The first foray of Colombian state-controlled oil company Ecopetrol SA (EC) on the world bond market was welcomed by strong demand from institutional investors.

Ecopetrol Thursday sold $1.5 billion in 10-year bonds at 99.642 to yield 7.677%, according to a syndicate source. The spread was 425 basis points over U.S. Treasurys and demand was "north of $8 billion," the source said.

The final spread was at the tighter end of initial guidance, set at 400-425 basis points over Treasurys.

"We expected 425 basis points over Treasurys; we have 410, which still gives more than 100 basis points over local government bonds," said Felipe Munoz, who manages a fund of bonds at local brokerage Corredores Asociados and who is buying those bonds.

Ecopetrol, Colombia's largest company, was partly privatized in 2007 and has since embarked on an ambitious investment program to more than double its production of oil and natural gas by 2015.

The company, which used to invest less than $1 billion a year before 2006, has since raised spending dramatically and is projected to invest $7 billion in 2009, out of a $60 billion spending spree over 2008-2015.

The firm has concentrated on exploration projects in Colombia and abroad, improving production and in acquisitions at home and abroad, mainly in neighboring Peru.

As a result, Ecopetrol has raised its output to 482,000 barrels of oil equivalent a day from 385,000 barrels of oil equivalent a day in 2006. Its goal is to reach 1 million of barrels of oil equivalent in 2015.

The company won't be able to reach that goal if it doesn't quickly find new reserves in the many areas it now explores, analysts have said.

Until this year, Ecopetrol had used its own cash flow to finance its investment and had virtually no debt.

Before the floating of 10.1% of the company on the Colombian stock market, Ecopetrol, as a fully owned state-company, couldn't borrow freely without affecting the government's accounts.

Earlier this year, the company secured a 2.2 trillion Colombian pesos ($1.09 billion) syndicated loan from local banks. Chief Executive Javier Gutierrez had announced the company would seek $3.7 billion in debt financing this year.

Ecopetrol's low debt and planned expansion make it an attractive option for investors, said Yong Zhu, who manages a $350 million emerging markets bond fund at DuPont Capital Management and who said he will be buying some of the Ecopetrol paper.

"Is it cheap? Probably not; but it is safe," he said.

Additionally, investors have been seeking exposure to Colombia as its economy has held up relatively well in the global economic crisis and the Ecopetrol bonds are a proxy to government bonds, Zhu said.

After the demand for the Ecopetrol bonds was so high, foreign investors' demand for local government bonds increased, Cesar Tovar, a market analyst with local brokerage Nacional de Valores, said.

"The strong demand for Ecopetrol boosted foreigners' appetite for Colombian bonds in general," he said. "Some people who won't be able to buy as many Ecopetrol bonds as they had wanted will buy local bonds, instead."

The yield on the benchmark peso-denominated government bond was down 8.973% at 12:44 p.m. EDT from 9.052% on Wednesday.

The shares of Ecopetrol traded unchanged at COP2,575 after falling slightly earlier in the session. The shares reacted to the price of oil, which was down early Thursday morning and was recovering later in the day, Tovar said.

-By Inti Landauro, Dow Jones Newswires; 57-1-610 70 44, ext. 1131; colombia@dowjones.com

(Claudia Assis and Kejal Vyas in New York contributed to this article.)