tibú and La Cira
  Infantas.
  (7)
              Control
      of legal proceedings includes contingencies in favor of Ecopetrol against
      third parties.
  (8)
              Made
      up of the contracts pending execution signed in pesos, dollars, and euros
      updated with the exchange rate of December 31, 2008 for $25,624,952,
      standby letters of credit, which guarantee the contracts signed by
      Ecopetrol for $528,783 and documentary letters for
  $33,906.
  (9)
              Control
      of non-taxable liabilities for 2008 and 2007,
  respectively.
  (10)
              Control
      of non-taxable income reflected in the prior year income tax
      return.
  (11)
              Includes
      the amount of assets received in custody by Refinería de Cartagena
      S.A.  To comply with the obligations entered into under the
      operating agreement between the Company and said entity for the operation
      of the refinery.
 
 F-46
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 (12)
              Administration
      funds and advances received under administration
    agreements.
  (13)
              Control
      of legal proceedings represents the control of eventual and remote
      contingencies against Ecopetrol.
  (14)
              The
      variation with regards to the previous year responds to the non renewable
      natural resources reserves received from the Nation for $9,134,957; this
      information was issued in August 2008 by the Ministry of Mines of
      Energy in compliance with Decree 727 of 2007.  Additionally, the
      balance is represented by the inventories of said products pending
      delivery to clients, for $78,867, and inventories in consignment for self
      consumption in the different plants, for
$696.
  (15)
              Control
      of net present value of future disbursements to BOMT
      contractors.
  (16)
              Control
      of Ecopetrol’s commitment to provide the necessary funds to Ocensa to
      repay capital contributions and the preferred dividend to an Ocensa
      shareholder.
  As of
December 31, 2008 and 2007, the Ocensa paid-in capital and preferred
dividend are the following:
  BalanceCapital
      of Canadian shareholders
                        
                        US$
                        160,240Shareholders
      preferred dividend
                        
                        
                        20,082Total
                        
                        US$
                        180,322
 
 (17)
              This
      account controls the amount of notes received from Cavipetrol securing
      loans made to Ecopetrol employees.
  (18)
              This
      account controls the pension obligations related to the following
      association contracts:  Nare, Hobo, Cocorna, Upia, Espinal,
      Caguan.
  23.
              Revenue
  2008
                
                
                2007
                
                
                2006Local
      SalesMedium
      distillates
                
                $
                5,914,627
                
                
                $
                4,889,373
                
                
                $
                4,867,350Crude
      oil (1)
                
                
                4,774,401
                
                
                
                3,004,629
                
                
                
                29,825Gasoline
                
                
                3,644,345
                
                
                
                3,346,360
                
                
                
                3,468,095Other
      products
                
                
                985,247
                
                
                
                641,288
                
                
                
                689,871Services
                
                
                921,652
                
                
                
                821,197
                
                
                
                794,564Natural
      gas
                
                
                901,414
                
                
                
                660,171
                
                
                
                717,879L.P.G.
                
                
                612,771
                
                
                
                604,752
                
                
                
                545,960Asphalt
                
                
                390,544
                
                
                
                257,177
                
                
                
                186,457Plastic
      and rubber (3)
                
                
                382,519
                
                
                
                -
                
                
                
                -18,527,520
                
                
                
                14,224,947
                
                
                
                11,300,001Subsidies
      (2)
                
                
                3,070,479
                
                
                
                1,778,050
                
                
                
                -21,597,999
                
                
                
                16,002,997
                
                
                
                11,300,001Foreign
      salesCrude
      oil
                
                
                8,696,282
                
                
                
                4,476,137
                
                
                
                3,670,080Petroleum
      savings and stabilization Fund – FAEP
                
                
                -
                
                
                
                (316,497
                )
                
                
                (774,160
                )Net
      crude oil
                
                
                8,696,282
                
                
                
                4,159,640
                
                
                
                2,895,920Combustoleo
                
                
                2,093,012
                
                
                
                1,560,399
                
                
                
                2,256,064Plastic
      and rubber (3)
                
                
                704,034
                
                
                
                -
                
                
                
                -Natural
      gas
                
                
                313,348
                
                
                
                37
                
                
                
                -Diesel
                
                
                246,158
                
                
                
                -
                
                
                
                86,418Gasoline
                
                
                186,197
                
                
                
                269,248
                
                
                
                625,027Other
      products
                
                
                40,923
                
                
                
                10,970
                
                
                
                47,086
 
 F-47
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 2008
                
                
                2007
                
                
                2006Naphtha
                
                
                2,693
                
                
                
                244,393
                
                
                
                807,437Jet
      fuel
                
                
                -
                
                
                
                71,378
                
                
                
                372,01212,282,647
                
                
                
                6,316,065
                
                
                
                7,089,964Premium
      income, net
                
                
                16,023
                
                
                
                13,258
                
                
                
                -12,298,670
                
                
                
                6,329,323
                
                
                
                7,089,964$
                33,896,669
                
                
                $
                22,332,320
                
                
                $
                18,389,965
 
 (1)
              Effective
      April 2007, Ecopetrol is selling crude oil to Refinería de Cartagena
      S.A.
  (2)
              Until
      2006, no subsidies were granted by the Nation for the difference between
      the regulated price and the price at international parity being assumed by
      refiners and importers, as they were not an express part in the price
      determination resolutions. Accordingly, subsidies were not recognized for
      accounting or tax purposes. Pursuant to Law 1110 of 2006 (Budgets Law),
      the Nation granted diesel and regular gasoline subsidies. In March 2007,
      the Ministry of Mines and Energy issued Resolution No. 180414 whereby the
      procedure for the recognition of the current subsidies for refiners and
      importers of regular gasoline and diesel was established. Said resolution
      was replaced by Resolution No. 181496 of September 2008, which
      implements the recognition of the current subsidies for gasoline and
      diesel owed to Ecopetrol for the period of January – December 2008 so
      long as Ecopetrol is in compliance with that
  resolution.
  (3)
              Corresponds
      to the sales of the subsidiaries Polipropileno del Caribe S.A. (Propilco
      S.A.) and Compounding and Masterbatching Industry Limitada (Comai
      Ltda.).
  24.
              Cost
      of Sales
  2008
                
                
                2007
                
                
                2006Variable
      CostPurchase
      of hydrocarbons from the ANH (1)
                
                $
                5,584,474
                
                
                $
                3,912,315
                
                
                $
                3,676,374Purchase
      of crude oil in association and concession
                
                
                3,193,690
                
                
                
                1,513,683
                
                
                
                922,825Costs
      of sale of contributions in kind (2)
                
                
                -
                
                
                
                432,144
                
                
                
                2,374,512Imported
      products
                
                
                2,552,231
                
                
                
                681,485
                
                
                
                888,993Amortization
      and depletion
                
                
                1,088,306
                
                
                
                665,459
                
                
                
                517,500Absorption
      of the cost in final inventory balances
                
                
                (238,438
                )
                
                
                (390,416
                )
                
                
                (234,955
                )Purchase
      of natural gas and other products
                
                
                257,691
                
                
                
                203,697
                
                
                
                67,302Process
      materials
                
                
                113,427
                
                
                
                93,017
                
                
                
                105,256Electrical
      power
                
                
                91,044
                
                
                
                91,036
                
                
                
                103,777Consumption
      raw material Propilco S.A. - Comai Ltda.
                
                
                878,438
                
                
                
                -
                
                
                
                -Non
      processed production cost
                
                
                35,985
                
                
                
                -
                
                
                
                -Insurance
      premium costs, net
                
                
                1,898
                
                
                
                6,237
                
                
                
                -Fixed
      CostServices
      contracted with associations
                
                
                1,202,435
                
                
                
                1,019,043
                
                
                
                718,881Depreciation
                
                
                679,092
                
                
                
                719,811
                
                
                
                758,187Transportation
      services for hydrocarbons
                
                
                618,553
                
                
                
                699,987
                
                
                
                700,447Labor
      costs
                
                
                757,384
                
                
                
                531,120
                
                
                
                436,632Ecopetrol
      contracted services
                
                
                537,113
                
                
                
                411,611
                
                
                
                310,411Maintenance
                
                
                579,230
                
                
                
                441,500
                
                
                
                336,071Amortization
      of actuarial liability
                
                
                207,363
                
                
                
                161,825
                
                
                
                156,454Project
      expense
                
                
                459,468
                
                
                
                540,864
                
                
                
                642,923Amortization
      of deferred charges, intangibles and insurance premiums
                
                
                70,832
                
                
                
                173,883
                
                
                
                111,416Materials
      and operations supplies
                
                
                255,090
                
                
                
                196,137
                
                
                
                159,207
 
 F-48
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 2008
                
                
                2007
                
                
                2006Taxes
                
                
                101,438
                
                
                
                64,228
                
                
                
                61,241General
      costs
                
                
                55,264
                
                
                
                10,057
                
                
                
                7,482Reclassification
      to selling and non-operating expenses
                
                
                (58,359
                )
                
                
                (120,196
                )
                
                
                (64,373
                )$
                19,023,649
                
                
                $
                12,058,527
                
                
                $
                12,756,563
 
 (1)
              Corresponds
      to the crude oil and natural gas purchases of Ecopetrol from the Agencia
      Nacional de Hidrocarburos derived from national production, both of the
      Company under direct operation and under the operation of third
      parties.
  (2)
              This
      cost of sales represents the amount determined under the methodology of
      Decrees 2625 of 2000 and 1760 of 2003 for the crude and gas production
      contributed as capital to Ecopetrol by the Nation until
      March 2007.
  25.
              Operating
      Expenses
 2008
                
                
                2007
                
                
                2006AdministrationLabor
                
                $
                189,757
                
                
                $
                156,959
                
                
                $
                144,063General
      expenses
                
                
                65,087
                
                
                
                50,146
                
                
                
                24,564Depreciation
      and amortization
                
                
                58,705
                
                
                
                45,059
                
                
                
                39,497Active
      personnel amortization of pension actuarial liability
                
                
                44,055
                
                
                
                32,494
                
                
                
                96,379Maintenance
                
                
                11,295
                
                
                
                11,730
                
                
                
                7,598Rentals
                
                
                10,156
                
                
                
                24,255
                
                
                
                16,746Taxes
                
                
                3,046
                
                
                
                1,401
                
                
                
                670382,101
                
                
                
                322,044
                
                
                
                329,517SellingStudies
      and projects (*)
                
                
                912,751
                
                
                
                425,355
                
                
                
                271,155Crude
      oil pipeline transportation tariff
                
                
                386,089
                
                
                
                146,721
                
                
                
                66,822Taxes
                
                
                280,281
                
                
                
                218,680
                
                
                
                150,920General
      expenses
                
                
                112,240
                
                
                
                35,452
                
                
                
                52,643Natural
      Gas pipeline transportation
                
                
                102,862
                
                
                
                102,775
                
                
                
                113,456Labor
      expenses
                
                
                26,759
                
                
                
                11,622
                
                
                
                9,553Active
      personnel amortization of pension actuarial liability
                
                
                6,705
                
                
                
                4,002
                
                
                
                3,504Maintenance
                
                
                5,090
                
                
                
                75,305
                
                
                
                -Product
      packaging
                
                
                2,841
                
                
                
                -
                
                
                
                -1,835,618
                
                
                
                1,019,912
                
                
                
                668,053$
                2,217,719
                
                
                $
                1,341,956
                
                
                $
                997,570
 
 (*)
              These
      expenses correspond to the following entities:  Ecopetrol S.A.:
      $635,784, Ecopetrol America Inc: $231,560, Ecopetrol del Peru S.A.:
      $43,500 and Ecopetrol Oleo é Gas do Brasil Ltda:
  $1,907.
 
 F-49
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 26.
              Financial
      Income, Net
 2008
                
                
                2007
                
                
                2006IncomeExchange
      difference gain (1)
                
                $
                10,863,242
                
                
                $
                3,772,753
                
                
                $
                2,675,248Income
      on valuation of investment portfolio
                
                
                1,640,338
                
                
                
                808,922
                
                
                
                591,539Interest
      and monetary correction
                
                
                682,542
                
                
                
                161,125
                
                
                
                107,197Income
      from equity method
                
                
                110,824
                
                
                
                -
                
                
                
                29,529Dividends
      in cash
                
                
                39,472
                
                
                
                25,387
                
                
                
                36,093Income
      on valuation of derivatives (2)
                
                
                4,782
                
                
                
                -
                
                
                
                -FAEP
      earnings
                
                
                -
                
                
                
                -
                
                
                
                162,70313,341,200
                
                
                
                4,768,187
                
                
                
                3,602,309ExpensesExchange
      difference loss (1)
                
                
                (8,901,184
                )
                
                
                (4,385,021
                )
                
                
                (2,901,910
                )Loss
      on application of equity method
                
                
                (185,606
                )
                
                
                (115
                )
                
                
                (51
                )Loss
      on valuation of derivatives (2)
                
                
                (74,685
                )
                
                
                -
                
                
                
                -Administration
      and securities issuance
                
                
                (52,277
                )
                
                
                (76,770
                )
                
                
                -Interest
                
                
                (19,376
                )
                
                
                (1,021
                )
                
                
                (6,943
                )Others
                
                
                (6,820
                )
                
                
                (1,147
                )
                
                
                (9,969
                )Discount
      on cash purchases of shares
                
                
                -
                
                
                
                (166,789
                )
                
                
                -Hedging
      transactions
                
                
                -
                
                
                
                (43,696
                )
                
                
                -(9,239,948
                )
                
                
                (4,674,559
                )
                
                
                (2,918,873
                )$
                4,101,252
                
                
                $
                93,628
                
                
                $
                683,436
  (1)
              The
      net effect of exchange differences was a gain of $1,962,058 for 2008 of
      which $706,651 corresponds to the subsidies resulting from regular
      gasoline and diesel prices which is calculated in dollars pursuant to
      Resolution No. 181496.  During 2007 said subsidies were
      calculated in pesos and therefore it did not result in an exchange
      difference.   The exchange difference line-item also
      includes $797,914 for 2008 which originated principally from the
      investment portfolio.
  (2)
              The
      movement in hedging transactions during 2008 generated:  i)
      income of $4,782, corresponding to exchange rate forward transactions; ii)
      a payment of $29,661, corresponding to exchange rate forward transactions;
      iii) a payment of $45,024, corresponding to price coverage swap
      transactions on WTI and Fuel Oil in the Gulf
  Coast.
  27.
              Pension
      expenses
  2008
                
                
                2007
                
                
                2006Amortization
      of pension actuarial calculation
                
                $
                986,565
                
                
                $
                955,381
                
                
                $
                708,446Health
      care services
                
                
                107,213
                
                
                
                86,520
                
                
                
                73,288Education
      services
                
                
                51,147
                
                
                
                48,442
                
                
                
                47,457$
                1,144,925
                
                
                $
                1,090,343
                
                
                $
                829,191
  28.
              Inflation
      gain
  The
inflation gain corresponds to the net amortization of the deferred monetary
correction.
  29.
              Other
      income (expenses), Net
  2008
                
                
                2007
                
                
                2006Other
      IncomeRecovery
      of provisions (1)
                
                $
                999,866
                
                
                $
                555,438
                
                
                $
                922,986BOMTs
      deferred income
                
                
                -
                
                
                
                31,309
                
                
                
                8,483Recuperation
      of associated services
                
                
                22,840
                
                
                
                70,133
                
                
                
                18,451Income
      on sale of property, plant and equipment
                
                
                10,435
                
                
                
                8,724
                
                
                
                7,944
 
 F-50
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 2008
                
                
                2007
                
                
                2006Expense
      recovery
                
                
                7,459
                
                
                
                39,575
                
                
                
                43,093Indemnities
      received
                
                
                6,367
                
                
                
                1,703
                
                
                
                1,099Other
      minor income
                
                
                23,002
                
                
                
                64,062
                
                
                
                40,946Income
      for services
                
                
                3,605
                
                
                
                6,685
                
                
                
                6,093Income
      from undeveloped discovered fields
                
                
                1,228
                
                
                
                13,622
                
                
                
                -Sale
      of variable yield investments
                
                
                -
                
                
                
                -
                
                
                
                96,6041,074,802
                
                
                
                791,251
                
                
                
                1,145,699Other
      expensesTaxes
                
                
                (299,673
                )
                
                
                (328,871
                )
                
                
                (138,421
                )Tariff
      and natural gas pipelines availability – BOMT
                
                
                (95,505
                )
                
                
                -
                
                
                
                -Provisions
      (2)
                
                
                (114,035
                )
                
                
                (1,240,400
                )
                
                
                (441,633
                )Fuel
      losses
                
                
                (93,854
                )
                
                
                (56,648
                )
                
                
                (56,336
                )Contributions
      and donations
                
                
                (33,236
                )
                
                
                (9,535
                )
                
                
                (28,422
                )Inspection
      quota
                
                
                (25,811
                )
                
                
                (25,934
                )
                
                
                (22,265
                )Surveillance
      and security
                
                
                (16,052
                )
                
                
                (14,457
                )
                
                
                (8,004
                )Other
      minor expenses
                
                
                (26,135
                )
                
                
                (23,208
                )
                
                
                (104,279
                )Loss
      on sale and retirement of assets
                
                
                (1,398
                )
                
                
                (3,148
                )
                
                
                (1,440
                )(705,699
                )
                
                
                (1,702,201
                )
                
                
                (800,800
                )$
                369,103
                
                
                $
                (910,950
                )
                
                $
                344,899
 
 (1)
              A
      detail of the recovery of provisions is as
  follows:
  2008
                  
                  
                  2007
                  
                  
                  2006Legal
      Proceedings
                  
                  $
                  832,788
                  
                  
                  $
                  46,934
                  
                  
                  $
                  3,026Investment
                  
                  
                  130,543
                  
                  
                  
                  1,322
                  
                  
                  
                  128,546Fixed
      assets, receivable and others
                  
                  
                  18,813
                  
                  
                  
                  27,355
                  
                  
                  
                  15,929Taxes
                  
                  
                  9,011
                  
                  
                  
                  117,680
                  
                  
                  
                  772,184Product
      and materials inventories
                  
                  
                  8,711
                  
                  
                  
                  21,010
                  
                  
                  
                  3,301BOMT
      Provisions
                  
                  
                  -
                  
                  
                  
                  221,055
                  
                  
                  
                  -Project
      expenses
                  
                  
                  -
                  
                  
                  
                  120,082
                  
                  
                  
                  -$
                  999,866
                  
                  
                  $
                  555,438
                  
                  
                  $
                  922,986
 
 (2)
              A
      detail of provisions is as follows:
  Legal
      Proceedings
                    
                    $
                    59,305
                    
                    
                    $
                    1,096,117
                    
                    
                    $
                    119,998Products
      and materials inventories
                    
                    
                    49,379
                    
                    
                    
                    115,944
                    
                    
                    
                    14,745Contributions
      to pension funds
                    
                    
                    3,076
                    
                    
                    
                    -
                    
                    
                    
                    -Receivables
                    
                    
                    2,275
                    
                    
                    
                    20,276
                    
                    
                    
                    40,591Ecogas’
      BOMTs
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    35,317Investments
                    
                    
                    -
                    
                    
                    
                    6,273
                    
                    
                    
                    18,075Partial
      transfer of  pension obligations
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    151,848Property,
      plant and equipment and other
                    
                    
                    -
                    
                    
                    
                    1,790
                    
                    
                    
                    61,059$
                    114,035
                    
                    
                    $
                    1,240,400
                    
                    
                    $
                    441,633
  30.
              Contingencies
  Ecopetrol
has recognized provisions corresponding to reasonable estimates intended to
cover future situations deriving from loss contingencies or the occurrence of
future events that could affect its equity.  In 2008, Ecopetrol,
through the Legal Vice Presidency, modified the methodology for the evaluation
of the Company’s legal proceedings and any contingent liabilities
thereunder.
  The new
methodology generated a net effect (recovery and new provisions) in the amount
of $425,376, which was recorded in December 2008 (see Note
18).
 
 F-51
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 The
methodology used by the Legal Vice Presidency is based on the credit system of
the Nation, which is used by the Ministry of Interior and Justice and includes
an analysis of factors such as procedural risk, strength of the claim, proof of
the claim, strength of the response, proof of the response, level of
jurisprudence and results of first instance decisions.
  A summary
of the most significant proceedings (with amounts of claims greater than $10
billion) on which provisions have been recognized, according to the evaluations
of the internal and external attorneys of the Company, as of December 31,
2008 is set forth below:
  Proceeding
                                                                                                            
                                                                                                            Claim
                                                                                                            
                                                                                                            Amount of the
                                                                                                              ProvisionUniversidad
      de Cartagena and Junta Especial de la Estampilla
                                                                                                            
                                                                                                            Constitutional
      Action in which the Universidad de Cartagena requests the payment of the
      stamp tax on operations carried out in Bolivar, especially in Cartagena de
      Indias port.
                                                                                                            
                                                                                                            $
                                                                                                            112,180Foncoeco
      (*)
                                                                                                            
                                                                                                            Profit
      participation fund of the employees and ex employees of Ecopetrol
      S.A.
                                                                                                            
                                                                                                            $
                                                                                                            100,000Department
      of Tolima
                                                                                                            
                                                                                                            Class
      Action for the recalculation of royalties with 20% specified in Law 141 of
      1994.
                                                                                                            
                                                                                                            $
                                                                                                            82,287Municipality
      of Arauca
                                                                                                            
                                                                                                            Class
      Action. Contributions to the solidarity and redistribution of income fund
      as a consequence of the generation of electricity, according to the 142 of
      1994.
                                                                                                            
                                                                                                            $
                                                                                                            45,414Municipality
      of Melgar
                                                                                                            
                                                                                                            Class
      Action requesting the recovery to the Department of Tolima of the amounts
      not collected regarding royalties corresponding to the Guandó
      well.
                                                                                                            
                                                                                                            $
                                                                                                            40,351Javier
      Armando Rincón Gama and Héctor Alfredo Suárez Mejía
                                                                                                            
                                                                                                            Class
      Action.  Through an auction in the Bogota Stock Exchange shares
      were acquired of Inversiones de Gases, owned by Ecopetrol.
                                                                                                            
                                                                                                            $
                                                                                                            12,000Benigno
      Sánchez Núñez and others
                                                                                                            
                                                                                                            Class
      action due to cracking and landslides that destroyed the farms due to
      underground explosions within the program of San Luis 95.
                                                                                                            
                                                                                                            $
                                                                                                            10,000
  (*)
                In
      the Foncoeco proceeding, an expert’s report in 2005 calculated damages
      owed by Ecopetrol at $542,000 and stated that Ecopetrol must pay principal
      and interest on the profit participation fund for the employees of the
      Company which was established by the Board of Directors.  It is
      the opinion of the Company’s management and its legal advisors that there
      are sufficient arguments to demonstrate that this lawsuit will not
      proceed, particularly because the basis of the report includes amounts not
      authorized by the Board of Directors.  As of December 31, 2008 a
      provision for this proceeding was recorded of $100 billion (2007 - $64
      billion).
 
 F-52
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 31.
              Commitments
  Natural
Gas Supply Contracts
  The
Company has entered into contracts with third parties, such as Corelca, Gas
Natural S.A.  E.S.P, Empresas Públicas de Medellín S.A. E.S.P,
Termoflores and Gases de Norte del Valle S.A., for the supply of natural gas
used in Ecopetrol’s natural gas sales, whereby they commit to deliver the
minimum quantities established in each contract.  During 2008,
Ecopetrol sold 499.34 billion BTUs per day (GBTUD) for $1,214,706.
  Master
Agreements TLU 1 and TLU 3
  In
March 1998 the Company signed the agreement TLU-1 – Joint Operation of the
assets of the Coveñas terminal to receive, store and load crude oil onto tanker
ships, between the Asociación Cravo Norte and Oleoducto de Colombia
S.A.  In which it is the operator.
  In
September 1999 the Company signed the agreement TLU-3 – Joint Operation for
the use of the tanker ship loading unit TLU-3 in the Terminal of Coveñas between
the Asociación Cravo Norte and Oleoducto de Colombia
S.  A.  In which it is also the operator.
  Petro
Rubiales S.A.
  In
December 2007, the Company signed a memorandum of understanding with Petro
Rubiales S.A.  For the construction of a 230 kilometer pipeline, which
will permit transporting crude oil extracted from the Rubiales and Pirirí fields
in the Department of Meta, to be connected with the Ocensa system (see Note
4).
  Cocorná
Association Contract - Campo Teca
  Ecopetrol
on October 8, 2008, at the end of the association contract Cocorná,
received from its associate Mansarovar Energy Colombia LTD., the Teca field
which it operated, which is located near the municipalities of Puerto Nare
(Antioquia), Puerto Triunfo (Antioquia) and Puerto Boyacá
(Boyacá).  It has 219 wells that produce an average of 2,292 daily
barrels of heavy crude oil of 12.5 degrees API.
  This
contract was signed on September 10, 1980 between Ecopetrol and Texas
Petroleum Company, company which operated the field until September 13,
1995.  Then it assigned the totality of its interests, rights and
obligations in the association contract Cocorná to the companies Omimex de
Colombia Ltd.  And Sabacol Inc. Later, on September 5, 1999
Sabacol Inc.  Assigned the totality of its interests, rights and
obligations to Omimex de Colombia Ltd.  On December 1, 2006, due
to the sale of the parent company of Omimex de Colombia Ltd., it changed its
name to Mansarovar Energy Colombia Ltd.
  Notwithstanding
that the Association Contract Cocorná ended and the Teca field was delivered to
Ecopetrol, there is a difference in interpretation between the two companies
regarding the date of termination of the Association Contract Cocorná, because
Mansarovar Energy Colombia Ltd. considers that the date of termination of the
contract should be June 18, 2011.  The two companies agreed to
present the differences in interpretation before an arbitration tribunal for it
to decide on the date of termination of the Association Contract
Cocorná.
  While
waiting for the arbitration tribunal to make a decision, Ecopetrol carried out
an agreement with Mansarovar Energy Colombia Ltd.  For this company to
continue operating the Teca field.  All income of Mansarovar (50% of
production) as well as the total expenses of the Teca field operation will be
administered through a Management and Payment Trust, until the arbitration
tribunal makes a decision on the differences between the two
companies.  The remaining resources in the Trust will be assigned to
the company favored by the decision.
  The
municipalities and the department of the said area will continue to receive the
resources due to royalties of twenty percent (20%), corresponding to the
percentage of royalties in the association contract.  The additional
royalties of twelve percent (12%) determined by Law as of the moment of
termination of the Association Contract Cocorná will be deposited in the Trust
royalties account, generating corresponding interest.  The trust will
act as the tribunal may decide concerning said remaining twelve percent
(12%).  The aforementioned means that, if the arbitration decision
favors Ecopetrol, said twelve percent (12%) shall be delivered to the
appropriate entity to deliver them to the beneficiary municipalities, but if
arbitration decision favors Mansarovar Energy Colombia Ltd., the twelve percent
(12%) shall be returned to the Joint Account.
 
 F-53
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Exploration
  González
Block
  In July
2008, Ecopetrol and Turkish Petroleum International Company Limited (TPIC)
signed an assignment contract on the hydrocarbons exploration and exploitation
contract for the Gonzalez Block, located in the Department of Norte de
Santander, approximately 50 kilometers north of Cucuta, with an area of 21,809
hectares, in which Ecopetrol assigns, in its exploration strategy, 50% of the
participation in said block.
  Within
the exploratory activities in this block, 50 kilometers of seismic were acquired
and for 2009 it is expected to drill an exploration well.
  TPIC is a
subsidiary of Turkish Petroleum Corporation (TPAO).  This company is
one of the top 100 in the ranking of the largest crude oil companies of the
world as presented by Petroleum Intelligence Weekly (PIW).
  TPAO
produces close to 75% of the oil for Turkish consumption and concentrates its
operations in the Caspian region, Northern Africa and Middle East.
  Heavy
Crude Oil Round
  Ecopetrol
presented, in association with other companies, the highest offers for three
blocks that make up the heavy crude oil rounds carried out by the Agencia
Nacional de Hidrocarburos (ANH).
  The three
blocks add up to an extension of more than 4.1 million hectares in the Eastern
Plain lands of Colombia.
  An
association between Ecopetrol and Shell presented the strongest offer for the
blocks CPE 2 and CPE 4.  On the first, with an extension of about 760
thousand hectares, the operator shall be Shell; on the second one, of 964
thousand hectares, the operator shall be Ecopetrol.  In both blocks
the companies have equal participation (50%).
  Another
association made up by Ecopetrol and Talismán presented the highest offer for
the block CPE 8, with an area of 2.39 million hectares.  The two
companies have equal participation (50%) and Talismán will be the
operator.
  Agreement
between Ecopetrol and Pacific Rubiales to explore Alicante Block
  Within
its exploration strategy, Ecopetrol and Pacific Rubiales, through its subsidiary
Meta Petroleum, signed on October 8, 2008, the assignment of the
hydrocarbon exploration and exploitation agreement for the Alicante Block,
through which Ecopetrol assigned 55% of its rights in said block.
  Alicante
is located approximately 20 kilometers east of Villavicencio, and is included in
an agreement signed in 2006 between Ecopetrol and the Agencia Nacional de
Hidrocarburos (ANH).
  Within
the development of the exploration activities for this block, the acquisition of
seismic during the first semester of 2009 is planned.
  The
block, which is 38,684 hectares, is part of the projects carried out by the two
companies for the development of heavy crude oils in Colombia.
  Cooperation
agreement for studies in Carimagua
  Ecopetrol,
the Instituto Colombiano de Desarrollo Rural, Incoder, and the Corporación
Colombiana de Investigación Agrícola, Corpoica, signed a collaboration agreement
in order to determine the technical and agronomic feasibility to develop a
biofuel production project in Predio Carimagua, located in the municipality of
Puerto Gaitán, in the Department of Meta.
 
 F-54
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  This
agreement includes technical and agronomic studies on 20 hectares of land, in
order to establish the viability of development of sugarcane crops and sweet
sorghum for the production of ethanol.  This phase will have an
approximate duration of 24 months.
  Fuel
Oil Hedging
  As of
December 31, 2008, the following option calls were carried
out:
 
 Counterpart
                
                Effective date
                
                Termination date
                
                Volume
                
                Exercise priceJ.
      Aron & Company
                
                January 02,
      2009
                
                December 31,2009
                
                540,000
      Bls.
                
                US$
                31.45J.
      Aron & Company
                
                January 02,
      2009
                
                December 31,2009
                
                600,000
      Bls.
                
                US$
                30.95Morgan
      Stanley Capital Group
                
                January 02,
      2009
                
                December 31,2009
                
                600,000
      Bls.
                
                US$
                31.60
 
 Commitments
abroad
  1.
              In
      December 2008 Ecopetrol and StatoilHydro (Norwegian Company) signed
      an agreement to explore in the Gulf of Mexico; the agreement includes
      drilling 3 prospects between 2009 and 2010 and the option for Ecopetrol to
      participate in additional future drilling prospects.  Ecopetrol
      will have participations between 20% and 30% in the prospects; the
      estimated initial investment is US$160
million.
  Additionally,
Ecopetrol and StatoilHydro allied to develop a plan for the development for
several prospects during the next 7 years.
  2.
              In
      November 2008, Ecopetrol signed a participation agreement with the
      Italian company Eni to drill at least five prospects in deep waters in the
      Gulf of Mexico (GoM) between 2008 and December 2012.  The
      investment estimate is US$220
million.
  At that
same time, Ecopetrol and Eni signed a memorandum of understanding to seek joint
exploration and production opportunities in South America and other parts of the
world.
  3.
              In
      October 2008, Ecopetrol America Inc.  And BP (through two
      subsidiaries) signed a participation agreement for hydrocarbon exploration
      in the Gulf of Mexico; this agreement’s intention is to explore for
      natural gas at depths greater than 20,000 feet and includes several
      phases.  During the first year, a minimum of one exploratory
      well will be drilled and 3-D seismic will be acquired.  The
      conditions of the following phases will depend on the results of the
      first.
  The
estimated investment for this first phase is approximately US$120 million and
will be done in two exploration areas of the shelf of the Gulf of Mexico,
located south of Texas.  Ecopetrol will participate with 15% in one of
them and 30% in the second.
  4.
              In
      October 2008, Petrobras and Ecopetrol signed a memorandum of
      understanding to evaluate business opportunities in crude oil exploration
      and production in downstream activities.  The agreement includes
      associations in Brazil, Colombia and other countries of mutual
      interest.
  Pursuant
to the Memorandum, both companies will evaluate the possibilities for joint
actions in:
  -
              Fields
      and exploration blocks currently operated by Petrobras and/or Ecopetrol in
      Colombia and in Brazil.
  -
              Participation
      in bidding processes for blocks in basins in Brazil, Colombia and other
      countries of interest.
  -
              Business
      opportunities in refining, transportation, distribution, petrochemical
      industry and biofuels.
 
 F-55
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 32.
Subsequent events
  Association
Contract Cravo Norte
  On
December 31, 2008, as agreed in the extension addendum of the association
contract Cravo Norte, Ecopetrol S.A.’s partner in the contract, Occidental de
Colombia Inc., delivered to Ecopetrol S.A. free of charge, its participation in
all the assets acquired by the Joint account in the Cravo Norte contract up to
this date.
  As of
January 12, 2009, and as established in the extension addendum of the
association contract Cravo Norte, Ecopetrol S.A. granted in favor of Occidental
de Colombia Inc. the right to use 45% of said assets that it received, all
included in an usufruct contract. Occidental de Colombia Inc., as beneficiary,
will pay Ecopetrol US$0.22 per barrel produced pursuant to its participation in
production percentage, before deducting royalties.
 
 Fuerte
Norte and Fuerte Sur Blocks
 
 In
January 2009, Ecopetrol signed an agreement with BHP Billiton Petroleum
Corporation, through its branch office in Colombia, to increase its
participation in offshore blocks Fuerte Norte and Fuerte Sur in Colombia and as
a result, each company will have a 50% participation in the blocks. The
assignment of the participation of BHP Billiton in favor of Ecopetrol requires
the approval of the Agencia Nacional de Hidrocarburos. The blocks are about
954,050 hectares.
 
 The
following acquisitions were made with our own internally generated
resources:
 
 1.
              Acquisition
      of Petro-Tech Peruana S.A.
 In
February 2009, Ecopetrol, in partnership with Korea National Oil Corporation
(KNOC), acquired a 100% stake (50% for each participating company) in Offshore
International Group Inc. (OIG) for the purchase price of US$900
million.  OIG is the U.S. parent of Petrotech Peruana
S.A..
 
 Petro-Tech
Peruana S.A. is a company whose object is hydrocarbons exploration, development,
production and processing in Peru. It began its operations in January 1994 on
the northern coast of the country. Currently it has an average production of
crude oil of 12,000 barrels per day and it has more than 100 million barrels in
2P reserves. In recent years it has achieved positioning in off-shore
hydrocarbon production and exploration in Peru.
 
 The
company has 11 blocks in that country (1 in production and 10 in exploration),
that together add up to one of the biggest areas of offshore in South America
(9.5 million hectares). As of November 30, 2008, its revenues and net income
were US$359 million and US$134 million, respectively.
 
 Offshore
International Group Inc. also possesses assets in other companies that render
services for the development of Petro-Tech Peruana S.A.’s operations, especially
regarding marine operations, such as drilling services, diving and marine
transportation, among others.
 
 2.
              Purchase
      of Enbridge shares in Ocensa
 Enbridge
Inc. is a Canadian company, which is a, leader in the transport and distribution
of energy in North America. Since 1995 owns 24.7% of the shares in Oleoducto
Central S.A. (Ocensa).
 
 In
March 2009, Ecopetrol entered into an agreement with Enbridge Inc. pursuant
to which Ecopetrol acquired 100% of its stake in Ocensa for the purchase price
of approximately US$418 million, thereby increasing the Company’s ownership
of Ocensa from 35.3% to 60%.
 
 This
transaction will strengthen Ecopetrol's position in the most important oil
transport system in Colombia. As such, the transaction is vital to the growth
strategy of the Company, which aims to increase Ecopetrol's oil production in
the Eastern Plains region of Colombia and promote the development of new
business opportunities.
 
 F-56
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 The
Ocensa pipeline starts onshore at the Cusiana and Cupiagua fields and has a
capacity to transport up to 650 thousand barrels of oil per day, a length of 829
kilometers, five pumping stations and an export port in Coveñas (which is on the
Colombia ́s Caribbean Coast).
 
 3.
              Acquisition
      of Glencore shares in Cartagena
refinery
 On May
27, 2009, Ecopetrol announced that it has closed the acquisition of all shares
held by Glencore in Refineria de Cartagena S.A. “Reficar”, as per the terms
agreed in the Memorandum of Understanding signed on February 28, 2009. The
purchase price of U.S. $ 549 million could be reduced in approximately US$ 4.8
million as a result of the due diligence process performed by Ecopetrol. The
adjustment will follow the procedure agreed by the parties in the contract.
However, Ecopetrol now controls Reficar. Ecopetrol is currently working on
integrating synergies with its Barrancabermeja refinery.
 
 4.
              Purchase
      of Hocol Colombia
 On May
27, 2009, Ecopetrol acquired 100% of Maurel and Prom’s stake of its subsidiary
in Bermuda, Hocol Petroleum Limited, for the purchase price of
US$580 million plus US$168 million for working
capital.  Hocol Petroleum Limited’s most important assets are Hocol
and Homcol, two companies incorporated in the Cayman Islands with branches in
Colombia involved in crude oil and natural gas exploration and production
activities in Colombia.  The transaction concluded upon completion of
the corresponding legal approval of the Industry and Commerce
Superintendency.
 
 The
purchase includes all production and development assets in Colombia, with
production forecasts close to 22 thousand barrels per day in 2009.  It also
includes some exploration blocks (excluding 100% of SN-9, 100% of Muisca,
100% of Sabanero and 50% of Tángara).  The possibility of an
additional payment is considered depending on the future behavior of the WTI
price and the results of the Huron well in the Niscota block.
 
 The
transaction also includes the holdings in the pipelines Oleoducto Alto Magdalena
(36.12%) and Oleoducto de Colombia (21.72%)
 
 Recent
Loans
 
 We
recently entered into a Ps$2,200 billion (approximately US$1 billion) syndicated
loan facility with a syndicate of local banks in May 2009.   This loan
facility has a term of seven years with a two year grace period.  The
interest rate under the facility equals the fixed term deposit rate (DTF) plus
an additional 4% (the anticipated quarterly interest rate).  Amortization
is bi-annual under the loan.  In addition, as guarantee for the loan, we
pledged our stock in Refinería de Cartagena S.A. (Reficar), Oleoducto Central
S.A. (Ocensa) and Propileno del Caribe (Propilco).  We intend to use the
proceeds from this loan to finance our strategic plan.
 
 In
addition, ODL, our indirect Panamanian subsidiary, through its Colombian branch
office, Oleoducto de los Llanos Orientales Sucursal Colombia, entered into a
Ps$520,000 million (approximately US$200 million) loan facility with Banco de
Bogota S.A., Banco de Occidente S.A., Banco Popular S.A. and Banco AV Villas
S.A., which together comprise the Grupo Aval, in March 2009.  This
loan facility has a term of five years.  The interest rate under the
facility equals the fixed term deposit rate (DTF) plus an additional 5% (the
anticipated quarterly interest rate).  The principal amount will be
amortized in 17 equal quarterly payments, beginning in June 2010.  In
addition, as guarantee for the loan, Oleoducto de los Llanos Orientales Sucursal
Colombia pledged its economic rights to the finance tariffs included in its
Ship-or-Pay Contracts.  Oleoducto de los Llanos Orientales Sucursal
Colombia intends to use the proceeds from this loan to finance part of the
Rubiales pipeline.
  33.
Differences between Colombian Governmental Entity accounting principles and U.S.
GAAP
  The
Company's financial statements are prepared in accordance with Colombian
Government Entity GAAP (PGCP or RCP). These principles and regulations differ in
certain significant respects from accounting principles generally accepted in
the United States of America (U.S. GAAP), and therefore this note presents
reconciliations of net income and shareholders’ equity determined under RCP to
those same amounts as determined according to U.S. GAAP.  Also
presented in this note are those disclosures required under U.S. GAAP but not
required under RCP.
 
 F-57
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 A)
Reconciliation of net income:
  The
following table presents the reconciliation of net income per Colombian
Government Entity GAAP to net income under U.S. GAAP for the years ended
December 31, 2008, 2007 and 2006:
  2008
                        
                        
                        2007
                        
                        
                        2006Consolidated
      net income under Colombian Government Entity GAAP
                        
                        $
                        11,629,677
                        
                        
                        $
                        5,179,792
                        
                        
                        $
                        3,391,373i.
                        Investment
      securitiesa. 
      Unrealized gain (loss)
                        
                        
                        (924,715
                        )
                        
                        
                        69,657
                        
                        
                        
                        11,080b. 
      Impairment
                        
                        
                        163,902
                        
                        
                        
                        (78,123
                        )
                        
                        
                        (60,742
                        )ii.
                        Investments
      in non-marketable securities:a. 
      Equity method
                        
                        
                        164,734
                        
                        
                        
                        (36,960
                        )
                        
                        
                        (43,241
                        )b. 
      Variable Interest Entity (VIE)
                        
                        
                        (367,743
                        )
                        
                        
                        11,658
                        
                        
                        
                        (3,972
                        )iii.
                        Investments
      in unconsolidated subsidiaries
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (136,372
                        )iv.
                        Derivatives
                        
                        
                        -
                        
                        
                        
                        6
                        
                        
                        
                        157v.
                        Exchange
      of non-monetary assets
                        
                        
                        55,623
                        
                        
                        
                        606,751
                        
                        
                        
                        -vi.
                        Deferred
      charges
                        
                        
                        (228
                        )
                        
                        
                        240,293
                        
                        
                        
                        (30,624
                        )vii.
                        Employee
      benefit plans
                        
                        
                        (1,451,179
                        )
                        
                        
                        (1,045,374
                        )
                        
                        
                        325,316viii.
                        Provisions
      – allowances and contingencies
                        
                        
                        1,082,434
                        
                        
                        
                        925,380
                        
                        
                        
                        88,671ix.
                        Deferred
      income taxes
                        
                        
                        (159,891
                        )
                        
                        
                        (624,185
                        )
                        
                        
                        (362,271
                        )x.
                        Revenue
      recognitiona. 
      Revenue – FAEP
                        
                        
                        -
                        
                        
                        
                        329,355
                        
                        
                        
                        916,941b. 
      Cost of sales – Over and Under
                        
                        
                        (8,887
                        )
                        
                        
                        16,607
                        
                        
                        
                        (152,375
                        )c. 
      Other income – exchange losses – FAEP
                        
                        
                        -
                        
                        
                        
                        (97,127
                        )
                        
                        
                        (117,880
                        )xi.
                        Inflation
      adjustment
                        
                        
                        128,837
                        
                        
                        
                        230,822
                        
                        
                        
                        144,248xii.
                        Inventories
                        
                        
                        10,274
                        
                        
                        
                        (67,089
                        )
                        
                        
                        (9,731
                        )xiii.
                        Lease
      accounting
                        
                        
                        39,744
                        
                        
                        
                        (393,131
                        )
                        
                        
                        (1,030
                        )xiv.
                        Prior
      year adjustments
                        
                        
                        -
                        
                        
                        
                        574
                        
                        
                        
                        73,857xv.
                        Property,
      plant and equipment:a. 
      Interest
                        
                        
                        -
                        
                        
                        
                        1,228
                        
                        
                        
                        1,635b. 
      Impairment
                        
                        
                        (121,296
                        )
                        
                        
                        (65,137
                        )
                        
                        
                        (12,241
                        )c. 
      Capitalized expenses
                        
                        
                        76,167xvi.
                        Depreciation,
      Depletion and Amortization
                        
                        
                        (1,478,851
                        )
                        
                        
                        227,754
                        
                        
                        
                        237,972xvii.
                        Asset
      retirement obligations
                        
                        
                        (70,014
                        )
                        
                        
                        10,039
                        
                        
                        
                        (22,777
                        )xviii.
                        Equity
      contributions:a. 
      Incorporated institutional equity
                        
                        
                        21,217
                        
                        
                        
                        9,304
                        
                        
                        
                        351b. 
      Contributions in kind
                        
                        
                        -
                        
                        
                        
                        432,144
                        
                        
                        
                        2,374,512c. 
      Reversion of concession rights contributed as capital
                        
                        
                        24,117
                        
                        
                        
                        17,562
                        
                        
                        
                        23,567xix.
                        Public
      offering costs and discount on issuance of shares
                        
                        
                        -
                        
                        
                        
                        242,885
                        
                        
                        
                        -xx.
                        Business
      combinationsa. 
      Goodwill
                        
                        
                        27,512
                        
                        
                        
                        -
                        
                        
                        
                        -b. 
      Fair value adjustments to assets and liabilities acquired
                        
                        
                        449
                        
                        
                        
                        -
                        
                        
                        
                        -Consolidated
      net income under U.S. GAAP
                        
                        $
                        8,841,883
                        
                        
                        $
                        6,144,685
                        
                        
                        $
                        6,636,424
 
 F-58
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 B)   Reconciliation
of Shareholders’ equity:
  The
following table presents a reconciliation of shareholders’ equity under
Colombian Governmental Entity GAAP to shareholders’ equity under U.S. GAAP as of
December 31, 2008 and 2007:
  2008
                              
                              
                              2007Consolidated
      shareholders’ equity under Colombian Government Entity
GAAP
                              
                              $
                              34,619,717
                              
                              
                              $
                              26,808,467i.
                              Investment
      securitiesa. 
      Unrealized gain
                              
                              
                              -
                              
                              
                              
                              (889
                              )b. 
      Impairment
                              
                              
                              -
                              
                              
                              
                              -ii.
                              Investments
      in non-marketable securities:a. 
      Equity method
                              
                              
                              (991,927
                              )
                              
                              
                              42,726b. 
      Variable Interest Entity (VIE)
                              
                              
                              (320,600
                              )
                              
                              
                              47,143c. 
      Valuation surplus
                              
                              
                              (616,951
                              )
                              
                              
                              (2,080,516
                              )iii.
                              Investment
      in unconsolidated subsidiaries
                              
                              
                              -
                              
                              
                              
                              -iv.
                              Derivatives
                              
                              
                              -
                              
                              
                              
                              -v.
                              Exchange
      of non-monetary assets
                              
                              
                              662,374
                              
                              
                              
                              606,751vi.
                              Deferred
      charges
                              
                              
                              (7,133
                              )
                              
                              
                              (6,905
                              )vii.
                              Employee
      benefit plans
                              
                              
                              (563,814
                              )
                              
                              
                              (719,267
                              )viii.
                              Provisions
      – allowance and contingencies
                              
                              
                              183,852
                              
                              
                              
                              1,637,881ix.
                              Deferred
      income taxes
                              
                              
                              470,044
                              
                              
                              
                              (623,847
                              )x.
                              Revenue
      recognition:a. 
      Revenue – FAEP
                              
                              
                              -
                              
                              
                              
                              97,127b. 
      Cost of sales – Over and Under
                              
                              
                              10,984
                              
                              
                              
                              19,871c. 
      Other income – exchange losses – FAEP
                              
                              
                              -
                              
                              
                              
                              (97,127
                              )xi.
                              Inflation
      adjustment
                              
                              
                              (863,496
                              )
                              
                              
                              (992,333
                              )xii.
                              Inventories
                              
                              
                              (66,570
                              )
                              
                              
                              (76,844
                              )xiii.
                              Lease
      accounting
                              
                              
                              444,117
                              
                              
                              
                              404,373xiv.
                              Prior
      year adjustments
                              
                              
                              -
                              
                              
                              
                              -xv.
                              Property,
      plant and equipment:a. 
      Interest
                              
                              
                              39,768
                              
                              
                              
                              39,768b. 
      Revaluation of property, plant and equipment and public accounting
      effect
                              
                              
                              (3,505,449
                              )
                              
                              
                              (3,566,866
                              )c. 
      Impairment
                              
                              
                              (297,319
                              )
                              
                              
                              (176,023
                              )d. 
      Capitalized expenses
                              
                              
                              (555,684
                              )
                              
                              
                              (631,851
                              )e. 
      Exchange difference
                              
                              
                              (217,535
                              )
                              
                              
                              (217,535
                              )xvi.
                              Depreciation,
      Depletion and Amortization
                              
                              
                              (820,184
                              )
                              
                              
                              658,667xvii.
                              Asset
      retirement obligations
                              
                              
                              (24,054
                              )
                              
                              
                              45,960xviii.
                              Equity
      contributions:a. 
      Incorporated institutional equity
                              
                              
                              (60,907
                              )
                              
                              
                              (82,124
                              )b. 
      Contributions in kind
                              
                              
                              -
                              
                              
                              
                              -c. 
      Reversion of concession rights contributed as capital
                              
                              
                              (121,459
                              )
                              
                              
                              (145,576
                              )xix.
                              Public
      offering cost and discount on issuance of shares
                              
                              
                              -
                              
                              
                              
                              -xx.
                              Business
      combinationsa. 
      Goodwill
                              
                              
                              48,471
                              
                              
                              
                              -b. 
      Fair value adjustments to assets and liabilities acquired
                              
                              
                              (20,510
                              )
                              
                              
                              -Consolidated
      shareholders’ equity under US GAAP
                              
                              $
                              27,425,735
                              
                              
                              $
                              20,991,031
 
 F-59
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 C)
Supplemental consolidated condensed financial statements under
U.S.GAAP
 C) 1.
Supplemental consolidated condensed balance sheets
 The
condensed balance sheets of the Company as of December 31, 2008 and 2007 under
U.S. GAAP are presented below:
  2008
                    
                    
                    2007AssetsCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    4,812,595
                    
                    
                    $
                    8,007,282Investments
                    
                    
                    1,345,760
                    
                    
                    
                    1,820,270Accounts
      and notes receivable, net
                    
                    
                    5,891,412
                    
                    
                    
                    2,310,864Inventories
                    
                    
                    1,569,165
                    
                    
                    
                    1,246,538Advances
      and deposits
                    
                    
                    887,634
                    
                    
                    
                    689,826Prepaid
      expenses
                    
                    
                    25,492
                    
                    
                    
                    15,077Deferred
      income taxes
                    
                    
                    2,027,113
                    
                    
                    
                    332,057Direct
      finance lease
                    
                    
                    80,263
                    
                    
                    
                    -Total
      current assets
                    
                    
                    16,639,434
                    
                    
                    
                    14,421,914Investments
                    
                    
                    7,506,851
                    
                    
                    
                    3,595,473Accounts
      and notes receivable, net
                    
                    
                    194,912
                    
                    
                    
                    202,565Restricted
      assets
                    
                    
                    388,892
                    
                    
                    
                    334,464Property,
      plant and equipment, net
                    
                    
                    7,696,192
                    
                    
                    
                    4,989,533Natural
      and environmental resources, net
                    
                    
                    6,456,158
                    
                    
                    
                    3,966,780Goodwill
                    
                    
                    627,610
                    
                    
                    
                    -Deferred
      charges and other assets
                    
                    
                    793,339
                    
                    
                    
                    495,740Deferred
      income taxes
                    
                    
                    -
                    
                    
                    
                    1,692,053Total
      Assets
                    
                    $
                    40,303,388
                    
                    
                    $
                    29,698,528Liabilities
      and shareholders’ equityCurrent
      liabilities:Financial
      obligations
                    
                    $
                    281,841
                    
                    
                    $
                    72,491Accounts
      payable and related parties
                    
                    
                    1,834,041
                    
                    
                    
                    1,361,720Capital
      lease liability
                    
                    
                    102,657
                    
                    
                    
                    88,101Taxes
      payable
                    
                    
                    2,570,886
                    
                    
                    
                    1,777,132Labor
      and pension plan obligations
                    
                    
                    340,537
                    
                    
                    
                    342,400Estimated
      liabilities and provisions
                    
                    
                    677,214
                    
                    
                    
                    669,864Unearned income
                    
                    
                    -
                    
                    
                    
                    156,364Total
      current liabilities
                    
                    
                    5,807,176
                    
                    
                    
                    4,468,072Financial
      obligations, long-term
                    
                    
                    5,473
                    
                    
                    
                    -Accounts
      payable, long-term
                    
                    
                    279,882
                    
                    
                    
                    123,930Capital
      lease liability
                    
                    
                    388,591
                    
                    
                    
                    434,928Pension
      plan obligation and other labor obligations, long-term
                    
                    
                    2,518,307
                    
                    
                    
                    1,784,721Deferred
      income tax, long-term
                    
                    
                    833,399
                    
                    
                    
                    -Estimated
      liabilities and provisions
                    
                    
                    1,748,014
                    
                    
                    
                    1,323,834Other
      long-term liabilities
                    
                    
                    478,039
                    
                    
                    
                    415Total
      non-current liabilities
                    
                    
                    6,251,705
                    
                    
                    
                    3,667,828Total
      liabilities
                    
                    
                    12,058,881
                    
                    
                    
                    8,135,900Minority
      interest
                    
                    
                    818,772
                    
                    
                    
                    571,597Shareholders’
      equity
                    
                    
                    27,425,735
                    
                    
                    
                    20,991,031Total
      liabilities and shareholders’ equity
                    
                    $
                    40,303,388
                    
                    
                    $
                    29,698,528
 
 F-60
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 C) 2.
Supplemental consolidated condensed statements of income
 
 The
condensed statements of income of the Company for the years ended December 31,
2008, 2007 and 2006 under U.S. GAAP are presented below:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Revenue:Local sales
                    
                    $
                    21,550,543
                    
                    
                    $
                    16,138,874
                    
                    
                    $
                    11,597,615Foreign sales
                    
                    
                    12,298,670
                    
                    
                    
                    6,645,820
                    
                    
                    
                    7,864,124Total
      revenue
                    
                    
                    33,849,213
                    
                    
                    
                    22,784,694
                    
                    
                    
                    19,461,739Cost
      of sales
                    
                    
                    17,927,991
                    
                    
                    
                    10,942,526
                    
                    
                    
                    10,296,43415,921,222
                    
                    
                    
                    11,842,168
                    
                    
                    
                    9,165,305Operating
      expenses:Administration
                    
                    
                    4,246,426
                    
                    
                    
                    2,431,443
                    
                    
                    
                    1,297,301Selling
                    
                    
                    1,834,485
                    
                    
                    
                    955,626
                    
                    
                    
                    622,028Operating
      income
                    
                    
                    9,840,311
                    
                    
                    
                    8,455,099
                    
                    
                    
                    7,245,976Non-operating,
      net
                    
                    
                    3,587,132
                    
                    
                    
                    255,549
                    
                    
                    
                    519,887Income
      before income tax and minority interest
                    
                    
                    13,427,443
                    
                    
                    
                    8,710,648
                    
                    
                    
                    7,765,863Income
      tax:Current
      income tax
                    
                    
                    3,648,451
                    
                    
                    
                    2,045,997
                    
                    
                    
                    1,535,088Deferred
      tax expense – (benefit)
                    
                    
                    930,853
                    
                    
                    
                    498,593
                    
                    
                    
                    (398,366
                    )4,579,304
                    
                    
                    
                    2,544,590
                    
                    
                    
                    1,136,722Income
      before minority interest
                    
                    
                    8,848,139
                    
                    
                    
                    6,166,058
                    
                    
                    
                    6,629,141Minority
      interest
                    
                    
                    (6,256
                    )
                    
                    
                    (21,373
                    )
                    
                    
                    7,283Net
      Income
                    
                    $
                    8,841,883
                    
                    
                    $
                    6,144,685
                    
                    
                    $
                    6,636,424Earnings
      per share
                    
                    $
                    218.47
                    
                    
                    $
                    166.42
                    
                    
                    $
                    182.40
 
 F-61
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 C) 3.
Supplemental consolidated condensed statements of cash flows
 The
condensed statements of cash flows of the Company for the years ended December
31, 2008, 2007 and 2006 under U.S. GAAP are presented below:
  2008
                    
                    
                    2007
                    
                    
                    2006Cash
      flows provided by operating activities:Net
      income
                    
                    $
                    8,841,883
                    
                    
                    $
                    6,144,685
                    
                    
                    $
                    6,636,424Adjustments
      to reconcile net income to cash provided by operating
      activities:Equity
      method in non-marketable securities
                    
                    
                    (106,845
                    )
                    
                    
                    36,960
                    
                    
                    
                    1,386,459Depreciation,
      depletion and amortization
                    
                    
                    3,177,935
                    
                    
                    
                    1,467,372
                    
                    
                    
                    43,241Impairment
                    
                    
                    113,087
                    
                    
                    
                    65,137
                    
                    
                    
                    12,072Provisions
                    
                    
                    (569,969
                    )
                    
                    
                    86,746
                    
                    
                    
                    1,131Deferred
      income tax
                    
                    
                    930,853
                    
                    
                    
                    498,594
                    
                    
                    
                    (398,366
                    )Exchange
      loss
                    
                    
                    (1,390,953
                    )
                    
                    
                    408,181
                    
                    
                    
                    232,698Minority
      interest
                    
                    
                    6,256
                    
                    
                    
                    21,373
                    
                    
                    
                    (7,283
                    )Write-off
      of property, plant and equipment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    21,064Loss
      on sale of investments in unconsolidated subsidiaries
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    8,162Net
      changes in operating assets and liabilities net of effect of Propilco and
      Bioenergy acquisitions:Accounts
      and notes receivable
                    
                    
                    (2,383,061
                    )
                    
                    
                    1,534,251
                    
                    
                    
                    167,200Inventories
                    
                    
                    (255,090
                    )
                    
                    
                    (316,950
                    )
                    
                    
                    (229,382
                    )Deferred
      charges and other assets
                    
                    
                    (245,528
                    )
                    
                    
                    (33,721
                    )
                    
                    
                    (18,305
                    )Accounts
      payable and related parties
                    
                    
                    326,967
                    
                    
                    
                    (171,444
                    )
                    
                    
                    242,482Taxes
      payable
                    
                    
                    1,374,621
                    
                    
                    
                    509,612
                    
                    
                    
                    (508,827
                    )Labor
      obligations
                    
                    
                    401,445
                    
                    
                    
                    1,231,621
                    
                    
                    
                    (70,126
                    )Estimated
      liabilities and provisions
                    
                    
                    668,220
                    
                    
                    
                    130,729
                    
                    
                    
                    (269,421
                    )Net
      cash provided by operating activities
                    
                    
                    10,889,822
                    
                    
                    
                    11,613,146
                    
                    
                    
                    7,249,223Cash
      flows from investing activities:Payment
      for purchase of companies, net of cash acquired
                    
                    
                    (1,274,751
                    )
                    
                    
                    -
                    
                    
                    
                    -Purchase
      of investment securities
                    
                    
                    (27,814,744
                    )
                    
                    
                    (33,328,213
                    )
                    
                    
                    (32,577,124
                    )Redemption
      of investment securities
                    
                    
                    25,975,418
                    
                    
                    
                    34,664,456
                    
                    
                    
                    31,078,640Investment
      in natural and environmental resources
                    
                    
                    (3,574,418
                    )
                    
                    
                    (1,866,544
                    )
                    
                    
                    (801,470
                    )Additions
      to property, plant and equipment
                    
                    
                    (3,869,577
                    )
                    
                    
                    (1,176,142
                    )
                    
                    
                    (883,008
                    )Proceeds
      from the sale of investments in unconsolidated
subsidiaries
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    128,210Net
      cash used in investing activities
                    
                    
                    (10,558,072
                    )
                    
                    
                    (1,706,443
                    )
                    
                    
                    (3,054,752
                    )Cash
      flows from financing activities:Minority
      interest obligations
                    
                    
                    240,918
                    
                    
                    
                    (14,893
                    )
                    
                    
                    (19,248
                    )Payment
      of financial obligations
                    
                    
                    (99,888
                    )
                    
                    
                    (425,879
                    )
                    
                    
                    (604,550
                    )Proceeds
      from financial obligations
                    
                    
                    235,720
                    
                    
                    
                    -
                    
                    
                    
                    81,163Proceeds
      from issuance of shares
                    
                    
                    832,919
                    
                    
                    
                    4,625,066
                    
                    
                    
                    -Disbursements
      of contributions to ANH
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (106,672
                    )Dividends
      paid
                    
                    
                    (4,652,182
                    )
                    
                    
                    (8,538,936
                    )
                    
                    
                    (2,000,000
                    )Net
      cash used in financing activities
                    
                    
                    (3,442,513
                    )
                    
                    
                    (4,354,642
                    )
                    
                    
                    (2,649,307
                    )Effect
      of exchange rate changes on cash
                    
                    
                    83,923
                    
                    
                    
                    (116,558
                    )
                    
                    
                    5,741Net
      (decrease) increase in cash and cash equivalent
                    
                    
                    (3,194,687
                    )
                    
                    
                    5,668,619
                    
                    
                    
                    1,539,423Cash
      and cash equivalents at beginning of year
                    
                    
                    8,007,282
                    
                    
                    
                    2,338,663
                    
                    
                    
                    799,240Cash
      and cash equivalents at end of year
                    
                    $
                    4,812,595
                    
                    
                    $
                    8,007,282
                    
                    
                    $
                    2,338,663
 
 F-62
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 During
2007, the Company exchanged property, plant and equipment for a share of
Refinería de Cartagena S.A.  The Company exchanged assets with a cost
of approximately $234,371 for an investment in Refinería de Cartagena S.A at
$1,369,546, which represented the fair value of the 49% interest the Company
received.  This non-cash transaction had the effect of
reducing property, plant and equipment by $234,371 and  increasing
investments.  For U.S. GAAP purposes, a partial gain equivalent to 51%
was recognized as explained in Note 33 v. Exchange of non – monetary
assets.
  During
2008, 2007 and 2006, the Company capitalized property, plant and equipment and
investments in natural and environmental resources amounting to $137,903,
$83,088 and $340,457, respectively, which correspond to asset retirement costs
which are reflected as asset retirement obligation for U.S. GAAP
purposes.
  In 2008
and 2007, the Company signed leasing contracts that increased property, plant
and equipment and capital lease obligations by $12,659 and $1,632, respectively,
under U.S. GAAP.  Under RCP, some deposits with banks were considered
as short – term investments because they produce yields and the Company has
defined them to be used for specific purposes.
  Under
Colombian Government Entity GAAP as in effect for 2007 and 2006, some deposits
with banks were considered as short – term investments because they produce
yields and the Company has defined them to be used for specific purposes. Under
US GAAP, these deposits are considered cash. The amounts reclassified as of
December 31, 2008, 2007 and 2006 were $2,404,159, $4,133,705 and $617,240. These
deposits are valued at fair value.
 
 C) 4.
Supplemental consolidated statements of shareholders’ equity
 
 The
statements of shareholders’ equity of the Company for the years ended December
31, 2008, 2007 and 2006 under U.S. GAAP are as follows:
 
 Common StockMillions of
                          shares
                        
                        
                        Value
                        
                        
                        Additional paid-
                          in-capital
                        
                        
                        Comprehensive
                          Income
                        
                        
                        Retained
                          earnings
                        
                        
                        Accumulated
                          other
                          comprehensive
                          income (loss)
                        
                        
                        TotalBalance
      at January 1st
      ,  2006
                        
                        
                        36,385
                        
                        
                        $
                        4,244,943
                        
                        
                        $
                        -
                        
                        
                        
                        
                        
                        $
                        11,676,234
                        
                        
                        $
                        (892,184
                        )
                        
                        $
                        15,028,993Distribution
      of dividends
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        (2,000,000
                        )
                        
                        
                        -
                        
                        
                        
                        (2,000,000
                        )Other
      contributions
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (869,477
                        )
                        
                        
                        -
                        
                        
                        
                        (869,477
                        )Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        6,636,424
                        
                        
                        
                        6,636,424
                        
                        
                        
                        -
                        
                        
                        
                        6,636,424Other
      Comprehensive income, net of tax:Unrealized
      earnings on investment securities, net of tax effect of
      $11,646
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        26,447
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        26,447Actuarial
      loss, net of tax effect of $356,002
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (806,945
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (806,945
                        )Translation
      adjustment
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (56
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (56
                        )Total
      other comprehensive income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (780,554
                        )
                        
                        
                        -
                        
                        
                        
                        (780,554
                        )
                        
                        
                        -Total
      comprehensive income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        5,855,870
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Balance
      at December 31, 2006
                        
                        
                        36,385
                        
                        
                        
                        4,244,943
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        15,443,181
                        
                        
                        
                        (1,672,738
                        )
                        
                        
                        18,015,386Issuance
      of company shares
                        
                        
                        4,088
                        
                        
                        
                        5,868,391
                        
                        
                        
                        3,607,929
                        
                        
                        
                        -
                        
                        
                        
                        (4,851,254
                        )
                        
                        
                        -
                        
                        
                        
                        4,625,066Distribution
      of dividends
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (8,538,936
                        )
                        
                        
                        -
                        
                        
                        
                        (8,538,936
                        )
 
 F-63
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 Common StockMillions of
                          shares
                        
                        
                        Value
                        
                        
                        Additional paid-
                          in-capital
                        
                        
                        Comprehensive
                          Income
                        
                        
                        Retained
                          earnings
                        
                        
                        Accumulated
                          other
                          comprehensive
                          income (loss)
                        
                        
                        TotalOther
      contributions
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        71,424
                        
                        
                        
                        -
                        
                        
                        
                        71,424Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        6,144,685
                        
                        
                        
                        6,144,685
                        
                        
                        
                        -
                        
                        
                        
                        6,144,685Other
      Comprehensive income, net of tax:Unrealized
      earnings on investment securities, net of tax effect of
    $6,364
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        12,918
                        
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        12,918Amortization
      of actuarial loss, net of tax effect of $358,277
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        727,415
                        
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        727,415Translation
      adjustment
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (66,927
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (66,927
                        )Total
      other comprehensive income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        673,406
                        
                        
                        
                        -
                        
                        
                        
                        673,406
                        
                        
                        
                        -Comprehensive
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        6,818,091
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Balance
      at December 31, 2007
                        
                        
                        40,473
                        
                        
                        
                        10,113,334
                        
                        
                        
                        3,607,929
                        
                        
                        
                        
                        
                        
                        
                        8,269,100
                        
                        
                        
                        (999,332
                        )
                        
                        
                        20,991,031Issuance
      of company shares
                        
                        
                        
                        
                        
                        
                        4,457
                        
                        
                        
                        828,462
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        832,919Distribution
      of dividends
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (4,654,340
                        )
                        
                        
                        -
                        
                        
                        
                        (4,654,340
                        )Other
      contributions
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (23,742
                        )
                        
                        
                        -
                        
                        
                        
                        (23,742
                        )Comprehensive
      income:
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        -Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        8,841,883
                        
                        
                        
                        8,841,883
                        
                        
                        
                        -
                        
                        
                        
                        8,841,883Other
      Comprehensive income, net of tax:Unrealized
      earnings on investment securities, net of tax effect of
      $236,974
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        524,729
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        524,729Amortization
      of actuarial loss, net of tax effect of $302,050
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        613,251
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        613,251Translation
      adjustment
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        300,004
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        300,004Total
      other comprehensive income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,437,984
                        
                        
                        
                        -
                        
                        
                        
                        1,437,984
                        
                        
                        
                        -Comprehensive
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        10,279,867
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Balance
      at December 31, 2008
                        
                        
                        40,473
                        
                        
                        $
                        10,117,791
                        
                        
                        $
                        4,436,391
                        
                        
                        
                        
                        
                        
                        $
                        12,432,901
                        
                        
                        $
                        438,652
                        
                        
                        $
                        27,425,735
 
 F-64
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 A detail
of accumulated Other Comprehensive Income, including the related income tax
effects, is presented below:
  2008Before-Income Tax
                                                                            
                                                                            
                                                                            (Income Tax Expense)
                                                                            
                                                                            
                                                                            Net of Income TaxAmount
                                                                            
                                                                            
                                                                            or Benefit
                                                                            
                                                                            
                                                                            AmountUnrealized
      loss on securities available for sale
                                                                            
                                                                            $
                                                                            835,882
                                                                            
                                                                            
                                                                            $
                                                                            (261,454
                                                                            )
                                                                            
                                                                            $
                                                                            574,428Pension
      liability - net unamortized actuarial loss
                                                                            
                                                                            
                                                                            (550,443
                                                                            )
                                                                            
                                                                            
                                                                            181,646
                                                                            
                                                                            
                                                                            
                                                                            (368,797
                                                                            )Cumulative
      translation adjustment
                                                                            
                                                                            
                                                                            233,021
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            233,021Other
      comprehensive income (loss)
                                                                            
                                                                            $
                                                                            518,460
                                                                            
                                                                            
                                                                            $
                                                                            (79,808
                                                                            )
                                                                            
                                                                            $
                                                                            438,6522007Unrealized
      loss on securities available for sale
                                                                            
                                                                            $
                                                                            74,179
                                                                            
                                                                            
                                                                            $
                                                                            (24,480
                                                                            )
                                                                            
                                                                            $
                                                                            49,699Pension
      liability - net unamortized actuarial loss
                                                                            
                                                                            
                                                                            (1,465,744
                                                                            )
                                                                            
                                                                            
                                                                            483,696
                                                                            
                                                                            
                                                                            
                                                                            (982,048
                                                                            )Cumulative
      translation adjustment
                                                                            
                                                                            
                                                                            (66,983
                                                                            )
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            (66,983
                                                                            )Other
      comprehensive income (loss)
                                                                            
                                                                            $
                                                                            (1,458,548
                                                                            )
                                                                            
                                                                            $
                                                                            459,216
                                                                            
                                                                            
                                                                            $
                                                                            (999,332
                                                                            )2006Unrealized
      loss on securities available for sale
                                                                            
                                                                            $
                                                                            54,897
                                                                            
                                                                            
                                                                            $
                                                                            (18,116
                                                                            )
                                                                            
                                                                            $
                                                                            36,781Pension
      liability - net unamortized actuarial loss
                                                                            
                                                                            
                                                                            (2,551,436
                                                                            )
                                                                            
                                                                            
                                                                            841,973
                                                                            
                                                                            
                                                                            
                                                                            (1,709,463
                                                                            )Cumulative
      translation adjustment
                                                                            
                                                                            
                                                                            (56
                                                                            )
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            (56
                                                                            )Other
      comprehensive income (loss)
                                                                            
                                                                            $
                                                                            (2,496,595
                                                                            )
                                                                            
                                                                            $
                                                                            823,857
                                                                            
                                                                            
                                                                            $
                                                                            (1,672,738
                                                                            )
  D)
Summary of significant differences and required U.S. GAAP
disclosures
 
 i.
              INVESTMENT
      SECURITIES
 
 The
Company’s investments include both marketable securities and non-marketable
securities.  Under RCP, the Company classifies investment securities
based on the form of their investment return, either as fixed-yield investment
or as variable-yield investments.  Fixed-yield investments generally
represent debt securities and are initially recorded at cost with subsequent
adjustments to fair market value recorded in the income
statement.  Variable-yield investments generally represent equity
securities or interests in other entities and are initially recorded at
cost.  Subsequent adjustments to fair value are made with increases in
fair value resulting in an increase to equity, while decreases in fair value are
charged to the income statement.  Fair values are determined using
quoted market prices, if and when available.  Absent quoted market
prices, these investments are recorded at Management’s estimate of fair value
using discounted cash flow techniques.
 
 Under
U.S. GAAP, the Company has classified its investment securities as
held-to-maturity or available-for-sale, as defined by Statement of Financial
Accounting Standard No. 115, Accounting for Certain Investments in Debt and
Equity Securities (“SFAS No. 115”).  Debt security investments for
which the Company has demonstrated its positive ability and intent to hold until
maturity are classified as held-to-maturity.  Such investments are
reported at amortized cost.  Investments classified as
available-for-sale are reported at fair value, with unrealized gains and losses
reported, net of taxes, as a component of other comprehensive
income.
 
 F-65
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 In the
event any other than temporary impairment of the values of the investments
occurs, the impairment loss is recorded in income.
  The
Company’s short-term and long-term investments at December 31, 2008 and 2007
consist of the following:
 
 Aggregated
                      Fair
                      Value
                    
                    
                    Gross
                      Unrealized
                      Holding
                      Gains
                    
                    
                    Gross
                      Unrealized
                      Holding
                      Losses
                    
                    
                    Gross
                      Recognized
                      Losses
                    
                    
                    Cost
                      BasisAs
      of December 31, 2008Short-term
      Investments - Available for Sale Securities:Securities
      issued or secured by Colombian government
                    
                    $
                    239,819
                    
                    
                    $
                    17,825
                    
                    
                    $
                    (5,559
                    )
                    
                    $
                    -
                    
                    
                    $
                    227,553Securities
      issued or secured by government sponsored enterprise
                    
                    
                    989,949
                    
                    
                    
                    148,808
                    
                    
                    
                    (4,158
                    )
                    
                    
                    -
                    
                    
                    
                    845,299Securities
      issued or secured by financial entities
                    
                    
                    92,535
                    
                    
                    
                    13,026
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    79,509Other
      debt securities
                    
                    
                    23,457
                    
                    
                    
                    3,175
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    20,282Total
      Short-term Investments classified as Available for Sale
                    
                    
                    1,345,760
                    
                    
                    
                    182,834
                    
                    
                    
                    (9,717
                    )
                    
                    
                    -
                    
                    
                    
                    1,172,643Long-term
      Investments - Available for Sale Securities:Securities
      issued or secured by Colombian government
                    
                    
                    821,342
                    
                    
                    
                    123,957
                    
                    
                    
                    (6,259
                    )
                    
                    
                    -
                    
                    
                    
                    724,733Securities
      issued or secured by government sponsored enterprise
                    
                    
                    2,515,761
                    
                    
                    
                    427,156
                    
                    
                    
                    (215
                    )
                    
                    
                    (390
                    )
                    
                    
                    2,110,413Securities
      issued or secured by financial entities
                    
                    
                    596,792
                    
                    
                    
                    110,263
                    
                    
                    
                    (64
                    )
                    
                    
                    
                    
                    
                    
                    487,898Securities
      issued or secured by government USA
                    
                    
                    2,169,197
                    
                    
                    
                    35,436
                    
                    
                    
                    (27,653
                    )
                    
                    
                    -
                    
                    
                    
                    2,161,414Other
      debt securities
                    
                    
                    1,452
                    
                    
                    
                    144
                    
                    
                    
                    -
                    
                    
                    
                    (95
                    )
                    
                    
                    1,403Total
      Long-term Investments classified as Available for Sale
                    
                    
                    6,104,544
                    
                    
                    
                    696,956
                    
                    
                    
                    (34,191
                    )
                    
                    
                    (485
                    )
                    
                    
                    5,485,861Total
      Available for Sale
                    
                    $
                    7,450,304
                    
                    
                    $
                    879,790
                    
                    
                    $
                    (43,908
                    )
                    
                    $
                    (485
                    )
                    
                    $
                    6,658,505
 
 Aggregated
                                Fair
                                Value
                              
                              
                              Gross
                                Unrecognized
                                Holding
                                Gains
                              
                              
                              Gross
                                Unrecognized
                                Holding
                                Losses
                              
                              
                              Net
                                Carrying
                                AmountLong-term
      Investments- Held to Maturity SecuritiesSecurities
      issued or secured by Colombian government
                              
                              $
                              132,133
                              
                              
                              $
                              993
                              
                              
                              $
                              (2,533
                              )
                              
                              $
                              133,693Securities
      issued or secured by government USA
                              
                              
                              12,436
                              
                              
                              
                              1,129
                              
                              
                              
                              -
                              
                              
                              
                              11,307Other
      debt securities
                              
                              
                              35,829
                              
                              
                              
                              1,733
                              
                              
                              
                              -
                              
                              
                              
                              34,096Total
      Long-term Investments Classified as Held to Maturity
                              
                              $
                              180,398
                              
                              
                              $
                              3,855
                              
                              
                              $
                              (2,533
                              )
                              
                              $
                              179,096
 
 F-66
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 Aggregated
                      Fair
                      Value
                    
                    
                    Gross
                      Unrealized
                      Holding
                      Gains
                    
                    
                    Gross
                      Unrealized
                      Holding
                      Losses
                    
                    
                    Gross
                      Recognized
                      Losses
                    
                    
                    Cost
                      BasisAs of December 31, 2007Short-term
      Investments - Available for Sale Securities:Securities
      issued or secured by Colombian government
                    
                    $
                    60,382
                    
                    
                    $
                    2,084
                    
                    
                    $
                    (1,380
                    )
                    
                    $
                    -
                    
                    
                    $
                    59,678Securities
      issued or secured by government entities
                    
                    
                    1,226,125
                    
                    
                    
                    16,436
                    
                    
                    
                    (11,757
                    )
                    
                    
                    (76,343
                    )
                    
                    
                    1,297,789Securities
      issued or secured by financial entities
                    
                    
                    397,306
                    
                    
                    
                    8,080
                    
                    
                    
                    (3,642
                    )
                    
                    
                    (15,968
                    )
                    
                    
                    408,836Other
      debt securities
                    
                    
                    136,457
                    
                    
                    
                    4,255
                    
                    
                    
                    (496
                    )
                    
                    
                    (8,462
                    )
                    
                    
                    141,160Total
      Short-term Investments Classified as Available for Sale
                    
                    
                    1,820,270
                    
                    
                    
                    30,855
                    
                    
                    
                    (17,275
                    )
                    
                    
                    (100,773
                    )
                    
                    
                    1,907,463Long-term
      Investments - Available for Sale Securities:Securities
      issued or secured by Colombian government
                    
                    
                    63,165
                    
                    
                    
                    1,251
                    
                    
                    
                    (186
                    )
                    
                    
                    -
                    
                    
                    
                    62,101Securities
      issued or secured by government entities
                    
                    
                    2,287,235
                    
                    
                    
                    71,024
                    
                    
                    
                    (27,247
                    )
                    
                    
                    (104,033
                    )
                    
                    
                    2,347,491Securities
      issued or secured by financial entities
                    
                    
                    249,275
                    
                    
                    
                    11,019
                    
                    
                    
                    (1,164
                    )
                    
                    
                    (1,179
                    )
                    
                    
                    240,600Other
      debt securities
                    
                    
                    113,553
                    
                    
                    
                    7,751
                    
                    
                    
                    (1,846
                    )
                    
                    
                    (2,002
                    )
                    
                    
                    109,651Total
      Long-term Investments Classified as Available for Sale
                    
                    
                    2,713,228
                    
                    
                    
                    91,045
                    
                    
                    
                    (30,443
                    )
                    
                    
                    (107,214
                    )
                    
                    
                    2,759,843Total Available for
    Sale
                    
                    $
                    4,533,498
                    
                    
                    $
                    121,900
                    
                    
                    $
                    (47,718
                    )
                    
                    $
                    (207,987
                    )
                    
                    $
                    4,667,306
 
 Aggregated
                          Fair
                          Value
                        
                        
                        Gross
                          Unrecognized
                          Holding
                          Gains
                        
                        
                        Gross
                          Unrecognized
                          Holding
                          Losses
                        
                        
                        Net
                          Carrying
                          AmountLong-term
      Investments- Held to Maturity SecuritiesSecurities
      issued or secured by government entities
                        
                        $
                        82,210
                        
                        
                        $
                        2,766
                        
                        
                        $
                        -
                        
                        
                        $
                        79,444Other
      debt securities
                        
                        
                        59,014
                        
                        
                        
                        2,737
                        
                        
                        
                        (102
                        )
                        
                        
                        56,379Total
      Long-term Investments Classified as Held to Maturity
                        
                        $
                        141,224
                        
                        
                        $
                        5,503
                        
                        
                        $
                        (102
                        )
                        
                        $
                        135,823
  Aggregated
                          Fair
                          Value
                        
                        
                        Gross
                          Unrealized
                          Holding
                          Gains
                        
                        
                        Gross
                          Unrealized
                          Holding
                          Losses
                        
                        Gross
                          Recognized
                          Losses
                        
                        
                        Cost
                          BasisAs
      of December 31, 2006Short-term
      Investments - Available for Sale Securities:Securities
      issued or secured by Colombian government
                        
                        $
                        286,062
                        
                        
                        $
                        1,463
                        
                        
                        $
                        (4,975
                        )
                        
                        $
                        (4,286
                        )
                        
                        $
                        293,860Securities
      issued or secured by government entities
                        
                        
                        473,172
                        
                        
                        
                        7,495
                        
                        
                        
                        (5
                        )
                        
                        
                        (17,690
                        )
                        
                        
                        483,372Securities
      issued or secured by financial entities
                        
                        
                        1,061,510
                        
                        
                        
                        12,290
                        
                        
                        
                        (353
                        )
                        
                        
                        (49,056
                        )
                        
                        
                        1,098,629Other
      debt securities
                        
                        
                        383,146
                        
                        
                        
                        6,215
                        
                        
                        
                        (321
                        )
                        
                        
                        (16,104
                        )
                        
                        
                        393,356Total
      Short-term Investments Classified as Available for Sale
                        
                        $
                        2,203,890
                        
                        
                        $
                        27,463
                        
                        
                        $
                        (5,654
                        )
                        
                        $
                        (87,136
                        )
                        
                        $
                        2,269,217
  F-67
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 Aggregated
                      Fair
                      Value
                    
                    
                    Gross
                      Unrealized
                      Holding
                      Gains
                    
                    
                    Gross
                      Unrealized
                      Holding
                      Losses
                    
                    
                    Gross
                      Recognized
                      Losses
                    
                    
                    Cost
                      BasisLong-term
      Investments - Available for Sale Securities:Securities issued or
      secured by Colombian government
                    
                    $
                    312,137
                    
                    
                    $
                    25,624
                    
                    
                    $
                    (1,995
                    )
                    
                    $
                    (7,848
                    )
                    
                    $
                    296,356Securities issued or
      secured by government entities
                    
                    
                    610,841
                    
                    
                    
                    9,355
                    
                    
                    
                    (37
                    )
                    
                    
                    (33,450
                    )
                    
                    
                    634,973Securities issued or
      secured by financial entities
                    
                    
                    40,954
                    
                    
                    
                    321
                    
                    
                    
                    (22
                    )
                    
                    
                    (1,283
                    )
                    
                    
                    41,938Other debt
      securities
                    
                    
                    4,350
                    
                    
                    
                    72
                    
                    
                    
                    (230
                    )
                    
                    
                    (149
                    )
                    
                    
                    4,657Total
      Long-term Investments Classified as Available for Sale
                    
                    $
                    968,282
                    
                    
                    $
                    35,372
                    
                    
                    $
                    (2,284
                    )
                    
                    $
                    (42,730
                    )
                    
                    $
                    977,924Total Available for
      Sale
                    
                    $
                    3,172,172
                    
                    
                    $
                    62,835
                    
                    
                    $
                    (7,938
                    )
                    
                    $
                    (129,866
                    )
                    
                    $
                    3,247,141Long-term
      Investments- Held to Maturity SecuritiesSecurities issued or
      secured by Colombian government
                    
                    $
                    51,987
                    
                    
                    $
                    1,220
                    
                    
                    $
                    -
                    
                    
                    $
                    50,767Other debt
      securities
                    
                    
                    87,284
                    
                    
                    
                    5,275
                    
                    
                    
                    (12
                    )
                    
                    
                    82,021Total
      Long-term Investments Classified as Held to Maturity
                    
                    $
                    139,271
                    
                    
                    $
                    6,495
                    
                    
                    $
                    (12
                    )
                    
                    $
                    132,788
  The
maturities of fixed-income investments at December 31, 2008 and 2007 are as
follows:
  As of December 31, 2008Available
      for Sale
                                  
                                  
                                  Held
      to MaturityCost Basis
                                  
                                  
                                  Fair Value
                                  
                                  
                                  Cost Basis
                                  
                                  
                                  Fair ValueDue
      in one year or less
                                  
                                  $
                                  1,172,644
                                  
                                  
                                  $
                                  1,345,759
                                  
                                  
                                  $
                                  60,254
                                  
                                  
                                  $
                                  63,986Due
      in one year to five years
                                  
                                  
                                  5,157,100
                                  
                                  
                                  
                                  5,765,696
                                  
                                  
                                  
                                  118,842
                                  
                                  
                                  
                                  116,412Due
      in five years to ten years
                                  
                                  
                                  328,761
                                  
                                  
                                  
                                  338,849
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Total
                                  
                                  $
                                  6,658,505
                                  
                                  
                                  $
                                  7,450,304
                                  
                                  
                                  $
                                  179,096
                                  
                                  
                                  $
                                  180,398As of December 31, 2007Available
      for Sale
                                  
                                  
                                  Held
      to MaturityCost Basis
                                  
                                  
                                  Fair Value
                                  
                                  
                                  Cost Basis
                                  
                                  
                                  Fair ValueDue
      in one year or less
                                  
                                  $
                                  1,907,463
                                  
                                  
                                  $
                                  1,820,270
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Due
      in one year to five years
                                  
                                  
                                  2,534,878
                                  
                                  
                                  
                                  2,501,469
                                  
                                  
                                  
                                  66,522
                                  
                                  
                                  
                                  69,636Due
      in five years to ten years
                                  
                                  
                                  224,965
                                  
                                  
                                  
                                  211,759
                                  
                                  
                                  
                                  69,301
                                  
                                  
                                  
                                  71,588Total
                                  
                                  $
                                  4,667,306
                                  
                                  
                                  $
                                  4,533,498
                                  
                                  
                                  $
                                  135,823
                                  
                                  
                                  $
                                  141,224
  Proceeds
from the sale of investment securities available for sale, gains and losses
resulting from such sales are as follows:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Proceeds
      from sales
                    
                    $
                    6,820,433
                    
                    
                    $
                    805,550
                    
                    
                    $
                    184,954Gains
                    
                    $
                    15,626
                    
                    
                    $
                    747
                    
                    
                    $
                    358Losses
                    
                    $
                    7,901
                    
                    
                    $
                    933
                    
                    
                    $
                    429
  F-68
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Realized
gains and losses on securities available for sale at December 31, 2008, 2007 and
2006 were:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Losses
                    
                    $
                    188,060
                    
                    
                    $
                    27,730
                    
                    
                    $
                    99Gains
                    
                    $
                    48,108
                    
                    
                    $
                    5,219
                    
                    
                    $
                    5,563
 
 Foreign
Exchange Gains and Losses on Securities Available for Sale
 
 Under
Colombian Government Entity GAAP as in effect for 2008, changes in account
balances resulting from changes in foreign currency exchange rates are reflected
in a company’s net income.  Under U.S. GAAP, any change in value of
available-for-sale debt securities as a result of changes in foreign currency
exchange rates is reflected in equity as required under the guidance in Emerging
Issues Task Force 96-15, Accounting for the Effects of Changes in Foreign
Currency Exchange Rates on Foreign-Currency-Denominated Available-for-Sale Debt
Securities (“EITF 96-15”).  The amount reclassified from earnings
under RCP purposes to other comprehensive income for U.S. GAAP purposes includes
$635,430, $37,817 and $(11,590) in 2008, 2007 and 2006,
respectively,  that correspond to exchange rate
differences.
 
 Unrealized
losses disclosure
 
 Available-for-sale
securities in an unrealized loss position as of December 31, 2008, 2007 and 2006
are as follows:
 
 Less
      than 12 months
                    
                    
                    More
      than 12 monthsGross Unrealized Loss
                    
                    
                    Market Value
                    
                    
                    Gross Unrealized Loss
                    
                    
                    Market Value2008
                    
                    $
                    (27,867
                    )
                    
                    $
                    1,258,847
                    
                    
                    $
                    (16,041
                    )
                    
                    $
                    268.8942007
                    
                    $
                    (36,424
                    )
                    
                    $
                    883,748
                    
                    
                    $
                    (11,294
                    )
                    
                    $
                    187,6042006
                    
                    $
                    (3,104
                    )
                    
                    $
                    50,244
                    
                    
                    $
                    (4,830
                    )
                    
                    $
                    472,838
 
 Impairment
 
 Impairment
of security investments is reported differently under RCP and U.S.
GAAP.  Under RCP, impairment is also charged to earnings in the
current period, but recoveries in value can be recorded up to the amount that
was originally impaired.  Under U.S. GAAP, other-than-temporary
impairment should be charged to earnings in the current period and a new cost
basis for the security is established.  Subsequent increases in the
cost basis of an impaired investment as a result of a recovery in fair value are
prohibited.
 
 The
Company has a policy under which they conduct periodic reviews of marketable
securities to assess whether other-than-temporary impairment
exists.  A number of factors are considered in performing an
impairment analysis of securities.  Those factors
include:
 
 a)
              The
      length of time and the extent to which the market value of the security
      has been less than cost;
 
 b)
              The
      financial condition and near-term prospects of the issuer, including any
      specific events which influence the operations of the issuer (such as
      changes in technology that may impair the earnings potential of the
      investment, or the discontinuance of a segment of a business that may
      affect the future earnings potential);
and
 
 c)
              The
      intent and ability of the Company to retain its investment in the issuer
      for a period of time that allows for any anticipated recovery in market
      value.
 
 The
Company also takes into account changes in global and regional economic
conditions and changes related to specific issuers or industries that could
adversely affect these values.
 
 F-69
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 Ecopetrol’s
marketable security portfolio consists only of debt securities, such as
treasuries, bonds, and commercial paper. For this reason, the Company has an
internal policy to limit the ratings of their investments and issuers to the
following ratings:
 
 Credit
      Rating Agency
                        
                        Short-term
      Credit Rating
                        
                        Long-Term
      Credit RatingStandard
      & Poor’s
                        
                        A-1
                        
                        AMoody’s
      Investors Services
                        
                        P-1
                        
                        A2Fitch
      Ratings
                        
                        F-1
                        
                        A
 
 If the
credit rating of an issuer or an investment drops below the aforementioned
limits, the Company must sell the investment within 10
days.  Investment securities were assessed for other than temporary
impairment.  For U.S. GAAP purposes, the Company recognized additional
impairments and recuperations of impairments relating to investment securities
sold. For 2008, a major contributing factor to these losses was the global
financial crisis. For 2007 and 2006 a major contributing factor to these losses
was that Ecopetrol had a large portion of their investments in securities
denominated in U.S. dollars.  The weakening of the U.S. dollar as
compared to the Colombian peso thus forced a lot of these securities into a loss
position.
 
 ii.
              INVESTMENTS
      IN NON-MARKETABLE SECURITIES
 
 a.
              Equity
      Method
 
 Under
Colombian Government Entity GAAP as in effect for 2008, equity securities for
which prices are unquoted, or for which trading volume is minimal, and the
Company does not control the investee, are accounted for under the cost method
and subsequently are valued by the shareholders' equity comparison
method.  Under the equity comparison method, the Company accounts for
the difference between its proportionate share of shareholders' equity of the
investee and its acquisition cost, adjusted for inflation through 2001, in a
separate revaluation account in the assets and equity (revaluation surplus), if
the proportionate share of shareholders’ equity of the investee is higher than
its cost or as an allowance for losses, affecting net income, if the cost is
higher than the proportionate share of shareholders’ equity of the
investee.  The proportionate share of shareholders’ equity is
considered as the market value for this purpose and is known as intrinsic
value.  Under this method, the Company only records dividends as
income when received. From 2008 the RCP incorporated the concept of
significant  influence for the recognition of investments in
associated entities and established the equity method to update these
investments in a manner similar to U.S. GAAP as described
below.  Until 2007 the investments in associates were recognized using
the equity comparison method.
 
 Under
U.S. GAAP, an investment in a non-marketable equity security is recorded using
the equity method when the investor can exercise significant influence over the
investee, or the cost method when significant influence cannot be exercised.
Investments accounted for using the equity comparison method under RCP are
accounted for using the equity method for U.S. GAAP.   Under the
equity method of accounting for U.S. GAAP the carrying value of such an
investment is adjusted to reflect (1) the Company’s proportionate share of
earnings or losses from the investee and (2) additional investments and
distributions of dividends.   The Company’s proportionate share
of income or loss is reported in earnings but any dividends or additional
investments are reported only as an adjustment of the carrying amount of the
investment.  The income tax consequences that the Company would incur
as a result of equity earnings have been reported by the Company as additional
deferred income tax expenses and deferred tax liabilities.
 
 The
differences between the application of the cost and equity comparison methods
under RCP and the equity method under U.S. GAAP were:
 
 ·
              Reversal
      of revaluations and allowances for losses recorded under
    RCP
 ·
              Reversal
      of inflation adjustments recorded under
RCP
 ·
              Inclusion
      of share of earnings or losses under U.S. GAAP, net of intercompany
      eliminations.
 ·
              Inclusion
      of share in other comprehensive income under U.S.
  GAAP.
 
 The
summary of the investments valued by the equity method for U.S. GAAP purposes is
shown in the following table:
 
 F-70
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 For
the Year Ended December 31, 2008
 
 Company
                    
                    Percentage
                      Of Voting
                      Interest
                    
                    
                    Equity
                      Calculated
                      under
                      US GAAP
                    
                    
                    Equity Under
                      Colombian
                      GAAP
                    
                    
                    Assets Under
                      Colombian
                      GAAP
                    
                    
                    Liabilities
                      Under
                      Colombian
                      GAAP
                    
                    
                    Net Income
                      (Loss) Under
                      Colombian
                      GAAP
                    
                    
                    Investment
                      Under US
                      GAAP
                      Equity
                      MethodOleoducto
      de Colombia S.A.
                    
                    
                    44
                    %
                    
                    $
                    3,716
                    
                    
                    $
                    109,967
                    
                    
                    $
                    150,450
                    
                    
                    $
                    40,483
                    
                    
                    $
                    (23.862
                    )
                    
                    $
                    -Invercolsa
      S.A.
                    
                    
                    32
                    %
                    
                    
                    262,856
                    
                    
                    
                    501,896
                    
                    
                    
                    503,194
                    
                    
                    
                    1,298
                    
                    
                    
                    111.773
                    
                    
                    
                    83,496Serviport
      S.A.
                    
                    
                    49
                    %
                    
                    
                    2,909
                    
                    
                    
                    12,768
                    
                    
                    
                    16,092
                    
                    
                    
                    3,324
                    
                    
                    
                    (500
                    )
                    
                    
                    1,425Refinería
      de Cartagena S.A.
                    
                    
                    49
                    %
                    
                    
                    2,276,788
                    
                    
                    
                    2,601,628
                    
                    
                    
                    3,110,642
                    
                    
                    
                    509,014
                    
                    
                    
                    9,478
                    
                    
                    
                    1,115,624Ecodiesel
      S.A.
                    
                    
                    50
                    %
                    
                    
                    11,282
                    
                    
                    
                    15,579
                    
                    
                    
                    63,614
                    
                    
                    
                    48,036
                    
                    
                    
                    76
                    
                    
                    
                    5,641$
                    1,206,186
 
 For
the Year Ended December 31, 2007
 
 Company
                    
                    Percentage
                      of Voting
                      Interest
                    
                    
                    Equity
                      Calculated
                      Under
                      U.S. GAAP
                    
                    
                    Equity Under
                      Colombian
                      GAAP
                    
                    
                    Assets Under
                      Colombian
                      GAAP
                    
                    
                    Liabilities
                      Under
                      Colombian
                      GAAP
                    
                    
                    Net Income
                      (Loss) Under
                      Colombian
                      GAAP
                    
                    
                    Investment
                      Under US
                      GAAP
                      Equity
                      MethodOleoducto
      de Colombia S.A.
                    
                    
                    44
                    %
                    
                    $
                    20,072
                    
                    
                    $
                    121,101
                    
                    
                    $
                    134,271
                    
                    
                    $
                    13,170
                    
                    
                    $
                    (10,714
                    )
                    
                    $
                    -Invercolsa
      S.A.
                    
                    
                    32
                    %
                    
                    
                    178,228
                    
                    
                    
                    425,689
                    
                    
                    
                    586,049
                    
                    
                    
                    57,847
                    
                    
                    
                    58,081
                    
                    
                    
                    56,605Serviport
      S.A.
                    
                    
                    49
                    %
                    
                    
                    3,240
                    
                    
                    
                    13,374
                    
                    
                    
                    16,336
                    
                    
                    
                    2,962
                    
                    
                    
                    (207
                    )
                    
                    
                    1,587Refinería
      de Cartagena S.A.
                    
                    
                    49
                    %
                    
                    
                    1,508,744
                    
                    
                    
                    1,833,758
                    
                    
                    
                    2,273,797
                    
                    
                    
                    440,039
                    
                    
                    
                    (20,790
                    )
                    
                    
                    739,285Ecodiesel
      S.A.
                    
                    
                    50
                    %
                    
                    $
                    14,738
                    
                    
                    $
                    15,502
                    
                    
                    $
                    16,016
                    
                    
                    $
                    514
                    
                    
                    $
                    2
                    
                    
                    
                    7,369$
                    804,846
 
 The
number of shares which the Company owns with respect to its investment in
Invercolsa S. A. has been subject to a legal dispute with another Invercolsa
shareholder.  Numerous court decisions have ruled in favor of both the
Company and the other shareholder, with the final outcome still
unknown.  As a result of these court decisions, the number of shares
owned by the Company has fluctuated, from the current 31.76% to more than
50%.  Consequently, applying appropriate GAAP in both Colombia and the
U.S., which is based on the Company’s percentage ownership of the investee,
would result in different accounting treatment each time a court decision was
handed down.  Therefore, until the final legal outcome is known, the
Company has decided to record the investment under the equity method for US GAAP
purposes, applying the lower percentage owned (31.76%) during all of the years
that the Company has had an ownership interest in Invercolsa S.A.  As
such, the amount of the Company’s investment is adjusted only for its
proportionate share of Invercolsa’s net income or loss and any dividends
received or additional investments made, and no adjustment is made for changes
in Invercolsa’s estimated fair value.
 
 b.
              Variable
      Interest Entity (VIE)
 
 Under
U.S. GAAP, Financial Accounting Standards Board Interpretation (FIN) No. 46(R),
Consolidation of Variable Interest Entities, clarifies the application of ARB
No. 51 to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support.  ARB No. 51 requires that consolidated
financial statements include subsidiaries in which the company has a controlling
financial interest, i.e., a majority voting interest.  Application of
the majority voting interest requirement to certain types of entities may not
identify the party with a controlling financial interest because that interest
may be achieved through other arrangements.  Under FIN No. 46(R), a
company shall consolidate a variable interest entity if that company has a
variable interest that will absorb a majority of the entity’s expected losses,
receive a majority of the entity’s expected residual returns, or
both.  In determining whether it is a primary beneficiary of a
variable interest entity, a company shall treat variable interests in that same
entity held by the company’s related parties as its own
interest.  Under RCP, consolidated financial statements only include
subsidiaries in which the company has the majority voting
interest.  Based on the FIN 46(R) definition, Ecopetrol identified
that its investment in Oleoducto Central S.A. (hereinafter Ocensa), valued at
cost under RCP, should be consolidated as a VIE for U.S. GAAP
purposes.
 
 F-71
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 Ocensa is
a mixed economy company organized in accordance with Colombian laws in December
1994, with a duration expiring in December 2093 and dedicated to designing,
constructing, operating, managing, commercially exploiting and owning an oil
transportation system for public use, without any limitation, including maritime
ports and oil terminals, whose starting point is located in the Cusiana and
Cupiagua oil fields, Department of Casanare, and whose final point is located in
the Coveñas shipment port, in the municipalities of San Antero, Department of
Córdoba and Coveñas, Department of Sucre.  Ocensa is defined as a Port
Company, per Resolution 0155 of March 29, 2000 of the Ports
Superintendency.
 
 Ecopetrol
S.A. owns 35.29% of Ocensa.  Ocensa is a VIE because Ecopetrol
contractually absorbs 60% of the operating expenses of Ocensa through
tariffs.  A minority interest owner is entitled to a cumulative annual
preferred return on its investment amounting to US$16.968892 per share on
1,274,576 shares for a total of US$21,628,142 annually.  The interest
of the preferred owner is 24.71% at December 31, 2008 and 2007 and will revert
to Ecopetrol upon retirement of its investment.
 
 The
summary of Ocensa financial information under USGAAP as of and for the years
ended December 31, 2008, 2007 and 2006 follows:
 
 2008
                    
                    
                    2007
                    
                    
                    2006Assets
                    
                    $
                    1,000,110
                    
                    
                    $
                    1,255,285
                    
                    
                    $
                    1,674,734Liabilities
                    
                    
                    106,447
                    
                    
                    
                    371,907
                    
                    
                    
                    801,369Equity
                    
                    $
                    893,663
                    
                    
                    $
                    883,378
                    
                    
                    $
                    873,365Net
      income (loss)
                    
                    $
                    10,284
                    
                    
                    $
                    33,901
                    
                    
                    $
                    (11,255
                    )
  c.
Cost Method Investments
 
 For
investments in non-marketable securities that the Company has determined should
be accounted for under the cost method in accordance with U.S. GAAP, the
inflation adjustment and the valuation recorded under RCP were
reversed.   The effect is all recorded in shareholders’
equity.
 
 The
following table lists those non-marketable equity investments held by the
Company at December 31, 2008 and 2007 which are accounted for using the cost
method:
 
 December 31, 2008:Investment
                    
                    Number of
                      Shares
                    
                    
                    Participation
                      Percentage
                    
                    
                    CostInterconexión
      Eléctrica S.A. E.S.P.
                    
                    
                    58,925,480
                    
                    
                    
                    6
                    
                    
                    $
                    124,113Empresa
      de Energía de Bogotá S.A. E.S.P
                    
                    
                    6,310,980
                    
                    
                    
                    7
                    
                    
                    
                    151,932Total
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    276,045
  F-72
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 December
      31, 2007:Investment
                      
                      Number
      of
                        Shares
                      
                      
                      Participation
                        Percentage
                      
                      
                      CostInterconexión
      Eléctrica S.A. E.S.P.
                      
                      
                      58,925,480
                      
                      
                      
                      6
                      
                      
                      $
                      124,113Empresa
      de Energía de Bogotá S.A. E.S.P
                      
                      
                      6,310,980
                      
                      
                      
                      7
                      
                      
                      
                      151,932Colombia
      Telecomunicaciones S.A.
                      
                      
                      100
                      
                      
                      
                      -
                      
                      
                      
                      1Total
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      276,046
 
 Under
U.S. GAAP (EITF 03-1), assets held at cost, including non-marketable equity
investments, should be evaluated for impairment if the Company is aware of any
events or changes in circumstances that may have significant adverse effects on
the fair value of the investment.  If the Company believes such
circumstances exist, the Company would estimate the asset’s fair value and
compare that to cost to determine if any impairment is necessary.  The
Company believes no such events or changes in circumstances existed at the
balance sheets dates.  However, the Company used market values
established under RCP to assess impairment of these investments and determined
that they were not impaired.
  iii.
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
 
 Certain
of the Company’s wholly-owned subsidiaries (including a company in which
Ecopetrol had a 99.93% voting participation) were discontinued and completely
liquidated during 2006.  The decision to liquidate these subsidiaries
was made in 1998 and, at the same time, operations ceased.  Pursuant
to PGCP, when a controlled company is liquidated, consolidation is
suspended.  Also, the assets and liabilities of the companies in
liquidation are adjusted to net realizable value.  The financial
statements for 2006, prepared under PGCP, reflect the gains and losses from
these liquidations.
 
 Under
U.S. GAAP, these entities were still subject to consolidation until they were
completely liquidated.  Consequently, an estimate was made of the
amount for which the investment in these companies should have been valued at
the beginning of 2006 to determine the amount of the liquidation that should be
reclassified to retained earnings.  An amount of $136,372 was
reclassified to retained earnings because, under PGCP, gains from the
liquidation of these companies were recorded in 2006, whereas under U.S. GAAP,
gains were recognized in previous years.  Cash received from
liquidations was $128,210.  Accounting for discontinued operations in
2006 for U.S. GAAP was not necessary as the Company ceased operations of the
affected subsidiaries at the time Management made the decision to liquidate in
1998.
  iv.
              DERIVATIVES
 
 Ecopetrol
is exposed to market risk from changes in foreign currency exchange rates,
interest rate risk of its financial obligations and to commodity price risk,
resulting from the fluctuations of international crude oil prices, which affect
its earnings, cash flows and financial condition. Ecopetrol manages
its exposure to these market risks through its regular operating and
financial activities and, when appropriate, through the use of derivative
financial instruments. Ecopetrol has established a control to assess, approve
and monitor derivative financial instrument activities. Ecopetrol does not buy,
hold or sell derivative financial instruments for trading purposes. Ecopetrol's
primary foreign currency exposures relate to the US dollar; however, Ecopetrol
manages its foreign currency risk position internally, using non delivery
forwards, according to the size of the mismatches between its asset-liability
position in US Dollars and its asset-liability position in Colombian pesos.
 If no mismatches occur Ecopetrol has a perfect natural hedge. Ecopetrol
also utilizes other derivative agreements to mitigate changes in the fair value
of commodities.  None of the derivatives qualify for hedge
accounting.
 
 At
December 31, 2006, all of Ecopetrol’s financial debt was at variable rate.
 To cover changes in interest rates, Ecopetrol held two interest rate swap
of contracts.  Accordingly, a change in market interest rates would not
have a material effect on Ecopetrol's interest expense but would affect the fair
value of Ecopetrol's debt.  These swap contracts expired in March 2007 with
no material effect on the financial position.  The Company did not enter
into any commodity forward contracts in 2006.
 
 F-73
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 At
December 31, 2008 and 2007, there were no commodities forward nor interest rate
swaps contracts open.  Total losses incurred in 2008 and 2007 were
$69,903 and $43,696, respectively.
 
 Under
RCP, the difference between the amounts paid and received under these
arrangements is recognized as financial income or expense.  In a swap
arrangement, if the net payment will result in a payment to the counterparty,
this is recorded as interest payable and thus is accrued as a
liability.  If the net payment will result in a payment to be received
from the counterparty this is recorded as interest receivable.  Both
the interest payable and interest receivable resulting from net swap payments
are recorded using current rates for the period.  Commodity forward
contracts are not recorded in the financial statements until
exercised.  Thus, their fair value gains and losses are not separately
recorded in the financial statements.
 
 U.S. GAAP
requires that all derivative instruments are recorded on the balance sheet at
fair value.  Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated to be part of an effective cash-flow hedging
transaction or an effective fair-value hedging
transaction.  Derivative instruments that do not meet the requirements
of either a cash-flow or fair value hedge would be recorded at fair value on the
balance sheet with the fair value gains and losses of the instrument recorded in
the income statement.
 
 Under
U.S. GAAP, embedded derivative instruments shall be separated from the host
contract, and accounted for using different measurement attributes, if certain
conditions are met.  In the case of the Company, some contracts to
which the Company is counterparty include embedded foreign exchange
derivatives.  According to FASB DIG Issue B21, these contracts do not
require separate accounting for the embedded derivative and the host contract
because contract payments are made in the functional currency of a party to the
contract or contract payments are made in a currency in which the price of the
good or service delivered is routinely denominated in international
commerce.
 
 Gas
imbalance agreements were evaluated to identify if they were derivatives.
Management concluded these agreements are not derivatives because they do not
contain notional amounts.
  v.
              EXCHANGE
      OF NON-MONETARY ASSETS
 
 During
2007, the Company exchanged fixed assets with a cost of $234,371 for a 49%
interest in Refinería de Cartagena S.A.  The Company estimated the
fair value of the investment at $1,369,546.   Under RCP, this
difference between the cost of assets given and the fair value of assets
received was recorded as an increase to asset revaluation and
equity.  However, under U.S. GAAP (EITF 01-2), 51% of the difference
between the cost of assets given and the fair value of assets received, which
the Company determined to be a more reliable indicator of the value of the
exchange, was recorded in the results of operations as a gain amounting to
$579,241.  The remaining 49% of the difference, equivalent to $556,236
is to be amortized in the period of depreciation of the
equipment.  The reconciliation also includes $55,623 in 2008 and
$27,812 in 2007 corresponding to the amortization of the deferred
gain.
  vi.
              DEFERRED
      CHARGES
 
 Under
RCP, the Company deferred certain pre-operating expenses and other deferred
charges, which are expensed as incurred under U.S. GAAP.  These
charges include research studies and projects in the research and development
phase.  Normal recurring maintenance is also included in this
category.
  F-74
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 vii.
              EMPLOYEE
      BENEFIT PLANS
 
 Pension,
health care, education and other benefit plans
 
 Under
Colombian Government Entity GAAP, the Company estimates the net present value of
its actuarial liability for all pension and other post-retirement
obligations.  Annually, the Company estimates the net present value of
the actuarial liability and adjusts the recorded liability
accordingly.  The amount of the adjustment is reflected in the
Company’s net income.  Funds are set aside to settle this liability
and are reflected as Pension Plan Assets in the Company’s consolidated balance
sheets as of December 2007. As discussed in Note 17, as of December 31, 2008
those pension plan assets were effectively netted against the corresponding
pension obligation liability.
 
 For other
post-retirement benefits, the payments are made according to seniority and the
salary at the time of retirement, as stipulated in the Collective Labor
Agreement and the Agreement No. 01.
 
 Under the
post-retirement benefits plan for Ecopetrol personnel, the Company covers 90% of
educational expenses for children of employees, including enrollment fees,
tuition and other associated costs.  A fixed annual sum, depending on
grade level, is also provided for the acquisition of
textbooks.  Educational coverage includes kindergarten, elementary
scholl, high school and college.   Ecopetrol ́s financial
statements must also show the cost of post-retirement educational benefits for
children of retired employees, since benefits continue irrespective of
retirement or death.
 
 According
to the Collective Labor Agreement and Agreement No. 1, the Company will pay for
health services for employees and enrolled family members.  Health
services include:  office visits and required laboratory services,
drugs, diagnostic examinations, ambulatory treatment, hospitalization due to
illness or accident, surgery due to illness or accident, maternity and
rehabilitation treatments and orthopedic parts.   Therefore, such
post-retirement health benefit costs, are recorded in the RCP Ecopetrol
financial statements, since retired workers and enrolled family members continue
to receive full medical coverage.  The same is true for deceased
non-retired employees.
 
 U.S. GAAP
requires the recognition of pension, health care and education plans costs based
on actuarial computations under a prescribed methodology which differs from that
used under RCP. For purposes of U.S. GAAP reconciliation, the transition
obligation calculated at the date the Company adopted Statement on Financial
Accounting Standard No. 87, Employers Accounting for Pensions (SFAS 87) is being
amortized from January 1, 1989, for a period of 16.64 years for the pension
plan.  The transition obligation for the education and medical plan is
being amortized from January 1, 1995, for a period of 10.64 years.
 
 In
addition, the Company under Colombian law must pay pension bonds for certain
employees when they leave Ecopetrol. And those bonds payable accrue interest at
the DTF rate, which rate averaged 10.90% for 2008 (8.86 % for 2007 and (7.61 %
for 2006).
 
 The
economic assumptions used in the determination of pension obligations under U.S.
GAAP differ from those used under RCP because the latter are established
annually by the Colombian regulations.
 
 The
combined costs for the above mentioned benefit plans, determined using U.S.
GAAP, for the years ended December 31, 2008, 2007 and 2006 are summarized below:
(all obligations were measured at the year end).
 
 2008
                          
                          
                          2007
                          
                          
                          2006Components of net
                            periodic benefit costs:
                          
                          Pension
                          
                          
                          Other
                            Benefits (*)
                          
                          
                          Total
                          
                          
                          Pension
                          
                          
                          Other
                            Benefits
                            (*)
                          
                          
                          Total
                          
                          
                          Pension
                          
                          
                          Other
                            Benefits
                            (*)
                          
                          
                          TotalService
      cost
                          
                          $
                          57,957
                          
                          
                          $
                          20,549
                          
                          
                          $
                          78,506
                          
                          
                          $
                          58,608
                          
                          
                          $
                          20,352
                          
                          
                          $
                          78,960
                          
                          
                          $
                          54,245
                          
                          
                          $
                          17,550
                          
                          
                          $
                          71,795Interest
      cost
                          
                          
                          861,042
                          
                          
                          
                          787,838
                          
                          
                          
                          1,648,880
                          
                          
                          
                          757,536
                          
                          
                          
                          302,210
                          
                          
                          
                          1,059,746
                          
                          
                          
                          711,394
                          
                          
                          
                          272,072
                          
                          
                          
                          983,466Expected
      Return on plan assets
                          
                          
                          (366,541
                          )
                          
                          
                          (78,806
                          )
                          
                          
                          (445,347
                          )
                          
                          
                          (292,564
                          )
                          
                          
                          (63,184
                          )
                          
                          
                          (355,748
                          )
                          
                          
                          (724,117
                          )
                          
                          
                          (159,300
                          )
                          
                          
                          (883,417
                          )Amortization
      of net (gain) or loss
                          
                          
                          270,231
                          
                          
                          
                          143,337
                          
                          
                          
                          413,568
                          
                          
                          
                          904,528
                          
                          
                          
                          232,876
                          
                          
                          
                          1,137,404
                          
                          
                          
                          214,388
                          
                          
                          
                          48,845
                          
                          
                          
                          263,233Net
      periodic pension cost under U.S. GAAP
                          
                          
                          822,689
                          
                          
                          
                          872,918
                          
                          
                          
                          1,695,607
                          
                          
                          
                          1,428,108
                          
                          
                          
                          492.254
                          
                          
                          
                          1,920,362
                          
                          
                          
                          255,910
                          
                          
                          
                          179,167
                          
                          
                          
                          435,077Net
      periodic pension cost under Colombian GAAP
                          
                          
                          109,530
                          
                          
                          
                          (353,958
                          )
                          
                          
                          (244,428
                          )
                          
                          
                          (526,277
                          )
                          
                          
                          (348,711
                          )
                          
                          
                          (874,988
                          )
                          
                          
                          (474,303
                          )
                          
                          
                          (284,737
                          )
                          
                          
                          (759,040
                          )Difference
      to be recognized under U.S. GAAP
                          
                          $
                          932,219
                          
                          
                          $
                          518,960
                          
                          
                          $
                          1,451,179
                          
                          
                          $
                          901,831
                          
                          
                          $
                          143,543
                          
                          
                          $
                          1,045,374
                          
                          
                          $
                          (218,393
                          )
                          
                          $
                          (105,570
                          )
                          
                          $
                          (323,963
                          )
 (*) Other
benefits include education, health, pension bonds and accrued
severance.
 
 F-75
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 The
changes in the benefit obligations and  in plan assets for the above
mentioned benefit plans, determined using U.S. GAAP, for the years ended
December 31, 2008 and 2007, are summarized below:
 
 Pension
      Plans
                              
                              
                              Other
      Benefits2008
                              
                              
                              2007
                              
                              
                              2008
                              
                              
                              2007Reconciliation
      of projected benefit obligation:Projected
      benefit obligation as of January 1
                              
                              $
                              (8,602,489
                              )
                              
                              $
                              (8,199,691
                              )
                              
                              $
                              (2,865,655
                              )
                              
                              $
                              (2,620,948
                              )Cost
      of service
                              
                              
                              (57,957
                              )
                              
                              
                              (58,608
                              )
                              
                              
                              (20,549
                              )
                              
                              
                              (20,352
                              )Cost
      of interest
                              
                              
                              (861,042
                              )
                              
                              
                              (757,536
                              )
                              
                              
                              (787,838
                              )
                              
                              
                              (302,210
                              )Actuarial
      (gain) loss
                              
                              
                              116,506
                              
                              
                              
                              (45,298
                              )
                              
                              
                              (341,386
                              )
                              
                              
                              (83,411
                              )Benefit
      payments
                              
                              
                              494,843
                              
                              
                              
                              458,644
                              
                              
                              
                              177,386
                              
                              
                              
                              161,266Projected
      benefit obligation as of December 31
                              
                              
                              (8,910,139
                              )
                              
                              
                              (8,602,489
                              )
                              
                              
                              (3,838,042
                              )
                              
                              
                              2,865,655Reconciliation
      of plan assets:Fair
      value of plan assets as of January 1
                              
                              
                              7,815,380
                              
                              
                              
                              7,369,376
                              
                              
                              
                              1,680,294
                              
                              
                              
                              1,591,521Reclassification
      between plan assets
                              
                              
                              216,553
                              
                              
                              
                              -
                              
                              
                              
                              (216,553
                              )
                              
                              
                              -Actual
      return on plan assets
                              
                              
                              964,577
                              
                              
                              
                              362,027
                              
                              
                              
                              207,383
                              
                              
                              
                              63,184Company
      contributions
                              
                              
                              -
                              
                              
                              
                              83,977
                              
                              
                              
                              -
                              
                              
                              
                              18,055Benefits
      paid
                              
                              
                              (494,843
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Actuarial
      (gain) loss
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              7,534Fair
      value of plan assets as of December 31
                              
                              
                              8,501,667
                              
                              
                              
                              7,815,380
                              
                              
                              
                              1,671,124
                              
                              
                              
                              1,680,294Projected
      benefit obligation, as of December 31
                              
                              
                              (479,318
                              )
                              
                              
                              343,371
                              
                              
                              
                              (1,545,629
                              )
                              
                              
                              (850,097
                              )Amounts
      recognized in other comprehensive income (loss)
                              
                              
                              70,846
                              
                              
                              
                              (1,130,480
                              )
                              
                              
                              (621,289
                              )
                              
                              
                              (335,264
                              )Net
      liability
                              
                              
                              (408,472
                              )
                              
                              
                              (787,109
                              )
                              
                              
                              (2,166,918
                              )
                              
                              
                              (1,185,361
                              )Net
      liability under RCP
                              
                              
                              -
                              
                              
                              
                              (119,583
                              )
                              
                              
                              (2,011,576
                              )
                              
                              
                              (1,133,620
                              )Net
      effect under pension plan and other benefits
                              
                              $
                              (408,472
                              )
                              
                              $
                              (667,526
                              )
                              
                              $
                              (155,342
                              )
                              
                              $
                              (51,741
                              )
 
 Net
liability of employee benefit plans is classified as follows:
 
 Pension Plans
                    
                    
                    Other Benefits
                    
                    
                    Total2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Current
      portion
                    
                    $
                    -
                    
                    
                    $
                    (102,920
                    )
                    
                    $
                    (210,294
                    )
                    
                    $
                    (160,806
                    )
                    
                    $
                    (210,294
                    )
                    
                    $
                    (263,726
                    )Long-term
      portion
                    
                    
                    (408,472
                    )
                    
                    
                    (684,189
                    )
                    
                    
                    (1,956,624
                    )
                    
                    
                    (1,031,854
                    )
                    
                    
                    (2,365,096
                    )
                    
                    
                    (1,716,043
                    )Net
      liability
                    
                    $
                    (408,472
                    )
                    
                    $
                    (787,109
                    )
                    
                    $
                    (2,166,918
                    )
                    
                    $
                    (1,192,660
                    )
                    
                    $
                    (2,575,390
                    )
                    
                    $
                    (1,979,769
                    )
 
 For U.S.
GAAP purposes, plan assets are shown net of the pension
obligations.  There are no differences between the fair value of plan
assets under RCP and U.S. GAAP.
  Under
U.S. GAAP, the Company applies the provisions of Statement on Financial
Accounting Standard No. 87, as amended by Statement on Financial Accounting
Standard No. 132(R), Employers Disclosure about Pension and Other
Post-retirement Benefits, an amendment to FASB Statements No. 87, 88 and
106".  The Company adopted Statement on Financial Accounting Standard
No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans (SFAS 158) effective January 1, 2006, in respect of its
defined benefits pension, health and education plans.  This standard
requires the Company to recognize the overfunded or underfunded status of each
of its defined benefit pension and other postretirement benefit plans as an
asset or liability and to reflect changes in the funded status through
Accumulated Other Comprehensive Income, as a separate component of shareholders’
equity.  The actuarial calculations are estimated at year end
dates.
 
 F-76
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  As of
December 31, 2008 and 2007, the amounts recognized in the balance sheet related
to pension, health, education and severance obligations consist of:
  2008
                    
                    
                    2007Long-term
      liabilityPension
                    
                    $
                    408,472
                    
                    
                    $
                    684,189Health
                    
                    
                    1,586,115
                    
                    
                    
                    23,456Education
                    
                    
                    365,169
                    
                    
                    
                    -Bonds
                    
                    
                    5,340
                    
                    
                    
                    1,008,398Total
      long-term liability
                    
                    $
                    2,365,096
                    
                    
                    $
                    1,716,043
 
 As of
December 31, 2008 and 2007, the amounts recognized in accumulated other
comprehensive loss, related to pension, health and education obligations consist
of:
  2008
                    
                    
                    2007Other
      comprehensive incomeActuarial
      income (loss)Pension
                    
                    $
                    70,849
                    
                    
                    $
                    (1,130,480
                    )Health
                    
                    
                    (1,747,418
                    )
                    
                    
                    (209,690
                    )Education
                    
                    
                    (464.764
                    )
                    
                    
                    (125,574
                    )Bonds
                    
                    
                    1,590,890
                    
                    
                    
                    -Total
      other comprehensive income (loss)
                    
                    
                    (550,443
                    )
                    
                    
                    (1,465,744
                    )Deferred
      income tax effect
                    
                    
                    181,646
                    
                    
                    
                    483,696Total
                    
                    $
                    (368,797
                    )
                    
                    $
                    (982,048
                    )
 
 The
Company expects the following amounts in other comprehensive income to be
recognized as components of net periodic pension cost during 2009:
 
 Health
                    
                    $
                    1,566,924Education
                    
                    $
                    425,167
 
 For the
pension plan obligation there was a gain of $ 116,506 during
2008.   The outstanding cumulative gain at December 31, 2008 was
$ 70,846. Since this accumulated gain is less than 10% of the projected benefit
obligation or the pension assets, no amortization charge in necessary for
2009.
 
 For the
medical plan, there was a liability loss of $ 299,495 during
2008.  The outstanding cumulative loss at December 31, 2008 was $
1,747,418.   Since this accumulated loss is greater than 10% of
the accumulated post-retirement benefit obligation or the plan assets, an
amortization charge of $ 1,566,924 is necessary for 2009.
 
 For the
education plan, there was a liability loss of $ 41,891 during
2008.  The outstanding cumulative loss at December 31, 2008 was $
464,731. Since this accumulated loss is greater than 10% of the accumulated
post-retirement benefit obligation or the pension assets, an amortization charge
of $ 425,167 is necessary for 2009.
 
 The
economic assumptions adopted are shown below in nominal terms. Those assumptions
used in determining the actuarial present value of the pension obligation and
the projected pension obligations for the plan years were as
follows:
 2008
                    
                    
                    2007Pension
                    
                    
                    Health
                    
                    
                    Education
                    
                    
                    Pension
                    
                    
                    Health
                    
                    
                    EducationDiscount
      rate
                    
                    
                    11.98
                    %
                    
                    
                    11.98
                    %
                    
                    
                    11.98
                    %
                    
                    
                    10.29
                    %
                    
                    
                    10.29
                    %
                    
                    
                    10.29
                    %Rate
      of compensation and pension increases.
                    
                    
                    9.67
                    %
                    
                    
                    8.67
                    %
                    
                    
                    7.67
                    %
                    
                    
                    6.71
                    %
                    
                    
                    7.20
                    %
                    
                    
                    5.69
                    %Expected
      rate of return
                    
                    
                    4.69
                    %
                    
                    
                    4.69
                    %
                    
                    
                    4.69
                    %
                    
                    
                    3.97
                    %
                    
                    
                    3.97
                    %
                    
                    
                    3.97
                    %Mortality
      table
                    
                    
                    
                    *
                    
                    
                    
                    *
                    
                    
                    
                    *
                    
                    
                    
                    *
                    
                    
                    
                    *
                    
                    
                    
                    *
  F-77
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 *
Colombian mortality table ISS, male and female, 1981-1989.
 
 The rate
of return on the pension fund during 2008 was 12.59%, and the cost of living
during the same period reached a value of 7.67%, bringing the actual rate of
return, to 4.57%.  However, bearing in mind that a new mortality table
in 2009 is expected to indicate a decrease, a discount rate of 11.89%,
corresponding to an actual discount rate of approximately 4%, is considered
reasonable.
 
 Estimated
future benefit payments
 
 The
benefit payments, which reflect expected future service, as appropriate, are
expected to be paid as follows:
 
 Period
                    
                    Pension Benefits
                    
                    
                    Health Care
                      Benefits
                    
                    
                    Education Benefits2009
                    
                    $
                    498,459
                    
                    
                    $
                    138,558
                    
                    
                    $
                    61,1722010
                    
                    
                    506,616
                    
                    
                    
                    130,456
                    
                    
                    
                    48,7072011
                    
                    
                    495,288
                    
                    
                    
                    125,581
                    
                    
                    
                    46,1372012
                    
                    
                    483,758
                    
                    
                    
                    120,822
                    
                    
                    
                    42,8482013
                    
                    
                    472,171
                    
                    
                    
                    116,301
                    
                    
                    
                    39,805Years
      2014 – 2018
                    
                    
                    1,594,906
                    
                    
                    
                    380,148
                    
                    
                    
                    110,645
 
 All of
the benefits estimated in the table above are to be paid from plan
assets.  The Company does not have any insurance policies that are
intended to cover benefits that plan participants are to receive.
 
 Furthermore,
at the current time the company does not intend to contribute to the fund in the
upcoming fiscal year. Management believes that the plan assets will provide for
a return sufficient to cover any payments that are necessary to be made in the
upcoming year.
 
 Assumed
health care cost trend rates have an effect on the amounts reported for the
health care plans.  A one percentage point change in assumed health
care cost trend rates would have the following effects:
 
 1% Percentage PointIncrease
                          
                          
                          DecreaseEffect
      on total of service and interest cost
                          
                          $
                          21,229
                          
                          
                          $
                          14,852Effect on postretirement benefit
      obligation
                          
                          $
                          2,013,264
                          
                          
                          $
                          1,629,896
  Plan
assets
  Pension,
health care and education benefits, are covered by assets in a single fund with
the following investment allocation:
  2008
                    
                    
                    2007Government
      securities
                    
                    
                    64
                    %
                    
                    
                    66
                    %Private
      bonds
                    
                    
                    13
                    %
                    
                    
                    9
                    %Foreign
      currency
                    
                    
                    3
                    %
                    
                    
                    5
                    %Other
                    
                    
                    20
                    %
                    
                    
                    20
                    %100
                    %
                    
                    
                    100
                    %
  The plan
assets do not contain any shares of stock of Ecopetrol or any of its related
parties.
 
 F-78
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  In 2007,
the Company was in the process of outsourcing administration of its pension plan
to a third party (known as a partial transfer.)  As a result of this
process, under RCP, the discount rate was reduced from 4.8% to 4.0%, the effect
of which was an additional pension liability of $869,927. For U.S. GAAP
purposes, the provision was reversed, because the partial transfer is not a
settlement, as defined by SFAS 88. For U.S, GAAP purposes, the Company used the
discount rate in accordance with SFAS 87 to prepare its actuarial
calculation.  The amount reversed at December 31, 2007 and 2006 was
$869,927.
 
 As a
result of the process mentioned above, on October 28, 2008 the Ministry of
Finance and Public Credit approved the partial transfer (“commutation”) of the
pension obligation of the Company, which was then approved by the Ministry of
Social Security, according to the actuarial calculation at December 31, 2008 in
the amount of $10,092,528. Because Ecopetrol continues to be financially
responsible for the transferred pension liability, this amount is recognized in
the same way for US GAAP purposes.
  viii.
              PROVISIONS,
      ALLOWANCES AND CONTINGENCES
  Prior to
September 5, 2007, under RCP, a provision was recorded for a contingent event at
the time a judgment was issued against the Company, without reference to the
evaluation of the probable final outcome.  On September 5, 2007, the
CGN issued Resolution 356 which provides that a provision was to be recorded for
a contingent event if the evaluation of the outcome was evaluated to be
probable.  Such methodology evolved in 2008 to be based on the “credit
system” of the Nation used by the Ministry of the Interior
and  Justice. Up to October 31, 2008, Ecopetrol recognized the
provisions by the methodology it had been using in the past.  The term
probable as used was interpreted in practice under RCP to mean
“more-likely-than-not”.  As a result, the provision for legal
processes included in Estimated Liabilities and Provisions was increased by
$951,158 during 2007 to reflect the implementation of the new
rule.  Additionally, the amount at which the provision is valued under
RCP is the estimated amount of the loss at the end of the year. In 2008, the
modification of the methodology generated a net decrease (recoveries and new
provisions) of $425,376, recorded in December 2008.
 
 For U.S.
GAAP, Statement of Financial Accounting Standards No. 5, Accounting for
Contingencies (“SFAS 5”), provides the guidance for recording
contingencies.  Under SFAS 5, there are three levels of assessment of
contingent events – probable, reasonably possible and remote.  The
term probable in SFAS 5 is defined as “the future event or events are likely to
occur”.  The term reasonably possible is defined as “the chance of the
future event or events occurring is more than remote but less than
likely”.  And the term remote is defined as “the chance of the future
event or events occurring is slight”.
 
 Under
SFAS 5, an estimated loss related to a contingent event is to be accrued by a
charge to income if both of the following conditions are met:
 
 ·
              Information
      available prior to issuance of the financial statements indicates that it
      is probable that an asset had been impaired or a liability had been
      incurred at the date of the financial
  statements.
 ·
              The
      amount of loss can be reasonably
estimated.
 
 The
amount recorded is an estimate of the amount of loss at the date of the
financial statements.  If the contingent event is evaluated to be
reasonably possible, no provision for the contingent event may be made, but
disclosure of the event is required.
 
 As a
result of the difference in the definition of “probable” between RCP and U.S.
GAAP, and the general interpretation of the definition in practice in Colombia,
there is a difference in the amount of the provision for legal
proceedings.  This difference increased significantly during 2007 as a
result of the rule change issued by the CGN.  Additionally, in 2008
and 2007, there was a difference in the amount at which the provision for loss
is recorded, as described above.
 
 F-79
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  In 2007,
the Company received a claim from a provider of natural gas transportation
services for tariffs due in accordance with the terms of their
contract.  The contract called for Ecopetrol to reimburse this
provider for any increase in related tariffs that arose due to changes in tax
law in Colombia.  The tariffs were increased several years ago and
Ecopetrol had not reimbursed this provider for this expense.  Under
RCP, the Company recorded the charge for this expense, and a related liability,
in 2007, the year the Company became aware of the claim.  For U.S.
GAAP purposes, the Company restates its prior years’ financial statements to
record this expense in those periods when the tariff expense should have been
recognized.  Thus, the 2006 and 2007 U.S. GAAP financial statements
reflect the liability and the effect of the prior period adjustment in retained
earnings.  The difference in the timing of when this expense was
recognized under RCP as compared to U.S. GAAP results in a reconciling item in
net income in 2007 and 2006.  This adjustment increased (reduced) net
income by $2,537 and ($303) in 2007 and 2006, respectively.
  ix.
              DEFERRED
      INCOME TAXES
  Under
RCP, deferred income taxes are generally recognized only for temporary
differences arising from the income statement.  Under U.S. GAAP,
deferred tax assets or liabilities must be recorded for all temporary
differences between the financial and tax bases of assets and
liabilities.  A valuation allowance is provided for deferred tax
assets to the extent that it is more likely than not that they will not be
realized.
  The
Company and its subsidiaries file separate income tax returns because the tax
regulations do not allow consolidated income tax returns.  There are
no requirements to file tax returns by segments.  Tax returns are
required for each legal entity.
  The
following information regarding income taxes has been prepared under U.S.
GAAP:
  Income
Taxes
  Total
income taxes for the years ended December 31, 2008, 2007 and 2006 were
comprised as follows:
  2008
                      
                      
                      2007
                      
                      
                      2006Income
      tax expense
                      
                      $
                      4,579,304
                      
                      
                      $
                      2,544,590
                      
                      
                      $
                      1,136,722Income
      tax effects based on items of Other Comprehensive Income:Pension
      Plan Liability
                      
                      
                      (302,050
                      )
                      
                      
                      358,277
                      
                      
                      
                      356,002Available-for-sale
      securities
                      
                      
                      (236,974
                      )
                      
                      
                      (6,364
                      )
                      
                      
                      (11,646
                      )$
                      4,040,280
                      
                      
                      $
                      2,896,503
                      
                      
                      $
                      1,481,078
  Income
tax expense attributable to income from continuing operations consists
of:
  2008
                                
                                
                                2007
                                
                                
                                2006Current
      provision
                                
                                $
                                3,648,451
                                
                                
                                $
                                2,045,997
                                
                                
                                $
                                1,535,088Deferred
      tax
                                
                                
                                930,853
                                
                                
                                
                                498,593
                                
                                
                                
                                (398,366
                                )$
                                4,579,304
                                
                                
                                $
                                2,544,590
                                
                                
                                $
                                1,136,722
  In 2008,
2007 and 2006, subsidiaries in foreign countries have not generated taxable
income and, consequently, they have not incurred income tax
expense.
  F-80
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Tax Rate
Reconciliation
  Income
tax expense attributable to income from continuing operations was $4,579,304,
$2,544,590 and $1,136,722 for the years ended December 31, 2008, 2007 and
2006, respectively, and differed from the amounts computed by applying the
income tax rate of 33% in 2008, 34% in 2007 and 38.5% in 2006 to pretax income
from continuing operations as a result of the following:
 2008
                    
                    
                    2007
                    
                    
                    2006Nominal
      income tax
                    
                    
                    33.00
                    %
                    
                    
                    34.00
                    %
                    
                    
                    38.50
                    %Non
      – taxable income
                    
                    
                    (1.09
                    )%
                    
                    
                    (0.89
                    )%
                    
                    
                    (7.75
                    )%Non
      – deductible expenses
                    
                    
                    3.56
                    %
                    
                    
                    1.14
                    %
                    
                    
                    1.52
                    %Effect
      of contribution in kind
                    
                    
                    0.00
                    %
                    
                    
                    (1.69
                    )%
                    
                    
                    (11.77
                    %Others
                    
                    
                    1.94
                    %
                    
                    
                    0.08
                    %
                    
                    
                    (3.67
                    )%Exempt
      revenue
                    
                    
                    (3.29
                    )%
                    
                    
                    (3.37
                    )%
                    
                    
                    (3.80
                    )%Changes
      in tax rate
                    
                    
                    0.00
                    %
                    
                    
                    0.10
                    %
                    
                    
                    1.60
                    %Effect
      of foreign profit taxed at other rate
                    
                    
                    (0.02
                    )%
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %Effective
      income tax under U.S. GAAP
                    
                    
                    34.10
                    %
                    
                    
                    29.21
                    %
                    
                    
                    14.63
                    %
 
 Non –
taxable income in 2006 includes FAEP and a prior year adjustment related to
deferred income taxes under RCP.
 
 Deferred
Taxes
  The
significant components of deferred income tax expense attributable to income
from continuing operations for the years ended December 31, 2008, 2007 and
2006 are as follows:
  2008
                    
                    
                    2007
                    
                    
                    2006Deferred
      income tax expense (exclusive of the effects of other
      components below):Accounts
      payable
                    
                    $
                    8,192
                    
                    
                    $
                    111,514
                    
                    
                    $
                    (36,028
                    )Inventories,
      principally due to inflation adjustments
                    
                    
                    (14,554
                    )
                    
                    
                    (54,565
                    )
                    
                    
                    14,480Property,
      plant and equipment, principally due to DD&A and inflation
      adjustments
                    
                    
                    521,649
                    
                    
                    
                    190,536
                    
                    
                    
                    (690,432
                    )Deferred
      charges
                    
                    
                    (70,630
                    )
                    
                    
                    379,099
                    
                    
                    
                    230,904Capital
      lease asset
                    
                    
                    10,488
                    
                    
                    
                    50,820
                    
                    
                    
                    53,997Monetary
      Correction and other
                    
                    
                    (39,573
                    )
                    
                    
                    377,656
                    
                    
                    
                    (23,066
                    )Investment
                    
                    
                    655,164
                    
                    
                    
                    175,221
                    
                    
                    
                    -Direct
      finance lease
                    
                    
                    -
                    
                    
                    
                    (461,312
                    )
                    
                    
                    (32,288
                    )Estimated
      liabilities and provisions
                    
                    
                    (106,139
                    )
                    
                    
                    75,919
                    
                    
                    
                    (178,861
                    )Accounts
      and notes receivable
                    
                    
                    (19,110
                    )
                    
                    
                    (431,134
                    )
                    
                    
                    48,744Labor
      obligations
                    
                    
                    51,299
                    
                    
                    
                    13,305
                    
                    
                    
                    -Deferred
      income
                    
                    
                    (156,470
                    )
                    
                    
                    -
                    
                    
                    
                    -Natural
      and environmental resources due to inflation adjustments
      and capitalized expenses
                    
                    
                    (11,979
                    )
                    
                    
                    (26,418
                    )
                    
                    
                    38,990Valuation
      allowance
                    
                    
                    2,063
                    
                    
                    
                    8,083
                    
                    
                    
                    -Additional
      tax discount on the acquisition of productive assets according to EITF
      98-11
                    
                    
                    637,418
                    
                    
                    
                    462,676
                    
                    
                    
                    169,569Other
                    
                    
                    (4
                    )
                    
                    
                    1,645
                    
                    
                    
                    (8,319
                    )1,467,814
                    
                    
                    
                    873,044
                    
                    
                    
                    (412,310
                    )
  F-81
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 2008
                    
                    
                    2007
                    
                    
                    2006Amortization
      of actuarial loss recorded in OCI
                    
                    
                    (302,050
                    )
                    
                    
                    (375,343
                    )
                    
                    
                    (114,637
                    )Unrealized
      loss in available for sale securities
                    
                    
                    (236,974
                    )
                    
                    
                    (7,428
                    )
                    
                    
                    2,728Adjustment
      to deferred tax assets and liabilities for enacted changes in
      tax  laws and rates
                    
                    
                    -
                    
                    
                    
                    8,399
                    
                    
                    
                    123,635Increase
      (decrease) in beginning-of-the-year balance of the
      revaluation  allowance for deferred income tax
      assets
                    
                    
                    2,063
                    
                    
                    
                    (79
                    )
                    
                    
                    2,218$
                    930,853
                    
                    
                    $
                    498,593
                    
                    
                    $
                    (398,366
                    )
 
 The
adjustment to deferred tax assets and liabilities for enacted changes in tax
laws and rates includes amounts of $7,812 relating to the December 31,
2006, enactments of tax reform legislation.  This legislation reduced
the corporate income tax rate as indicated above.  The Company
recognized the impact of the future rate changes in 2006, the year of enactment
of the legislation.
 
 The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31 and 2008
and 2007 are presented below:
  2008
                    
                    
                    2007Deferred
      income tax assets and liabilitiesDeferred
      income tax assets:Inventories
                    
                    $
                    79,650
                    
                    
                    $
                    65,096Investments,
      principally due to inflation adjustments
                    
                    
                    1,598,571
                    
                    
                    
                    33,147Accounts
      and notes receivable
                    
                    
                    12,686
                    
                    
                    
                    -Deferred
      income
                    
                    
                    156,470
                    
                    
                    
                    -Property,
      plant and equipment, principally due to DD&A and  inflation
      adjustments
                    
                    
                    933,028
                    
                    
                    
                    1,454,677Deferred
      charges
                    
                    
                    178,021
                    
                    
                    
                    107,391Financial
      obligation, principally due to capitalized leasing
                    
                    
                    162,112
                    
                    
                    
                    172,600Pension
      obligations
                    
                    
                    186,059
                    
                    
                    
                    237,358Accounts
      payable
                    
                    
                    113,592
                    
                    
                    
                    121,784Other
                    
                    
                    4
                    
                    
                    
                    -Estimated
      liabilities and provisions
                    
                    
                    679,466
                    
                    
                    
                    573,327Total
      gross deferred income tax assets
                    
                    
                    4,099,659
                    
                    
                    
                    2,765,380Less
      valuation allowance
                    
                    
                    (10,146
                    )
                    
                    
                    (8,083
                    )Deferred
      income tax assets
                    
                    
                    4,089,513
                    
                    
                    
                    2,757,297
  F-82
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 2008
                  
                  
                  2007Deferred
      income tax liabilitiesAccounts
      and notes receivable
                  
                  
                  6
                  
                  
                  
                  6,430Natural
      and environmental properties due to inflation adjustments
      and  capitalized expenses
                  
                  
                  181,011
                  
                  
                  
                  192,990Monetary
      correction and other
                  
                  
                  490,210
                  
                  
                  
                  529,783Investments
                  
                  
                  2,224,572
                  
                  
                  
                  3,984Deferred
      income tax liabilities
                  
                  
                  2,895,799
                  
                  
                  
                  733,187Net
      deferred income tax assets
                  
                  $
                  1,193,714
                  
                  
                  $
                  2,024,110
 
 The
valuation allowance for deferred income tax assets as of December 31, 2008 and
2007 was $10,146 and $8,083, respectively. The valuation allowance was primarily
related to the effect on income tax related to inflation adjustments of lands
that, in the judgment of management, are not more likely than not to be realized
because lands are not depreciated and there are no plans to sell these
lands.  In assessing the realizability of deferred income tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized.  The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible.  Management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income, and tax planning strategies in
making this assessment.  Based upon the level of historical taxable
income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more likely than
not that the Company will realize the benefits of these deductible differences,
net of the existing valuation allowances, at December 31,
2008.
  x.
              REVENUE
      RECOGNITION
 
 a.1
              FAEP
 
 The
Colombian government created and regulated in Law 209 of 1995 the savings and
stabilization fund for the oil sector (Fondo de Ahorro y Estabilización
Petrolera, or FAEP) with the exclusive dual purpose of fiscal savings and
macroeconomic stabilization, and government management of overseas
accounts.  The law required the Company to defer a certain portion of
cash received in U.S. dollars from sales to third parties into
FAEP.  Banco de la República (Colombian Central Bank) acted as the
portfolio manager of the funds and monies were withdrawn in accordance with the
formula specified in the law.
  Under
RCP, contributions to FAEP were recorded as increases to deferred income and an
asset account for the same amount.  No revenue was recognized for
contributions to FAEP despite the completion of a sale.  Distributions
out of the fund were recorded as revenue, with corresponding decreases in the
deferred income and the FAEP asset accounts.  The amount of income
that was deferred under RCP and the cash deposited into the Fund through
December 31, 2005 amounted to $3,187,887.  In 2006, an additional
$774,160 was deferred and an equivalent amount was deposited into the fund; and
an exchange loss of $117,880 was recorded in the fund.  In 2007, an
additional $316,497 was deferred and an equivalent amount was deposited into the
fund; and an exchange loss of $97,127 was recorded in the
fund.  During 2007, the Colombian government issued Law 1151 of 2007
by means of Decree 3238 of August 27, 2007, which rescinded Law 209 of 1995 and
declared that Ecopetrol’s contributions to the fund and not previously
distributed to the Company pursuant to Law 209 belonged to the Colombian
government.  The total amount remitted to the Government was
$4,063,537.
 
 F-83
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 Until
December 31, 2007, the amount of the deferred income was recognized for U.S.
GAAP purposes, considering that this deferral responded to a Government saving
program with the purpose of maintaining macro-economic stability in the country
and that the transaction with the third party was complete.  Further,
the effective receipt by the Government of the fund balance in August 2007 was
treated as a distribution to its sole shareholder under U.S. GAAP.
  b.1
              Natural
      Gas Imbalance
  For US
GAAP purposes, the Company utilizes the entitlement method of accounting for
natural gas balancing arrangements, by which the amount of natural gas sold is
based on its shared interest in the properties.  The Company’s natural gas
imbalance positions at December 31, 2008 and 2007 were $8,755 and $5,838 in
favor, equivalent to 777,790 MBTU and 1,052,182 MBTU,
respectively.  Under RCP, natural gas imbalances are settled with a
purchase or sale to the partner and are accounted for at the end of each
period.
  b.2
              Over
      and Under
  For U.S.
GAAP purposes, the company utilizes the entitlement method of accounting for
over and under positions by which the amount of crude oil sold is based on its
shared interest in the properties.  The company’s crude oil imbalance
position at December 31, 2008 was $32,576 against Ecopetrol and, at December 31,
2007 was $155,638 in favor equivalent to 360,730 and 923,134 barrels,
respectively. Under RCP the Company recognizes receivables from or payables to
partners based on the cost of the inventory.  Under U.S. GAAP, revenue
and cost of sales were recognized based on market prices.
  b.3
              Cost
      of Sales
  The
related cost of sales for Over and Under transactions described in b.1 and b.2
above amounted to $152,375 for 2006 while during 2008, 2007 the effect
represented an additional  recognition under US GAAP of $(8,887) and
$16,607, respectively, in comparison with the amount recognized under
RCP.
  c.
              Exchange
      Losses
  For U.S.
GAAP purposes, the Company recognized exchange losses originated from FAEP
funds. Under PGCP, exchange losses on FAEP funds were offset with deferred
income. Exchange losses were $97,127 in 2007 and $117,880 in 2006.
  xi.
              INFLATION
      ADJUSTMENTS
  The RCP
consolidated financial statements were adjusted for inflation based on the
variation in the IPC (Colombia’s equivalent to the consumer price index in the
United States) for middle income-earners, from January 1, 1992, to December 31,
2001. The adjustment was applied monthly to non-monetary assets, equity (except
for the valuation surplus) and memorandum accounts.
  Financial
statements are only adjusted for inflation under U.S. GAAP when an entity
operates in a hyperinflationary environment. The environment in which the
Company has operated has not been hyperinflationary since the early
1990’s.    For this reason, inflation adjustments recorded
from 1992 until 2001 that remained as part of the cost of assets have been
excluded for U.S. GAAP purposes.
  xii.
              INVENTORIES
  Under
RCP, inventories are valued at the lower of average cost or sale
price.  Under U.S. GAAP, inventories are valued at the lower of
average cost or market value, the determination of which can be made using
several different methods acceptable under U.S. GAAP.  An adjustment
has been recorded to reflect the difference in the method used to determine the
valuation of inventories that arises from using sale price instead of market
value, as defined by U.S. GAAP. The effects of this adjustment in the
reconciliation of income were $10,274, $(67,089) and $(9,731) in 2008, 2007 and
2006, respectively.
  Inventories
are also affected by the effect of adjustments to cost of sales included in this
reconciliation note. These adjustments relate to depreciation, expenses
capitalized in property, plant and equipment, asset retirement cost and
impairment of long lived assets. The effects of these adjustments in the
reconciliation of equity and the corresponding effect in inventory were
$(66,570) and $(76,844) in 2008 and 2007 respectively.
  F-84
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 xiii.
              LEASE
      ACCOUNTING
 
 Under
both RCP and U.S. GAAP, lessees’ accounting for capital leases and operating
leases are identical.  However, the tests used to determine if a lease
is a capital or an operating lease differs between RCP and U.S.
GAAP.  In applying the tests in accordance with RCP, the Company has
determined that all leases are operating leases.  Under U.S. GAAP some
of these leases should be accounted for as capital leases in accordance with
Statement on Financial Accounting Standard No.13, Accounting for Leases (SFAS
13).  As a result, adjustments were recorded to reflect the related
assets and liabilities, and to recognize interest expense and de-recognize
operating expenses associated with the lease payments.
 
 Build,
Operate, Maintain and Transfer (BOMT)
 
 Three
original leases that were accounted for as capital leases under U.S. GAAP are
BOMT contracts, the use of which are specifically required under Colombian law
for projects that involve the building, operating, maintaining and transferring
of natural gas pipelines for the transportation of natural gas.  These
contracts had original terms of 20 years, no renewal provisions, and a purchase
option.  The rights to the leased assets were subsequently transferred
to a related company (ECOGAS) that was sold, but Ecopetrol was not relieved of
the primary obligation under the original lease.  This transfer was
considered a sublease accounted for as a direct finance lease.
 
 As of
December 31, 2006, the amounts outstanding under the sublease were:
 
 Gross
      investment
                    
                    $
                    2,435,804Unearned
      income
                    
                    
                    1,038,799Net
      investment in the lease
                    
                    $
                    1,397,005
 
 In 2007,
Ecopetrol received a prepayment of all amounts to be received during the term of
the sublease contract.
 
 The
outstanding amount of rentals, excluding operation and maintenance, payable
under the BOMT obligations that were not relieved during the next years follows
for these three leases:
 
 Year
                        
                        USD(thousands)
                        
                        
                        Pesos2009
                        
                        
                        34
                        
                        
                        $
                        74,7962010
                        
                        
                        31
                        
                        
                        
                        69,6822011
                        
                        
                        20
                        
                        
                        
                        45,0362012
                        
                        
                        18
                        
                        
                        
                        41,1422013
                        
                        
                        17
                        
                        
                        
                        38,798Payments
      after  2013
                        
                        
                        61
                        
                        
                        
                        135,913181
                        
                        
                        $
                        406,367
 
 Embedded
Leasing
 
 Under
RCP, there is no requirement to identify whether the arrangements or contracts
contain leases.
 
 Under US
GAAP, an arrangement contains a lease if both of the following two criteria are
met:
 
 1.
              The
      arrangement depends on a specific fixed asset, either identified
      contractually or implicitly identified as no alternative item could
      feasibly be used.
 
 2.
              The
      purchaser has the right to control the use of the underlying fixed asset,
      such control demonstrated by the existence of any of the following
      qualitative conditions:
 
 a)
              The
      purchaser can operate the asset or direct others to operate the asset
      while obtaining or controlling more than a minor amount of the asset’s
      output;
 
 F-85
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 b)
              The
      purchaser can control physical access to asset while obtaining or
      controlling more than a minor amount of the asset’s output;
    or
 c)
              Probability
      is remote that another party will get more than minor amount of the
      asset’s output and the price is not fixed per
  unit.
 
 Under
U.S. GAAP, if the arrangement contains a lease, SFAS 13 is applied by both
purchaser and supplier for recognition, measurement, classification and
disclosure purposes.
 
 In the
case of the Company, it was determined that there were leases included in
various contracts.  The most significant embedded lease was determined
to exist in Contract DIJ 970 (Transmetano), Natural gas transportation -
Sebastapol – Medellín pipeline.
  The
contractor is entitled to receive natural gas at the designated point, and it is
also obligated along with the Company to transport the product throughout the
pipeline and bring it to the delivery point (conducting up to 67 million cubic
feet per day).  The contract has duration of 15 years, and could be
extended for periods of 1 year, not longer than 10 years. Leasing payments
include the costs of transportation, administration, operation and pipeline
maintenance.
  This
contract meets the criteria of Emerging Issues Task Force 01-08, Determining
Whether an Arrangement Contains a Lease (EITF 01-08) in order to be considered a
lease agreement. Similarly, according to SFAS 13, the contract meets the
criteria to be recognized as a capital lease.  At December 31, 2008
and 2007, the capitalized amount and the related liability are as
follows:
  2008
                    
                    
                    2007AssetsProperty,
      plant and equipment
                    
                    $
                    83,245
                    
                    
                    $
                    83,245Accumulated
      depreciation
                    
                    
                    (61,046
                    )
                    
                    
                    (55,497
                    )Net
      value
                    
                    $
                    22,199
                    
                    
                    $
                    27,748Liabilities:Financial
      obligations
                    
                    $
                    77,513
                    
                    
                    $
                    80,991
 
 The
following table shows the net present value (in thousands of dollars) of the
lease payments for the next 5 years:
  Year
                            
                            USD (thousands)
                            
                            
                            Pesos2009
                            
                            
                            7
                            
                            
                            $
                            15,0602010
                            
                            
                            8
                            
                            
                            
                            17,7382011
                            
                            
                            9
                            
                            
                            
                            20,6872012
                            
                            
                            11
                            
                            
                            
                            24,02735
                            
                            
                            $
                            77,513
  Other
minor contracts contained capital leases that were adjusted under U.S.
GAAP.
 
 xiv.
              PRIOR
      YEAR ADJUSTMENTS
 
 In
accordance with RCP, adjustments of previously issued financial statements shall
be included in the net income of the period in which they are
discovered.  These adjustments do not have any impact on the income
tax because they cannot be considered a deduction in the period in which they
are discovered.  Under U.S. GAAP, when comparative statements are
presented, corresponding adjustments shall be made of the amounts of net income,
its components, retained earnings balances, and other affected balances for all
of the periods presented to reflect the retroactive application of the prior
period adjustments.  Prior year adjustments were classified in the
year they were incurred as defined by U.S. GAAP.
  F-86
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  xv.
              PROPERTY,
      PLANT AND EQUIPMENT
  Under
RCP, property, plant and equipment is recorded at cost, adjusted for inflation
until 2001.  Cost includes administrative expenses until 2004,
financial expenses and exchange differences from foreign currency financing
until the asset is placed in service.  Normal disbursements for
maintenance and repairs are charged to expense and those significant costs that
improve efficiency or extend the useful life are capitalized.  Under
U.S. GAAP, cost includes expenditures until the asset is placed in service such
as installation cost, freight, interest, retirement cost; construction cost and
other direct expenses are capitalized, with exception of adjustment for
inflation and foreign currency loss.  For U.S. GAAP purposes,
administrative expenses capitalized were eliminated from property, plant and
equipment.  In addition, a deferred income tax asset resulted from the
application of the provisions of EITF 98–11, Accounting for Acquired Temporary
Differences in Certain Purchase Transactions That Are Not Accounted for as
Business Combinations, because this investment creates an additional tax
deduction of 40% in 2008 and 2007 and 30% in previous years.
 
 Revaluation
of property, plant and equipment and public accounting effect
  Valuation
surplus of property, plant and equipment and public accounting effect correspond
to the difference between net book value and the market value for real estate or
the current value in use for plant and equipment, determined by
specialists.  These accounts are reflected as Valuations and as
Valuation Surplus from reappraisals of assets and public accounting effect
(components of equity) in the Company’s consolidated balances
sheets.  The last valuation was in December 2006.  Technical
appraisals are valid for three years.
 
 Under
U.S. GAAP valuation, valuation surplus of assets and public accounting effect
are not permitted.
  Impairment
  Under
RCP, technical appraisals for property, plant and equipment are performed at
least every three years.  If the technical study is lower than the
carrying value, the difference is recorded in equity as a reduction of the
property, plant and equipment carrying value even if it reduces the valuation
surplus below zero.  Under U.S. GAAP, in accordance with FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), property, plant, and equipment are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.  If circumstances require a
long-lived asset to be tested for possible impairment, the Company first
compares undiscounted cash flows expected to be generated by the asset to the
carrying value of the asset.  If the carrying value of the long-lived
asset is not recoverable on an undiscounted cash flow basis, impairment is
recognized to the extent that the carrying value exceeds its fair
value.  Fair value is determined through various valuation techniques
including discounted cash flow models, quoted market values and third-party
independent appraisals, as considered necessary.  For U.S. GAAP
purposes, the Company reviewed property, plant and equipment for impairment as
of December 31, 2008, 2007, 2006 and recorded impairment losses when
required.  For US GAAP purposes, the Company recorded in 2008, 2007
and 2006 $121,296, $65,137 and $12,241, respectively, as additional impairment
charges to reduce the net book value of certain wells and pipelines to their
estimated values.
 
 The
following table reflects the net changes in capitalized exploratory wells during
2008, 2007 and 2006 and does not include amounts that were capitalized and
subsequently expensed during the same period.
 
 2008
                    
                    
                    2007
                    
                    
                    2006Beginning
      balance at January 1
                    
                    $
                    206,300
                    
                    
                    $
                    113,200
                    
                    
                    $
                    107,400Additions
      to capitalized exploratory well cost
                    
                    
                    268,041
                    
                    
                    
                    288,910
                    
                    
                    
                    85,254Reclassifications
      to wells, facilities and equipment based on the determination of proved
      reserves
                    
                    
                    (163,817
                    )
                    
                    
                    (113,900
                    )
                    
                    
                    (42,500
                    )Capitalized
      exploratory well cost charged to expense
                    
                    
                    (92,111
                    )
                    
                    
                    (81,910
                    )
                    
                    
                    (36,954
                    )Ending
      balance at December 31
                    
                    $
                    218,413
                    
                    
                    $
                    206,300
                    
                    
                    $
                    113,200
 
 The
balances at December 31, 2008, 2007 and 2006 correspond to well costs
capitalized during the years ended at those dates.
 
 F-87
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  xvi.
              DEPRECIATION,
      DEPLETION AND AMORTIZATION
  Under
RCP, all tangible equipment, including those used in the production of crude oil
and natural gas, is depreciated on a straight-line basis over the related
estimated useful lives.  Intangible crude oil and natural gas assets
reflected on the Company’s consolidated balance sheets as natural and
environmental resources are depleted on a units-of-production basis. Under U.S.
GAAP, all assets, including tangible equipment, used in crude oil and natural
gas producing activities are required to be depreciated or depleted using a
units-of-production method, using proved reserves calculated in accordance with
U.S. GAAP requirements.  Therefore, an adjustment to net income per
U.S. GAAP has been recorded to account for the difference in depreciation,
depletion and amortization expense based on the above-described differences in
the methods used.
 
 xvii.
              ASSET
      RETIREMENT OBLIGATIONS
 
 Under
RCP, the Company annually updates an analysis of the estimated liability for
future asset retirement obligations as of each balance sheet
date.  The liability is adjusted to the current value and an
offsetting amount is recorded as an adjustment to the asset cost.  To
the extent that elements of the liability originate in U.S. dollars, changes in
the foreign currency rates are included in the adjustment to the liability and
the related asset.  The component of the asset cost resulting from
this liability is included in the depreciable base of the related
asset.
 
 For
purposes of U.S. GAAP reporting, the Company follows the provisions of Statement
of Financial Accounting Standards No. 143 Accounting for Asset Retirement
Obligations (SFAS 143), as amended.  SFAS 143 requires the Company to
recognize a liability for the present value of all legal obligations associated
with the retirement of tangible, long-lived assets as of the date the related
asset was placed into service, and capitalize an equal amount as an additional
cost of the asset.  Each period the liability is accreted using an
effective interest rate method.  The accretion is included as an
operating expense.  The cost associated with the abandonment
obligation, is included in the computation of depreciation, depletion and
amortization.
 
 An
adjustment has been recorded in the consolidated financial statements to reflect
accretion expense, and the related obligation and assets in accordance with SFAS
143.
 
 The
following table presents the changes in abandonment obligations for 2008 and
2007 as is required by SFAS 143.
 
 2008
                  
                  
                  2007Balance
      at beginning of period
                  
                  $
                  980,082
                  
                  
                  $
                  900,826Liabilities
      incurred in the current period
                  
                  
                  25,902
                  
                  
                  
                  60,864Liabilities
      revised
                  
                  
                  122,005
                  
                  
                  
                  1,193Liabilities
      settled
                  
                  
                  (3,120
                  )
                  
                  
                  (1,193
                  )Accretion
                  
                  
                  195,191
                  
                  
                  
                  18,392Balance
      at end of period
                  
                  $
                  1,320,058
                  
                  
                  $
                  980,082
  xviii.
              EQUITY
      CONTRIBUTIONS
 
 a.
              INCORPORATED
      INSTITUTIONAL EQUITY
 
 At the
end of association contracts that were signed prior to January 1, 2004, private
companies are required to transfer, without cost, to Ecopetrol, all producing
wells, facilities and other real estate and assets acquired in executing the
contracts. Under RCP, the Company accounts for the receipt, using the
relinquishing company’s reported historical cost, by recording an increase to
assets and equity.  The assets are then depreciated in accordance with
the Company’s previously disclosed accounting policies.  For U.S. GAAP
reporting purposes, these balances and their related impacts on accumulated
depreciation, depletion and amortization, and cost of production have been
removed from the financial statements, based on the fact that the cost of these
assets is zero.  The adjustment to conform to U.S. GAAP in 2008 was a
reduction in equity of $60,907 (original value of $94,414 net of $33,507 of
accumulated depreciation of the assets received). The adjustment to conform to
U.S. GAAP in 2007 was a reduction in equity of $82,124 (original value of
$91,779 net of $9,655 of accumulated depreciation of the assets
received).
 
 F-88
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 b.
              CONTRIBUTIONS
      IN KIND
 
 Under
RCP, contributions of Nation in Kind established by Decree 2625 of 2000 were
recognized as a cost of production during the years that the Decree was in
force, by increasing equity.  Contributions in kind established by
Decree 2625 of 2000 were estimated based on the number of oil barrels extracted
at market price in situ.  Under U.S. GAAP, costs associated with these
contributions were reverted as they were transactions between entities under
common control in which the transferor had no basis in the
investment.
 
 c.
              REVERSION
      OF CONCESSION RIGHTS CONTRIBUTED AS
CAPITAL
 
 Under
RCP, the Company recorded as reservoirs the contributions of the Nation
represented by crude oil and natural gas reserves deriving from the reversion of
concessions of oilfield areas in favor of the Nation, given before the
effectiveness of  Decree 1760 of 2003.  Reserves were valued
by means of the technical-economic model where the value per barrel resulted
from the relation of the net present value obtained at a discount rate and the
total proved reserves on the contribution date.
 
 For U.S.
GAAP purposes, these reversions were considered a transfer of assets between
entities under common control. Ecopetrol, the entity that received the net
assets, recognized the assets transferred at their carrying amounts in the
accounts of the transferring entity at the date of transfer which was zero
value.   The unamortized amount reverted at December 31, 2008 and
2007 was $121,459 and $145,576, respectively.
 
 xix.
                PUBLIC
      OFFERING COSTS
 
 In August
2007, the Company issued shares in an initial public offering in
Colombia.  Under RCP, all related costs of this issuance were expensed
as well as a discount granted to shares fully paid in cash.  For U.S.
GAAP purposes, direct costs incurred in public offerings and cash discounts are
recorded as a reduction of the proceeds received and, consequently, a reduction
in equity.  An adjustment in the amount of $242,885 was recorded to
recognize the effect of these amounts in 2007.
 
 xx. 
BUSINESS COMBINATIONS
 
 Purchase
method of accounting
 
 In regard
to a business combination, the purchase method of accounting under U.S. GAAP
requires that (i) the purchase price be allocated to the identifiable acquired
assets and liabilities on the basis of fair market value, (ii) the statement of
operations of the acquiring company for the period in which a business
combination occurs include the income of the acquired company after the date of
acquisition, and (iii) the costs directly related to the purchase of a business
combination be included as a cost of the acquisition and, therefore, recorded as
a component of goodwill.
 
 In regard
to a business combination, the method of accounting under RCP requires that (i)
the purchase price be allocated to the acquired assets and liabilities on the
basis of their book value, (ii) the statement of operations of the acquiring
company for the period in which a business combination occurs include the income
of the acquired company after the date of acquisition, and (iii) the costs
directly related to the purchase business combination not be considered as a
cost of the acquisition, but deferred and amortized over a reasonable period as
determined by management.
 
 In 2008
Ecopetrol acquired 100% of outstanding common shares of Andean Chemical Ltd.
Which owned 50.10% of Polipropileno del Caribe S.A (Propilco) and 79.14% of
Bioenergy S.A. Ecopetrol also directly acquired the rest of Propilco’s equity,
to become the sole owner of this Company. The purchase price before cash
received was $1,267,283 for Propilco and $11,104 for Bioenergy,
respectively.
 
 F-89
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 The
following table summarizes the estimated fair value of the assets acquired and
liabilities assumed of Propilco and Bioenergy (Consolidated) at date of
acquisition:
 
 Fair value of assets acquired and liabilities assumed
                      under USGAAP during 2008
                    
                    Propilco
                    
                    
                    Bioenergy
                    
                    
                    TotalAssets
      acquired
                    
                    $
                    506,013
                    
                    
                    $
                    6,845
                    
                    
                    $
                    512,858Property,
      plant and equipment, net
                    
                    
                    389,992
                    
                    
                    
                    7,315
                    
                    
                    
                    397,307Liabilities
      assumed
                    
                    
                    (250,944
                    )
                    
                    
                    (12,080
                    )
                    
                    
                    (263,024
                    )Net
      Assets Acquired
                    
                    
                    645,061
                    
                    
                    
                    2,080
                    
                    
                    
                    647,141Total
      purchase price net of cash received
                    
                    
                    1,263,678
                    
                    
                    
                    11,073
                    
                    
                    
                    1,274,751Goodwill
                    
                    $
                    618,617
                    
                    
                    $
                    8,993
                    
                    
                    $
                    627,610
  The
following unaudited pro forma information for 2008 and 2007 reflects the
consolidated results of operations as if the acquisition of Propilco and
Bioenergy had occurred at the beginning of each year presented and includes the
amortization of excess of cost over fair value of acquired net assets, as
appropriate. The unaudited pro forma financial information presented is not
necessarily indicative of the results of operations that might have occurred had
the transaction been completed at the beginning of the year specified and does
not purport to represent what the consolidated results might be for any future
period.
 
 Propilco S.A and Bioenergy S.A. Unaudited
                    
                    2008
                    
                    
                    2007U.S.
      GAAP Net income
                    
                    $
                    8,884,571
                    
                    
                    
                    6,233,753Revenues
                    
                    $
                    35,216,876
                    
                    
                    
                    24,038,635Earnings
      per share
                    
                    $
                    219.52
                    
                    
                    
                    168.83
  a.
              Goodwill
  Propilco
  Under
U.S. GAAP, goodwill is not amortized, but it is subject to an annual impairment
test.
  Under
RCP, goodwill derived from business combinations is amortized over a maximum
period of 20 years. The resulting goodwill from the acquisition of Propilco was
recorded as other assets and is amortized on a monthly basis in the
administrative expenses account over a term of 17 years and 8 months, determined
based on the net present value of the investment, minus the estimated future
cash flows. The straight line method of amortization was applied to the
goodwill, which will be reviewed and updated annually based on the actual
results and future projections applied to the investments. The Company did not
perform an impairment test of goodwill as a result of its recent acquisition.
Accordingly, Ecopetrol reversed $27,512 corresponding to the amortization of
goodwill under RCP.
  The
goodwill was assigned to the refining activities segment.
 
 b.
              Fair
      value of assets and liabilities
acquired
 
 The
condensed balance sheet allocates fair value adjustments to each of the
respective assets and liabilities. Propilco is a provider of resins and
propylene products and services in Colombia. As a result of the acquisition,
Ecopetrol is expected to be the leading provider of resins y propylene products
and services in this market. It also expects to reduce costs through economies
of scale.
 
 F-90
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 xxi.
                EARNINGS
      PER SHARE
 
 Under
RCP, earnings per share ("EPS") are calculated by dividing net income by the
weighted average of both common and preferred shares outstanding for each period
presented.  The Company does not have any issued or outstanding
preferred shares.
 
 U.S. GAAP
requires dual presentation of basic and diluted EPS for entities with complex
capital structures, as well as a reconciliation of the basic EPS calculation
with the diluted EPS calculation. Basic EPS is calculated by dividing net income
available to common shareholders by the weighted average of common shares
outstanding for the corresponding period.
 
 Diluted
EPS assumes the issuance of common shares for all dilutive potential common
shares outstanding during the reporting period. For the years ended December
31,2008, 2007 and 2006, the Company had a simple capital
structure.  Therefore, the Company is not required to present diluted
EPS for these years.
 
 The
following table summarizes information related to the computation of basic EPS
for the years ended December 31, 2008, 2007 and 2006
 
 2008
                        
                        
                        2007
                        
                        
                        2006U.S.
      GAAP consolidated net income
                        
                        $
                        8,841,883
                        
                        
                        $
                        6,144,685
                        
                        
                        $
                        6,636,424Weighted
      average number of common shares outstanding
                        
                        
                        40,472,512,588
                        
                        
                        
                        36,922,352,491
                        
                        
                        
                        36,384,788,800Basic
      and Diluted earnings per share U.S. GAAP (in pesos)
                        
                        $
                        218.47
                        
                        
                        $
                        166.42
                        
                        
                        $
                        182.40
 
 xxii.
              CONCENTRATIONS
 
 At
December 31 2008, 2007 and 2006, 33%, 26.6% and 28.5%, respectively, of the
Company’s employees belong to unions.  Management believes the
Company’s relationships with those unions are good.  The current labor
agreement with the union is up for renewal on June 8, 2009.
 
 In 2006,
two customers of the refinery segment accounted for 16.4% and 16.3% of total
sales, respectively.  No other customers accounted for more than 10%
of total sales in 2006.  In 2007, two customers of the refinery
segment accounted for 14.2% and 12.9%, and one customer of the production
segment accounted for 13.4% of total sales, respectively. No other customers
accounted for more than 10% of total sales in 2007. In 2008, one customer of the
production segment accounted for 14.2% and one customer of the refinery segment
accounted for 11.7% of the total sales. No other customers accounted for more
than 10% of total sales in 2008.
 
 The
significant majority of the Company’s assets and activities are located in
Colombia.  The financial position and results of operations of those
subsidiaries located outside of Colombia are not material to the
Company.
 
 xxiii.
              RECENT
      U.S. GAAP PRONOUNCEMENTS
 
 In
December 2007, the FASB issued FASB Statement No. 141(R), Business Combinations, and
FASB Statement No. 160, Non controlling Interests in
Consolidated Financial Statements – an amendment to ARB No. 51.
Statements 141(R) and 160 require most identifiable assets, liabilities,
non controlling interests, and goodwill acquired in a business combination
to be recorded at “full fair value” and require non controlling interests
(previously referred to as minority interests) to be reported as a component of
equity, which changes the accounting for transactions with non controlling
interest holders. Both Statements are effective for periods beginning on or
after December 15, 2008, and earlier adoption is prohibited. Statement 141(R)
will be applied to business combinations occurring after the effective date.
Statement 160 will be applied prospectively to all non controlling
interests, including any that arose before the effective date. Almost all of the
Company’s subsidiaries are wholly owned, so the adoption of Statement 160 is not
expected to impact its financial position and results of operations and Minority
Interest will be reclassified into equity.
 
 F-91
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 In
February 2008, the FASB issued FASB Staff Position FAS 140-3, “Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions.” The
objective of the FSP is to provide guidance on accounting for a transfer of a
financial asset and repurchase financing. The FSP presumes that an initial
transfer of a financial asset and a repurchase financing are considered part of
the same arrangement (linked transaction) under Statement 140. However, if
certain criteria are met, the initial transfer and repurchase financing shall
not be evaluated as a linked transaction and shall be evaluated separately under
Statement 140. FSP FAS 140-3 is effective for annual and interim periods
beginning after November 15, 2008 and early adoption is not permitted. The
Company is currently evaluating the provisions of this standard, but does not
expect adoption to have a material impact on its financial position and results
of operations.
  In March
2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133.  Statement 161 requires entities that utilize derivative
instruments to provide qualitative disclosures about their objectives and
strategies for using such instruments, as well as any details of
credit-risk-related contingent features contained within
derivatives.  Statement 161 also requires entities to disclose
additional information about the amounts and location of derivatives located
within the financial statements, how the provisions of Statement 133 have been
applied, and the impact that hedges have on an entity’s financial position,
financial performance, and cash flows.  Statement 161 is effective for
fiscal years and interim periods beginning after November 15,
2008.  The Company is currently evaluating the impact of Statement 161
on the disclosures about its hedging activities and use of
derivatives.
  In April
2008, the FASB issued FASB Staff Position FAS 142-3, “Determination of the
Useful Life of Intangible Assets.” FSP FAS 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under Statement 142. FSP
FAS 142-3 is effective for fiscal years beginning after December 15, 2008.
The Company is currently evaluating the impact, if any, of adopting FSP FAS
142-3 on its financial position and results of operations.
  In June
2008, the FASB’s Emerging Issues Task Force reached a consensus on EITF Issue
No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to
an Entity’s Own Stock.” This EITF Issue provides guidance on the determination
of whether such instruments are classified in equity or as a derivative
instrument. The Company is currently evaluating the impact, if any, of adopting
EITF 07-5 on its financial position and results of operations.
 
 In
November 2008, the FASB’s Emerging Issues Task Force reached a consensus on EITF
Issue No. 08-6, “Equity Method Investment Accounting Considerations”.EITF 08-6 continues to
follow the accounting for the initial carrying value of equity method
investments in APB Opinion No. 18, The Equity Method of Accounting for
Investments in Common Stock,which is based on a cost accumulation model
and generally excludes contingent consideration. EITF 08-6 also specifies that
other-than-temporary impairment testing by the investor should be performed at
the investment level and that a separate impairment assessment of the underlying
assets is not required.  An impairment charge by the investee should
result in an adjustment of the investor’s basis of the impaired asset for the
investor’s pro-rata share of such impairment. In addition, EITF 08-6 reached a
consensus on how to account for an issuance of shares by an investee that
reduces the investor’s ownership share of the investee. An investor should
account for such transactions as if it had sold a proportionate share of its
investment with any gains or losses recorded through earnings. EITF 08-6 also
addresses the accounting for a change in an investment from the equity method to
the cost method after adoption of Statement 160. EITF 08-6 affirms the existing
guidance in APB 18, which requires cessation of the equity method of accounting
and application of FASB Statement No. 115, Accounting for Certain Investments
in Debt and Equity Securities,or the cost method under APB 18, as
appropriate.  EITF 08-6 is effective for transactions occurring on or
after December 15, 2008. We do not anticipate that the adoption of EITF 08-6
will materially impact the Company’s financial position or results of
operations.
 
 In
December 2008, the FASB issued FASB Staff Position FAS 132(R)-1, “Employers’
Disclosures about Postretirement Benefit Plan Assets.” FSP FAS 132(R)-1 provides
guidance on an employer’s disclosures about plan assets of a defined benefit
pension or other postretirement plan. FSP FAS 132(R)-1 also includes a technical
amendment to FASB Statement No. 132(R), effective immediately, which requires
nonpublic entities to disclose net periodic benefit cost for each annual period
for which a statement of income is presented. The disclosures about plan assets
required by FSP FAS 132(R)-1 must be provided for fiscal years ending after
December 15, 2009. The Company is currently evaluating the impact of the
FSP on its disclosures about plan assets.
 
 F-92
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 On
December 31, 2008, the Securities and Exchange Commission issued its final rule
“Modernization of Oil and Gas Reporting”, which revises the disclosures required
by oil and gas companies. The SEC disclosures requirements for oil and gas
companies have been updated to include expanded disclosure for oil and gas
activities, and certain definitions have also been changed that will impact the
determination of oil and gas reserve quantities. The provisions of this final
rule are effective for registration statements filed on or after January 1,
2010, and for annual reports for fiscal years ending on or after December 31,
2009. The Company is currently evaluating the impact, on its financial position
and results of operations.
  In May
2009, the FASB issued FASB Staff Position FAS 165 “Subsequent Events”. This
Statement should be applied to the accounting for and disclosure of subsequent
events. This Statement does not apply to subsequent events or transactions that
are within the scope of other applicable generally accepted accounting
principles that provide different guidance on the accounting treatment for
subsequent events or transactions. This Statement would apply to both interim
financial statements and annual financial statements. In accordance with this
Statement, an entity should apply the requirements to interim or annual
financial periods ending after June 15, 2009.
 
 xxiv.
              RECENTLY
      ADOPTED ACCOUNTING STANDARDS
 
 In
September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement
(SFAS 157). Statement 157 defines fair value, establishes a framework for the
measurement of fair value, and enhances disclosures about fair value
measurements.  The Statement does not require any new fair value
measures.  The Statement (as amended by FSP FAS 157-2) is effective
for fair value measures already required or permitted by other standards for
fiscal years beginning after November 15, 2007. Statement 157 is required to be
applied prospectively, except for certain financial instruments.  Any
transition adjustment will be recognized as an adjustment to opening retained
earnings in the year of adoption.  FSP FAS 157 – 2, “Effective Date of
FASB Statement No. 157”, delays the effective date of Statement 157 for
non-financial assets and liabilities that are not measured at fair value on a
recurring basis (at least annually) until fiscal years beginning after November
15, 2008, and interim periods within those fiscal years. Disclosures required by
statement 157 are presented below in xxvii.
 
 On
February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”. This statement provides companies
with an option to report selected financial assets and liabilities at fair
value. The statement’s objective is to reduce both complexity in accounting for
financial instruments and the volatility in earnings caused by measuring related
assets and liabilities differently. The statement also establishes presentation
and disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities.
 SFAS No.
159 requires companies to provide additional information that will help
investors and other users of financial statements to more easily understand the
effect of the company’s choice to use fair value on its earnings. It also
requires entities to display the fair value of those assets and liabilities for
which the company has chosen to use fair value on the face of the balance sheet.
The statement does not eliminate disclosure requirements included in other
accounting standards, including requirements for disclosures about fair value
measurements included in SFAS No. 157 and in SFAS No. 107 “Disclosures about
Fair Value of Financial Instruments” (disclosed in Note xxvii).
 
 xxv.
              SEGMENT
      INFORMATION
 
 The
following segment information has been prepared in accordance with Statement on
Financial Accounting Standard No. 131, Disclosure about Segments of an
Enterprise and Related Information (SFAS 131).  Financial information
by business segment is reported in accordance with the internal reporting system
under RCP and shows internal segment information that is used by the chief
operating decision maker to manage and measure the performance of
Ecopetrol.
 
 F-93
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 For this
Annual Report, Ecopetrol S.A. performed a review of its business segments and
has changed the presentation of segment information. The major changes
correspond to:
 
 ·
              The
      crude oil and natural gas revenues and the corresponding distribution
      costs are allocated within the exploration and production segment based on
      prices atthe
      field; revenues and costs beyond that price correspond tothe market supply
      segment.
 ·
              The
      Market Supply segment included previously in all other is being disclosed
      as a result of its significance due to the above distribution of revenues
      and costs.
 ·
              The
      revenues of crude oil and natural gas derived from inter-segment sales are
      determined at market prices.
 ·
              Some
      costs and expenses were distributed from the corporate segment to the
      other segments.
 
 The
information for 2007 and 2006 has been updated to reflect these
changes.
 
 The
Company operates under the following segments, which are described as
follows:
  Exploration
and Production — this segment includes the Company’s exploration and production
activities of oil & gas. Revenue is derived from the sale of crude oil and
natural gas to inter-company segments, at market prices, and to third parties.
Revenue is derived from local sales of crude oil, regulated fuels, non-regulated
fuels and natural gas. Sales are made to local and foreign distributors. Costs
include those costs incurred in production. Expenses include all exploration
costs that are not capitalizable.
 
 Refining
Activities — this segment includes the Company’s refining activities. Goods
sold, both internally and to third parties, include refined products such as
motor fuels, fuel oils and petrochemicals at market prices. This segment also
includes sales of industrial services to third parties.
 
 Transportation
— this segment includes the Company’s sales and costs associated with the
Company’s pipelines and other transport activities.
 
 Market
supply – this segment includes the Company’s revenues, costs and expenses
associated with distribution.
 
 Corporate
—   Includes the financial results and other activities not
included in the previous segments, and all corporate financial management and
overhead related with the Company’s central administration.  It also
includes actuarial expenses related with the pension and health-care plans for
pensioned participants.
  These
functions have been defined as the operating segments of the Company because
they are the segments (a) that engage in business activities from which revenues
are earned and expenses are incurred; (b) whose operating results are regularly
reviewed by the Company's chief operating decision maker to allocate resources
to the segments and assess their performance; and (c) for which discrete
financial information is available.  Internal transfers represent
sales to intercompany segments and are recorded and presented at market
prices.
 
 The
following presents the Company’s balance sheet by segment in accordance with
RCP:
   As
of December 31, 2008
 
 Exploration &
                    Production
                  
                  
                  Refining
                    Activities
                  
                  
                  Transporting
                  
                  
                  Market and
                    Supply
                  
                  
                  Corporate
                  
                  
                  TotalCurrent
      assetsCash
      and cash equivalents
                  
                  $
                  29,621
                  
                  
                  $
                  25,702
                  
                  
                  $
                  205,423
                  
                  
                  $
                  1
                  
                  
                  $
                  1,853,056
                  
                  
                  $
                  2,113,803Accounts
      and notes receivable
                  
                  
                  889,324
                  
                  
                  
                  713,242
                  
                  
                  
                  108,034
                  
                  
                  
                  3,195
                  
                  
                  
                  4,163,487
                  
                  
                  
                  5,877,282Inventories
                  
                  
                  695,998
                  
                  
                  
                  514,696
                  
                  
                  
                  1,609
                  
                  
                  
                  312,697
                  
                  
                  
                  86,296
                  
                  
                  
                  1,611,296Investments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,749,919
                  
                  
                  
                  3,749,919Other
      current assets
                  
                  
                  1,311,415
                  
                  
                  
                  567,679
                  
                  
                  
                  224,437
                  
                  
                  
                  1,573
                  
                  
                  
                  247,496
                  
                  
                  
                  2,352,6002,926,358
                  
                  
                  
                  1,821,319
                  
                  
                  
                  539,503
                  
                  
                  
                  317,466
                  
                  
                  
                  10,100,254
                  
                  
                  
                  15,704,900
 
 F-94
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 Exploration &
                      Production
                    
                    
                    Refining
                      Activities
                    
                    
                    Transporting
                    
                    
                    Market and
                      Supply
                    
                    
                    Corporate
                    
                    
                    TotalInvestments
      in unconsolidated companies
                    
                    
                    636,010
                    
                    
                    
                    1,307,996
                    
                    
                    
                    48,221
                    
                    
                    
                    7,790
                    
                    
                    
                    404,678
                    
                    
                    
                    2,404,695Property,
      plant and equipment, net
                    
                    
                    11,532,444
                    
                    
                    
                    2,624,998
                    
                    
                    
                    1,858,477
                    
                    
                    
                    13,260
                    
                    
                    
                    102,358
                    
                    
                    
                    16,131,537Pension
      Plan assets
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Other
      non current assets
                    
                    
                    3,748,875
                    
                    
                    
                    2,256,078
                    
                    
                    
                    884,312
                    
                    
                    
                    37,319
                    
                    
                    
                    7,534,696
                    
                    
                    
                    14,461,280Non
      Current assets
                    
                    
                    15,917,329
                    
                    
                    
                    6,189,072
                    
                    
                    
                    2,791,010
                    
                    
                    
                    58,369
                    
                    
                    
                    8,041,732
                    
                    
                    
                    32,997,512Total
      assets
                    
                    $
                    18,843,687
                    
                    
                    $
                    8,010,391
                    
                    
                    $
                    3,330,513
                    
                    
                    $
                    375,835
                    
                    
                    $
                    18,141,986
                    
                    
                    $
                    48,702,412Accounts
      payable
                    
                    $
                    (751,117
                    )
                    
                    $
                    (532,743
                    )
                    
                    $
                    (287,843
                    )
                    
                    $
                    (3,280
                    )
                    
                    $
                    (133,664
                    )
                    
                    $
                    (1,708,647
                    )Other
      Current Liabilities
                    
                    
                    (2,818,830
                    )
                    
                    
                    (1,171,709
                    )
                    
                    
                    (327,960
                    )
                    
                    
                    (9,907
                    )
                    
                    
                    (662,719
                    )
                    
                    
                    (4,991,125
                    )Current
      Liabilities
                    
                    
                    (3,569,947
                    )
                    
                    
                    (1,704,452
                    )
                    
                    
                    (615,803
                    )
                    
                    
                    (13,187
                    )
                    
                    
                    (796,383
                    )
                    
                    
                    (6,699,772
                    )Non
      current liabilities
                    
                    
                    (3,133,747
                    )
                    
                    
                    (173,241
                    )
                    
                    
                    (191,295
                    )
                    
                    
                    (8,360
                    )
                    
                    
                    (3,633,329
                    )
                    
                    
                    (7,139,972
                    )Total
      Liabilities
                    
                    
                    (6,703,694
                    )
                    
                    
                    (1,877,693
                    )
                    
                    
                    (807,098
                    )
                    
                    
                    (21,547
                    )
                    
                    
                    (4,429,712
                    )
                    
                    
                    (13,839,744
                    )Minority
      Interest
                    
                    
                    -
                    
                    
                    
                    (8,682
                    )
                    
                    
                    (234,269
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (242,951
                    )Equity
                    
                    
                    (12,139,993
                    )
                    
                    
                    (6,132,698
                    )
                    
                    
                    (2,523,415
                    )
                    
                    
                    (354,288
                    )
                    
                    
                    (13,712,274
                    )
                    
                    
                    (34,619,717
                    )Total
      liabilities and equity
                    
                    $
                    (18,843,687
                    )
                    
                    $
                    (
      8,010,391
                    )
                    
                    $
                    (3,330,513
                    )
                    
                    $
                    (375,835
                    )
                    
                    $
                    (18,141,986
                    )
                    
                    $
                    (
      48,702,412
                    )Capital
      expenditures
                    
                    $
                    4,911,487
                    
                    
                    $
                    776,080
                    
                    
                    $
                    939,996
                    
                    
                    $
                    7,549
                    
                    
                    $
                    69,483
                    
                    
                    $
                    6,704,595Goodwill
                    
                    $
                    -
                    
                    
                    $
                    668,614
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    668,614
 
 As
of December 31, 2007
 
 Exploration &
                    Production
                  
                  
                  Refining Activities
                  
                  
                  Transportation
                  
                  
                  Market and
                    Supply
                  
                  
                  Corporate
                  
                  
                  TotalCurrent
      assetsCash
      and cash equivalents
                  
                  $
                  117,231
                  
                  
                  $
                  503
                  
                  
                  $
                  20,008
                  
                  
                  $
                  1
                  
                  
                  $
                  3,612,156
                  
                  
                  $
                  3,749,899Accounts
      and notes receivable
                  
                  
                  892,734
                  
                  
                  
                  1,213,755
                  
                  
                  
                  24,147
                  
                  
                  
                  55
                  
                  
                  
                  139,213
                  
                  
                  
                  2,269,904Inventories
                  
                  
                  514,294
                  
                  
                  
                  782,594
                  
                  
                  
                  1,417
                  
                  
                  
                  -
                  
                  
                  
                  487
                  
                  
                  
                  1,298,792Investments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,954,502
                  
                  
                  
                  5,954,502Other
      current assets
                  
                  
                  1,387,466
                  
                  
                  
                  426,403
                  
                  
                  
                  107,142
                  
                  
                  
                  698
                  
                  
                  
                  579,316
                  
                  
                  
                  2,501,0252,911,725
                  
                  
                  
                  2,423,255
                  
                  
                  
                  152,714
                  
                  
                  
                  754
                  
                  
                  
                  10,285,674
                  
                  
                  
                  15,774,122Investments
      in unconsolidated companies
                  
                  
                  396,021
                  
                  
                  
                  239,271
                  
                  
                  
                  50,745
                  
                  
                  
                  7,751
                  
                  
                  
                  432,157
                  
                  
                  
                  1,125,945Property,
      plant and equipment, net
                  
                  
                  7,887,869
                  
                  
                  
                  1,941,755
                  
                  
                  
                  1,203,771
                  
                  
                  
                  14,105
                  
                  
                  
                  233,368
                  
                  
                  
                  11,280,868Pension
      plan assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,986,861
                  
                  
                  
                  8,986,861Other
      non current assets
                  
                  
                  3,805,094
                  
                  
                  
                  2,603,033
                  
                  
                  
                  737,494
                  
                  
                  
                  46,619
                  
                  
                  
                  3,752,044
                  
                  
                  
                  10,944,284Non
      current assets
                  
                  
                  12,088,984
                  
                  
                  
                  4,784,059
                  
                  
                  
                  1,992,010
                  
                  
                  
                  68,475
                  
                  
                  
                  13,404,430
                  
                  
                  
                  32,337,958Total
      assets
                  
                  $
                  15,000,709
                  
                  
                  $
                  7,207,314
                  
                  
                  $
                  2,144,724
                  
                  
                  $
                  69,229
                  
                  
                  $
                  23,690,104
                  
                  
                  $
                  48,112,080Accounts
      payable
                  
                  $
                  (803,715
                  )
                  
                  $
                  (530,031
                  )
                  
                  $
                  (112,723
                  )
                  
                  $
                  (15
                  )
                  
                  $
                  (118,085
                  )
                  
                  $
                  (1,564,569
                  )Other
      current liabilities
                  
                  
                  (2,546,871
                  )
                  
                  
                  (763,965
                  )
                  
                  
                  (355,851
                  )
                  
                  
                  (43,398
                  )
                  
                  
                  (791,130
                  )
                  
                  
                  (4,501,215
                  )Current
      liabilities
                  
                  
                  (3,350,586
                  )
                  
                  
                  (1,293,996
                  )
                  
                  
                  (468,574
                  )
                  
                  
                  (43,413
                  )
                  
                  
                  (909,215
                  )
                  
                  
                  (6,065,784
                  )Non
      current liabilities
                  
                  
                  (2,592,625
                  )
                  
                  
                  (383,366
                  )
                  
                  
                  (430,798
                  )
                  
                  
                  (33,565
                  )
                  
                  
                  (11,797,475
                  )
                  
                  
                  (15,237,829
                  )Total
      liabilities
                  
                  
                  (5,943,211
                  )
                  
                  
                  (1,677,362
                  )
                  
                  
                  (899,372
                  )
                  
                  
                  (76,978
                  )
                  
                  
                  (12,706,690
                  )
                  
                  
                  (21,303,613
                  )Equity
                  
                  
                  (9,057,498
                  )
                  
                  
                  (5,529,952
                  )
                  
                  
                  (1,245,352
                  )
                  
                  
                  7,749
                  
                  
                  
                  (10,983,414
                  )
                  
                  
                  (26,808,467
                  )Total
      liabilities and equity
                  
                  $
                  (15,000,709
                  )
                  
                  $
                  (7,207,314
                  )
                  
                  $
                  (2,144,724
                  )
                  
                  $
                  (69,229
                  )
                  
                  $
                  (23,690,104
                  )
                  
                  $
                  (48,112,080
                  )Capital
      expenditures
                  
                  $
                  2,678,684
                  
                  
                  $
                  234,462
                  
                  
                  $
                  92,344
                  
                  
                  $
                  7,712
                  
                  
                  $
                  23,760
                  
                  
                  $
                  3,036,962Goodwill
                  
                  $
                  
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
 
 As
of December 31, 2006
  Exploration &
                      Production
                    
                    
                    Refining
                      Activities
                    
                    
                    Transportation
                    
                    
                    Market and
                      Supply
                    
                    
                    Corporate
                    
                    
                    TotalCurrent
      assetsCash
      and cash equivalents
                    
                    $
                    17,908
                    
                    
                    $
                    2,228
                    
                    
                    $
                    18,810
                    
                    
                    $
                    1
                    
                    
                    $
                    1,588,929
                    
                    
                    $
                    1,627,876Accounts
      and notes receivable
                    
                    
                    556,902
                    
                    
                    
                    565,689
                    
                    
                    
                    24,009
                    
                    
                    
                    561
                    
                    
                    
                    189,158
                    
                    
                    
                    1,336,319Inventories
                    
                    
                    387,880
                    
                    
                    
                    607,101
                    
                    
                    
                    1,380
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    996,361Investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,961,687
                    
                    
                    
                    1,961,687Other
      current assets
                    
                    
                    575,898
                    
                    
                    
                    582,455
                    
                    
                    
                    120,777
                    
                    
                    
                    682
                    
                    
                    
                    81,678
                    
                    
                    
                    1,361,4901,538,588
                    
                    
                    
                    1,757,473
                    
                    
                    
                    164,976
                    
                    
                    
                    1,244
                    
                    
                    
                    3,821,452
                    
                    
                    
                    7,283,733
  F-95
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 Exploration &
                      Production
                    
                    
                    Refining
                      Activities
                    
                    
                    Transportation
                    
                    
                    Market and
                      Supply
                    
                    
                    Corporate
                    
                    
                    TotalInvestments
                    
                    
                    396,021
                    
                    
                    
                    4,900
                    
                    
                    
                    55,976
                    
                    
                    
                    -
                    
                    
                    
                    505,167
                    
                    
                    
                    962,064Property,
      plant and equipment, net
                    
                    
                    6,268,567
                    
                    
                    
                    1,898,455
                    
                    
                    
                    1,223,077
                    
                    
                    
                    13,517
                    
                    
                    
                    210,708
                    
                    
                    
                    9,614,324FAEP
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,844,167
                    
                    
                    
                    3,844,167Pension
      plan assets
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    8,960,897
                    
                    
                    
                    8,960,897Other
      non current assets
                    
                    
                    4,127,119
                    
                    
                    
                    2,756,652
                    
                    
                    
                    650,417
                    
                    
                    
                    39,796
                    
                    
                    
                    3,898,553
                    
                    
                    
                    11,472,537Non
      Current assets
                    
                    
                    10,791,707
                    
                    
                    
                    4,660,007
                    
                    
                    
                    1,929,470
                    
                    
                    
                    53,313
                    
                    
                    
                    17,419,492
                    
                    
                    
                    34,853,989Total
      assets
                    
                    $
                    12,330,295
                    
                    
                    $
                    6,417,480
                    
                    
                    $
                    2,094,446
                    
                    
                    $
                    54,557
                    
                    
                    $
                    21,240,944
                    
                    
                    $
                    42,137,722Accounts
      payable
                    
                    $
                    (412,053
                    )
                    
                    $
                    (370,827
                    )
                    
                    $
                    (113,601
                    )
                    
                    $
                    (2,599
                    )
                    
                    $
                    (130,676
                    )
                    
                    $
                    (1,029,756
                    )Other
      Current Liabilities
                    
                    
                    (918,437
                    )
                    
                    
                    (1,124,744
                    )
                    
                    
                    (119,808
                    )
                    
                    
                    (71,054
                    )
                    
                    
                    (718,630
                    )
                    
                    
                    (2,952,673
                    )Current
      Liabilities
                    
                    
                    (1,330,490
                    )
                    
                    
                    (1,495,571
                    )
                    
                    
                    (233,409
                    )
                    
                    
                    (73,653
                    )
                    
                    
                    (849,306
                    )
                    
                    
                    (3,982,429
                    )Non
      current liabilities
                    
                    
                    (2,744,162
                    )
                    
                    
                    (871,157
                    )
                    
                    
                    (611,964
                    )
                    
                    
                    (40,952
                    )
                    
                    
                    (13,051,312
                    )
                    
                    
                    (17,319,547
                    )Total
      Liabilities
                    
                    
                    (4,074,652
                    )
                    
                    
                    (2,366,728
                    )
                    
                    
                    (845,373
                    )
                    
                    
                    (114,605
                    )
                    
                    
                    (13,900,618
                    )
                    
                    
                    (21,301,976
                    )Equity
                    
                    
                    (8,255,643
                    )
                    
                    
                    (4,050,752
                    )
                    
                    
                    (1,249,073
                    )
                    
                    
                    60,048
                    
                    
                    
                    (7,340,326
                    )
                    
                    
                    (20,835,746
                    )Total
      liabilities and equity
                    
                    $
                    (12,330,295
                    )
                    
                    $
                    (6,417,480
                    )
                    
                    $
                    (2,094,446
                    )
                    
                    $
                    (54,557
                    )
                    
                    $
                    (21,240,944
                    )
                    
                    $
                    (42,137,722
                    )Capital
      expenditures
                    
                    $
                    1,309,361
                    
                    
                    $
                    435,498
                    
                    
                    $
                    72,765
                    
                    
                    $
                    4,526
                    
                    
                    $
                    40,784
                    
                    
                    $
                    1,862,934Goodwill
                    
                    $
                    
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
  Statement
of net income by segment is as follows in accordance with RCP:
 
 Year
ended December 31, 2008
 
 Exploration
                          &
                          Production
                        
                        
                        Refining
                          Activities
                        
                        
                        Transportation
                        
                        
                        Market and
                          Supply
                        
                        
                        Corporate
                        
                        
                        Eliminations
                        
                        
                        TotalRevenues:Local
      sales
                        
                        $
                        5,004,480
                        
                        
                        $
                        14,847,890
                        
                        
                        $
                        724,838
                        
                        
                        $
                        1,013,398
                        
                        
                        $
                        7,393
                        
                        
                        $
                        -
                        
                        
                        $
                        21,597,999Foreign
      sales, net
                        
                        
                        7,371,888
                        
                        
                        
                        3,273,018
                        
                        
                        
                        -
                        
                        
                        
                        1,637,741
                        
                        
                        
                        16,023
                        
                        
                        
                        -
                        
                        
                        
                        12,298,670Inter-segment
      net operating revenues
                        
                        
                        4,383,141
                        
                        
                        
                        922,252
                        
                        
                        
                        962,144
                        
                        
                        
                        43,141
                        
                        
                        
                        -
                        
                        
                        
                        (6,310,678
                        )
                        
                        
                        -Total
      Revenue
                        
                        
                        16,759,509
                        
                        
                        
                        19,043,160
                        
                        
                        
                        1,686,982
                        
                        
                        
                        2,694,280
                        
                        
                        
                        23,416
                        
                        
                        
                        (6,310,678
                        )
                        
                        
                        33,896,669Cost
      of sales
                        
                        
                        2,552,190
                        
                        
                        
                        18,001,429
                        
                        
                        
                        1,143,337
                        
                        
                        
                        1,829,644
                        
                        
                        
                        7,625
                        
                        
                        
                        (6,310,678
                        )
                        
                        
                        17,185,419Depreciation,
      depletion and amortization
                        
                        
                        1,439,661
                        
                        
                        
                        210,399
                        
                        
                        
                        149,123
                        
                        
                        
                        495
                        
                        
                        
                        424
                        
                        
                        
                        -
                        
                        
                        
                        1,838,230Selling
                        
                        
                        935,877
                        
                        
                        
                        188,102
                        
                        
                        
                        29,913
                        
                        
                        
                        606,011
                        
                        
                        
                        184,704
                        
                        
                        
                        -
                        
                        
                        
                        1,944,607Administration
      expenses
                        
                        
                        128,398
                        
                        
                        
                        146,753
                        
                        
                        
                        77,147
                        
                        
                        
                        16,713
                        
                        
                        
                        13,090
                        
                        
                        
                        -
                        
                        
                        
                        382,101Costs
      and expenses
                        
                        
                        5,056,126
                        
                        
                        
                        18,546,683
                        
                        
                        
                        1,399,520
                        
                        
                        
                        2,452,863
                        
                        
                        
                        205,843
                        
                        
                        
                        (6,310,678
                        )
                        
                        
                        21,350,357Operating
      income
                        
                        
                        11,703,383
                        
                        
                        
                        496,477
                        
                        
                        
                        287,462
                        
                        
                        
                        241,417
                        
                        
                        
                        (182,427
                        )
                        
                        
                        -
                        
                        
                        
                        12,546,312Financial
      income (expenses), net
                        
                        
                        958,271
                        
                        
                        
                        62,140
                        
                        
                        
                        47,929
                        
                        
                        
                        (106,015
                        )
                        
                        
                        3,138,927
                        
                        
                        
                        -
                        
                        
                        
                        4,101,252Pension
      expenses
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (6,204
                        )
                        
                        
                        -
                        
                        
                        
                        (1,138,721
                        )
                        
                        
                        -
                        
                        
                        
                        (1,144,925
                        )Other
      non-operating income (expenses)
                        
                        
                        128,007
                        
                        
                        
                        174,329
                        
                        
                        
                        140,748
                        
                        
                        
                        2,861
                        
                        
                        
                        62,620
                        
                        
                        
                        -
                        
                        
                        
                        508,565Other
      expenses, net
                        
                        
                        1,086,278
                        
                        
                        
                        236,469
                        
                        
                        
                        182,473
                        
                        
                        
                        (103,154
                        )
                        
                        
                        2,062,826
                        
                        
                        
                        -
                        
                        
                        
                        3,464,892Income
      before income taxes and minority interest
                        
                        
                        12,789,661
                        
                        
                        
                        732,946
                        
                        
                        
                        469,935
                        
                        
                        
                        138,263
                        
                        
                        
                        1,880,399
                        
                        
                        
                        -
                        
                        
                        
                        16,011,204Income
      tax benefits (expense)
                        
                        
                        (3,460,043
                        )
                        
                        
                        (206,260
                        )
                        
                        
                        (128,559
                        )
                        
                        
                        (73,201
                        )
                        
                        
                        (513,919
                        )
                        
                        
                        -
                        
                        
                        
                        (4,381,982
                        )Minority
      interest
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (455
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (455
                        )Net
      income
                        
                        $
                        9,329,618
                        
                        
                        $
                        526,686
                        
                        
                        $
                        341,831
                        
                        
                        $
                        65,062
                        
                        
                        $
                        1,366,480
                        
                        
                        $
                        -
                        
                        
                        $
                        11,629,677
 
 F-96
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 Year  ended
December 31, 2007
 
 Exploration
                                    &
                                    Production
                                  
                                  
                                  RefiningActivities
                                  
                                  
                                  Transportation
                                  
                                  
                                  Market and
                                    Supply
                                  
                                  
                                  Corporate
                                  
                                  
                                  Eliminations
                                  
                                  
                                  TotalRevenues:Local
      sales
                                  
                                  $
                                  2,811,211
                                  
                                  
                                  $
                                  11,471,912
                                  
                                  
                                  $
                                  677,938
                                  
                                  
                                  $
                                  1,036,694
                                  
                                  
                                  $
                                  5,242
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  16,002,997Foreign
      salesTotal
      Foreign sales
                                  
                                  
                                  3,243,798
                                  
                                  
                                  
                                  2,156,388
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,232,375
                                  
                                  
                                  
                                  13,259
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  6,645,820FAEP
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (316,497
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (316,497
                                  )Foreign
      sales, net
                                  
                                  
                                  3,243,798
                                  
                                  
                                  
                                  2,156,388
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,232,375
                                  
                                  
                                  
                                  (303,238
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  6,329,323Inter-segment
      net operating revenues
                                  
                                  
                                  4,676,382
                                  
                                  
                                  
                                  553,640
                                  
                                  
                                  
                                  592,086
                                  
                                  
                                  
                                  34,500
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (5,856,608
                                  )
                                  
                                  
                                  -Total
      revenues
                                  
                                  
                                  10,731,391
                                  
                                  
                                  
                                  14,181,940
                                  
                                  
                                  
                                  1,270,024
                                  
                                  
                                  
                                  2,303,569
                                  
                                  
                                  
                                  (297,996
                                  )
                                  
                                  
                                  (5,856,608
                                  )
                                  
                                  
                                  22,332,320Cost
      of sales
                                  
                                  
                                  2,241,573
                                  
                                  
                                  
                                  11,850,710
                                  
                                  
                                  
                                  761,786
                                  
                                  
                                  
                                  1,060,473
                                  
                                  
                                  
                                  9,410
                                  
                                  
                                  
                                  (5,856,608
                                  )
                                  
                                  
                                  10,067,344Depreciation,
      depletion and amortization
                                  
                                  
                                  1,530,705
                                  
                                  
                                  
                                  292,834
                                  
                                  
                                  
                                  165,982
                                  
                                  
                                  
                                  896
                                  
                                  
                                  
                                  766
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,991,183Selling
                                  
                                  
                                  425,830
                                  
                                  
                                  
                                  148,283
                                  
                                  
                                  
                                  102,005
                                  
                                  
                                  
                                  239,358
                                  
                                  
                                  
                                  104,436
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,019,912Administration
      expenses
                                  
                                  
                                  126,235
                                  
                                  
                                  
                                  99,199
                                  
                                  
                                  
                                  70,267
                                  
                                  
                                  
                                  15,186
                                  
                                  
                                  
                                  11,157
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  322,044Costs
      and expenses
                                  
                                  
                                  4,324,343
                                  
                                  
                                  
                                  12,391,026
                                  
                                  
                                  
                                  1,100,040
                                  
                                  
                                  
                                  1,315,913
                                  
                                  
                                  
                                  125,769
                                  
                                  
                                  
                                  (5,856,608
                                  )
                                  
                                  
                                  13,400,483Operating
      Income
                                  
                                  
                                  6,407,048
                                  
                                  
                                  
                                  1,790,914
                                  
                                  
                                  
                                  169,984
                                  
                                  
                                  
                                  987,656
                                  
                                  
                                  
                                  (423,765
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  8,931,837Financial
      income (expenses), net
                                  
                                  
                                  (44,773
                                  )
                                  
                                  
                                  (25,260
                                  )
                                  
                                  
                                  (16,284
                                  )
                                  
                                  
                                  (47,441
                                  )
                                  
                                  
                                  67,875
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (65,883
                                  )Interest
      income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  160,532
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  160,532Interest
      expenses
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,021
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,021
                                  )Pension
      expenses
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (5,660
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,084,683
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,090,343
                                  )Other
      non-operating income (expenses)
                                  
                                  
                                  (200,639
                                  )
                                  
                                  
                                  (516,905
                                  )
                                  
                                  
                                  (109,101
                                  )
                                  
                                  
                                  (54,820
                                  )
                                  
                                  
                                  11,647
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (869,818
                                  )Other
      expenses, net
                                  
                                  
                                  (245,412
                                  )
                                  
                                  
                                  (542,165
                                  )
                                  
                                  
                                  (131,045
                                  )
                                  
                                  
                                  (102,261
                                  )
                                  
                                  
                                  (845,650
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,866,533
                                  )Income
      before income taxes
                                  
                                  
                                  6,161,636
                                  
                                  
                                  
                                  1,248,749
                                  
                                  
                                  
                                  38,939
                                  
                                  
                                  
                                  885,395
                                  
                                  
                                  
                                  (1,269,415
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  7,065,304Income
      tax benefits (expense)
                                  
                                  
                                  (1,644,351
                                  )
                                  
                                  
                                  (333,253
                                  )
                                  
                                  
                                  (10,392
                                  )
                                  
                                  
                                  (236,283
                                  )
                                  
                                  
                                  338,767
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,885,512Net
      income
                                  
                                  $
                                  4,517,285
                                  
                                  
                                  $
                                  915,496
                                  
                                  
                                  $
                                  28,547
                                  
                                  
                                  $
                                  649,112
                                  
                                  
                                  $
                                  (930,648
                                  )
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  5,179,792
 
 Year  ended
December 31, 2006
 
 Exploration
                                  &
                                  Production
                                
                                
                                Refining
                                  Activities
                                
                                
                                Transportation
                                
                                
                                Market and Supply
                                
                                
                                Corporate
                                
                                
                                Eliminations
                                
                                
                                TotalRevenuesLocal
      sales
                                
                                $
                                724,863
                                
                                
                                $
                                9,683,228
                                
                                
                                $
                                666,495
                                
                                
                                $
                                222,357
                                
                                
                                $
                                3,058
                                
                                
                                $
                                -
                                
                                
                                $
                                11,300,001Foreign
      sales:Total
      Foreign sales
                                
                                
                                2,474,356
                                
                                
                                
                                4,194,044
                                
                                
                                
                                -
                                
                                
                                
                                1,195,724
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                7,864,124FAEP
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (774,160
                                )
                                
                                
                                -
                                
                                
                                
                                (774,160
                                )Foreign
      sales, net
                                
                                
                                2,474,356
                                
                                
                                
                                4,194,044
                                
                                
                                
                                -
                                
                                
                                
                                1,195,724
                                
                                
                                
                                (774,160
                                )
                                
                                
                                -
                                
                                
                                
                                7,089,964Inter-segment
      net operating revenues
                                
                                
                                6,038,096
                                
                                
                                
                                343,702
                                
                                
                                
                                404,024
                                
                                
                                
                                40,425
                                
                                
                                
                                -
                                
                                
                                
                                (6,826,247
                                )
                                
                                
                                -Total
      revenue
                                
                                
                                9,237,315
                                
                                
                                
                                14,220,974
                                
                                
                                
                                1,070,519
                                
                                
                                
                                1,458,506
                                
                                
                                
                                (771,102
                                )
                                
                                
                                (6,826,247
                                )
                                
                                
                                18,389,965Cost
      of sales
                                
                                
                                1,647,555
                                
                                
                                
                                13,074,300
                                
                                
                                
                                373,169
                                
                                
                                
                                734,324
                                
                                
                                
                                32,827
                                
                                
                                
                                (6,826,247
                                )
                                
                                
                                9,035,928Depreciation,
      depletion and amortization
                                
                                
                                3,296,857
                                
                                
                                
                                280,499
                                
                                
                                
                                143,196
                                
                                
                                
                                45
                                
                                
                                
                                38
                                
                                
                                
                                -
                                
                                
                                
                                3,720,635Selling
      and projects
                                
                                
                                179,674
                                
                                
                                
                                197,681
                                
                                
                                
                                23,666
                                
                                
                                
                                177,691
                                
                                
                                
                                89,341
                                
                                
                                
                                -
                                
                                
                                
                                668,053Administration
      expenses
                                
                                
                                120,197
                                
                                
                                
                                103,247
                                
                                
                                
                                67,536
                                
                                
                                
                                26,195
                                
                                
                                
                                12,342
                                
                                
                                
                                -
                                
                                
                                
                                329,517Costs
      and expenses
                                
                                
                                5,244,283
                                
                                
                                
                                13,655,727
                                
                                
                                
                                607,567
                                
                                
                                
                                938,255
                                
                                
                                
                                134,548
                                
                                
                                
                                (6,826,247
                                )
                                
                                
                                13,754,133Operating
      Income
                                
                                
                                3,993,032
                                
                                
                                
                                565,247
                                
                                
                                
                                462,952
                                
                                
                                
                                520,251
                                
                                
                                
                                (905,650
                                )
                                
                                
                                -
                                
                                
                                
                                4,635,832Financial
      income (expenses), net
                                
                                
                                (14,081
                                )
                                
                                
                                (14,091
                                )
                                
                                
                                18,342
                                
                                
                                
                                (1,412
                                )
                                
                                
                                599,998
                                
                                
                                
                                -
                                
                                
                                
                                588,756Interest
      income
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                103,107
                                
                                
                                
                                -
                                
                                
                                
                                103,107
 
 F-97
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 Exploration
                              &
                              Production
                            
                            
                            Refining
                              Activities
                            
                            
                            Transportation
                            
                            
                            Market and Supply
                            
                            
                            Corporate
                            
                            
                            Eliminations
                            
                            
                            TotalInterest
      expenses
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (8,427
                            )
                            
                            
                            -
                            
                            
                            
                            (8,427
                            )Pension
      expenses
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (3,168
                            )
                            
                            
                            -
                            
                            
                            
                            (826,023
                            )
                            
                            
                            -
                            
                            
                            
                            (829,191
                            )Other
      non-operating income (expenses)
                            
                            
                            (4,733
                            )
                            
                            
                            (52,196
                            )
                            
                            
                            (109,258
                            )
                            
                            
                            (14,586
                            )
                            
                            
                            581,838
                            
                            
                            
                            -
                            
                            
                            
                            401,065Other
      expenses, net
                            
                            
                            (18,814
                            )
                            
                            
                            (66,287
                            )
                            
                            
                            (94,084
                            )
                            
                            
                            (15,998
                            )
                            
                            
                            450,493
                            
                            
                            
                            -
                            
                            
                            
                            255,310Income
      before income taxes
                            
                            
                            3,974,218
                            
                            
                            
                            498,960
                            
                            
                            
                            368,868
                            
                            
                            
                            504,253
                            
                            
                            
                            (455,157
                            )
                            
                            
                            -
                            
                            
                            
                            4,891,142Income
      tax benefits (expense)
                            
                            
                            (1,218,613
                            )
                            
                            
                            (152,996
                            )
                            
                            
                            (113,106
                            )
                            
                            
                            (154,619
                            )
                            
                            
                            139,565
                            
                            
                            
                            -
                            
                            
                            
                            (1,499,769
                            )Net
      income
                            
                            $
                            2,755,605
                            
                            
                            $
                            345,964
                            
                            
                            $
                            255,762
                            
                            
                            $
                            349,634
                            
                            
                            $
                            (315,592
                            )
                            
                            $
                            -
                            
                            
                            $
                            3,391,373
  The
following table illustrates sales by geographic zones:
 
 Sales by
Geographic Zones 2008
 
 Zone
                              
                              Products
                              
                              Value
                              
                              
                              ParticipationColombia
                              
                              Crude
      oil, Refined, Petrochemicals and natural gas
                              
                              $
                              21,597,999
                              
                              
                              
                              64.1
                              %United
      States of America
                              
                              Crude
      oil, Refined and Petrochemicals
                              
                              
                              7,847,375
                              
                              
                              
                              23.2
                              %Asia
                              
                              Crude
      oil, Refined and Petrochemicals
                              
                              
                              1,516,946
                              
                              
                              
                              4.5
                              %South
      America
                              
                              Crude
      oil, Refined, Petrochemicals and natural gas
                              
                              
                              1,024,709
                              
                              
                              
                              3.0
                              %Central
      America and Caribbean
                              
                              Crude
      oil, Refined and Petrochemicals
                              
                              
                              1,188,904
                              
                              
                              
                              3.5
                              %Europe
                              
                              Crude
      oil, Refined and Petrochemicals
                              
                              
                              605,655
                              
                              
                              
                              1.8
                              %Other
                              
                              Petrochemicals
                              
                              
                              115,081
                              
                              
                              
                              0.0
                              %$
                              33,896,669
                              
                              
                              
                              100.0
                              %
 
 Sales by
Geographic Zones 2007
 
 Zone
                              
                              Products
                              
                              Value
                              
                              
                              ParticipationColombia
                              
                              Refined
      and Petrochemicals
                              
                              $
                              16,002,997
                              
                              
                              
                              71.7
                              %United
      States of America
                              
                              Crude
      oil and Refined
                              
                              
                              4,531,885
                              
                              
                              
                              20.3
                              %Central
      America and Caribbean
                              
                              Crude
      oil and Refined
                              
                              
                              1,109,504
                              
                              
                              
                              4.9
                              %Europe
                              
                              Crude
      oil and Refined
                              
                              
                              673,948
                              
                              
                              
                              3.0
                              %Rest
      of world
                              
                              Crude
      oil and Refined
                              
                              
                              13,986
                              
                              
                              
                              0.1
                              %$
                              22,332,320
                              
                              
                              
                              100.0
                              %
 
 Sales by
Geographic Zones 2006
 
 Zone
                              
                              Products
                              
                              Value
                              
                              
                              ParticipationColombia
                              
                              Refined
      and Petrochemicals
                              
                              $
                              11,300,001
                              
                              
                              
                              61.4
                              %USA
      (Export)
                              
                              Crude
      oil and Refined
                              
                              
                              4,936,720
                              
                              
                              
                              26.8
                              %Central
      America and Caribbean (Export)
                              
                              Crude
      oil and Refined
                              
                              
                              1,428,949
                              
                              
                              
                              7.8
                              %Europe
      (Export)
                              
                              Crude
      oil and Refined
                              
                              
                              710,847
                              
                              
                              
                              3.9
                              %Other
      (Export)
                              
                              Crude
      oil and Refined
                              
                              
                              13,448
                              
                              
                              
                              0.1
                              %$
                              18,389,965
                              
                              
                              
                              100.0
                              %
 
 F-98
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 Sales of
products by Segment 2008
 
 Local Sales
                  
                  Production
                  
                  
                  Refining
                    Activities
                  
                  
                  Transportation
                  
                  
                  Market and
                    Supply
                  
                  
                  Corporate
                  
                  
                  TotalMedium
      distillates
                  
                  $
                  41
                  
                  
                  $
                  5,914,586
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  5,914,627Gasoline
                  
                  
                  11,032
                  
                  
                  
                  3,633,313
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,644,345Crude
      Oil
                  
                  
                  3,956,143
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  818,258
                  
                  
                  
                  -
                  
                  
                  
                  4,774,401Other
      products
                  
                  
                  179,577
                  
                  
                  
                  1,196,214
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,375,791Services
                  
                  
                  55,785
                  
                  
                  
                  61,612
                  
                  
                  
                  724,838
                  
                  
                  
                  72,024
                  
                  
                  
                  7,393
                  
                  
                  
                  921,652Natural
      Gas
                  
                  
                  778,298
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  123,116
                  
                  
                  
                  -
                  
                  
                  
                  901,414L.P.G.
                  
                  
                  19,901
                  
                  
                  
                  592,870
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  612,771Diesel
      and gasoline subsidies
                  
                  
                  3,703
                  
                  
                  
                  3,066,776
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,070,479Plastic
      and rubber
                  
                  
                  -
                  
                  
                  
                  382,519
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  382,519Total
      local sales
                  
                  $
                  5,004,480
                  
                  
                  $
                  14,847,890
                  
                  
                  $
                  724,838
                  
                  
                  $
                  1,013,398
                  
                  
                  $
                  7,393
                  
                  
                  $
                  21,597,999
 
 Sales of
products by Segment 2008
 
 ForeignSales
                  
                  Production
                  
                  
                  Refining
                    Activities
                  
                  
                  Transportation
                  
                  
                  Marketand
                    Supply
                  
                  
                  Corporate
                  
                  
                  TotalCrude
      oil
                  
                  $
                  7,111,955
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,584,327
                  
                  
                  $
                  -
                  
                  
                  $
                  8,696,282Fuel
      oil
                  
                  
                  -
                  
                  
                  
                  2,093,012
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,093,012Gasoline
                  
                  
                  -
                  
                  
                  
                  186,197
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  186,197Naphtha
                  
                  
                  -
                  
                  
                  
                  2,693
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,693Jet
      fuel
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Natural
      Gas
                  
                  
                  259,933
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  53,414
                  
                  
                  
                  -
                  
                  
                  
                  313,348Plastic
      and rubber
                  
                  
                  -
                  
                  
                  
                  704,034
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  704,034Other
      products
                  
                  
                  -
                  
                  
                  
                  287,082
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  16,023
                  
                  
                  
                  303,104Total
      foreign sales
                  
                  $
                  7,371,888
                  
                  
                  $
                  3,273,018
                  
                  
                  $
                  -
                  
                  
                  $
                  1,637,741
                  
                  
                  $
                  16,023
                  
                  
                  $
                  12,298,670
 
 Sales of
products by Segment 2007
 
 LocalSales
                  
                  Production
                  
                  
                  Refining
                    Activities
                  
                  
                  Transportation
                  
                  
                  Marketand
                    Supply
                  
                  
                  Corporate
                  
                  
                  TotalMedium
      distillates
                  
                  $
                  18,997
                  
                  
                  $
                  4,870,376
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  4,889,373Gasoline
                  
                  
                  748
                  
                  
                  
                  3,345,612
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,346,360Crude
      Oil
                  
                  
                  2,220,287
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  784,342
                  
                  
                  
                  -
                  
                  
                  
                  3,004,629Other
      products
                  
                  
                  53,382
                  
                  
                  
                  845,083
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  898,465Services
                  
                  
                  27,900
                  
                  
                  
                  49,646
                  
                  
                  
                  677,938
                  
                  
                  
                  60,471
                  
                  
                  
                  5,242
                  
                  
                  
                  821,197Natural
      Gas
                  
                  
                  468,290
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  191,881
                  
                  
                  
                  -
                  
                  
                  
                  660,171L.P.G.
                  
                  
                  18,649
                  
                  
                  
                  586,103
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  604,752Diesel
      and gasoline subsidies
                  
                  
                  2,958
                  
                  
                  
                  1,775,092
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,778,050Total
      local sales
                  
                  $
                  2,811,211
                  
                  
                  $
                  11,471,912
                  
                  
                  $
                  677,938
                  
                  
                  $
                  1,036,694
                  
                  
                  $
                  5,242
                  
                  
                  $
                  16,002,997
 
 F-99
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 Sales of products by Segment 2007ForeignSales
                    
                    Production
                    
                    
                    Refining
                      Activities
                    
                    
                    Transportation
                    
                    
                    Marketand
                      Supply
                    
                    
                    Corporate
                    
                    
                    TotalCrude
      oil
                    
                    $
                    3,243,769
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    1,232,368
                    
                    
                    $
                    -
                    
                    
                    $
                    4,476,137FAEP
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    (316,497
                    )
                    
                    
                    (316,497
                    )Fuel
      oil
                    
                    
                    -
                    
                    
                    
                    1,560,399
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,560,399Gasoline
                    
                    
                    -
                    
                    
                    
                    269,248
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    269,248Naphtha
                    
                    
                    -
                    
                    
                    
                    244,393
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    244,393Jet
      fuel
                    
                    
                    -
                    
                    
                    
                    71,378
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    71,378Natural
      Gas
                    
                    
                    29
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    7
                    
                    
                    
                    -
                    
                    
                    
                    36Other
      products
                    
                    
                    0
                    
                    
                    
                    10,970
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    13,259
                    
                    
                    
                    24,229Total
      foreign sales
                    
                    $
                    3,243,798
                    
                    
                    $
                    2,156,388
                    
                    
                    $
                    -
                    
                    
                    $
                    1,232,375
                    
                    
                    $
                    (303,238
                    )
                    
                    $
                    6,329,323
 
 Sales of products by Segment 2006Local Sales
                    
                    Production
                    
                    
                    Refining
                      Activities
                    
                    
                    Transportation
                    
                    
                    Corporate
                    
                    
                    TotalMedium
      distillates
                    
                    $
                    23,222
                    
                    
                    $
                    4,844,128
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    4,867,350Gasoline
                    
                    
                    439
                    
                    
                    
                    3,467,656
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,468,095Crude
      Oil
                    
                    
                    29,825
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    29,825Other
      products
                    
                    
                    55,576
                    
                    
                    
                    820,752
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    876,328Services
                    
                    
                    98,206
                    
                    
                    
                    26,805
                    
                    
                    
                    666,495
                    
                    
                    
                    3,058
                    
                    
                    
                    794,564Natural
      Gas
                    
                    
                    717,879
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    717,879L.P.G.
                    
                    
                    22,073
                    
                    
                    
                    523,887
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    545,960Diesel
      and gasoline subsidies
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      local sales
                    
                    $
                    947,220
                    
                    
                    $
                    9,683,228
                    
                    
                    $
                    666,495
                    
                    
                    $
                    3,058
                    
                    
                    $
                    11,300,001
 
 Sales of products by Segment 2006Foreign Sales
                    
                    Production
                    
                    
                    Refining
                      Activities
                    
                    
                    Transportation
                    
                    
                    Corporate
                    
                    
                    TotalCrude
      oil
                    
                    $
                    3,670,080
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    3,670,080FAEP
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (774,160
                    )
                    
                    
                    (774,160
                    )Fuel
      oil
                    
                    
                    -
                    
                    
                    
                    2,256,064
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,256,064Gasoline
                    
                    
                    -
                    
                    
                    
                    625,027
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    625,027Naphtha
                    
                    
                    -
                    
                    
                    
                    807,437
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    807,437Jet
      fuel
                    
                    
                    -
                    
                    
                    
                    372,012
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    372,012Other
      products
                    
                    
                    -
                    
                    
                    
                    133,504
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    133,504Total
      foreign sales
                    
                    $
                    3,670,080
                    
                    
                    $
                    4,194,044
                    
                    
                    $
                    -
                    
                    
                    $
                    (774,160
                    )
                    
                    $
                    7,089,964
 
 F-100
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  xxvi.  RELATED
PARTIES
  In
addition to the transactions disclosed in Note 15, Ecopetrol is controlled by
the Colombian Government which owns a majority stake in the
Company.  Thus, Ecopetrol has numerous transactions with other
government entities as well as state-owned companies in the ordinary course of
its business.  The most significant of these transactions are
disclosed below:
  FAEP –
Ecopetrol was required to defer revenue into a stabilization fund by the
Colombian government.  However, this process ended in 2007, at which
time Ecopetrol was required to remit all deferred revenue to the
government.  For more information about this transaction, please see
Notes 13 and 33.
  Subsidies-The Colombian government
regulates the price at which refiners sell refined products to distributors
located in Colombia.  For each unit sold, the price received, for
which revenue was recorded, was the regulated price which was less than what the
Company could have received had it sold those products to customers located
outside Colombia at market prices.  In 2006, that difference amounted
to $3,350,000.  Effective, January 1, 2007, the Colombian government
began reimbursing refiners for that difference in the form of a
subsidy.  The Company records that subsidy as revenue when
earned.  The amount of subsidy included in revenue in 2008 and 2007
were $3,070,479 and $1,778,050, respectively. Additionally, in 2008 the Company
recognized interests amounting to $706,651 which corresponds to 4.48% of the
subsidies recorded.
  Contribution
of Nation in Kind – Decree 2625 of 2000 imposed contributions in kind
(hydrocarbons) of the Colombian Nation that were recognized as cost of
production until March 9, 2007.
  Taxes –
Ecopetrol recognizes taxes to the Government and municipalities where it has
facilities.  Taxes paid in 2008, 2007 and 2006 are disclosed in the
cash flow statement.
  Purchases
of hydrocarbons from  ANH  –  The Company
purchases the physical product that the ANH receives from all producers in
Colombia at prices set forth in the Law 756 of 2002 and Resolution 18 1709 of
2003, which reference international prices.  For more information on
this transaction please see Notes 1 and 24.
  Sublease
of BOMT contracts - Ecopetrol entered into a sublease agreement with a related
party (ECOGAS).  During 2008, under U.S. GAAP, Ecopetrol recognized
gains amounted to $41,665 and during 2007 and 2006 recognized losses amounting
to $407,452 and $6,123, respectively, as a result of this
contract.  In 2007, ECOGAS prepaid all installments associated with
this contract.  As a result of this prepayment, Ecopetrol recognized a
contribution received in equity amounting to $74,546.
  The
following table presents accounts receivable and payable with related parties as
of December 31, 2008 and 2007:
 
 2008
                  
                  
                  2007Assets
                  
                  
                  Liabilities
                  
                  
                  Assets
                  
                  
                  LiabilitiesMinisterio
      de Hacienda y Crédito Público
                  
                  $
                  1,503,458
                  
                  
                  $
                  92,465
                  
                  
                  $
                  4,385,079
                  
                  
                  $
                  101,554Ministerio
      de Minas y Energía
                  
                  
                  3,777,133
                  
                  
                  
                  -
                  
                  
                  
                  636,551
                  
                  
                  
                  -U.A.E.
      Agencia Nacional de Hidrocarburos
                  
                  
                  222,199
                  
                  
                  
                  8
                  
                  
                  
                  23
                  
                  
                  
                  875Empresa
      de Energía de Bogotá S.A. E.S.P.
                  
                  
                  169,611
                  
                  
                  
                  -
                  
                  
                  
                  169,611
                  
                  
                  
                  -Generadora
      y Comercializadora de Energía del Caribe S.A. E.S.P.
                  
                  
                  65,978
                  
                  
                  
                  14,179
                  
                  
                  
                  91,369
                  
                  
                  
                  24,696Interconexión
      Eléctrica S.A.
                  
                  
                  71,537
                  
                  
                  
                  127
                  
                  
                  
                  71,435
                  
                  
                  
                  -Entidades
      Territoriales (Departamentos, Municipios)
                  
                  
                  37,915
                  
                  
                  
                  7,824
                  
                  
                  
                  35,997
                  
                  
                  
                  2,398Empresas
      Públicas de Medellín
                  
                  
                  15,169
                  
                  
                  
                  129
                  
                  
                  
                  5,480
                  
                  
                  
                  731Isagen
      S.A.
                  
                  
                  5,399
                  
                  
                  
                  616
                  
                  
                  
                  1,156
                  
                  
                  
                  -Transportadora
      de Gas del Interior S.A. E.S.P.
                  
                  
                  2,458
                  
                  
                  
                  2,426
                  
                  
                  
                  1,194
                  
                  
                  
                  1,187Empresa
      Colombiana de Gas
                  
                  
                  2,193
                  
                  
                  
                  -
                  
                  
                  
                  9,914
                  
                  
                  
                  -
 
 F-101
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 2008
                    
                    
                    2007Assets
                    
                    
                    Liabilities
                    
                    
                    Assets
                    
                    
                    LiabilitiesTermoemcali
      S.A. E.S.P.
                    
                    
                    1,367
                    
                    
                    
                    3,861
                    
                    
                    
                    1,501
                    
                    
                    
                    1,915Gestión
      Energética S.A. E.S.P.
                    
                    
                    1,173
                    
                    
                    
                    7
                    
                    
                    
                    -
                    
                    
                    
                    400Central
      Hidroeléctrica de Caldas S.A. E.S.P
                    
                    
                    215
                    
                    
                    
                    665
                    
                    
                    
                    1,059
                    
                    
                    
                    1,492Universidad
      Industrial de Santander U.I.S.
                    
                    
                    3
                    
                    
                    
                    244
                    
                    
                    
                    779
                    
                    
                    
                    48Dirección
      de Impuestos y Aduanas Nacionales DIAN
                    
                    
                    -
                    
                    
                    
                    791,021
                    
                    
                    
                    -
                    
                    
                    
                    109,272Other
                    
                    
                    906
                    
                    
                    
                    6,082
                    
                    
                    
                    10,529
                    
                    
                    
                    1,294$
                    5,876,714
                    
                    
                    $
                    919,654
                    
                    
                    $
                    5,421,678
                    
                    
                    $
                    245,863
 
 Other
transactions with related parties during 2008, 2007 and 2006 are:
 
 2008
                                      
                                      
                                      2007
                                      
                                      
                                      2006Income
                                      
                                      
                                      Expenses
                                      
                                      
                                      Income
                                      
                                      
                                      Expenses
                                      
                                      
                                      Income
                                      
                                      
                                      ExpensesMinisterio
      de Minas y Energía
                                      
                                      $
                                      3,870,348
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      1,778,050
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Dirección
      de Impuestos y Aduanas Nacionales DIAN
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,855,718
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,289,777
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,636,185Entidades
      Territoriales (Departamentos, Municipios)
                                      
                                      
                                      -
                                      
                                      
                                      
                                      133,346
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      148,785
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      135,332Contraloría
      General de la República
                                      
                                      
                                      -
                                      
                                      
                                      
                                      25,811
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      25,934
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      22,265Ministerio
      de Defensa Nacional
                                      
                                      
                                      -
                                      
                                      
                                      
                                      15,774
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      10,928
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      12,196Ministerio
      de Transporte
                                      
                                      
                                      -
                                      
                                      
                                      
                                      13,922
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      22,572
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Inversiones
      de Gases de Colombia S.A. – Invercolsa
                                      
                                      
                                      9,231
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      9,219
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Unidad
      de Planeación Minero Energética
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,206
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,885
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Other
                                      
                                      
                                      1,653
                                      
                                      
                                      
                                      7,311
                                      
                                      
                                      
                                      218
                                      
                                      
                                      
                                      2,815
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,947$
                                      3,881,232
                                      
                                      
                                      $
                                      5,054,088
                                      
                                      
                                      $
                                      1,787,487
                                      
                                      
                                      $
                                      2,503,695
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      1,809,925
 
 Agreements
 
 Set forth
below is a description of material related party agreements.
 
 Oleoducto
de Colombia S.A. or ODC
  The
Company entered into the following agreements with ODC, a company where we have
a 43.85% equity interest.
  In July
1992, we entered into a take-or-pay agreement for the transportation of
hydrocarbons.  Pursuant to the agreement we must pay a previously agreed
tariff over the volume of hydrocarbons transported.  The duration of this
agreement is indefinite.
  In August
1992, we entered into an operation and maintenance agreement for the Vasconia
and Coveñas terminals.  Pursuant to the terms of the agreement, ODC is
required to make monthly payments amounting to approximately US$1.1 million per
year plus any other expenses incurred by us in the performance of the agreement,
including a variable surcharge between 5% and 12% on such expenses, plus any
applicable taxes.  The duration of this agreement is indefinite. In 2008,
we made advances for excess in charges of the assigned capacity for US$6.4
million.
  In July
2006, we entered into an operation and maintenance agreement for the Caucasia
Station and the Vasconia-Coveñas pipeline system.  Pursuant to the terms of
the agreement, ODC is required to make monthly payments of US$508,500 per year,
plus any other expenses incurred by us in the performance of the agreement,
including a variable surcharge of between 5% and 12% on such expenses, plus any
applicable taxes.  The duration of this agreement is
indefinite.
  In March
2007, we entered into a services agreement to guarantee the protection and
safety of the Cusiana-Coveñas and Vasconia-Coveñas pipeline systems.  Under
the terms of the agreement, ODC must pay US$51 million per year. This agreement
expires in March 2011.  The payments to ODC for industrial services in
2008, 2007 and 2006 were $3,141, $740 and ($3,918) respectively.
 
 F-102
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Refinería
de Cartagena S.A.
  In April
2007, we entered into a maintenance and administration agreement for the
Cartagena refinery with Refinería de Cartagena S.A., a company in which we have
a 49.0% equity interest.  Pursuant to the terms of the agreement we provide
them with maintenance and administration services and Refinería de Cartagena
S.A. pays us a monthly fee equal to Ps$2.9 billion and a variable annual fee
that may not exceed Ps$6.96 billion.  This agreement expires in April 2011
and may be extended for additional one-year periods until the upgrade and
modernization of the Cartagena refinery’s facilities is completed.
  On
February 1, 2008 we extended a ten-month commercial offer to Refinería de
Cartagena for the supply of crude oil.  Pursuant to the terms of the offer,
Cartagena refinery has the option to purchase from us up to 85 thousand bpd of
crude oil from our Caño Limón, Vasconia Blend, Ayacucho Blend, Cusiana and
Castilla production.  The purchase price for the delivered volumes is equal
to an international benchmark index, subject to certain adjustments.  Our
operations committee evaluates and decides monthly the refinery’s crude oil mix
needs including the need for foreign crudes which we import from West Africa,
the North Sea and the Caribbean.  At December 31, 2008, we had received
aggregate payments of approximately Ps$4,702 billion for the supplied amounts,
equivalents to 26.7 million of barrels.  This offer expired in November,
2008.
  With the
same commercial purpose, offer N° 220855055 was signed on November 26,
2008.  This agreement expired in January 31, 2009 and the offer
N°220093745 is effective for 365 days, from February 1, 2009 until January 31,
2010.
  On
February 1, 2008, Ecopetrol signed a specific purpose agreement to buy up to
60.000 barrels of naphtha virgen and 120.000 barrels of
diesel.  Ecopetrol S.A. paid $8,203 million under this agreement.
Ecopetrol did not purchase any diesel during 2008.  The agreement
expired in January 31, 2009.
  The
payments to Refinería de Cartagena for crude oil agreements in 2008, 2007 and
2006 were $4,278,604, $ 2,948,538 and ($4,900). For natural gas in 2008 and
2007, $ 36,398 and $18,894, respectively, and for other concepts in 2008 and
2007, $55,483 and $82,082, respectively.
  Other
Agreements
  We
entered into a supply agreement with Ecodiesel S.A., a company in which we have
a 50.0% equity interest.  This agreement is not yet operative and will
begin once the Ecodiesel plant starts its activities.  Pursuant to the
terms of the agreement, Ecodisesel must deliver and we must purchase all of
Ecodiesel's monthly biodiesel production. Payments vary depending on the
purchased volumes of biodiesel produced. This agreement expires on December 31,
2017.
  In April
2002, we entered into a service agreement with Sociedad Colombiana de Servicios
Portuarios S.A. or Serviport, a company in which we have a 49% equity
interest.  Pursuant to the terms of the agreement, Serviport assists us in
our maritime operations in the Coveñas port in exchange for which we pay it
approximately US$155,000 per month.  This agreement expires on November 30,
2008 but is renewable annually.
 
 F-103
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  xxvii.
FAIR VALUE OF FINANCIAL INSTRUMENTS
  The
following table presents the carrying amounts and estimated fair values under
U.S. GAAP of the Company’s financial instruments at December 31, 2007 and
2008.  The fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between willing
parties.
 
 2008
                    
                    
                    2007Carrying
                    
                    
                    
                    
                    
                    Carryingamount
                    
                    
                    Fair
      value
                    
                    
                    amount
                    
                    
                    Fair
      valueFinancial
      assets:Cash
      and cash equivalents
                    
                    $
                    4,812,595
                    
                    
                    $
                    4,812,595
                    
                    
                    $
                    8,007,282
                    
                    
                    $
                    8,007,282Investment
      securities
                    
                    
                    7,905,445
                    
                    
                    
                    8,201,004
                    
                    
                    
                    4,945,367
                    
                    
                    
                    5,245,034Accounts/Notes
      Receivable
                    
                    
                    6,086,324
                    
                    
                    
                    6,086,633
                    
                    
                    
                    2,513,429
                    
                    
                    
                    2,475,429Financial
      liabilities:Financial
      Obligations
                    
                    
                    287,314
                    
                    
                    
                    287,314
                    
                    
                    
                    72,491
                    
                    
                    
                    72,491Accounts
      Payable
                    
                    
                    2,113,923
                    
                    
                    
                    2,113,923
                    
                    
                    
                    1,485,650
                    
                    
                    
                    1,485,650Capital
      lease
                    
                    
                    483,880
                    
                    
                    
                    428,671
                    
                    
                    
                    523,029
                    
                    
                    
                    398,183
  The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments:
  Cash and
cash equivalents; Financial Obligations, Accounts Payable: The carrying amounts
approximate fair value because of the short maturity of these
instruments.
  Investment
securities: The fair values of debt securities (both available-for-sale and
held-to-maturity investments) and equity securities are based on quoted market
prices at the reporting date for those or similar investments.
  Accounts/Notes
Receivable and Direct Finance Lease: The fair value is determined as the present
value of expected future cash flows discounted at the rate offered by financial
institutions in a current or savings account in Colombia.
  Capital
Lease: The fair value is determined as the present value of expected future
payments discounted at Ecopetrol’s borrowing rate.
 
 The
Company adopted SFAS No. 157 on January 1, 2008. SFAS No. 157, among other
things, defines fair value, establishes a consistent framework for measuring
fair value and expands disclosure for each major asset and liability category
measured at fair value on either a recurring or nonrecurring basis. SFAS No. 157
clarifies that fair value is an exit price, representing the amount that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that market
participants would use in pricing an asset or liability. As a basis for
considering such assumptions, SFAS No. 157 establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value as
follows:
 
 Level
      1.
              Observable
      inputs such as quoted prices in active
markets;
 Level
      2.
              Inputs,
      other than the quoted prices in active markets, that are observable either
      directly or indirectly; and
 Level
      3.
              Unobservable
      inputs in which there is little or no market data, which require the
      reporting entity to develop its own
assumptions.
 
 F-104
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Assets
measured at fair value on a recurring basis are as follows:


2008Fair
                                                value
                                              
                                              
                                              (Level
      1)
                                              
                                              
                                              (Level
      2)
                                              
                                              
                                              (Level
      3)
                                              
                                              
                                              TechniqueFinancial assets:Marketable
      Securities
                                              
                                              $
                                              3,122,355
                                              
                                              
                                              $
                                              3,122,355
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1
                                              )Investment
      securities
                                              
                                              $
                                              11,222,994
                                              
                                              
                                              $
                                              8,619,375
                                              
                                              
                                              $
                                              2,603,619
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1
                                              )Financial
      liabilities:Financial
      Obligations
                                              
                                              $
                                              287,314
                                              
                                              
                                              $
                                              287,314
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1
                                              )
  (1)
                Market
      approach – The Company uses prices and other relevant
      information generated by market transactions involving identical
      or comparable assets or liabilities. These estimated fair values could
      change significantly based on future market
  conditions.
 
 xxviii. SUPPLEMENTAL
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
  In
accordance with the requirements of the United States Securities and Exchange
Commission (SEC) and Statement of Financial Accounting Standards No. 69,
"Disclosures about Oil and Gas Producing Activities" ("SFAS 69"), this section
provides supplemental information on oil and gas exploration and producing
activities of the Company. The information included in items (i) through (iii)
provides historical cost information pertaining to costs incurred in
exploration, property acquisitions and development, capitalized costs and
results of operations. The information included in items (iv) and (v) present
information on Ecopetrol’s estimated net proved reserve quantities, standardized
measure of estimated discounted future net cash flows related to proved
reserves, and changes in estimated discounted future net cash
flows.
 
 The
following information corresponds to Ecopetrol’s oil and gas producing
activities at December 31 of 2008, 2007 and 2006 in direct and joint operations.
The financial and reserve information has been prepared in accordance with U.S.
GAAP.
  Table
i – Capitalized costs relating to oil and gas producing
activities
 
 December
      312008
                  
                  
                  2007Natural
      and environmental properties – proved properties
                  
                  $
                  8,657,429
                  
                  
                  $
                  7,026,558Wells,
      equipment and facilities – property, plant and equipment
                  
                  
                  4,112,318
                  
                  
                  
                  3,899,238Construction
      in progress
                  
                  
                  1,828,945
                  
                  
                  
                  1,108,023Accumulated
      depreciation, depletion and amortization
                  
                  
                  (7,637,750
                  )
                  
                  
                  (6,460,233
                  )Net
      capitalized costs
                  
                  $
                  6,960,941
                  
                  
                  $
                  5,573,586
 
 In
accordance with SFAS 143, Accounting for Asset Retirement Obligations (“SFAS No.
143”) during 2008, 2007 and 2006 an additional $25.902, $60,864, $49.014 was
added to the cost basis of oil and gas wells for wells drilled.
 
 F-105
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 The
company does not capitalize general and administrative expenses within
exploration and production activities.
  Table
ii – Costs incurred in oil and gas exploration and development
activities
  Costs
incurred are summarized below and include both amounts expensed and capitalized
in the corresponding period.
 
 Year
      ended December 312008
                    
                    
                    2007
                    
                    
                    2006Cost
      of Property acquisition
                    
                    $
                    1,049,402
                    
                    
                    $
                    0
                    
                    
                    $
                    0Exploration
      costs
                    
                    
                    941,369
                    
                    
                    
                    497,737
                    
                    
                    
                    184,838Development
      costs
                    
                    
                    2,808,888
                    
                    
                    
                    2,163,444
                    
                    
                    
                    1,058,837Total
      costs incurred
                    
                    $
                    4,799,659
                    
                    
                    $
                    2,661,181
                    
                    
                    $
                    1,243,675
  The
exploration costs include the expenses related to obtain the exploration rights
given by ANH.
 
 Table
iii - Results of operations for oil and gas producing
activities
 
 2008
                    
                    
                    2007
                    
                    
                    2006Net
      revenuesSales
                    
                    $
                    12,376,368
                    
                    
                    $
                    6,055,009
                    
                    
                    $
                    3,199,219Transfers
                    
                    
                    4,383,141
                    
                    
                    
                    4,676,382
                    
                    
                    
                    6,038,096Total
                    
                    
                    16,759,508
                    
                    
                    
                    10,731,390
                    
                    
                    
                    9,237,315Production
      cost
                    
                    
                    3,215,999
                    
                    
                    
                    3,306,346
                    
                    
                    
                    4,413,667Depreciation,
      depletion and amortization
                    
                    
                    775,852
                    
                    
                    
                    545,188
                    
                    
                    
                    602,453Exploration
      expenses
                    
                    
                    733,877
                    
                    
                    
                    383,884
                    
                    
                    
                    142,350Administration
      and selling expenses
                    
                    
                    330,044
                    
                    
                    
                    165,818
                    
                    
                    
                    153,5145,055,771
                    
                    
                    
                    4,401,236
                    
                    
                    
                    5,311,984Income
      before income tax
                    
                    
                    11,703,737
                    
                    
                    
                    6,330,155
                    
                    
                    
                    3,925,331Income
      Tax expenses
                    
                    
                    (3,862,233
                    )
                    
                    
                    (2,152,253
                    )
                    
                    
                    (1,373,866
                    )Results
      of operations for producing activities
                    
                    $
                    7,841,504
                    
                    
                    $
                    4,177,902
                    
                    
                    $
                    2,551,465
 
 In
accordance with SFAS No. 143, the combined depletion and accretion expense
related to asset retirement obligations that were recognized during 2008, 2007
and 2006 in depreciation, depletion and amortization expense was approximately
$195.191, $18.392 and $22.694, respectively.
  The
Company’s results of operations from oil and gas producing activities for the
years ending December 31, 2008, 2007 and 2006 are shown above. The Company
transferred approximately 26%, 44% and 65% of its crude oil and gas production;
percentages are based on the sales value in Colombian pesos, to inter-company
business units in 2008, 2007 and 2006, respectively. Using volumes, those
transfers were 40, 44% and 60%, respectively, in 2008, 2007 and 2006. The
inter-company transfers were recorded at values equal to the Company’s cost of
production.
  Production
costs are lifting costs incurred to operate and maintain productive wells and
related equipment and facilities, including such costs as operating labor,
materials, supplies, and fuel consumed in operations and the costs of operating
natural gas liquids plants. Production costs also include administrative
expenses and depreciation and amortization of equipment associated with
production activities.
  Exploration
expenses include the costs of geological and geophysical activities and
non-productive exploratory wells. Depreciation and amortization expenses relate
to assets employed in development activities. In accordance with SFAS 69, income
taxes are based on statutory tax rates, reflecting allowable deductions.
Interest income and expense are excluded from the results reported in this
table.
 
 F-106
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
  Table
iv – Reserve quantities information
  The
estimates for proved oil and gas reserves used in the preparation of the
consolidated financial statements were prepared by Ecopetrol’s engineers and
approved by the Company’s reserves committee. Such estimates are in accordance
with guidelines established by the SEC and the Financial Accounting Standards
Board, which require that reserve reports be prepared under economic and
operating conditions existing at the registrant’s year end with no provision for
price and cost escalations except by contractual arrangements. Future cash
inflows were computed by applying year-end prices to the year-end quantities of
proved reserves. Future development, abandonment and production costs were
computed by estimating the expenditures to be incurred in developing, producing,
and abandoning proved oil and gas reserves at the end of the year, based on
year-end costs. Future income taxes were computed by applying statutory tax
rates to the estimated net pre-tax cash flows after consideration of tax basis
and tax credits and carry forwards. Discounted future net cash flows are
calculated using 10% mid period discount factors. This discounting requires a
year-by-year estimate of when the future expenditures will be incurred and when
the reserves will be produced. All of the Company’s activities and reserves are
located in Colombia.
  The
information provided does not represent management’s estimate of the Company’s
expected future cash flows or value of proved oil and gas reserves. Estimates of
proved reserve quantities involve uncertainty and change over time as new
information becomes available.
  The
arbitrary valuation methodology prescribed under SFAS 69 requires assumptions as
to the timing and amount of future development and production costs. The
calculations are made as of December 31 each year and should not be relied upon
as an indication of the Company’s future cash flows or the value of its oil and
gas reserves.
  Proved
oil and gas reserves are the estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved reserves do not include
additional quantities recoverable beyond the term of the concession or contract,
or that may result from extensions of currently proved areas, or from
application of secondary or tertiary recovery processes not yet tested and
determined to be economic.
 
 Proved
developed reserves are the quantities expected to be recovered from existing
wells with existing equipment and operating methods. Proved undeveloped reserves
are those volumes which are expected to be recovered as a result of future
investments in drilling, re-equipping existing wells and installing facilities
necessary to deliver the production from these reserves.
  In some
cases, substantial new investments in additional wells and related facilities
will be required to recover these proved reserves. Due to the inherent
uncertainties and the limited nature of reservoir data, estimates of reserves
are subject to change as additional information becomes available.
  The
Colombian Nation is the owner of all mineral interests located in Colombia. The
Company and, by extension of joint association contracts, its partners, are
given the right to explore, develop, produce and sell those reserves, but do not
own them. The reserve quantities and their standardized measure, presented in
the following tables, represent those reserves and their estimated value that
the Company has the right to extract and sell.
  The
following table sets forth proved oil and gas reserves together with their
changes as of and for the years ended December 31, 2008, 2007 and 2006 (oil in
million barrels, gas in billion cf, gas converted to million barrels at 5.615
billion cf per million barrels):
 2008
                                
                                
                                2007
                                
                                
                                2006Oil
                                
                                
                                Gas
                                
                                
                                Total
                                
                                
                                Oil
                                
                                
                                Gas
                                
                                
                                Total
                                
                                
                                Oil
                                
                                
                                Gas
                                
                                
                                TotalMillion
                                  barrels
                                
                                
                                Billion
                                  cf
                                
                                
                                Million
                                  boe
                                
                                
                                Million
                                  barrels
                                
                                
                                Billion
                                  cf
                                
                                
                                Million
                                  boe
                                
                                
                                Million
                                  barrels
                                
                                
                                Billion
                                  cf
                                
                                
                                Million
                                  boeProved
      reserves:Beginning
      of period
                                
                                
                                857.4
                                
                                
                                
                                1,979.6
                                
                                
                                
                                1,209.9
                                
                                
                                
                                921.2
                                
                                
                                
                                1,860.4
                                
                                
                                
                                1,252.5
                                
                                
                                
                                930.9
                                
                                
                                
                                1,816.6
                                
                                
                                
                                1,254.4Revisions
                                
                                
                                44.2
                                
                                
                                
                                54.5
                                
                                
                                
                                53.9
                                
                                
                                
                                25.9
                                
                                
                                
                                74.0
                                
                                
                                
                                39.0
                                
                                
                                
                                77.4
                                
                                
                                
                                108.8
                                
                                
                                
                                96.8Extensions
      and discoveries
                                
                                
                                8.3
                                
                                
                                
                                0.8
                                
                                
                                
                                8.4
                                
                                
                                
                                9.8
                                
                                
                                
                                164.1
                                
                                
                                
                                39.0
                                
                                
                                
                                8.6
                                
                                
                                
                                48.7
                                
                                
                                
                                17.3
 
 F-107
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 2008
                    
                    
                    2007
                    
                    
                    2006Oil
                    
                    
                    Gas
                    
                    
                    Total
                    
                    
                    Oil
                    
                    
                    Gas
                    
                    
                    Total
                    
                    
                    Oil
                    
                    
                    Gas
                    
                    
                    TotalMillion
                      barrels
                    
                    
                    Billion
                      cf
                    
                    
                    Million
                      boe
                    
                    
                    Million
                      barrels
                    
                    
                    Billion
                      cf
                    
                    
                    Million
                      boe
                    
                    
                    Million
                      barrels
                    
                    
                    Billion
                      cf
                    
                    
                    Million
                      boeProduction
                    
                    
                    (111.0
                    )
                    
                    
                    (136.0
                    )
                    
                    
                    (135.2
                    )
                    
                    
                    (99.6
                    )
                    
                    
                    (118.8
                    )
                    
                    
                    (120.7
                    )
                    
                    
                    (95.7
                    )
                    
                    
                    (113.6
                    )
                    
                    
                    (115.9
                    )End
      of period
                    
                    
                    798.9
                    
                    
                    
                    1,898.9
                    
                    
                    
                    1,137.0
                    
                    
                    
                    857.4
                    
                    
                    
                    1,979.6
                    
                    
                    
                    1,209.9
                    
                    
                    
                    921.2
                    
                    
                    
                    1,860.4
                    
                    
                    
                    1,252.5Proved
      developed reserves:Beginning
      of period
                    
                    
                    651.3
                    
                    
                    
                    1,210.5
                    
                    
                    
                    866.9
                    
                    
                    
                    610.7
                    
                    
                    
                    995.4
                    
                    
                    
                    788.0
                    
                    
                    
                    692.3
                    
                    
                    
                    1,162.2
                    
                    
                    
                    899.3End
      of period
                    
                    
                    518.4
                    
                    
                    
                    720.6
                    
                    
                    
                    646.7
                    
                    
                    
                    651.3
                    
                    
                    
                    1,210.5
                    
                    
                    
                    866.9
                    
                    
                    
                    610.7
                    
                    
                    
                    995.4
                    
                    
                    
                    788.0
 
 This note
to the Ecopetrol’s consolidated financial statements presents the Company’s
total proved oil and gas reserves together with the changes therein as of and
for the years ended December 31, 2008, 2007 and 2006. The estimate of reserves
at December 31, 2007 and 2006 was prepared under Ecopetrol’s policy, using
average prices for 2007 and 2006 respectively, which is acceptable in Colombia
but differ under US GAAP, which requires the calculation of reserves using
year-end prices.  The estimate of reserve at December 31, 2006 was
prepared used a non commercialized natural gas reserves and different technical
parameters used to calculate the heavy crude oil proved reserves. In 2008 the
company adopted the estimated quantities of proved reserves in accordance with
US GAAP and SEC Rule 4-10 of Regulation S-X.
  Table
v – Standardized measure of discounted future net cash flows relating to proved
oil and gas quantities and changes therein
  The
standardized measure of discounted future net cash flows, related to the above
proved crude oil and natural gas reserves, is calculated in accordance with the
requirements of SFAS 69. Estimated future cash inflows from production are
computed by applying year-end prices for oil and gas to year-end quantities of
estimated net proved reserves.
 
 2008
                            
                            
                            2007
                            
                            
                            2006Future
      cash inflows
                            
                            $
                            91,719,056
                            
                            
                            $
                            156,132,956
                            
                            
                            $
                            101,020,921Future
      production and development costs
                            
                            
                            (40,753,567
                            )
                            
                            
                            (55,743,152
                            )
                            
                            
                            (44,063,865
                            )Future income
      tax expenses
                            
                            
                            (18,409,888
                            )
                            
                            
                            (30,561,458
                            )
                            
                            
                            (20,534,182
                            )Future
      net cash flow
                            
                            
                            32,555,601
                            
                            
                            
                            69,828,346
                            
                            
                            
                            36,422,87410%
      annual discount for estimated timing of cash flows
                            
                            
                            (13,897,290
                            )
                            
                            
                            (27,309,680
                            )
                            
                            
                            (13,428,262
                            )Standardized
      measure of discounted future net cash flows
                            
                            $
                            18,658,311
                            
                            
                            $
                            42,518,666
                            
                            
                            $
                            22,994,612
 
 The
following are the principal sources of change in the standardized measure of
discounted net cash flows:
 
 2008
                        
                        
                        2007
                        
                        
                        2006Standardized
      measure of discounted future net cash flows: beginning of
    year
                        
                        $
                        42,518,666
                        
                        
                        $
                        22,994,612
                        
                        
                        $
                        27,319,271Increases
      (decreases)Sales
      net of production costs
                        
                        
                        (13,543,509
                        )
                        
                        
                        (7,425,045
                        )
                        
                        
                        (4,823,648
                        )Net
      change in sales prices net of production costs
                        
                        
                        (21,567,415
                        )
                        
                        
                        25,567,846
                        
                        
                        
                        (10,182,695
                        )Extensions
      and discoveries
                        
                        
                        137,845
                        
                        
                        
                        1,168,704
                        
                        
                        
                        302,236Development
      costs incurred during the period
                        
                        
                        2,808,888
                        
                        
                        
                        2,163,444
                        
                        
                        
                        1,058,837
 
 F-108
 
 Ecopetrol
S.A. and Subsidiaries
 
 Notes to
the Consolidated Financial Statements
 Years
ended December 31, 2008, 2007 and 2006
 
 2008
                      
                      
                      2007
                      
                      
                      2006Revision
      of quantity estimates
                      
                      
                      1,759,641
                      
                      
                      
                      2,175,445
                      
                      
                      
                      2,949,244Accretion
      of discount
                      
                      
                      4,251,867
                      
                      
                      
                      2,299,461
                      
                      
                      
                      2,731,927Net
      change in income taxes
                      
                      
                      8,057,853
                      
                      
                      
                      (5,645,244
                      )
                      
                      
                      5,579,645Changes
      in estimated future development costs
                      
                      
                      (3,858,978
                      )
                      
                      
                      1,369,555
                      
                      
                      
                      (5,043,160
                      )Changes
      of production rates (timing) and other
                      
                      
                      (1,906,546
                      )
                      
                      
                      (2,150,112
                      )
                      
                      
                      3,102,956Net
      increase (decrease)
                      
                      
                      (23,860,355
                      )
                      
                      
                      19,524,054
                      
                      
                      
                      (4,324,659
                      )Standardized
      measure of discounted future net cash flows: end of year
                      
                      $
                      18,658,311
                      
                      
                      $
                      42,518,666
                      
                      
                      $
                      22,994,612
 
 The
figures included in the above tables for 2007 and 2006 differ from figures
presented in the previous year due to the use of the exchange rate at the end of
the year in 2008 versus the average at in 2007 and 2006.
 
 F-109