8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 4, 2011

Tesoro Corporation

(Exact name of registrant as specified in its charter)

Delaware	1-3473	95-0862768
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

19100 Ridgewood Pkwy San Antonio, Texas	78259-1828
(Address of principal executive offices)	(Zip Code)

(210) 626-6000

(Registrant’s telephone number,

including area code)

Not Applicable

(Former name or former address, if

changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

Tesoro Corporation (or the “Company”) on May 4, 2011 issued a press release announcing financial results for its first quarter ended March 31, 2011.  The press release is filed as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

The information above is being furnished, not filed, pursuant to Item 2.02 of Form 8-K.  Accordingly, the information in Item 2.02 of this Current Report, including the press release, will not be incorporated by reference into any registration statement filed by the Company under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated by reference.

Item 9.01 Financial Statements and Exhibits.

     (d)   Exhibits.

99.1 Press release announcing first quarter financial results issued on May 4, 2011 by Tesoro Corporation.  

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: May 4, 2011

TESORO CORPORATION
By:	/s/ G. SCOTT SPENDLOVE
	G. Scott Spendlove
	Senior Vice President and Chief Financial Officer

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Index to Exhibits

Exhibit Number	Description
99.1	Press release announcing first quarter financial results issued on May 4, 2011 by Tesoro Corporation.

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EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Tesoro Corporation Reports First Quarter Results

SAN ANTONIO – May 4, 2011 - Tesoro Corporation (NYSE:TSO) today reported first quarter 2011 net income of $107 million, or $0.74 per diluted share compared to a net loss of $155 million, or $1.11 per diluted share for the first quarter of 2010.

For the first quarter, the Company recorded segment operating income of $305 million compared to a segment operating loss of $125 million, excluding the $20 million write-off associated with the deferral of a capital project at the Los Angeles refinery in the first quarter a year ago.  The increase in operating income is due to higher refinery throughput rates, a significant crude sourcing advantage and an improved margin environment.

For the first quarter, the Tesoro Index of $10.54 per barrel (/bbl) gained more than $5/bbl or 100% from a year ago. West Coast benchmark diesel crack spreads were up nearly 140% over last year while gasoline crack spreads gained 35%.  Strong Asian refining crack spreads, continued strength in US light product exports and feedstock advantages in the mid-continent drove crack spreads higher in the quarter.  The Company captured a gross margin of $14.33/bbl.

The Company’s strong margin performance relative to the index was driven by a significantly advantaged crude cost relative to benchmark crudes and a solid operating performance during the quarter. On the West Coast, discounts for foreign heavy crude oil relative to domestic alternatives widened year-over-year. In the mid-continent region, crude oils priced off WTI traded at a discount to waterborne crude oil benchmarks. Total throughput in the quarter was 561 thousand barrels per day (mbpd) or more than 84% of total crude oil capacity, up from 505 mbpd or 76% of capacity in the fourth quarter 2010.  The improvement reflects less unplanned downtime, minimal turnaround activity and the benefit of the Anacortes refinery being back on-line for a full quarter.

Direct manufacturing costs in the first quarter averaged $5.22/bbl, a decrease of over $0.50/bbl from the 2010 fourth quarter, excluding the benefit of $12 million in property damage insurance recoveries accrued last quarter.  The improvement is consistent with our stated objectives of reducing operating costs and increasing throughput rates.

Retail sales volumes were up year-over-year reflecting growth in the Company’s branded jobber/dealer segment with the addition of wholesale supply contracts for approximately 300 Shell-branded stations during the quarter.  Same store sales were down slightly year-over-year.  Retail segment operating income was $2 million, down $22 million from a year ago on lower retail fuel margins.

Corporate and unallocated costs, net of $3 million of corporate depreciation and excluding a $46 million non-cash stock-based compensation expense primarily associated with stock appreciation rights, were $37 million in the first quarter.

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“We had an excellent first quarter.  Significantly higher refinery utilization rates and good progress on our EBITDA improvement initiatives combined with strong product crack spreads and price advantaged crude oil helped deliver outstanding earnings and cash flow for the first quarter,” said Greg Goff, President and CEO of Tesoro.

Capital Spending and Liquidity

Capital spending for the first quarter was $42 million. Turnaround spending was $9 million. Expectations for full year 2011 capital spending remain at $380 million, excluding expenditures on the recently announced expansion at the North Dakota refinery. The Company continues to plan for turnaround spending in 2011 of approximately $160 million.  The Company ended the first quarter with $724 million in cash on the balance sheet and remained undrawn with $974 million of availability on the recently amended parent company revolving credit facility.

Successful Public Offering of Tesoro Logistics LP

On April 26, 2011, Tesoro Logistics LP (NYSE:TLLP) (“Tesoro Logistics”) closed its initial public offering of 14,950,000 common units, including the 1,950,000 unit over-allotment option that was exercised by the underwriters, at a price of $21.00 per unit, representing 48% of the outstanding equity of Tesoro Logistics. Net proceeds from the sale of the units were approximately $283 million. Additionally, Tesoro Logistics borrowed $50 million under its revolving credit facility to fund an additional cash distribution to Tesoro.  Total net proceeds to Tesoro Corporation after all fees, expenses and cash retained by the partnership were approximately $330 million.

Redemption of Junior Subordinated Notes

Tesoro today also announced the redemption of the full amount of $150 million junior subordinated notes due in 2012. The redemption, at par, was completed today.  Tesoro expects to continue to reduce total leverage and has targeted a ratio of total debt to total capitalization of 30% or less.

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North Dakota Refinery Expansion

On March 21, 2011, Tesoro Corporation announced plans to expand the crude oil throughput capacity at its Mandan, North Dakota refinery from 58 mbpd to 68 mbpd by the second quarter of 2012. During the past three years, the average crude oil throughput rate at the refinery was approximately 52 mbpd. Tesoro expects to supply the plant with additional crude oil from the burgeoning crude oil production in the nearby Bakken Shale/Williston Basin area via the Tesoro Logistics High Plains Pipeline system. The current expected capital investment for the expansion will be approximately $35 million.

Public Invited to Listen to Analyst Conference Call

At 7:30 a.m. CDT tomorrow morning, Tesoro will broadcast, live, its conference call with analysts regarding first quarter 2011 results and other business matters.  Interested parties may listen to the live conference call over the Internet by logging on to http://www.tsocorp.com.

Tesoro Corporation, a Fortune 150 company, is an independent refiner and marketer of petroleum products.  Tesoro, through its subsidiaries, operates seven refineries in the western United States with a combined capacity of approximately 665,000 barrels per day.  Tesoro's retail-marketing system includes nearly 1,200 branded retail stations, of which over 375 are company operated under the Tesoroâ, Shellâ, Mirastarâ and USA Gasoline™ brands.

This earnings release contains certain statements that are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning the market environment, expected expansionary projects and our expectations about capital spending.  For more information concerning factors that could affect these statements see our annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. We undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances that occur, or which we become aware of, after the date hereof."

Contact:

Investors:

Louie Rubiola, Director, Investor Relations, (210) 626-4355

Media:

Mike Marcy, Manager, External Affairs, (210) 626-4697

 

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TESORO CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(In millions except per share amounts)
	Three Months Ended
	March 31,
	2011			2010
Revenues	$	6,526		$	4,607
Costs and Expenses:
Cost of sales		5,735			4,247
Operating expenses		371			373
Selling, general and administrative expenses		95			67
Depreciation and amortization expense		103			100
Loss on asset disposals and impairments (a)		3			22
Operating Income (Loss)		219			(202	)
Interest and financing costs		(43	)		(37	)
Foreign currency exchange gain		1			-
Earnings (Loss) Before Income Taxes		177			(239	)
Income tax expense (benefit)		70			(84	)
Net Earnings (Loss)	$	107		$	(155	)
Net Earnings (Loss) Per Share:
Basic	$	0.76		$	(1.11	)
Diluted (b)	$	0.74		$	(1.11	)
Weighted Average Common Shares:
Basic		141.6			139.5
Diluted (b)		144.0			139.5

(a)	Includes a $20 million impairment charge related to refining equipment at our Los Angeles refinery for the three months ended March 31, 2010.  Loss on asset disposals and impairments is included in refining segment operating income but excluded from the regional operating costs per barrel.
(b)	The assumed conversion of common stock equivalents produced anti-dilutive results for the three months ended March 31, 2010 and was not included in the dilutive calculation.

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TESORO CORPORATION
SELECTED OPERATING SEGMENT DATA
(Unaudited)
(In millions)
	Three Months Ended
	March 31,
	2011			2010
Operating Income (Loss)
Refining	$	303		$	(169	)
Retail		2			24
Total Segment Operating Income (Loss)		305			(145	)
Corporate and unallocated costs		(86	)		(57	)
Operating Income (Loss)		219			(202	)
Interest and financing costs		(43	)		(37	)
Foreign currency exchange gain		1			-
Earnings (Loss) Before Income Taxes	$	177		$	(239	)
Depreciation and Amortization Expense
Refining	$	91		$	85
Retail		9			10
Corporate		3			5
Depreciation and Amortization Expense	$	103		$	100
Capital Expenditures
Refining	$	38		$	65
Retail		3			2
Corporate		1			-
Capital Expenditures	$	42		$	67

BALANCE SHEET DATA
(Unaudited)
(Dollars in millions)
	March 31,			December 31,
	2011			2010
Cash and cash equivalents	$	724		$	648
Total Assets	$	9,358		$	8,732
Total Debt	$	1,927		$	1,995
Total Stockholders' Equity	$	3,329		$	3,215
Total Debt to Capitalization Ratio	$	37	%		38	%

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TESORO CORPORATION
OPERATING DATA
(Unaudited)
	Three Months Ended
	March 31,
REFINING SEGMENT	2011		2010
Total Refining Segment
Throughput (thousand barrels ("bbls") per day)
Heavy crude (c)		186		167
Light crude		338		276
Other feedstocks		37		28
Total Throughput		561		471
Yield (thousand bbls per day)
Gasoline and gasoline blendstocks		289		233
Jet fuel		79		70
Diesel fuel		126		94
Heavy oils, residual products, internally produced fuel and other		100		103
Total Yield		594		500
Gross refining margin ($/throughput bbl) (d)	$	14.33	$	6.36
Manufacturing cost before depreciation and amortization expense ($/throughput bbl) (d)	$	5.22	$	5.94
Segment Operating Income (Loss) ($ millions)
Gross refining margin (e)	$	724	$	270
Expenses
Manufacturing costs		264		252
Other operating expenses		56		72
Selling, general and administrative expenses		8		9
Depreciation and amortization expense (f)		91		85
Loss on asset disposal and impairments (a)		2		21
Segment Operating Income (Loss)	$	303	$	(169	)
Refined Product Sales (thousand bbls per day) (g)
Gasoline and gasoline blendstocks		325		284
Jet fuel		86		89
Diesel fuel		130		97
Heavy oils, residual products and other		74		77
Total Refined Product Sales		615		547
Refined Product Sales Margin ($/bbl) (g)
Average sales price	$	113.33	$	87.08
Average costs of sales		99.98		82.82
Refined Product Sales Margin	$	13.35	$	4.26

(c)	We define heavy crude oil as crude oil with an American Petroleum Institute gravity of 24 degrees or less.
(d)	Management uses gross refining margin per barrel to evaluate performance and compare profitability to other companies in the industry.  There are a variety of ways to calculate gross refining margin per barrel; different companies may calculate it in different ways.  We calculate gross refining margin per barrel by dividing gross refining margin (revenue less costs of feedstocks, purchased refined products, transportation and distribution) by total refining throughput.  Management uses manufacturing costs per barrel to evaluate the efficiency of refining operations.  There are a variety of ways to calculate manufacturing costs per barrel; different companies may calculate it in different ways.  We calculate manufacturing costs per barrel by dividing manufacturing costs by total refining throughput.  Investors and analysts use these financial measures to help analyze and compare companies in the industry on the basis of operating performance.  These financial measures should not be considered alternatives to segment operating income, revenues, cost of sales and operating expenses or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States of America.
(e)	Consolidated gross refining margin combines gross refining margin for each of our regions adjusted for other amounts not directly attributable to a specific region. Other amounts resulted in an increase of $5 million and $2 million for the three months ended March 31, 2011 and 2010, respectively.  Gross refining margin includes the effect of intersegment sales to the retail segment at prices which approximate market.  Gross refining margin approximates total refining throughput multiplied by the gross refining margin per barrel.
(f)	Includes manufacturing depreciation and amortization expense per throughput barrel of approximately $1.72 and $1.88 for the three months ended March 31, 2011 and 2010, respectively.
(g)	Sources of total refined product sales include refined products manufactured at our refineries and refined products purchased from third parties.  The total refined product sales margins includes margins on sales of manufactured and purchased refined products.

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TESORO CORPORATION
OPERATING DATA
(Unaudited)
	Three Months Ended
	March 31,
Refining By Region	2011			2010
California (Golden Eagle and Los Angeles)
Throughput (thousand bbls per day) (h)
Heavy crude (c)		169			142
Light crude		56			33
Other feedstocks		23			15
Total Throughput		248			190
Yield (thousand bbls per day)
Gasoline and gasoline blendstocks		144			108
Jet fuel		22			18
Diesel fuel		61			43
Heavy oils, residual products, internally produced fuel and other		44			40
Total Yield		271			209
Gross refining margin	$	372		$	132
Gross refining margin ($/throughput bbl) (d)	$	16.66		$	7.74
Manufacturing cost before depreciation and amortization expense ($/throughput bbl) (d)	$	6.68		$	8.84
Pacific Northwest (Alaska & Washington)
Throughput (thousand bbls per day)
Heavy crude (c)		1			3
Light crude		124			110
Other feedstocks		10			9
Total Throughput		135			122
Yield (thousand bbls per day)
Gasoline and gasoline blendstocks		63			53
Jet fuel		28			28
Diesel fuel		22			16
Heavy oils, residual products, internally produced fuel and other		27			30
Total Yield		140			127
Gross refining margin	$	163		$	64
Gross refining margin ($/throughput bbl) (d)	$	13.39		$	5.85
Manufacturing cost before depreciation and amortization expense ($/throughput bbl) (d)	$	4.08		$	4.36
Mid-Pacific (Hawaii)
Throughput (thousand bbls per day)
Heavy crude (c)		16			22
Light crude		53			44
Total Throughput		69			66
Yield (thousand bbls per day)
Gasoline and gasoline blendstocks		19			16
Jet fuel		18			16
Diesel fuel		13			12
Heavy oils, residual products, internally produced fuel and other		20			24
Total Yield		70			68
Gross refining margin	$	(19	)	$	-
Gross refining margin ($/throughput bbl) (d)	$	(3.05	)	$	0.05
Manufacturing cost before depreciation and amortization expense ($/throughput bbl) (d)	$	4.69		$	2.78

(h) There were no major turnarounds at our refineries during the 2011 Quarter; however, we experienced reduced throughput due to scheduled turnarounds at our Golden Eagle and Utah refineries during the 2010 Quarter.

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TESORO CORPORATION
OPERATING DATA
(Unaudited)
	Three Months Ended
	March 31,
	2011		2010
Mid-Continent (North Dakota and Utah)
Throughput (thousand bbls per day) (h)
Light crude		105		89
Other feedstocks		4		4
Total Throughput		109		93
Yield (thousand bbls per day)
Gasoline and gasoline blendstocks		63		56
Jet fuel		11		8
Diesel fuel		30		23
Heavy oils, residual products, internally produced fuel and other		9		9
Total Yield		113		96
Gross refining margin	$	203	$	72
Gross refining margin ($/throughput bbl) (d)	$	20.77	$	8.60
Manufacturing cost before depreciation and amortization expense ($/throughput bbl) (d)	$	3.65	$	4.34

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TESORO CORPORATION
OPERATING DATA
(Unaudited)
	Three Months Ended
	March 31,
RETAIL SEGMENT	2011			2010
Number of Stations (end of period)
Company-operated		379			385
Branded jobber/dealer (i)		805			498
Total Stations		1,184			883
Average Stations (during period)
Company-operated		380			386
Branded jobber/dealer (i)		719			498
Total Average Retail Stations		1,099			884
Fuel Sales (millions of gallons) (j)
Company-operated		177			178
Branded jobber/dealer (i)		178			138
Total Fuel Sales		355			316
Fuel Margin ($/gallon) (k) (l)	$	0.14		$	0.23
Merchandise Sales ($ millions)	$	46		$	46
Merchandise Margin ($ millions)	$	12		$	12
Merchandise Margin %		26	%		26	%
Segment Operating Income ($ millions)
Gross Margins
Fuel (l)	$	49		$	72
Merchandise and other non-fuel margin		18			18
Total Gross Margins		67			90
Expenses
Operating expenses		51			49
Selling, general and administrative expenses		4			6
Depreciation and amortization expense		9			10
Loss on asset disposals and impairments		1			1
Segment Operating Income	$	2		$	24

(i)	Reflects the phased expansion of  our branded marketing presence through the addition of wholesale supply contracts for approximately 300 Shell-branded stations predominantly in the Mid-Continent region.
(j)	We have reclassified fuel sales volumes associated with retail stations where Tesoro delivers the fuel, but the sites are owned and operated by independent dealers from "Company-operated" to "Branded jobber/dealer" to conform to the current presentation.  The fuel sales volumes related to these stations were 75 million gallons for the three months ended March 31, 2010.
(k)	Management uses fuel margin per gallon to compare profitability to other companies in the industry. There are a variety of ways to calculate fuel margin per gallon; different companies may calculate it in different ways.  We calculate fuel margin per gallon by dividing fuel gross margin by fuel sales volumes.  Investors and analysts use fuel margin per gallon to help analyze and compare companies in the industry on the basis of operating performance.  This financial measure should not be considered an alternative to segment operating income and revenues or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States of America.
(l)	Includes the effect of intersegment purchases from the refining segment at prices which approximate market.

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TESORO CORPORATION
RECONCILIATION OF AMOUNTS REPORTED UNDER US GAAP
(Unaudited)
(In millions)
		Three Months Ended
		March 31,
		2011		2010
Net Earnings (Loss)		$	107	$	(155	)
	Add (Less) income tax expense (benefit)		70		(84	)
	Add interest and financing costs		43		37
	Add depreciation and amortization expense		103		100
Earnings (Loss) before Interest, Income Taxes, Depreciation and Amortization Expense (EBITDA)  (m)		$	323	$	(102	)
MANUFACTURING COSTS PER BARREL ADJUSTED FOR SPECIAL ITEMS
(Unaudited)
		Three Months Ended
		March 31,		December 31,
			2011		2010
Manufacturing Costs (in millions)		$	264	$	256
Special Items:
	Property damage insurance recoveries (n)		-		12
Adjusted Manufacturing Costs		$	264	$	268
Total Throughput (thousand bbls per day)			561		505
Manufacturing Costs per Barrel		$	5.22	$	5.50
Special Items Per Barrel:
	Property damage insurance recoveries (n)		-		0.26
Adjusted Manufacturing Costs per Barrel		$	5.22	$	5.76
(m)	EBITDA represents earnings before interest and financing costs, interest income, income taxes, and depreciation and amortization expense. We present EBITDA because we believe some investors and analysts use EBITDA to help analyze our cash flows including our ability to satisfy principal and interest obligations with respect to our indebtedness and to use cash for other purposes, including capital expenditures. EBITDA is also used by some investors and analysts to analyze and compare companies on the basis of operating performance and by management for internal analysis and as a component of the fixed charge coverage financial covenant in our credit agreement. EBITDA should not be considered as an alternative to net earnings, earnings before income taxes, cash flows from operating activities or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States of America. EBITDA may not be comparable to similarly titled measures used by other entities.
(n)	Represents the impact of property damage insurance recoveries of $12 million related to the April 2, 2010 incident at the Washington refinery.

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