10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

(Mark One)

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

For the quarterly period ended March 31, 2013

or

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

For the transition period from_____________________to__________

Commission File Number 1‑3473

TESORO CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	95‑0862768
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	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)

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  R   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 R No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  R	Accelerated filer £
Non-accelerated filer  £  (Do not check if a smaller reporting company)	Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   £    No  R

There were 135,815,196 shares of the registrant’s Common Stock outstanding at April 29, 2013.

TESORO CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	Page
Item 1. Financial Statements (Unaudited)
Condensed Statements of Consolidated Operations and Comprehensive Income - Three Months Ended March 31, 2013 and 2012	3
Condensed Consolidated Balance Sheets - March 31, 2013 and December 31, 2012	4
Condensed Statements of Consolidated Cash Flows - Three Months Ended March 31, 2013 and 2012	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	50
Item 4. Controls and Procedures	52
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	53
Item 1A. Risk Factors	53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 5. Other Information	54
Item 6. Exhibits	55
SIGNATURES	56

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TESORO CORPORATION

CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended March 31,
	2013			2012
	(In millions, except per share amounts)
REVENUES (a)	$	8,156		$	7,820
COSTS AND EXPENSES:
Cost of sales (a)	7,335			7,168
Operating expenses	400			347
Selling, general and administrative expenses	115			62
Depreciation and amortization expense	106			103
Loss on asset disposals and impairments	8			6
OPERATING INCOME	192			134
Interest and financing costs, net	(30		)	(36		)
Interest income	1			1
Other expense, net	(1		)	—
EARNINGS BEFORE INCOME TAXES	162			99
Income tax expense	58			37
NET EARNINGS	104			62
Less: Net earnings attributable to noncontrolling interest	11			6
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	$	93		$	56
NET EARNINGS PER SHARE:
Basic	$	0.68		$	0.40
Diluted	$	0.67		$	0.39
WEIGHTED AVERAGE COMMON SHARES:
Basic	137.0			139.5
Diluted	139.6			141.8
DIVIDENDS PER SHARE	$	0.20		$	—
COMPREHENSIVE INCOME
Total comprehensive income	$	104		$	62
Less: Noncontrolling interest in comprehensive income	11			6
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	$	93		$	56
SUPPLEMENTAL INFORMATION:
(a) Includes excise taxes collected by our retail segment	$	134		$	99

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

TESORO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2013			December 31, 2012
	(Dollars in millions, except per share amounts)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,972		$	1,639
Receivables, less allowance for doubtful accounts	1,366			1,221
Inventories	1,560			1,578
Prepayments and other current assets	224			198
Total Current Assets	5,122			4,636
NET PROPERTY, PLANT AND EQUIPMENT	5,285			5,245
OTHER NONCURRENT ASSETS, NET	983			821
Total Assets	$	11,390		$	10,702
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	2,582		$	2,213
Other current liabilities	621			668
Total Current Liabilities	3,203			2,881
DEFERRED INCOME TAXES	864			850
OTHER NONCURRENT LIABILITIES	629			647
DEBT	1,590			1,587
COMMITMENTS AND CONTINGENCIES (Note K)
EQUITY
TESORO CORPORATION STOCKHOLDERS’ EQUITY
Common stock, par value $0.162/3; authorized 200,000,000 shares; 153,525,771 shares issued (152,579,955 in 2012)	26			25
Preferred stock, no par value; authorized 5,000,000 shares; 0 shares issued	—			—
Additional paid-in capital	1,111			1,070
Retained earnings	3,714			3,649
Treasury stock, 17,010,602 common shares (14,417,533 in 2012), at cost	(491		)	(356		)
Accumulated other comprehensive loss	(137		)	(137		)
Total Tesoro Corporation Stockholders’ Equity	4,223			4,251
NONCONTROLLING INTEREST	881			486
Total Equity	5,104			4,737
Total Liabilities and Equity	$	11,390		$	10,702

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

TESORO CORPORATION

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2013			2012
	(Dollars in millions)
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings	$	104		$	62
Adjustments to reconcile net earnings to net cash from (used in) operating activities:
Depreciation and amortization expense	106			103
Loss on asset disposals and impairments	8			6
Stock-based compensation expense	52			21
Deferred income taxes	14			24
Excess tax benefits from stock-based compensation arrangements	(3		)	(3		)
Deferred charges	(159		)	(126		)
Other changes in noncurrent assets and liabilities	(14		)	(4		)
Changes in current assets and current liabilities:
Receivables	(144		)	(92		)
Inventories	18			51
Prepayments and other	(26		)	(10		)
Accounts payable and accrued liabilities	291			(47		)
Net cash from (used in) operating activities	247			(15		)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	(125		)	(111		)
Proceeds from asset sales	2			—
Acquisitions	—			(37		)
Advance payments made for acquisition	(27		)	—
Net cash used in investing activities	(150		)	(148		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	—			85
Repayments on revolving credit agreements	—			(112		)
Dividend payments	(28		)	—
Proceeds from stock options exercised	32			14
Net proceeds from issuance of Tesoro Logistics LP common units	392			—
Distributions to noncontrolling interest	(14		)	(6		)
Purchases of common stock	(135		)	(10		)
Excess tax benefits from stock-based compensation arrangements	3			3
Financing costs and other	(14		)	(1		)
Net cash from (used in) financing activities	236			(27		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	333			(190		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,639			900
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,972		$	710
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid, net of capitalized interest	$	(4	)	$	(2	)
Income taxes paid, net	$	45		$	—
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
Capital expenditures included in accounts payable at end of period	$	69		$	36

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A – BASIS OF PRESENTATION

As used in this report, the terms “Tesoro,” “we,” “us” or “our” may refer to Tesoro Corporation, one or more of its consolidated subsidiaries or all of them taken as a whole. The words “we,” “us” or “our” generally include Tesoro Logistics LP (“TLLP”) and its subsidiaries as consolidated subsidiaries of Tesoro Corporation with certain exceptions where there are transactions or obligations between TLLP and Tesoro Corporation or its other subsidiaries. When used in descriptions of agreements and transactions, “TLLP” or the “Partnership” refers to TLLP and its consolidated subsidiaries.

The interim condensed consolidated financial statements and notes thereto of Tesoro Corporation and its subsidiaries have been prepared by management without audit according to the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of results for the periods presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed.

The consolidated balance sheet at December 31, 2012, has been condensed from the audited consolidated financial statements at that date. Certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations. However, management believes that the disclosures presented herein are adequate to present the information fairly. The accompanying condensed consolidated financial statements and notes should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012.

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts and disclosures of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We review our estimates on an ongoing basis, based on currently available information. Changes in facts and circumstances may result in revised estimates and actual results could differ from those estimates. The results of operations for any interim period are not necessarily indicative of results for the full year. Certain prior year balances have been aggregated or disaggregated in order to conform to the current year presentation.

Our consolidated financial statements include TLLP, a variable interest entity. As the general partner of TLLP, we have the sole ability to direct the activities of TLLP that most significantly impact its economic performance. We are also considered to be the primary beneficiary for accounting purposes and are TLLP’s primary customer. Under our long-term transportation agreements with TLLP, transactions with us accounted for 93% of TLLP’s total revenues for both the three months ended March 31, 2013 and 2012. As TLLP does not derive a significant amount of revenue from third parties, there is limited risk to Tesoro associated with TLLP’s operations. However, in the event TLLP incurs a loss, our operating results will reflect TLLP’s loss, net of intercompany eliminations, to the extent of our ownership interest in TLLP. See Note B for additional information relating to TLLP.

New Accounting Standards and Disclosures

Presentation of Comprehensive Income

The Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) in February 2013 that provides entities the option of presenting information related to reclassification adjustments on the face of the financial statements or in the notes to the financial statements for items that are reclassified from other comprehensive income to net income in the statement where those components are presented. The requirements from the new ASU are effective for interim and annual periods beginning after December 15, 2012. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.

6

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fair Value Measurements and Disclosures

The FASB issued an ASU in December 2011, which requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of these arrangements on its financial position. The guidance requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. In January 2013, the FASB amended and clarified the scope of the disclosures to include only derivative instruments, repurchase agreements and securities lending transactions. The provisions for this ASU are effective for interim and annual reporting periods beginning on January 1, 2013. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.

NOTE B – TESORO LOGISTICS LP

TLLP is a publicly traded limited partnership that was formed to own, operate, develop and acquire logistics assets. Its assets are integral to the success of Tesoro’s refining and marketing operations and are used to gather crude oil and distribute, transport and store crude oil and refined products. As of March 31, 2013, its assets consisted of a crude oil gathering system in the Williston Basin and terminalling, transportation and storage assets in the midwestern and western United States, including refined products and marine terminals, a rail car unloading facility, a crude oil and refined products storage facility and transportation pipelines.

Equity Issuance and Revolver Amendment

On January 14, 2013, TLLP closed an equity offering (“TLLP Equity Issuance”) of 9,775,000 common units at a public offering price of $41.70 per unit. Net proceeds to TLLP from the sale of the units were approximately $392 million. In connection with the offering, Tesoro Logistics GP, LLC (“TLGP”) purchased 199,490 general partner units at a price of $41.70 per unit to maintain its 2% general partner interest in TLLP.

Effective January 4, 2013, TLLP amended and restated its senior secured revolving credit agreement (the “TLLP Revolving Credit Facility”), to increase commitments under the facility from $300 million to $500 million and to allow TLLP to request that the loan availability be increased up to an aggregate of $650 million, subject to receiving increased commitments from the lenders.

We held an approximate 38% interest in TLLP at March 31, 2013, including a 2% interest in the general partner. This interest includes 1,283,915 common units, 15,254,890 subordinated units and 929,086 general partner units. All intercompany transactions with TLLP are eliminated upon consolidation.

Acquisition

In December 2012, TLLP executed definitive agreements to purchase Chevron Pipe Line Company’s and Northwest Terminalling Company’s (collectively, “Chevron”) northwest products system (the “Northwest Products System”) for a total purchase price of $400 million. On March 28, 2013, TLLP and Chevron amended these agreements to extend the final closing date, which is the date that either party can terminate the agreements without defaulting under the terms of the agreements, from April 1, 2013 to June 1, 2013. The transaction is subject to regulatory approval and is expected to close during the second quarter of 2013. TLLP paid a deposit of $40 million upon execution of the purchase agreements, which may be retained by Chevron upon certain contract termination events.

The Northwest Products System consists of a regulated common carrier products pipeline running from Salt Lake City, Utah to Spokane, Washington and a jet fuel pipeline to the Salt Lake City International Airport. It also includes certain assets of the Northwest Terminalling Company consisting of the Boise and Pocatello, Idaho and Pasco, Washington refined products terminals. Under the terms of the purchase and sale agreements, TLLP will assume environmental liabilities related to the Northwest Products System. TLLP is evaluating the environmental liabilities existing at the time the purchase and sale agreements were executed. In addition, TLLP is evaluating the impact associated with a leak that Chevron identified on a diesel pipeline in March 2013.

Agreements with TLLP

TLLP generates revenue by charging fees for gathering, transporting and storing crude oil and for terminalling, transporting and storing crude oil and refined products. We do not provide financial or equity support through any liquidity arrangements or financial guarantees to TLLP.

7

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

TLLP provides us with various pipeline transportation, trucking, terminal distribution and storage services under long-term, fee-based commercial agreements expiring 2016 through 2022. Each of these agreements, with the exception of the storage and transportation services agreement, contain minimum volume commitments. Each agreement has fees that are indexed for inflation and, except for a trucking transportation services agreement, provides us with options to renew for two additional five-year terms. The agreements also include provisions that permit us to suspend, reduce or terminate our obligations under the applicable agreement if certain events occur after one year of continuing minimum payments.

In addition to commercial agreements, we are also party to an omnibus agreement with TLLP, which among other things, addresses the payment of an annual fee to us, currently $2.5 million, for the provision of various general and administrative services provided to TLLP. We are also party to an operational services agreement with TLLP, under which TLLP reimburses us with an annual fee, currently $2 million, for the provision of certain operational services in support of their pipelines, terminals and storage facility.

With the exception of affiliate balances which are eliminated upon consolidation, and their impact on equity, the TLLP condensed combined consolidated balance sheets as of March 31, 2013 and December 31, 2012, as presented below, are included in the condensed consolidated balance sheets of Tesoro Corporation.

	March 31, 2013		December 31, 2012
	(In millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	415	$	19
Receivables
Trade	—		—
Affiliate	19		18
Prepayments	1		1
Total Current Assets	435		38
NET, PROPERTY, PLANT AND EQUIPMENT	284		274
DEPOSITS	40		40
OTHER NONCURRENT ASSETS	12		11
Total Assets	$	771	$	363
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable
Trade	$	10	$	9
Affiliate	7		7
Deferred revenue - affiliate	2		2
Accrued interest and financing costs	12		6
Other current liabilities	3		3
Total Current Liabilities	34		27
DEBT	358		354
EQUITY (DEFICIT)	379		(18		)
Total Liabilities and Equity (Deficit)	$	771	$	363

8

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE C - ACQUISITIONS AND OTHER CHANGES IN OPERATIONS

Joint Venture

Effective April 22, 2013, we entered into an equally owned joint venture with Savage Companies to construct, own and operate a unit train unloading and marine loading terminal at the Port of Vancouver, Washington, subject to approval by regulatory agencies and Port Commissioners. The project will allow for the delivery of various grades of North American crude oil to the U.S. West Coast.

Hawaii Operations

On April 30, 2013, we ceased refining operations at our Hawaii refinery and began to make adjustments to accommodate product imports, terminalling and distribution. We will maintain the existing distribution system to support marketing operations and fulfill supply commitments while continuing to offer the Hawaii operations for sale. We recognized $248 million of impairment charges and asset retirement obligations in the fourth quarter of 2012.

We may recognize contract termination or other exit costs associated with the changes in our Hawaii refining operations. These assets continue to be reported as held and used at March 31, 2013 because all of the accounting criteria for the held-for-sale classification have not been met.

TLLP Acquisition of the Northwest Products System

In December 2012, TLLP executed definitive agreements to purchase the Northwest Products System. For additional information regarding the acquisition, see Note B.

Acquisition of BP’s Southern California Refining and Marketing Business

In August 2012, we entered into a purchase and sale agreement with BP West Coast Products, LLC and certain other sellers to purchase BP’s integrated Southern California refining and marketing business (the “Carson Acquisition”). The assets to be acquired include the 266 thousand barrels per day (“Mbpd”) Carson refinery located adjacent to our Wilmington refinery, related marine terminals, land storage terminals, pipelines and product marketing terminals. In addition, the assets include the ARCO^® brand and associated registered trademarks, as well as a master franchisee license for the ampm^® convenience store brand and the supply rights to approximately 800 branded dealer-operated and branded wholesale stations in Southern California, Nevada and Arizona. Additionally, we will acquire a 51% ownership in the gas-fueled Watson cogeneration facility and an anode coke calcining operation, both located near the Carson refinery.

The purchase price is $1.175 billion, plus the value of inventories at the time of closing. The purchase and sale agreement provides for a $100 million reduction in the purchase price upon meeting certain conditions as defined in the agreement. This acquisition, which is subject to customary closing conditions and will require approval from the Federal Trade Commission and the California Attorney General, is expected to close before mid-2013. The purchase and sale agreement also required an advance payment of $90 million. During the three months ended March 31, 2013, we made additional incremental advance payments of $27 million as required by the purchase and sale agreement. The initial advance payment and the incremental advance payments will be applied to the amount due at closing. The agreement provides for us to pay a break-up fee of up to $140 million in the event that we terminate the agreement (except for termination for specified reasons). In the event a break-up fee is required, the advance payments will be applied to the amount due.

During the three months ended March 31, 2013, we incurred transaction costs of approximately $12 million related to the acquisition, which are included in selling, general and administrative expenses in our statements of condensed consolidated operations. Upon the closing of the Carson Acquisition, the sellers have agreed, subject to certain limitations, to retain certain obligations, responsibilities, liabilities, costs and expenses arising out of the pre-closing operations of the assets. We have agreed to assume certain obligations, responsibilities, liabilities, costs and expenses arising out of or incurred in connection with decrees, orders and settlements the sellers entered into with governmental and non-governmental entities prior to closing. Under the purchase and sale agreement, we have agreed to assume certain environmental liabilities, primarily remediation obligations.

9

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE D – EARNINGS PER SHARE

We compute basic earnings per share by dividing net earnings attributable to Tesoro Corporation stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share include the effects of potentially dilutive shares outstanding during the period.

Share and per share calculations are presented below (in millions, except per share amounts):

	Three Months Ended March 31,
	2013		2012
Basic:
Net earnings attributable to Tesoro Corporation stockholders	$	93	$	56
Weighted average common shares outstanding	137.0		139.5
Basic Earnings Per Share	$	0.68	$	0.40
Diluted:
Net earnings attributable to Tesoro Corporation stockholders	$	93	$	56
Weighted average common shares outstanding	137.0		139.5
Common stock equivalents	2.6		2.3
Total diluted shares	139.6		141.8
Diluted Earnings Per Share	$	0.67	$	0.39

Potentially dilutive common stock equivalents are excluded from the calculation of diluted earnings per share if the effect of including such securities in the calculation would have been anti-dilutive. Anti-dilutive securities were 0.2 million and 3.0 million for the three months ended March 31, 2013 and 2012, respectively.

NOTE E – INVENTORIES

Components of inventories were as follows (in millions):

	March 31, 2013		December 31, 2012
Domestic crude oil and refined products	$	1,141	$	1,178
Foreign subsidiary crude oil	274		246
Materials and supplies	94		94
Oxygenates and by-products	35		44
Merchandise	16		16
Total Inventories	$	1,560	$	1,578

We use the last-in, first-out cost method as the primary method to determine the cost of crude oil held by our U.S. subsidiaries and refined product inventories in our refining and retail segments. We determine the carrying value of inventories of crude oil held by our foreign subsidiaries, oxygenates and by-products using the first-in, first-out cost method. The total carrying value of our crude oil and refined product inventories was less than replacement cost by approximately $2.0 billion and $1.6 billion at March 31, 2013 and December 31, 2012, respectively.

NOTE F – FAIR VALUE MEASUREMENTS

We classify financial assets and financial liabilities into the following fair value hierarchy:

• level 1 - valued based on quoted prices in active markets for identical assets and liabilities;

• level 2 - valued based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability; and

• level 3 - valued based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

10

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We measure fair value using level 1 inputs, when available, because they provide the most reliable evidence of fair value. Derivative instruments and our Renewable Identification Numbers (“RINs”) are our only financial assets and liabilities measured at fair value on a recurring basis. We did not have any financial assets or liabilities classified as level 3 at March 31, 2013 or December 31, 2012. See Note G for further information on the Company’s derivative instruments.

Our derivative instruments consist primarily of options (“Options”), exchange-traded futures (“Futures Contracts”), over-the-counter swaps and options (“OTC Swap Contracts” and “OTC Option Contracts,” respectively), and physical commodity forward purchase and sale contracts (“Forward Contracts”). Options are valued using quoted prices from exchanges and are categorized in level 1 of the fair value hierarchy. Futures Contracts are valued based on quoted prices from exchanges and are categorized in level 1 or level 2 of the fair value hierarchy based on the liquidity of the instrument. OTC Swap Contracts, OTC Option Contracts and Forward Contracts are valued using third-party broker quotes, industry pricing services and price curves derived from commodity exchange postings, with consideration of counterparty credit risk. These quotes are corroborated with market data and are categorized in level 2 of the fair value hierarchy.

Our RINs obligation represents our period-end deficit for the purchase of RINs to satisfy the requirement to blend biofuels into the products we have produced.  Our RINs obligation is based on our RINs deficit and the price of those RINs as of the balance sheet date.  Our RINs obligation is categorized in level 2 of the fair value hierarchy and is measured at fair value using the market approach based on quoted prices from an independent pricing service.

Financial instruments recognized at fair values in our condensed consolidated balance sheets by level within the fair value hierarchy were as follows (in millions):

	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total as of March 31, 2013
Assets:
Commodity Futures Contracts	$	154	$	2	$	—	$	(100	)	$	56
Commodity Forward Contracts	—		3		—		—			3
Total Assets	$	154	$	5	$	—	$	(100	)	$	59
Liabilities:
Commodity Futures Contracts	$	158	$	8	$	—	$	(138	)	$	28
Commodity Forward Contracts	—		2		—		—			2
RINs Obligation	—		8		—		—			8
Total Liabilities	$	158	$	18	$	—	$	(138	)	$	38

	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total as of December 31, 2012
Assets:
Commodity Futures Contracts	$	91	$	4	$	—	$	(68	)	$	27
Total Assets	$	91	$	4	$	—	$	(68	)	$	27
Liabilities:
Commodity Futures Contracts	$	96	$	4	$	—	$	(95	)	$	5
Commodity Forward Contracts	—		1		—		—			1
RINs Obligation	—		1		—		—			1
Total Liabilities	$	96	$	6	$	—	$	(95	)	$	7

________________

(a) Represents the impact of netting assets, liabilities and cash collateral when a legal right of offset exists. As of March 31, 2013 and December 31, 2012, cash collateral amounts of $38 million and $27 million, respectively, are netted with mark-to-market derivative assets.

11

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We have elected to offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously.

We believe the carrying value of our other financial instruments, including cash and cash equivalents, receivables, accounts payable and certain accrued liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations, including:

• the short term duration of the instruments (less than one percent of our trade receivables and payables are outstanding for greater than 90 days); and

• the expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk.

The fair value of our debt is based on prices from recent trade activity and is categorized in level 2 of the fair value hierarchy. The carrying value and fair value of our debt was approximately $1.6 billion and $1.7 billion, respectively at March 31, 2013 and December 31, 2012.

There were no material nonfinancial assets or liabilities that were measured at fair value during the three months ended March 31, 2013.

NOTE G - DERIVATIVE INSTRUMENTS

The timing, direction and overall change in refined product prices versus crude oil prices impacts profit margins and has a significant impact on our earnings and cash flows. Consequently, we use non-trading derivative instruments to manage exposure to commodity price risks associated with the purchase or sale of feedstocks, refined products and energy supplies to or from the Company’s refineries, terminals, retail operations and customers. We also use non-trading derivative instruments to manage price risks associated with inventories above or below our target levels. To achieve our objectives, we use derivative instruments such as Options, Futures Contracts, OTC Swap Contracts, OTC Option Contracts and Forward Contracts, which had remaining maturity dates of less than two years as of March 31, 2013. We believe that there is minimal credit risk with respect to our counterparties.

We are also exposed to exchange rate fluctuations on our purchases of Canadian crude oil. We enter into Forward Contracts of Canadian dollars to manage these monthly exchange rate fluctuations.

The accounting for changes in the fair value of a commodity derivative depends on whether the derivative has been designated in a hedging relationship and whether we have elected the normal purchases and normal sales exception. We did not designate any of our derivatives for hedge accounting during the three months ended March 31, 2013 and 2012, respectively. The accounting for the change in fair value can be summarized as follows:

Derivative Treatment	Accounting Method
Normal purchases and normal sales exception	Accrual accounting
Designated in qualifying hedging relationship	Hedge accounting
All other derivatives	Mark-to-market accounting

The primary derivative instruments that we use have the following characteristics. Options provide the right, but not the obligation to buy or sell the commodity at a specified price in the future. Futures Contracts include a requirement to buy or sell the commodity at a fixed price in the future. OTC Swap Contracts, OTC Option Contracts and Forward Contracts require cash settlement for the commodity based on the difference between a contracted fixed or floating price and the market price on the settlement date. Certain of these contracts require cash collateral if our liability position exceeds specified thresholds.

12

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the fair value (in millions) of our derivative instruments as of March 31, 2013 and December 31, 2012. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements including cash collateral on deposit with, or received from, brokers. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements when a legal right of offset exists. As a result, the asset and liability amounts below will not agree with the amounts presented in our condensed consolidated balance sheets.

		Derivative Assets						Derivative Liabilities
	Balance Sheet Location	March 31, 2013			December 31, 2012			March 31, 2013			December 31, 2012
Commodity Futures Contracts	Prepayments and other current assets	$	156		$	95		$	166		$	100
Commodity Forward Contracts	Receivables	3			—			2			—
Commodity Forward Contracts	Accounts payable	—			—			—			1
Total Gross Mark-to-Market Derivatives		159			95			168			101
Less: Counterparty Netting and Cash Collateral (a)		(100		)	(68		)	(138		)	(95		)
Total Net Fair Value of Derivatives		$	59		$	27		$	30		$	6

________________

(a) As of March 31, 2013 and December 31, 2012, cash collateral amounts of $38 million and $27 million, respectively, are netted with mark-to-market derivative assets.

Gains (losses) for our mark-to market derivatives for the three months ended March 31, 2013 and 2012, were as follows (in millions):

	Three Months Ended March 31,
	2013			2012
Commodity Futures Contracts	$	(26	)	$	(12	)
Commodity OTC Swap Contracts	—			(6		)
Commodity Forward Contracts	(2		)	(3		)
Foreign Currency Forward Contracts	(2		)	1
Total Loss on Mark-to-Market Derivatives	$	(30	)	$	(20	)

The income statement location of gains (losses) for our mark-to market derivatives above were as follows (in millions):

	Three Months Ended March 31,
Income Statement Location:	2013			2012
Revenues	$	2		$	(10	)
Cost of sales	(30		)	(11		)
Other expense, net	(2		)	1
Total Loss on Mark-to-Market Derivatives	$	(30	)	$	(20	)

13

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Open Long (Short) Positions

All of our open positions are scheduled to mature within two years. As of March 31, 2013, we had open Forward Contracts to purchase CAD $9 million and CAD $36 million that matured or will mature on April 25, 2013 and May 24, 2013.

The information below presents the net volume of outstanding commodity contracts by type of instrument and year of maturity as of March 31, 2013 (volumes in thousands of barrels):

Mark-to-Market Derivatives
Derivative instrument and Year of maturity	Long (Short) Contract Volumes
Futures
2013	(1,013)
2014	25
OTC Swaps
2013	(150)
Forwards
2013	(94)
Options
2013	200

NOTE H – DEBT

Our total debt balance at March 31, 2013 and December 31, 2012, was as follows (in millions):

	March 31, 2013		December 31, 2012
Total Debt	$	1,593	$	1,590
Less: Current maturities	3		3
Debt, less current maturities	$	1,590	$	1,587

Credit Facilities Overview

We had available capacity under our credit agreements as follows at March 31, 2013 (in millions):

	Total Capacity (a)		Amount Borrowed as of March 31, 2013		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (b)	$	1,850	$	—	$	807	$	1,043	January 4, 2018
TLLP Revolving Credit Facility	500		—		—		500		December 31, 2017
Letter of Credit Facilities	1,146		—		514		632
Total credit agreements	$	3,496	$	—	$	1,321	$	2,175

________________

(a) During the first quarter of 2013, we entered into a term loan credit facility and amended the Tesoro Corporation Revolving Credit Facility (“Revolving Credit Facility”) and the TLLP Revolving Credit Facility. Just prior to closing the Carson Acquisition, the term loan credit facility will provide for $500 million of borrowing capacity and the amended Revolving Credit Facility will provide an increase in the capacity to $3.0 billion. In addition, the TLLP Revolving Credit Facility allows for an increased capacity of up to $650 million, subject to receiving increased commitments from the lenders.

(b) Borrowing base is the lesser of the amount of the periodically adjusted borrowing base or the agreement’s total capacity.

14

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of March 31, 2013, our credit facilities were subject to the following expenses and fees:

Credit Facility	30 day Eurodollar (LIBOR) Rate	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Tesoro Corporation Revolving Credit Facility ($1.85 billion) (c)	0.20%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($500 million) (d)	0.20%	2.00%	3.25%	1.00%	0.375%

________________

(c) We can elect the interest rate to apply to the Revolving Credit Facility between a base rate plus the base rate margin, or a Eurodollar rate, for the applicable term, plus, the Eurodollar margin at the time of the borrowing. The applicable margin varies based on the Revolving Credit Facility’s credit ratings. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate. We also incur commitment fees for the unused portion of the Revolving Credit Facility at an annual rate.

(d) TLLP can elect the interest rate to apply to the TLLP Revolving Credit Facility between a base rate plus the base rate margin, or a Eurodollar rate, for the applicable term, plus, the Eurodollar margin at the time of the borrowing. The applicable margin varies based upon a certain leverage ratio, as defined by the TLLP Revolving Credit Facility. TLLP incurs commitment fees for the unused portion of the TLLP Revolving Credit Facility at an annual rate.

Tesoro Corporation Revolving Credit Facility

Effective January 4, 2013, we entered into the Sixth Amended and Restated Credit Agreement, which allows the capacity of our Revolving Credit Facility to be increased to an aggregate of $3.0 billion, just prior to closing the Carson Acquisition (“Increase Effective Date”). Additionally, the agreement allows for us to request that the capacity be increased up to an aggregate of $4.0 billion, subject to receiving increased commitments from the lenders; however, we must offer to reduce the commitments by at least $500 million on or prior to the 18 month anniversary of the Increase Effective Date and by an additional $500 million on or prior to the two year anniversary of the Increase Effective Date.

At March 31, 2013, our Revolving Credit Facility provided for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base of approximately $3.5 billion, consisting of Tesoro’s eligible cash and cash equivalents, receivables and petroleum inventories, net of the standard reserve as defined, or the Revolving Credit Facility’s total capacity of $1.85 billion. Prior to exercising our ability to increase the capacity just prior to closing the Carson Acquisition, the total available capacity can be increased up to an aggregate amount of $2.85 billion, subject to receiving increased commitments.

Letter of Credit Agreements

The Revolving Credit Facility allows us to obtain letters of credit under separate letter of credit agreements for foreign crude oil purchases. As of March 31, 2013, our five separate uncommitted letter of credit agreements had $514 million outstanding. Capacity under these letter of credit agreements is available on an uncommitted basis and can be terminated by either party, at any time.

TLLP Revolving Credit Facility

Effective January 4, 2013, TLLP amended and restated the TLLP Revolving Credit Facility, to increase commitments under the facility from $300 million to $500 million and to allow TLLP to request that the loan availability be increased up to an aggregate of $650 million, subject to receiving increased commitments from the lenders.

The TLLP Revolving Credit Facility is non-recourse to Tesoro, except for TLGP, and is guaranteed by all of TLLP’s subsidiaries and secured by substantially all of TLLP’s assets. Borrowings are available under the TLLP Revolving Credit Facility up to the total loan availability of the facility.

15

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Term Loan Credit Facility

Effective January 28, 2013, we entered into a term loan credit facility agreement (the “Term Loan Facility”), which allows us to borrow up to an aggregate of $500 million on or prior to August 9, 2013. The obligations under the Term Loan Facility will be secured by all equity interests of Tesoro Refining & Marketing Company LLC and Tesoro Alaska Company, the Tesoro and USA Gasoline trademarks and those trademarks containing the name “ARCO” that will be acquired by Tesoro in the Carson Acquisition and junior liens on certain assets.

The Term Loan Facility matures three years from the initial borrowing. The Term Loan Facility will be subject to equal quarterly payments in an amount equal to 1.00% per annum of the initial borrowing with the final payment of all amounts outstanding due on the maturity date. As of March 31, 2013, we had no borrowings on the Term Loan Facility.

NOTE I - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, is as follows (in millions):

	March 31, 2013			December 31, 2012
Refining	$	6,374		$	6,268
Retail	765			763
Corporate	223			226
Property, plant and equipment, at cost	7,362			7,257
Accumulated depreciation	(2,077		)	(2,012		)
Net property, plant and equipment	$	5,285		$	5,245

We capitalize interest as part of the cost of major projects during the construction period. Capitalized interest totaled $4 million for both the three months ended March 31, 2013 and 2012, respectively, and is recorded as a reduction to net interest and financing costs in our statements of condensed consolidated operations.

NOTE J – BENEFIT PLANS

Tesoro sponsors the following four defined benefit pension plans: the funded qualified employee retirement plan, the unfunded nonqualified executive security plan, the unfunded nonqualified restoration retirement plan and the unfunded nonqualified supplemental executive retirement plan. Although our funded employee retirement plan fully meets all funding requirements under applicable laws and regulations, we voluntarily contributed $12 million during the three months ended March 31, 2013 to improve the funded status of the plan.

The components of pension and other postretirement benefit expense (income) included in the condensed statements of consolidated operations for the three months ended March 31, 2013 and 2012, were (in millions):

	Pension Benefits						Other Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
	2013			2012			2013			2012
Service cost	$	8		$	7		$	1		$	1
Interest cost	7			7			1			1
Expected return on plan assets	(6		)	(6		)	—			—
Amortization of prior service credit	—			—			(9		)	(9		)
Recognized net actuarial loss	7			6			2			3
Net Periodic Benefit Expense (Income)	$	16		$	14		$	(5	)	$	(4	)

16

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE K - COMMITMENTS AND CONTINGENCIES

Environmental and Tax Matters

We are a party to various litigation and contingent loss situations, including environmental and income tax matters, arising in the ordinary course of business. Although we cannot predict the ultimate outcomes of these matters with certainty, we have accrued for the estimated liabilities when appropriate. We believe that the outcome of these matters will not have a material impact on our liquidity or financial position, although the resolution of certain of these matters could have a material impact on our interim or annual results of operations. Additionally, if applicable, we accrue receivables for probable third-party recoveries.

We are subject to extensive federal, state and local environmental laws and regulations. These laws, which change frequently, regulate the discharge of materials into the environment and may require us to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites, install additional controls or make other modifications to certain emission sources, equipment or facilities.

We are subject to extensive federal, state and foreign tax laws and regulations. Newly enacted tax laws and regulations, and changes in existing tax laws and regulations, could result in increased expenditures in the future. We are also subject to audits by federal, state and foreign taxing authorities in the normal course of business. It is possible that tax audits could result in claims against us in excess of recorded liabilities. We believe that resolution of any such claim(s) would not have a material impact on our financial position, results of operations or liquidity. We do not expect our unrecognized tax benefits to change significantly over the next twelve months.

Environmental Liabilities

We are incurring and expect to continue to incur expenses for environmental liabilities at a number of currently and previously owned or operated refining, pipeline, terminal and retail station properties. We have accrued liabilities for these expenses and believe these accruals are adequate based on current information and projections that can be reasonably estimated. Our environmental accruals are based on estimates including engineering assessments, and it is possible that our projections will change and that additional costs will be recorded as more information becomes available.

Our accruals for environmental expenditures totaled $86 million at both March 31, 2013 and December 31, 2012. These accruals include $54 million at both March 31, 2013 and December 31, 2012, related to environmental liabilities for site cleanup activities assumed from a prior owner, arising from operations at our Martinez refinery prior to August 2000. Of the $54 million accrued, approximately $44 million is subject to a cost-share agreement where we are responsible for 75% of the expenditures. We cannot reasonably determine the full extent of remedial activities that may be required at the Martinez refinery. Therefore, it is possible that we will identify additional investigation and remediation costs as more information becomes available. We have filed insurance claims under environmental insurance policies. These policies provide coverage up to $190 million for expenditures in excess of $50 million in self-insurance, but the insurer has challenged coverage and filed a declaratory relief action in federal court. We have not recognized possible insurance recoveries related to this matter.

We have investigated conditions at certain active wastewater treatment units at our Martinez refinery.  The investigation was driven by an order received in 2004 from the San Francisco Bay Regional Water Quality Control Board. The order named us as well as two previous owners of the Martinez refinery.  We cannot currently estimate the amount of the ultimate resolution of the order, but we believe it will not have a material adverse impact on our financial position, results of operations or liquidity.

Washington Refinery Fire

The naphtha hydrotreater unit at our Washington refinery was involved in a fire in April 2010, which fatally injured seven employees and rendered the unit inoperable. The Washington State Department of Labor & Industries (“L&I”), the U.S. Chemical Safety and Hazard Investigation Board (“CSB”) and the U.S. Environmental Protection Agency (“EPA”) initiated separate investigations of the incident. L&I completed its investigation in October 2010, issued citations and assessed a $2.4 million fine, which we appealed. L&I reassumed jurisdiction of the citation and affirmed the allegations in December 2010. We disagree with L&I’s characterizations of operations at our Washington refinery and believe, based on available evidence and scientific reviews, that many of the agency’s conclusions are mistaken. We filed an appeal of the citation in January 2011.

We filed business interruption insurance and property damage insurance claims related to down time from this incident. Certain business interruption claims remain open as of March 31, 2013.

17

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other Matters

In the ordinary course of business, we become party to lawsuits, administrative proceedings and governmental investigations, including environmental, regulatory and other matters. Large, and sometimes unspecified, damages or penalties may be sought from us in some matters. We have not established accruals for these matters unless a loss is probable, and the amount of loss is currently estimable. On the basis of existing information, we believe that the resolution of these matters, individually or in the aggregate, will not have a material adverse impact on our liquidity or financial position, although the resolution of certain of these matters could have a material impact on our interim or annual results of operations.

Legal

We are a defendant, along with other manufacturing, supply and marketing defendants, in two remaining lawsuits alleging methyl tertiary butyl ether (“MTBE”) contamination in groundwater. The defendants are being sued for having manufactured MTBE and having manufactured, supplied and distributed gasoline containing MTBE. The plaintiffs in the remaining cases, all in California, are municipalities and governmental authorities. The plaintiffs allege, in part, that the defendants are liable for manufacturing or distributing a defective product. The suits generally seek individual, unquantified compensatory and punitive damages and attorney’s fees. We intend to vigorously assert our defenses against these claims. While we cannot currently estimate the final amount or timing of the resolution of these matters, we have established an accrual for them and believe that the outcome will not have a material impact on our financial position, results of operations or liquidity.

During 2009, Chevron filed a lawsuit against us claiming they are entitled to a share of the refunds we received in 2008 from the owners of the Trans-Alaska Pipeline System (“TAPS”). We received $50 million in 2008, net of contingent legal fees, for excessive intrastate rates charged by TAPS during 1997 through 2000 and the period of 2001 through June 2003. Chevron is asserting that it is entitled to a share of its portion of the refunds for retroactive price adjustments under our previous crude oil contracts with them. The trial court judge granted Chevron’s motion for summary judgment and awarded them $16 million, including interest, in September 2010. We disagree with the trial court and have appealed the decision to the Alaska Supreme Court in which the proceeding is now pending. We have established an accrual for this matter and its resolution will not have a material impact on our financial position, results of operations or liquidity.

Environmental

The EPA has alleged that we have violated certain Clean Air Act regulations at our Alaska, Washington, Martinez, Hawaii and Utah refineries. We are continuing discussions of the EPA’s claims with the EPA and the U.S. Department of Justice (“DOJ”). We previously received a notice of violation (“NOV”) in March 2011 from the EPA alleging violations of Title V of the Clean Air Act at our Alaska refinery. The alleged violations in the NOV arise from a 2007 state of Alaska inspection and inspections by the EPA in 2008 and 2010. We also previously received NOVs in 2005 and 2008 alleging violations of the Clean Air Act at our Washington refinery. We are discussing all of these allegations with the EPA and DOJ. The ultimate resolution of these matters could require us to incur material capital expenditures and/or civil penalties. While we cannot currently estimate the amount or timing of the resolution of these matters, and currently believe that the outcome will not have a material impact on our liquidity or financial position, the ultimate resolution could have a material impact on our interim or annual results of operations.

18

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE L - STOCKHOLDERS’ EQUITY

See Note M for information relating to stock-based compensation. Changes to equity during the three months ended March 31, 2013, are presented below (in millions):

	Tesoro Corporation Stockholders’ Equity			Noncontrolling  Interest			Total Equity
Balance at December 31, 2012	$	4,251		$	486		$	4,737
Net earnings	93			11			104
Shares issued for equity-based compensation awards	32			—			32
Excess tax benefits from stock-based compensation arrangements, net	2			—			2
Amortization of equity settled awards	14			—			14
Dividend payments	(28		)	—			(28		)
Purchases of common stock	(135		)	—			(135		)
Net proceeds from issuance of Tesoro Logistics LP common units	(6		)	398			392
Distributions to noncontrolling interest	—			(14		)	(14		)
Balance at March 31, 2013	$	4,223		$	881		$	5,104

We issued approximately 0.9 million and 1.9 million shares primarily for stock option exercises under our equity-based compensation plans during the three months ended March 31, 2013 and twelve months ended December 31, 2012, respectively. 

Share Repurchase Programs

Under a $500 million share repurchase program authorized by our Board of Directors (the “Board”), management is permitted to purchase Tesoro common stock at its discretion in the open market. The authorization has no time limit and may be suspended or discontinued at any time. Under this program, we purchased approximately 2.0 million shares of our common stock for $99 million during the three months ended March 31, 2013.

In addition, we purchased over 0.6 million shares of our common stock for approximately $36 million during the three months ended March 31, 2013 under the existing program designed to offset the dilutive effect of outstanding and future stock-based compensation awards.

Cash Dividends

On February 5, 2013, our Board declared a quarterly cash dividend on common stock of $0.20 per share, which resulted in a cash payment of $28 million during the three months ended March 31, 2013. On May 1, 2013, our Board declared a cash dividend of $0.20 per share, payable on June 14, 2013 to shareholders of record on May 31, 2013.

Our Revolving Credit Facility and senior notes each limit our ability to pay cash dividends or buy back our stock. The limitation in each of our debt agreements is based on limits on restricted payments (as defined in our debt agreements), which include dividends, purchases of our stock or voluntary prepayments of subordinate debt. The aggregate amount of restricted payments cannot exceed an amount defined in each of the debt agreements. The indentures for our senior notes also limit certain of our subsidiaries ability to make certain payments and distributions.

19

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE M - STOCK-BASED COMPENSATION

Stock-based compensation expense included in our condensed statements of consolidated operations was as follows (in millions):    

	Three Months Ended March 31,
	2013		2012
Stock appreciation rights	$	39	$	12
Performance share awards	8		2
Market stock units	4		3
Other stock-based awards	1		4
Total Stock-Based Compensation Expense	$	52	$	21

We have aggregated expenses for certain award types as they are not considered significant. The income tax benefit recognized in the income statement for stock-based compensation was $20 million and $8 million for the three months ended March 31, 2013 and 2012, respectively. The reduction in current taxes payable recognized from tax deductions resulting from exercises and vestings under all of our stock-based compensation arrangements totaled $17 million and $10 million for the three months ended March 31, 2013 and 2012, respectively.

Stock Appreciation Rights

A stock appreciation right (“SAR”) entitles an employee to receive cash in an amount equal to the excess of the fair market value of one share of common stock on the date of exercise over the grant price of the SAR. The fair value of each SAR is estimated at the end of each reporting period using the Black-Scholes option-pricing model. We have not granted any SARs since 2010. We paid cash of $18 million and $9 million to settle approximately 0.9 million and 0.6 million SARs that were exercised during the three months ended March 31, 2013 and 2012, respectively. We had $100 million and $79 million recorded in accrued liabilities associated with our SARs awards at March 31, 2013 and December 31, 2012, respectively.

Performance Share Awards

Performance Conditions

We granted additional performance condition performance share awards under the 2011 Long-Term Incentive Plan (“2011 Plan”) on February 4, 2013. The vesting percentages of these equity awards, range from 0-200%, and are tied to performance conditions over a three-year period. These performance share awards vest at the end of the performance period. The fair value of performance share awards tied to performance measures is estimated using the market price of our common stock on the grant date. The estimated fair value of these performance share awards is amortized over a three-year vesting period using the straight-line method. The value of the award ultimately paid will be based on return on capital employed, which is measured against our performance peer group.

Market Conditions

We granted additional market condition performance share awards under the 2011 Plan on February 4, 2013. The vesting percentages of these equity awards, range from 0-200%, and are tied to market conditions over a three-year performance period. These performance share awards vest at the end of the performance period. The fair value of each performance share award is estimated on the grant date using a Monte Carlo simulation model. The fair value of the performance share awards granted prior to 2013 is estimated using a Monte Carlo simulation model at the end of each reporting period. The estimated fair value of all market condition performance share awards is amortized over a three-year vesting period using the straight-line method. The value of the award ultimately paid will be based on relative total shareholder return, which is measured against our performance peer group and the S&P 500 Index.

During the three months ended March 31, 2013, we granted 0.2 million performance share awards at a weighted average grant date fair value of $53.67 per share.

20

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Market Stock Units

We granted 0.4 million market stock units at a grant date fair value of $64.74 per unit under the 2011 Plan during the three months ended March 31, 2013. These market stock units vest at the end of a three-year performance period. The number of shares ultimately issued will be based on Tesoro’s stock price changes over the performance period. The market stock units’ potential payout can range from 50-200% of targeted award value, unless the average closing stock price at vesting has decreased more than 50% from the average closing stock price at the grant date, then no market stock units will be paid out. The fair value of each market stock unit is estimated on the grant date using a Monte Carlo simulation model. The estimated fair value of these market stock units is amortized over a three-year vesting period using the straight-line method.

NOTE N - OPERATING SEGMENTS

The Company’s revenues are derived from two operating segments, refining and retail. We own and operate seven petroleum refineries located in California, Washington, Alaska, Hawaii, North Dakota and Utah. These refineries manufacture gasoline and gasoline blendstocks, jet fuel, diesel fuel, residual fuel oil and other refined products. We sell these refined products, together with refined products purchased from third parties, at wholesale through terminal facilities and other locations. Our refining segment also sells refined products to unbranded marketers and opportunistically exports refined products to foreign markets. Our retail segment sells gasoline, diesel fuel and convenience store items through company-operated retail stations and branded jobber/dealers in 18 states. We do not have significant operations in foreign countries. Therefore, revenue generated and long-lived assets located in foreign countries are not material to our operations.

We evaluate the performance of our segments based primarily on segment operating income. Segment operating income includes those revenues and expenses that are directly attributable to management of the respective segment. Intersegment sales from refining to retail are made at prevailing market rates. Income taxes, other expense, net, interest income, net interest and financing costs, corporate depreciation and corporate general and administrative expenses are excluded from segment operating income. Identifiable assets are those used by the segments, whereas corporate assets are principally cash and other assets that are not associated with a specific operating segment.

21

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Segment information is as follows:

	Three Months Ended March 31,
	2013			2012
	(In millions)
Revenues
Refining:
Refined products	$	7,536		$	7,562
Crude oil resales and other	475			156
Retail:
Fuel (a)	1,554			1,306
Merchandise and other	57			55
Intersegment sales from Refining to Retail	(1,466		)	(1,259		)
Total Revenues	$	8,156		$	7,820
Segment Operating Income (Loss)
Refining	$	283		$	191
Retail	17			(4		)
Total Segment Operating Income	300			187
Corporate and unallocated costs	(108		)	(53		)
Operating Income	192			134
Interest and financing costs, net	(30		)	(36		)
Interest income	1			1
Other expense, net	(1		)	—
Earnings Before Income Taxes	$	162		$	99
Depreciation and Amortization Expense
Refining	$	92		$	91
Retail	9			10
Corporate	5			2
Total Depreciation and Amortization Expense	$	106		$	103
Capital Expenditures
Refining	$	109		$	91
Retail	7			8
Corporate	3			3
Total Capital Expenditures	$	119		$	102

________________

(a) Federal and state motor fuel taxes on sales by our retail segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $134 million and $99 million for the three months ended March 31, 2013 and 2012, respectively.

22

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	March 31, 2013		December 31, 2012
	(In millions)
Identifiable Assets:
Refining	$	8,605	$	8,340
Retail	781		741
Corporate	2,004		1,621
Total Assets	$	11,390	$	10,702

NOTE O - CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Separate condensed consolidating financial information of Tesoro Corporation (the “Parent”), subsidiary guarantors and non-guarantors are presented below. At March 31, 2013, Tesoro and certain subsidiary guarantors have fully and unconditionally guaranteed our 4.250% Senior Notes due 2017, 9.750% Senior Notes due 2019 and 5.375% Senior Notes due 2022. TLLP, in which we had a 38% ownership interest as of March 31, 2013, and other subsidiaries have not guaranteed these obligations. As a result of these guarantee arrangements, we are required to present the following condensed consolidating financial information, which should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto. The following condensed consolidating financial information is provided as an alternative to providing separate financial statements for guarantor subsidiaries. Separate financial statements of Tesoro’s subsidiary guarantors are not included because the guarantees are full and unconditional and these subsidiary guarantors are 100% owned and are jointly and severally liable for Tesoro’s outstanding senior notes. The information is presented using the equity method of accounting for investments in subsidiaries.

Condensed Consolidating Statement of Operations and

Comprehensive Income for the Three Months EndedMarch 31, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	9,952		$	822		$	(2,618	)	$	8,156
COSTS AND EXPENSES:
Cost of sales	—			9,197			756			(2,618		)	7,335
Operating, selling, general and administrative expenses	1			486			28			—			515
Depreciation and amortization expense	—			101			5			—			106
Loss on asset disposals and impairments	—			5			3			—			8
OPERATING INCOME (LOSS)	(1		)	163			30			—			192
Equity in earnings (loss) of subsidiaries	96			(6		)	44			(134		)	—
Interest and financing costs, net	(2		)	(25		)	(5		)	2			(30		)
Interest income	—			1			2			(2		)	1
Other expense, net	—			(1		)	—			—			(1		)
EARNINGS BEFORE INCOME TAXES	93			132			71			(134		)	162
Income tax expense (a)	—			55			3			—			58
NET EARNINGS	93			77			68			(134		)	104
Less: Net earnings attributable to noncontrolling interest	—			—			11			—			11
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	$	93		$	77		$	57		$	(134	)	$	93
COMPREHENSIVE INCOME
Total comprehensive income	$	93		$	77		$	68		$	(134	)	$	104
Less: Noncontrolling interest in comprehensive income	—			—			11			—			11
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	$	93		$	77		$	57		$	(134	)	$	93

_______________

(a) The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners’ share of partnership income.

23

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Operations and

Comprehensive Income for the Three Months EndedMarch 31, 2012

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	9,633		$	596		$	(2,409	)	$	7,820
COSTS AND EXPENSES:
Cost of sales	—			9,012			565			(2,409		)	7,168
Operating, selling, general and administrative expenses	2			389			18			—			409
Depreciation and amortization expense	—			100			3			—			103
Loss on asset disposals and impairments	—			5			1			—			6
OPERATING INCOME (LOSS)	(2		)	127			9			—			134
Equity in earnings (loss) of subsidiaries	59			(13		)	31			(77		)	—
Interest and financing costs, net	(1		)	(33		)	(3		)	1			(36		)
Interest income	—			1			1			(1		)	1
EARNINGS BEFORE INCOME TAXES	56			82			38			(77		)	99
Income tax expense (a)	—			35			2			—			37
NET EARNINGS	56			47			36			(77		)	62
Less: Net earnings attributable to noncontrolling interest	—			—			6			—			6
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	$	56		$	47		$	30		$	(77	)	$	56
COMPREHENSIVE INCOME
Total comprehensive income	$	56		$	47		$	36		$	(77	)	$	62
Less: Noncontrolling interest in comprehensive income	—			—			6			—			6
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	$	56		$	47		$	30		$	(77	)	$	56

_______________

(a) The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners’ share of partnership income.

24

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Balance Sheet as of March 31, 2013

(In millions)

	Parent		Guarantor Subsidiaries			Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,517		$	455	$	—		$	1,972
Receivables, less allowance for doubtful accounts	1		1,139			226		—			1,366
Short-term receivables from affiliates	—		—			18		(18		)	—
Inventories	—		1,286			274		—			1,560
Prepayments and other current assets	132		87			5		—			224
Total Current Assets	133		4,029			978		(18		)	5,122
Net Property, Plant and Equipment	—		4,923			362		—			5,285
Investment in Subsidiaries	5,115		(314		)	210		(5,011		)	—
Long-Term Receivables from Affiliates	2,003		—			—		(2,003		)	—
Other Noncurrent Assets, Net	56		875			392		(340		)	983
Total Assets	$	7,307	$	9,513		$	1,942	$	(7,372	)	$	11,390
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	5	$	2,177		$	400	$	—		$	2,582
Other current liabilities	187		406			28		—			621
Short-term payables to affiliates	—		18			—		(18		)	—
Total Current Liabilities	192		2,601			428		(18		)	3,203
Long-Term Payables to Affiliates	—		1,917			86		(2,003		)	—
Deferred Income Taxes	864		—			—		—			864
Other Noncurrent Liabilities	472		157			—		—			629
Debt	1,556		16			358		(340		)	1,590
Equity-Tesoro Corporation	4,223		4,822			189		(5,011		)	4,223
Equity-Noncontrolling interest	—		—			881		—			881
Total Liabilities and Equity	$	7,307	$	9,513		$	1,942	$	(7,372	)	$	11,390

25

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Balance Sheet as of December 31, 2012

(In millions)

	Parent		Guarantor Subsidiaries			Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,244		$	395	$	—		$	1,639
Receivables, less allowance for doubtful accounts	1		1,133			87		—			1,221
Short-term receivables from affiliates	—		—			47		(47		)	—
Inventories	—		1,331			247		—			1,578
Prepayments and other current assets	131		63			4		—			198
Total Current Assets	132		3,771			780		(47		)	4,636
Net Property, Plant and Equipment	—		4,886			359		—			5,245
Investment in Subsidiaries	5,041		(200		)	159		(5,000		)	—
Long-Term Receivables from Affiliates	1,846		—			—		(1,846		)	—
Other Noncurrent Assets, Net	47		724			160		(110		)	821
Total Assets	$	7,066	$	9,181		$	1,458	$	(7,003	)	$	10,702
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	1	$	2,046		$	166	$	—		$	2,213
Other current liabilities	163		487			18		—			668
Short-term payables to affiliates	—		47			—		(47		)	—
Total Current Liabilities	164		2,580			184		(47		)	2,881
Long-Term Payables to Affiliates	—		1,667			179		(1,846		)	—
Deferred Income Taxes	850		—			—		—			850
Other Noncurrent Liabilities	475		172			—		—			647
Debt	1,326		17			354		(110		)	1,587
Equity-Tesoro Corporation	4,251		4,745			255		(5,000		)	4,251
Equity-Noncontrolling interest	—		—			486		—			486
Total Liabilities and Equity	$	7,066	$	9,181		$	1,458	$	(7,003	)	$	10,702

26

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Cash Flows for the Three Months EndedMarch 31, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash from operating activities	$	—		$	135		$	112		$	—		$	247
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(115		)	(10		)	—			(125		)
Proceeds from asset sales	—			—			2			—			2
Advance payments made for acquisition	—			(27		)	—			—			(27		)
Intercompany notes, net	(91		)	—			—			91			—
Net cash used in investing activities	(91		)	(142		)	(8		)	91			(150		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Dividend payments	(28		)	—			—			—			(28		)
Proceeds from stock options exercised	32			—			—			—			32
Distributions to noncontrolling interest	—			—			(14		)	—			(14		)
Purchases of common stock	(135		)	—			—			—			(135		)
Net proceeds from issuance of Tesoro Logistics LP common units	—			—			392			—			392
Excess tax benefits from stock-based compensation arrangements	—			3			—			—			3
Net intercompany borrowings (repayments)	—			273			(182		)	(91		)	—
Borrowings from general partner	230			—			(230		)	—			—
Distributions to TLLP unitholders and general partner	3			4			(7		)	—			—
Financing costs and other	(11		)	—			(3		)	—			(14		)
Net cash from (used in) financing activities	91			280			(44		)	(91		)	236
INCREASE IN CASH AND CASH EQUIVALENTS	—			273			60			—			333
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			1,244			395			—			1,639
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	1,517		$	455		$	—		$	1,972

27

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Cash Flows for the Three Months EndedMarch 31, 2012

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	13		$	(12	)	$	(16	)	$	—		$	(15	)
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures	—			(107		)	(4		)	—			(111		)
Acquisitions	—			(37		)	—			—			(37		)
Intercompany notes, net	(20		)	—			—			20			—
Net cash used in investing activities	(20		)	(144		)	(4		)	20			(148		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	—			—			85			—			85
Repayments on revolving credit agreements	—			—			(112		)	—			(112		)
Proceeds from stock options exercised	14			—			—			—			14
Distributions to noncontrolling interest	—			—			(6		)	—			(6		)
Purchases of common stock	(10		)	—			—			—			(10		)
Excess tax benefits from stock-based compensation arrangements	—			3			—			—			3
Net intercompany borrowings (repayments)	—			6			14			(20		)	—
Distributions to TLLP unitholders and general partner	3			3			(6		)	—			—
Financing costs and other	—			—			(1		)	—			(1		)
Net cash from (used in) financing activities	7			12			(26		)	(20		)	(27		)
DECREASE IN CASH AND CASH EQUIVALENTS	—			(144		)	(46		)	—			(190		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			805			95			—			900
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	661		$	49		$	—		$	710

28

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Those statements in this section that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See “Important Information Regarding Forward-Looking Statements” on pages 49-50 for a discussion of the factors that could cause actual results to differ materially from those projected in these statements. This section should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2012.

BUSINESS STRATEGY AND OVERVIEW

Strategy and Goals

Our vision is to be the premier low-cost supplier of transportation fuels in the refining and marketing business within our markets, providing value for our customers, while delivering industry leading returns for our shareholders and conducting ourselves responsibly in the communities in which we operate. To achieve these goals we are pursuing the following strategic priorities:

• improve operational efficiency and effectiveness by focusing on safety and reliability, system improvements and cost leadership;

• drive commercial excellence by strengthening our supply and trading activities to provide additional value to the business;

• strengthen our financial position by exercising capital discipline and focusing on improving our liquidity;

• capture value-driven growth through a focus on our logistics assets, growing our marketing business and other strategic opportunities accretive to shareholder value; and

• maintain a high performing culture by building leadership at all levels of the organization with employees from diverse backgrounds and experiences that are accountable for delivering on our commitments.

Our goals were focused on these strategic priorities and we accomplished the following in the first quarter of 2013:

	Operational Efficiency & Effectiveness	Commercial Excellence	Financial Discipline	Value Driven Growth
Decreased manufacturing costs by $0.11 per barrel compared to the first three months of 2012.  Adjusting for constant natural gas prices, the decrease was $0.26 per barrel	l
Leveraged our logistics operations to strategically source lower cost crude oil		l
Purchased 2.6 million shares of common stock under our share repurchase programs			l
Amended the Tesoro Logistics LP (“TLLP”) Revolving Credit Facility, which increased the capacity up to $500 million to support logistics growth			l	l
TLLP closed an equity offering of 9,775,000 common units, which generated net proceeds of approximately $392 million			l	l
Secured financing for upcoming acquisition of BP’s integrated Southern California refining and marketing business by entering into a term loan credit facility and amending the Tesoro Corporation Revolving Credit Facility			l	l

29

Tesoro Logistics LP

Tesoro Logistics LP was formed to own, operate, develop and acquire logistics assets to gather crude oil and distribute, transport and store crude oil and refined products. Tesoro Logistics GP, LLC (“TLGP”), a 100% consolidated subsidiary, serves as the general partner of TLLP. As of March 31, 2013, TLLP’s assets consisted of a crude oil gathering system in the Williston Basin and terminalling, transportation and storage assets in the midwestern and western United States, including refined products and marine terminals, a rail car unloading facility, a crude oil and refined products storage facility and transportation pipelines.

On January 14, 2013, TLLP closed an equity offering (“TLLP Equity Issuance”) of 9,775,000 common units at a public offering price of $41.70 per unit. Net proceeds to TLLP from the sale of the units were approximately $392 million and are expected to be used to fund a portion of the planned acquisition of Chevron Pipe Line Company’s and Northwest Terminalling Company’s (collectively, “Chevron”) northwest products system (the “Northwest Products System”), discussed below. In connection with the offering, TLGP purchased 199,490 general partner units at a price of $41.70 per unit to maintain its 2% general partner interest in TLLP.

Effective January 4, 2013, TLLP amended and restated its senior secured revolving credit agreement (the “TLLP Revolving Credit Facility”), to increase commitments under the facility from $300 million to $500 million and to allow TLLP to request that the loan availability be increased up to an aggregate of $650 million, subject to receiving increased commitments from the lenders.

We held an approximate 38% interest in TLLP at March 31, 2013, including a 2% interest in the general partner. This interest includes 1,283,915 common units, 15,254,890 subordinated units and 929,086 general partner units.

Acquisitions and Dispositions

Hawaii Operations

On April 30, 2013, we ceased refining operations at our Hawaii refinery and began to make adjustments to accommodate product imports, terminalling and distribution. We will maintain the existing distribution system to support marketing operations and fulfill supply commitments while continuing to offer the Hawaii operations for sale.

Northwest Products System Acquisition

In December 2012, TLLP executed definitive agreements to purchase Chevron’s Northwest Products System for a total purchase price of $400 million. On March 28, 2013, TLLP and Chevron amended these agreements to extend the final closing date, which is the date that either party can terminate the agreements without defaulting under the terms of the agreements, from April 1, 2013 to June 1, 2013. The transaction is subject to regulatory approval and is expected to close during the second quarter of 2013. TLLP paid a deposit of $40 million upon execution of the purchase agreements, which may be retained by Chevron upon certain contract termination events.

The Northwest Products System consists of a 760-mile Federal Energy Regulatory Commission regulated common carrier products pipeline running from Salt Lake City, Utah to Spokane, Washington and a five-mile jet fuel pipeline to the Salt Lake City International Airport. The common carrier pipeline is the primary supply source of refined products to southern Idaho and is a major supplier of refined products to eastern Washington. The Northwest Products System also includes certain assets of the Northwest Terminalling Company consisting of the Boise and Pocatello, Idaho and Pasco, Washington refined products terminals. Under the terms of the purchase and sale agreements, TLLP will assume environmental liabilities related to the Northwest Products System. TLLP is evaluating the environmental liabilities existing at the time the purchase and sale agreements were executed. In addition, TLLP is evaluating the impact associated with a leak that Chevron identified on a diesel pipeline in March 2013.

Carson Acquisition

In August 2012, we entered into a purchase and sale agreement with BP West Coast Products, LLC and certain other sellers to purchase BP’s integrated Southern California refining and marketing business (the “Carson Acquisition”). The purchase price is $1.175 billion, plus the value of inventories at the time of closing. The inventory value announced in August 2012 was estimated at $1.3 billion. This acquisition, which is subject to customary closing conditions and will require approval from the Federal Trade Commission and the California Attorney General, is expected to close before mid-2013. We expect to realize significant operational synergies through the integrated crude oil supply, enhanced optimization of intermediate feedstocks and product distribution costs, improvements in light product yields and reductions in manufacturing costs and stationary source air emissions.

30

Upon the closing of the Carson Acquisition, the sellers have agreed, subject to certain limitations, to retain certain obligations, responsibilities, liabilities, costs and expenses arising out of the pre-closing operations of the assets. We have agreed to assume certain obligations, responsibilities, liabilities, costs and expenses arising out of or incurred in connection with decrees, orders and settlements the sellers entered into with governmental and non-governmental entities prior to closing. Under the purchase and sale agreement, we have agreed to assume certain environmental liabilities, primarily remediation obligations. While these liabilities will likely be significant, we do not believe that they will have a material impact on our financial position, results of operations or liquidity. See Note C to our condensed consolidated financial statements in Item 1 for additional information regarding the acquisition.

We intend to offer TLLP the integrated logistics system to be acquired in the Carson Acquisition in multiple transactions during the first twelve months following the closing of the Carson Acquisition, with a goal for the first transaction to coincide with the closing of the Carson Acquisition. The integrated logistics system includes three marine terminals, four land storage terminals, four product marketing terminals and over one hundred miles of pipelines (including connected access to the Los Angeles International Airport).

Joint Venture

Effective April 22, 2013, we entered into an equally owned joint venture with Savage Companies to construct, own and operate a unit train unloading and marine loading terminal at the Port of Vancouver, Washington, subject to approval by regulatory agencies and Port Commissioners. The project will allow for the expedited delivery of cost-advantaged North American crude oil to the U.S. West Coast. Tesoro expects its portion of the initial investment in the project will be between $37 million and $50 million. The facility, which is expected to be operational in 2014, will be designed to handle an estimated initial volume of 120 thousand barrels per day (“Mbpd”) with potential near-term expansion capability to 280 Mbpd. The terminal is designed to accommodate various grades of North American crude oil. Tesoro is in the process of developing commercial agreements and an administrative service agreement related to the joint venture and intends to commit to the first 60 Mbpd of throughput at the facility. We do not expect that this commitment will have a material impact on our financial position, results of operations or liquidity.

As part of this strategy to deliver cost-advantaged North American crude oil to the West Coast, we have ordered additional rail cars with an expected mid-2014 delivery. In addition, we expect to have adequate U.S.-flag marine capabilities to execute the strategy.

31

Industry Overview

Our profitability is heavily influenced by the cost of crude oil and the aggregate value of the products we make from that crude oil and is affected by changes in economic conditions and supply and demand balance. Product values and crude oil costs are set by the market and are outside of the control of independent refiners.

Average Mid-Continent Benchmark

Product Differentials to WTI ($/bbl)

Average West Coast Benchmark

Product Differentials to ANS ($/bbl)

Average Mid-Continent benchmark gasoline margins and diesel fuel margins were up approximately 31% and 28% as compared to the first quarter of 2012, respectively. Average U.S. West Coast benchmark diesel fuel margins were up approximately 20% in first quarter of 2013, as compared to first quarter of 2012, while average U.S. West Coast benchmark gasoline margins remained flat in the first quarter of 2013 compared to the prior year.

32

Average Crude Oil Prices ($/bbl)

Our Mid-Continent and Pacific Northwest refineries continue to benefit from processing crude oil from inland U.S. and Canada, much of which is priced off West Texas Intermediate (“WTI”) crude oil. This benefit is a result of a discount on the price of this crude oil processed at our Mid-Continent and Pacific Northwest refineries compared to crude oil processed at our California and Mid-Pacific refineries, many of which are priced off Brent crude oil (“Brent”). During 2009 and 2010, the price of WTI crude oil was priced within $4 dollars of Brent, but beginning in 2011, WTI has priced at a significant discount to Brent.

The WTI discount to Brent averaged over $18 during the first quarter of 2013, compared to approximately $16 per barrel during the first quarter of 2012.  We supply our North Dakota refinery exclusively with Bakken crude oil, our Washington refinery primarily with Canadian Light Sweet and Bakken crude oil and our Utah refinery with light sweet crude oil from Wyoming and Montana as well as Uinta Basin waxy crude oil. In the first quarter of 2013, the average discount of Bakken crude oil to WTI narrowed to under $2 per barrel, compared to an average discount of nearly $12 per barrel the first quarter of 2012. The average discount of Canadian Light Sweet crude oil to WTI decreased more than $8 per barrel during the first quarter of 2013 compared to the first quarter of 2012.

Our California refineries run a significant amount of South American heavy crude oil and San Joaquin Valley Heavy (“SJVH”), which continued to be priced at a discount to Brent during the first quarter of 2013. During the first quarter of 2013, we supplied our Alaska refinery primarily with Alaska North Slope crude oil (“ANS”).

Product Supply and Demand Factors

There are long-term factors, in addition to current market conditions, that may impact the supply and demand of refined products in the U.S. including:

• world crude oil prices;

• increased federal fuel efficiency standards for motor vehicles;

• increased volumes of renewable fuels, mandated by the Energy Independence and Security Act;

• various regulations of greenhouse gas emissions from stationary and mobile sources pursuant to the Federal Clean Air Act and California statute;

• potential enactment of federal climate change legislation; and

• possible promulgation of national regulations relative to gasoline composition and ozone standards under the Federal Clean Air Act.

33

RESULTS OF OPERATIONS-THREE MONTHS ENDED MARCH 31, 2013, COMPARED WITH THREE MONTHS ENDED MARCH 31, 2012

A discussion and analysis of the factors contributing to our results of operations is presented below. The accompanying condensed consolidated financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance. Income generated by TLLP was not material to our consolidated results of operations.

Our management uses a variety of financial and operating metrics to analyze operating segment performance. To supplement our financial information presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), our management uses additional metrics that are known as “non-GAAP” financial metrics in its evaluation of past performance and prospects for the future. These metrics are significant factors in assessing our operating results and profitability and include consolidated earnings before interest, income taxes, depreciation and amortization expenses (“Adjusted EBITDA”). We define Adjusted EBITDA as consolidated earnings, including earnings attributable to noncontrolling interest, before depreciation and amortization expense, net interest and financing costs, income taxes and interest income.

We present Adjusted EBITDA because we believe some investors and analysts use Adjusted EBITDA to help analyze our cash flows including our ability to satisfy principal and interest obligations with respect to our indebtedness and use cash for other purposes, including capital expenditures. Adjusted 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. Adjusted EBITDA should not be considered as an alternative to U.S. GAAP net income or net cash from operating activities. Adjusted EBITDA has important limitations as an analytical tool, because it excludes some, but not all, items that affect net income and net cash from operating activities.

Summary

	Three Months Ended March 31,
	2013			2012
	(In millions, except per share amounts)
Revenues	$	8,156		$	7,820
Costs and Expenses:
Cost of sales	7,335			7,168
Operating expenses	400			347
Selling, general and administrative expenses	115			62
Depreciation and amortization expense	106			103
Loss on asset disposals and impairments	8			6
Operating Income	192			134
Interest and financing costs, net	(30		)	(36		)
Interest income	1			1
Other expense, net	(1		)	—
Earnings Before Income Taxes	162			99
Income tax expense	58			37
Net Earnings	104			62
Less: Net earnings attributable to noncontrolling interest	11			6
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	$	93		$	56
Net Earnings Per Share:
Basic	$	0.68		$	0.40
Diluted	$	0.67		$	0.39

34

	Three Months Ended March 31,
	2013			2012
	(In millions)
Reconciliation of Net Earnings to Adjusted EBITDA
Net earnings attributable to Tesoro Corporation	$	93		$	56
Net earnings attributable to noncontrolling interest	11			6
Depreciation and amortization expense	106			103
Income tax expense	58			37
Interest and financing costs, net	30			36
Interest income	(1		)	(1		)
Adjusted EBITDA (a)	$	297		$	237
Reconciliation of Cash Flows from (used in) Operating Activities to Adjusted EBITDA
Net cash from (used in) operating activities	$	247		$	(15	)
Deferred charges	159			126
Changes in assets and liabilities	(125		)	102
Income tax expense	58			37
Stock-based compensation expense	(52		)	(21		)
Interest and financing costs, net	30			36
Deferred income taxes	(14		)	(24		)
Loss on asset disposals and impairments	(8		)	(6		)
Other	2			2
Adjusted EBITDA (a)	$	297		$	237

________________

(a) For a definition of Adjusted EBITDA, see discussion above.

Our net earnings were $93 million ($0.67 per diluted share) for the three months ended March 31, 2013 (“2013 Quarter”), compared with net earnings of $56 million ($0.39 per diluted share) for the three months ended March 31, 2012 (“2012 Quarter”). The increase in net earnings of$37 million during the 2013 Quarter was primarily due to the following:

• an increase in gross refining margins of $128 million driven by a strong margin environment and feedstock advantages, in part due to the ability to transport cost-advantaged Bakken crude oil to our Washington refinery via the Anacortes rail facility, during the 2013 Quarter;

• higher throughput, primarily in our California region during the 2013 Quarter as a result of a scheduled turnaround at our Martinez refinery during the 2012 Quarter and in the Mid-Continent region as a result of the North Dakota refinery expansion completed in 2012;

• improved estimated marketing integration by 5% from the 2012 Quarter to 74%, or 78% excluding Hawaii, in the 2013 Quarter primarily due to the higher average station count.  Estimated marketing integration represents the amount of gasoline production that is sold into our retail segment as well as to wholesale customers with contract terms greater than two years; and

• a $21 million increase in retail segment operating income during the 2013 Quarter as a result of an 18% increase in fuel sales volumes and improved market conditions during 2013.

The increase in net earnings during the 2013 Quarter relative to the 2012 Quarter was partially offset by the following:

• a $33 million increase in refining manufacturing costs and operating expenses during the 2013 Quarter, primarily driven by higher throughput, increased energy costs and additional environmental expense during the 2013 Quarter;

• a $38 million increase in stock and incentive-based compensation expense. The increase in stock-based compensation expense primarily resulted from a significant increase in Tesoro’s stock price during the 2013 Quarter as compared to the 2012 Quarter; and

• transaction costs of $14 million related to the Carson Acquisition and TLLP’s purchase of the Northwest Products System during the 2013 Quarter.

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Refining Segment

	Three Months Ended March 31,
	2013			2012
	(Dollars in millions, except per barrel amounts)
Revenues
Refined products (a)	$	7,536		$	7,562
Crude oil resales and other (b)	475			156
Total Revenues	$	8,011		$	7,718
Throughput (Mbpd)
Heavy crude (c)	204			142
Light crude	340			358
Other feedstocks	35			29
Total Throughput (d)	579			529
% Heavy Crude Oil of Total Refining Throughput (c)	35		%	27		%
Yield (Mbpd)
Gasoline and gasoline blendstocks	274			253
Jet fuel	86			83
Diesel fuel	131			105
Heavy fuel oils, residual products, internally produced fuel and other	122			114
Total Yield	613			555
Gross refining margin ($/throughput barrel) (e)	$	13.68		$	12.15
Manufacturing Cost before Depreciation and Amortization Expense ($/throughput barrel) (e)	$	4.86		$	4.97

________________

(a) Refined products sales includes intersegment sales to our retail segment at prices which approximate market of $1.5 billion and $1.3 billion for the three months ended March 31, 2013 and 2012, respectively.

(b) Crude oil resales and other includes third-party revenues earned by TLLP.

(c) We define heavy crude oil as crude oil with an American Petroleum Institute gravity of 24 degrees or less.

(d) We had reduced throughput due to scheduled turnarounds at our Washington refinery during the 2013 first quarter and at our Martinez refinery during the 2012 first quarter. We had higher throughput at our North Dakota refinery during the 2013 first quarter as a result of the refinery expansion completed in 2012.

(e) Management uses various measures to evaluate performance and efficiency and to compare profitability to other companies in the industry, including gross refining margin per barrel, manufacturing costs before depreciation and amortization expense (“Manufacturing Costs”) per barrel and refined product sales margin per barrel.

• 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 (revenues 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.

• Management uses refined product sales margin per barrel to evaluate the profitability of manufactured and purchased refined product sales. There are a variety of ways to calculate refined product sales margin per barrel; different companies may calculate it in different ways. We calculate refined product sales margin per barrel by calculating an average refined product sales price per barrel and an average refined product cost of sales per barrel, which are calculated by dividing refined product sales or refined product cost of sales by total refining throughput. The average refined product cost of sales per barrel is subtracted from the average refined product sales price per barrel.

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, costs of sales and operating expenses or any other measure of financial performance presented in accordance with U.S. GAAP.

36

Refining Segment

	Three Months Ended March 31,
	2013		2012
	(Dollars in millions, except per barrel amounts)
Segment Operating Income
Gross refining margin (f)	$	713	$	585
Expenses
Manufacturing costs	253		239
Other operating expenses	71		52
Selling, general and administrative expenses	10		9
Depreciation and amortization expense	92		91
Loss on asset disposals and impairments	4		3
Segment Operating Income	$	283	$	191
Refined Product Sales (Mbpd) (g)
Gasoline and gasoline blendstocks	337		342
Jet fuel	100		94
Diesel fuel	146		131
Heavy fuel oils, residual products and other	96		90
Total Refined Product Sales	679		657
Refined Product Sales Margin ($/barrel) (e) (g)
Average sales price	$	121.92	$	127.11
Average costs of sales	111.29		117.75
Refined Product Sales Margin	$	10.63	$	9.36

________________

See page 36 for footnote (e) to this table.

(f) 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 $2 million and a decrease of $1 million for the three months ended March 31, 2013 and 2012, 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.

(g) Sources of total refined product sales include refined products manufactured at our refineries and refined products purchased from third parties. Total refined product sales margins include margins on sales of manufactured and purchased refined products.

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Refining Data by Region

	Three Months Ended March 31,
	2013		2012
	(Dollars in millions, except per barrel amounts)
Refining Data by Region
California (Martinez and Wilmington)
Refining throughput (Mbpd) (d)	257		189
Gross refining margin	$	271	$	138
Gross refining margin ($/throughput barrel) (e)	$	11.73	$	7.98
Manufacturing cost before depreciation and amortization expense (e) ($/throughput barrel)	$	6.04	$	7.34
Pacific Northwest (Washington and Alaska)
Refining throughput (Mbpd) (d)	130		155
Gross refining margin	$	155	$	183
Gross refining margin ($/throughput barrel) (e)	$	13.33	$	12.96
Manufacturing cost before depreciation and amortization expense (e) ($/throughput barrel)	$	4.73	$	3.83
Mid-Pacific (Hawaii)
Refining throughput (Mbpd)	67		67
Gross refining margin	$	28	$	13
Gross refining margin ($/throughput barrel) (e)	$	4.60	$	2.07
Manufacturing cost before depreciation and amortization expense (e) ($/throughput barrel)	$	3.02	$	3.51
Mid-Continent (North Dakota and Utah)
Refining throughput (Mbpd) (d)	125		118
Gross refining margin	$	257	$	252
Gross refining margin ($/throughput barrel) (e)	$	22.73	$	23.51
Manufacturing cost before depreciation and amortization expense (e) ($/throughput barrel)	$	3.54	$	3.47

________________

See page 36 for footnotes (d) and (e) to this table.

Three Months EndedMarch 31, 2013 Compared with Three Months EndedMarch 31, 2012

Overview. Operating income for our refining segment increased by $92 million, or 48%, to $283 million during the 2013 Quarter as compared to the 2012 Quarter as a result of higher gross margins which were partially offset by increases in manufacturing costs and other operating expenses during the 2013 Quarter.

Gross Refining Margins. Our gross refining margin per barrel increased by $1.53 per barrel, or 13%, to $13.68 per barrel in the 2013 Quarter as compared to the 2012 Quarter. This increase is a result of lower crude oil costs for our California and Pacific Northwest refineries, which contributed to strong refining margins for these regions in the 2013 Quarter.

Total gross margin increased $128 million, or 22%, to $713 million in the 2013 Quarter as compared to the 2012 Quarter. The increase is driven by improved industry margins and higher refinery utilization during the 2013 Quarter. Strong industry margins in the Mid-Continent and West Coast combined with high reliability at our refineries in those regions allowed us to capture attractive market conditions. Total refinery utilization at our refineries was 86% in the 2013 Quarter as compared to 80% in the 2012 Quarter. Additionally, a decrease in prices for South American heavy crude oil processed in our California refineries, combined with increased throughput, resulted in a $133 million increase in gross refining margins from our California refineries. The discount of Bakken crude oil to WTI narrowed during the 2013 Quarter, however, the increase in throughput in the Mid-Continent positively impacted gross margin for that region. Additionally, we were able to transport cost-advantaged Bakken crude oil to our Washington refinery via the Anacortes rail facility.

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Refining Throughput. Total refining throughput increased50 Mbpd, or 9%, to 579 Mbpd during the 2013 Quarter as compared to the 2012 Quarter. The increase is primarily a result of higher throughput in the California region during the 2013 Quarter attributable to lower rates at our Martinez refinery in the 2012 Quarter due to scheduled turnaround activity. We also benefited from increased throughput at our North Dakota refinery in the 2013 Quarter as a result of the refinery expansion completed in 2012. The increase was partially offset by lower throughput at our Pacific Northwest refineries during the 2013 Quarter caused by a scheduled turnaround at our Washington refinery.

Refined Products Sales. Revenues from sales of refined products decreased$26 million to $7.5 billion in the 2013 Quarter as compared to the 2012 Quarter, primarily due to lower average product sales prices partially offset by increased refined product sales volumes. Average product sales prices decreased $5.19 per barrel, or 4%, to $121.92 per barrel in the 2013 Quarter as compared to the 2012 Quarter. Total refined product sales increased by 22 Mbpd, or 3%, to 679 Mbpd in the 2013 Quarter as compared to the 2012 Quarter. Refined product sales volumes were supported by increased demand for diesel fuel and gasoline and benefited from an increase in refining and marketing integration driven by the acquisition and transition of additional retail sites in the first, second and third quarters of 2012.

Costs of Sales and Expenses. Our average costs of sales decreased by $6.46 per barrel to $111.29 per barrel during the 2013 Quarter compared to the 2012 Quarter, reflecting decreases in crude oil prices. Manufacturing and other operating expenses increased by $33 million to $324 million in the 2013 Quarter as compared to the 2012 Quarter primarily as a result of higher throughput during the 2013 Quarter. Additionally, manufacturing costs were negatively impacted by an increase in energy costs, as a result of higher energy prices, and increased throughput in the 2013 Quarter. Other operating expenses were impacted by additional environmental expense in the 2013 Quarter.

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Retail Segment

	Three Months Ended March 31,
	2013			2012
	(Dollars in millions, except per gallon amounts)
Revenues
Fuel	$	1,554		$	1,306
Merchandise and other	57			55
Total Revenues	$	1,611		$	1,361
Fuel Sales (millions of gallons)	449			379
Fuel Margin ($/gallon) (a)	$	0.20		$	0.12
Merchandise Margin	$	13		$	12
Merchandise Margin (percent of revenues)	26		%	25		%
Average Number of Stations (during the period)
Company-operated (b)	595			413
Branded jobber/dealer	811			794
Total Average Retail Stations	1,406			1,207
Segment Operating Income (Loss)
Gross Margins
Fuel (a) (b)	$	89		$	47
Merchandise and other non-fuel	19			19
Total Gross Margins	108			66
Expenses
Operating expenses	76			54
Selling, general and administrative expenses	5			4
Depreciation and amortization expense	9			10
Loss on asset disposals and impairments	1			2
Segment Operating Income (Loss)	$	17		$	(4	)

________________

(a) 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 revenues, segment operating income or any other measure of financial performance presented in accordance with U.S. GAAP. Fuel margin and fuel margin per gallon include the effect of intersegment purchases from the refining segment at prices which approximate market.

(b) Reflects the transition of 174 retail stations from Thrifty Oil Co. during the second and third quarters of 2012 and acquisition of 49 retail stations from SUPERVALU, Inc. during the first quarter of 2012.

Three Months EndedMarch 31, 2013 Compared with Three Months EndedMarch 31, 2012

Operating Income. Operating income for our retail segment increased$21 million to $17 million during the 2013 Quarter as compared to the 2012 Quarter as a result of higher total gross margins partially offset by an increase in operating expenses in the 2013 Quarter. Gross margin increased$42 million, or 64%, to $108 million during the 2013 Quarter as compared to the 2012 Quarter, driven by an increase in fuel sales volumes reflecting higher average station count from the acquisition and transition of additional retail stations in the first, second and third quarters of 2012. These fuel sales volumes increased70 million gallons, or 18%, during the 2013 Quarter as compared to the 2012 Quarter. Retail fuel margin per gallon increased67% to $0.20 per gallon during the 2013 Quarter. Merchandise and other non-fuel gross margin remained flat at $19 million during the 2013 and 2012 Quarters.

Fuel sales revenues increased$248 million, or 19%, to $1.6 billion in the 2013 Quarter as compared to $1.3 billion in the 2012 Quarter, reflecting increased fuel sales volumes primarily driven by higher average station count during the 2013 Quarter. Operating expenses increased$22 million, or 41%, to $76 million in the 2013 Quarter as compared to $54 million in the 2012 Quarter. The increase is a result of expenses incurred to operate additional stations acquired and transitioned during the first, second and third quarters of 2012. Our other expenses remained relatively consistent as compared to the 2012 Quarter.

40

Consolidated Results of Operations

Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased$53 million, or 85%, to $115 million in the 2013 Quarter from $62 million in the 2012 Quarter. The increase was primarily attributable to higher stock-based compensation expense, which increased by $31 million, of which $27 million is attributable to stock appreciation rights. Our stock appreciation rights are adjusted to fair value at the end of each reporting period using a Black-Scholes model where stock price is a significant assumption. Our stock price increased33% during the 2013 Quarter compared to a 15% increase during the 2012 Quarter. Additionally, we incurred transaction costs of approximately $14 million related to the Carson Acquisition and TLLP’s purchase of the Northwest Products System during the 2013 Quarter.

Interest and Financing Costs, Net. Interest and financing costs decreased$6 million, or 17%, to $30 million in the 2013 Quarter from $36 million during the 2012 Quarter, primarily driven by a reduction in interest rates on our outstanding long-term debt, which we refinanced in the second half of 2012. In addition, we did not incur any interest expense related to short-term borrowings, as there were no borrowings outstanding under the revolving credit facilities during the 2013 Quarter.

Income Tax Provision. Our income tax expense totaled $58 million in the 2013 Quarter versus $37 million in the 2012 Quarter. The combined federal and state effective income tax rate was 36% and 37% during the 2013 Quarter and the 2012 Quarter, respectively.

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CAPITAL RESOURCES AND LIQUIDITY

Overview

We operate in an environment where our capital resources and liquidity are impacted by changes in the price of crude oil and refined products, availability of trade credit, market uncertainty and a variety of additional factors beyond our control. These factors include the level of consumer demand for transportation fuels, weather conditions, fluctuations in seasonal demand, governmental regulations, geo-political conditions and overall market and global economic conditions. See “Important Information Regarding Forward-Looking Statements” on pages 49-50 for further information related to risks and other factors. Future capital expenditures, as well as borrowings under our credit agreements and other sources of capital, may be affected by these conditions.

We expect to close the Carson Acquisition during the second quarter of 2013 and intend to fund the purchase with a combination of cash and debt, including borrowings under the Tesoro Corporation Revolving Credit Facility (“Revolving Credit Facility”) and a $500 million term loan credit facility. Additionally, we amended our Revolving Credit Facility to allow for an increase in the capacity to $3.0 billion just prior to closing the Carson Acquisition. We intend to offer TLLP the integrated logistics system to be acquired in the Carson Acquisition in multiple transactions during the first twelve months following the closing of the Carson Acquisition, with a goal for the first transaction to coincide with the closing of the Carson Acquisition.

Capitalization

Our capital structure at March 31, 2013, was comprised of the following (in millions):

Debt, including current maturities:	March 31, 2013
Tesoro Corporation Revolving Credit Facility	$	—
TLLP Revolving Credit Facility	—
4.250% Senior Notes due 2017	450
9.750% Senior Notes due 2019 (net of unamortized discount of $9 million)	291
5.875% TLLP Senior Notes due 2020	350
5.375% Senior Notes due 2022	475
Capital lease obligations and other	27
Total Debt	1,593
Stockholders’ Equity	5,104
Total Capitalization	$	6,697

At March 31, 2013, our debt to capitalization ratio had decreased to 24% as compared to 25% at December 31, 2012, primarily caused by an increase in equity as result of net proceeds from the issuance of TLLP common units of approximately $392 million and $104 million in net earnings during the three months ended March 31, 2013.

Our total debt to capitalization excluding TLLP was 23% at March 31, 2013 and December 31, 2012, which excludes TLLP total debt of $358 million and $354 million and noncontrolling interest of $881 million and $486 million at March 31, 2013 and December 31, 2012, respectively. TLLP’s debt is non-recourse to Tesoro, except for Tesoro Logistics GP.

Our Revolving Credit Facility and senior notes each limit our ability to pay cash dividends or buy back our stock. The limitation in each of our debt agreements is based on limits on restricted payments (as defined in our debt agreements), which include dividends, purchases of our stock or voluntary repayments of subordinate debt. The indentures for our senior notes also limit our subsidiaries ability to make certain payments and distributions. We do not believe that these limitations will restrict our ability to pay dividends or buy back stock under our current programs.

42

Credit Facilities Overview

Our primary sources of liquidity have been cash flows from operations and borrowing availability under revolving lines of credit. We ended the first quarter of 2013 with $2.0 billion of cash and cash equivalents and no borrowings under the Tesoro Corporation Revolving Credit Facility or the TLLP Revolving Credit Facility. We believe available capital resources will be adequate to meet our capital expenditure, working capital and debt service requirements and to fund the expected acquisitions. We had available capacity under our credit agreements as follows at March 31, 2013 (in millions):

	Total Capacity (a)		Amount Borrowed as of March 31, 2013		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (b)	$	1,850	$	—	$	807	$	1,043	January 4, 2018
TLLP Revolving Credit Facility	500		—		—		500		December 31, 2017
Letter of Credit Facilities	1,146		—		514		632
Total credit agreements	$	3,496	$	—	$	1,321	$	2,175

________________

(a) During the first quarter of 2013, we entered into a term loan credit facility and amended our Revolving Credit Facility and the TLLP Revolving Credit Facility. Just prior to closing the Carson Acquisition, the term loan credit facility will provide for $500 million of borrowing capacity and the amended Revolving Credit Facility will provide an increase in the capacity to $3.0 billion. In addition, the TLLP Revolving Credit Facility allows for an increased capacity of up to $650 million, subject to receiving increased commitments from the lenders.

(b) Borrowing base is the lesser of the amount of the periodically adjusted borrowing base or the agreement’s total capacity.

As of March 31, 2013, our credit facilities were subject to the following expenses and fees:

Credit Facility	30 day Eurodollar (LIBOR) Rate	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Tesoro Corporation Revolving Credit Facility ($1.85 billion) (c)	0.20%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($500 million) (d)	0.20%	2.00%	3.25%	1.00%	0.375%

________________

(c) We can elect the interest rate to apply to the Revolving Credit Facility between a base rate plus the base rate margin, or a Eurodollar rate, for the applicable term, plus, the Eurodollar margin at the time of the borrowing. The applicable margin varies based on the Revolving Credit Facility’s credit ratings. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate. We also incur commitment fees for the unused portion of the Revolving Credit Facility at an annual rate.

(d) TLLP can elect the interest rate to apply to the TLLP Revolving Credit Facility between a base rate plus the base rate margin, or a Eurodollar rate, for the applicable term, plus, the Eurodollar margin at the time of the borrowing. The applicable margin varies based upon a certain leverage ratio, as defined by the TLLP Revolving Credit Facility. TLLP incurs commitment fees for the unused portion of the TLLP Revolving Credit Facility at an annual rate.

Tesoro Corporation Revolving Credit Facility

Effective January 4, 2013, we entered into the Sixth Amended and Restated Credit Agreement, which allows the capacity of our Revolving Credit Facility to be increased to an aggregate of $3.0 billion, just prior to closing the Carson Acquisition (“Increase Effective Date”). Additionally, the agreement allows for us to request that the capacity be increased up to an aggregate of $4.0 billion, subject to receiving increased commitments from the lenders; however, we must offer to reduce the commitments by at least $500 million on or prior to the 18 month anniversary of the Increase Effective Date and by an additional $500 million on or prior to the two year anniversary of the Increase Effective Date.

There were no changes to the Revolving Credit Facility covenants during the three months ended March 31, 2013. We were in compliance with our debt covenants as of and for the three months ended March 31, 2013.

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TLLP Revolving Credit Facility

Effective January 4, 2013, TLLP amended and restated the TLLP Revolving Credit Facility, to increase commitments under the facility from $300 million to $500 million and to allow TLLP to request that the loan availability be increased up to an aggregate of $650 million, subject to receiving increased commitments from the lenders.

The TLLP Revolving Credit Facility is non-recourse to Tesoro, except for TLGP, and is guaranteed by all of TLLP’s subsidiaries and secured by substantially all of TLLP’s assets. Borrowings are available under the TLLP Revolving Credit Facility up to the total loan availability of the facility.

There were no changes to the TLLP Revolving Credit Facility covenants during the three months ended March 31, 2013. TLLP was in compliance with all TLLP Revolving Credit Facility covenants and conditions as of and for the three months ended March 31, 2013. Additionally, we do not believe that the limitations imposed by the TLLP Revolving Credit Facility will restrict TLLP’s ability to pay distributions.

Term Loan Credit Facility

Effective January 28, 2013, we entered into a term loan credit facility agreement (the “Term Loan Facility”), which allows us to borrow up to an aggregate of $500 million on or prior to August 9, 2013. The obligations under the Term Loan Facility will be secured by all equity interests of Tesoro Refining & Marketing Company LLC and Tesoro Alaska Company, the Tesoro and USA Gasoline trademarks and those trademarks containing the name “ARCO” that will be acquired by Tesoro in the Carson Acquisition and junior liens on certain assets.

The Term Loan Facility matures three years from the initial borrowing. The Term Loan Facility will be subject to equal quarterly payments in an amount equal to 1.00% per annum of the initial borrowing with the final payment of all amounts outstanding due on the maturity date. As of March 31, 2013, we had no borrowings on the Term Loan Facility.

Share Repurchase Programs

Under a $500 million share repurchase program authorized by our Board of Directors (the “Board”), management is permitted to purchase Tesoro common stock at its discretion in the open market. During the first quarter of 2013, we purchased 2.0 million shares of our common stock for $99 million. During April 2013, we purchased approximately $45 million of shares, bringing total purchases to nearly $245 million or about 50% of the authorized purchases under this program. We expect to purchase the remainder of the authorized shares under this program by the end of 2013. In addition, we spent $36 million during the first quarter through the purchase of over 0.6 million shares under the existing program designed to offset the dilutive effect of outstanding and future stock-based compensation awards.

Cash Dividends

On February 5, 2013, our Board declared a quarterly cash dividend on common stock of $0.20 per share, which resulted in a cash payment of $28 million during the three months ended March 31, 2013. On May 1, 2013, our Board declared a cash dividend of $0.20 per share, payable on June 14, 2013 to shareholders of record on May 31, 2013.

Cash Flow Summary

Components of our cash flows are set forth below (in millions):

	Three Months Ended March 31,
	2013			2012
Cash Flows From (Used in):
Operating activities	$	247		$	(15	)
Investing activities	(150		)	(148		)
Financing activities	236			(27		)
Increase (Decrease) in Cash and Cash Equivalents	$	333		$	(190	)

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Net cash from operating activities during the 2013 Quarter totaled $247 million, as compared to net cash used in operating activities of $15 million in the 2012 Quarter. The increase in net cash from operating activities of $262 million was primarily due to changes in working capital, higher non-cash stock compensation expense and increased earnings in the 2013 Quarter as compared to the 2012 Quarter. Net cash used in investing activities increased$2 million to $150 million in the 2013 Quarter as compared to $148 million in the 2012 Quarter, primarily due to higher capital expenditures during the 2013 Quarter. Other cash used in investing activities included $37 million, primarily related to the acquisition of 49 retail stations, in the 2012 Quarter and additional advance payments of $27 million related to the Carson Acquisition in the 2013 Quarter. Net cash from financing activities during the 2013 Quarter totaled $236 million as compared to net cash used in financing activities of $27 million in the 2012 Quarter. This increase of $263 million is primarily attributable to net proceeds from the issuance of TLLP common units of approximately $392 million during the 2013 Quarter, which TLLP plans to use to fund a portion of the expected acquisition of Chevron’s Northwest Products System. This inflow was partially offset by a $125 million increase in purchases of common stock under our share repurchase programs during the 2013 Quarter as compared to the 2012 Quarter.

Working capital (excluding cash) decreased$169 million in the 2013 Quarter, primarily related to timing of payments on our crude oil and refined products purchases, which caused accounts payable to increase by $369 million. At March 31, 2013, we had several significant purchases for which we had taken title of the inventory and payment was not due until April 2013; the majority of the purchases for which we had taken title of the inventory at December 31, 2012 had been paid by year-end. An increase in accounts receivable of $145 million partially offset the increase in accounts payable. The increase in accounts receivable was primarily attributable to timing of customer payments.

Capital Expenditures

The cost estimates for capital expenditures, including environmental projects, described below are subject to further review and analysis and permitting requirements. Our capital spending plans include the following major projects (in millions):

	Total Project Expected Capital Expenditures (a)		Actual 2013 Quarter Capital Expenditures (b)		Expected Capital Expenditures for Remainder of 2013 (a)		Expected In-service Date
OPERATING SEGMENTS
REFINING
Utah Refinery Expansion project (c)	$	180	$	26	$	65	2013-2014
Utah Refinery Power reliability improvement project (d)	40		4		10		2014
Martinez Refinery Avon marine wharf upgrades (e)	125		2		—		2016
North Dakota Refinery diesel desulfurizing unit (f)	35		9		15		2013
Port of Vancouver rail unloading and marine loading facility (g)	37-50		—		10		2014
RETAIL
Thrifty rebranding (h)	30		—		—		2014

________________

(a) The cost estimates for capital expenditures exclude estimates for capitalized interest and labor costs.

(b) 2013 Quarter actual capital expenditure disclosures include capitalized interest and labor costs associated with the project.

(c) The expansion project at the Utah refinery is designed to improve yields of gasoline and diesel, improve the flexibility of processing crude feedstocks and increase throughput capacity by 4 Mbpd and is expected to be completed in 2 phases.

(d) The power reliability improvement project is designed to upgrade the Utah refinery’s electrical infrastructure. In addition, the upgrade will support the refinery expansion project.

(e) The capital improvements to our Avon marine wharf facility involve replacing the dock structures and fire protection equipment. The upgraded facility will allow us to increase our ability to move products from our Martinez refinery, thus supporting higher utilization of our refining assets.

(f) The expansion of the diesel desulfurization unit is expected to increase capacity of the unit from 17 Mbpd to 22 Mbpd and improve diesel fuel yield at the North Dakota refinery.

(g) We entered into a joint venture with Savage Companies to construct, own and operate a 120 Mbpd unit train unloading and marine loading terminal at the Port of Vancouver, Washington. The project will allow for the expedited delivery of cost-advantaged North American crude oil to the U.S. West Coast.

(h) Involves the rebranding of retail stations in southern California leased from Thrifty Oil Co. and certain of its affiliates. We transitioned 174 of these stations during 2012 with the remaining stations to be phased in during 2014.

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Capital expenditures during the 2013 Quarter were $119 million. Total 2013 expected capital expenditures are approximately $560 million, which increased from $530 million primarily due to additional TLLP growth projects and the Port of Vancouver Rail unloading and marine loading facility discussed above. Our total 2013 expected capital expenditures include $90 million related to TLLP, of which $80 million remains for project spending in 2013. Our 2013 Quarter and full-year expected capital expenditure amounts are comprised of the following project categories:

	Percent of 2013 Quarter Capital Expenditures	Percent of 2013 Expected Capital Expenditures
Project Category
Regulatory	14%	20%
Sustaining	34%	25%
Income Improvement	52%	55%

Deferred Expenditures Including Turnarounds

We spent $134 million during the 2013 Quarter for deferred expenditures, including $132 million for turnarounds. Spending during the 2013 Quarter was primarily related to turnarounds at our Wilmington and Washington refineries. During the remainder of 2013, we expect to spend approximately $180 million, primarily at our Martinez, Washington and Utah refineries.

Off-Balance Sheet Arrangements

We have not entered into any transactions, agreements or other contractual arrangements that would result in off-balance sheet liabilities.

Environmental and Other Matters

We are a party to various litigation and contingent loss situations, including environmental and income tax matters, arising in the ordinary course of business. Although we cannot predict the ultimate outcomes of these matters with certainty, we have accrued for the estimated liabilities when appropriate. We believe that the outcome of these matters will not have a material impact on our liquidity or financial position, although the resolution of certain of these matters could have a material impact on our interim or annual results of operations. Additionally, if applicable, we accrue receivables for probable third-party recoveries.

We are subject to extensive federal, state and local environmental laws and regulations. These laws, which change frequently, regulate the discharge of materials into the environment and may require us to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites, install additional controls or make other modifications to certain emission sources, equipment or facilities.

Future expenditures may be required to comply with the Clean Air Act and other federal, state and local requirements for our various sites, including our refineries, tank farms, pipelines and currently and previously owned or operated terminal and retail station properties. The impact of these legislative and regulatory developments, including any greenhouse gas cap-and-trade program or low carbon fuel standards, could result in increased compliance costs, additional operating restrictions on our business and an increase in the cost of the products we manufacture, which could have a material adverse impact on our consolidated financial position, results of operations or liquidity.

In 2009, the Environmental Protection Agency (“EPA”) proposed regulating greenhouse gas emissions under the Clean Air Act. The first of these regulations, finalized on April 1, 2010, set standards for the control of greenhouse gas emissions from light trucks and cars and could reduce the demand for our manufactured transportation fuels. In addition, other finalized regulations include permitting requirements for stationary sources that emit greenhouse gases above a certain threshold. The resulting permitting requirements could impose emission controls that increase required capital expenditures at our refineries. We cannot currently predict its impact on our financial position, results of operations or liquidity.

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In December 2007, the Energy Independence and Security Act was enacted into federal law, which created a second Renewable Fuels Standard (“RFS2”). This standard requires the total volume of renewable transportation fuels (including ethanol and advanced biofuels) sold or introduced in the U.S. to reach 16.6 billion gallons in 2013 and to increase to 36 billion gallons by 2022. The requirements could reduce future demand growth for petroleum products that we manufacture. In the near term, the RFS2 presents ethanol production and logistics challenges for the ethanol, alternative fuel and refining and marketing industries. We are currently meeting the RFS2 requirements through a combination of blending renewable fuels obtained from third parties and purchases of Renewable Identification Numbers (“RINs”) in the open market that are generated by third parties. We do not believe that expense related to the purchases of RINs will be material to our results of operations for 2013. Additional expenditures could be required to logistically accommodate the increased use of renewable transportation fuels. While we cannot currently estimate the ultimate impact of this legislation, and currently believe that the outcome will not have a material impact on our financial position or liquidity, the ultimate outcome could have a material impact on our results of operations.

In California, Assembly Bill 32 (“AB 32”), created a statewide cap on greenhouse gas emissions and requires that the state return to 1990 emission levels by 2020. AB 32 focuses on using market mechanisms, such as a cap-and-trade program and a low carbon fuel standard (“LCFS”), to achieve emissions reduction targets. The LCFS became effective in January 2010 and requires a 10% reduction in the carbon intensity of gasoline and diesel fuel by 2020. In 2011, the California Air Resources Board (“CARB”) approved cap-and-trade requirements, and all of AB 32 related regulations are to be fully implemented by 2020. In December 2011, a court ruled the LCFS unconstitutional. CARB has appealed the decision. In April 2012, the U.S. 9^th Circuit Court of Appeals stayed the lower court’s preliminary injunction of CARB’s enforcement of the standard pending the appeal. We cannot predict the ultimate outcome of the court’s ruling on the LCFS, and the implementation and implications of AB 32 will take many years to realize. Consequently, we cannot currently predict its impact on our financial position, results of operations or liquidity.

We are subject to extensive federal, state and foreign tax laws and regulations. Newly enacted tax laws and regulations, and changes in existing tax laws and regulations, could result in increased expenditures in the future. We are also subject to audits by federal, state and foreign taxing authorities in the normal course of business. It is possible that tax audits could result in claims against us in excess of recorded liabilities. We believe that resolution of any such claim(s) would not have a material impact on our financial position, results of operations or liquidity. We do not expect our unrecognized tax benefits to change significantly over the next twelve months.

Environmental Liabilities

We are incurring and expect to continue to incur expenses for environmental liabilities at a number of currently and previously owned or operated refining, pipeline, terminal and retail station properties. We have accrued liabilities for these expenses and believe these accruals are adequate based on current information and projections that can be reasonably estimated. Our environmental accruals are based on estimates including engineering assessments, and it is possible that our projections will change and that additional costs will be recorded as more information becomes available.

Our accruals for environmental expenditures totaled $86 million at both March 31, 2013 and December 31, 2012. These accruals include $54 million at both March 31, 2013 and December 31, 2012, related to environmental liabilities for site cleanup activities assumed from a prior owner, arising from operations at our Martinez refinery prior to August 2000. Of the $54 million accrued, approximately $44 million is subject to a cost-share agreement where we are responsible for 75% of the expenditures. We cannot reasonably determine the full extent of remedial activities that may be required at the Martinez refinery. Therefore, it is possible that we will identify additional investigation and remediation costs as more information becomes available. We have filed insurance claims under environmental insurance policies. These policies provide coverage up to $190 million for expenditures in excess of $50 million in self-insurance, but the insurer has challenged coverage and filed a declaratory relief action in federal court. We have not recognized possible insurance recoveries related to this matter.

We have investigated conditions at certain active wastewater treatment units at our Martinez refinery.  The investigation was driven by an order received in 2004 from the San Francisco Bay Regional Water Quality Control Board. The order named us as well as two previous owners of the Martinez refinery.  We cannot currently estimate the amount of the ultimate resolution of the order, but we believe it will not have a material adverse impact on our financial position, results of operations or liquidity.

Washington Refinery Fire

In April 2010, the naphtha hydrotreater unit at our Washington refinery was involved in a fire, which fatally injured seven employees and rendered the unit inoperable. Subsequent to the incident, refinery processing was temporarily shut down until November 2010 when the reconstruction was completed.

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We maintain comprehensive property (including business interruption), workers’ compensation, and general liability insurance policies with significant loss limits. Our business interruption insurance deductible is satisfied after we have exceeded both 60 days of operational disruption and $25 million in losses primarily based on the operating plan that existed prior to the incident. Our property damage insurance has a $10 million deductible. We have filed business interruption insurance and property damage insurance claims under these policies related to down time from this incident. Certain business interruption claims remain open as of March 31, 2013.

Other Matters

In the ordinary course of business, we become party to lawsuits, administrative proceedings and governmental investigations, including environmental, regulatory and other matters. Large, and sometimes unspecified, damages or penalties may be sought from us in some matters. We have not established accruals for these matters unless a loss is probable, and the amount of loss is currently estimable. On the basis of existing information, we believe that the resolution of these matters, individually or in the aggregate, will not have a material adverse impact on our liquidity or financial position, although the resolution of certain of these matters could have a material impact on our interim or annual results of operations.

Legal

We are a defendant, along with other manufacturing, supply and marketing defendants, in two remaining lawsuits alleging methyl tertiary butyl ether (“MTBE”) contamination in groundwater. The defendants are being sued for having manufactured MTBE and having manufactured, supplied and distributed gasoline containing MTBE. The plaintiffs in the remaining cases, all in California, are municipalities and governmental authorities. The plaintiffs allege, in part, that the defendants are liable for manufacturing or distributing a defective product. The suits generally seek individual, unquantified compensatory and punitive damages and attorney’s fees. We intend to vigorously assert our defenses against these claims. While we cannot currently estimate the final amount or timing of the resolution of these matters, we have established an accrual for them and believe that the outcome will not have a material impact on our financial position, results of operations or liquidity.

During 2009, Chevron filed a lawsuit against us claiming they are entitled to a share of the refunds we received in 2008 from the owners of the Trans-Alaska Pipeline System (“TAPS”). We received $50 million in 2008, net of contingent legal fees, for excessive intrastate rates charged by TAPS during 1997 through 2000 and the period of 2001 through June 2003. Chevron is asserting that it is entitled to a share of its portion of the refunds for retroactive price adjustments under our previous crude oil contracts with them. The trial court judge granted Chevron’s motion for summary judgment and awarded them $16 million, including interest, in September 2010. We disagree with the trial court and have appealed the decision to the Alaska Supreme Court in which the proceeding is now pending. We have established an accrual for this matter and its resolution will not have a material impact on our financial position, results of operations or liquidity.

Environmental

In October 2012, certain non-governmental organizations filed a Request for Agency Action (the “Request”) with the Utah Department of Environmental Quality (“UDEQ”) concerning our Utah refinery.  The Request challenges the UDEQ’s permitting of our refinery conversion project alleging that the permits do not conform to the requirements of the Clean Air Act.  As the permittee, we are the “real party in interest” and will be defending the permits with UDEQ.  While we are still evaluating the Request and cannot estimate the timing or estimated amount, if any, associated with the outcome, we do not believe it will have a material adverse impact on our financial position, results of operations or liquidity.

The EPA has alleged that we have violated certain Clean Air Act regulations at our Alaska, Washington, Martinez, Hawaii and Utah refineries. We are continuing discussions of the EPA’s claims with the EPA and the U.S. Department of Justice (“DOJ”). We previously received a notice of violation (“NOV”) in March 2011 from the EPA alleging violations of Title V of the Clean Air Act at our Alaska refinery. The alleged violations in the NOV arise from a 2007 state of Alaska inspection and inspections by the EPA in 2008 and 2010. We also previously received NOVs in 2005 and 2008 alleging violations of the Clean Air Act at our Washington refinery. We are discussing all of these allegations with the EPA and DOJ. The ultimate resolution of these matters could require us to incur material capital expenditures and/or civil penalties. While we cannot currently estimate the amount or timing of the resolution of these matters, and currently believe that the outcome will not have a material impact on our liquidity or financial position, the ultimate resolution could have a material impact on our interim or annual results of operations.

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IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (including information incorporated by reference) includes and references “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, expectations regarding refining margins, revenues, cash flows, capital expenditures, turnaround expenses and other financial items. These statements also relate to our business strategy, goals and expectations concerning our market position, future operations, margins and profitability. We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar terms and phrases to identify forward-looking statements in this Quarterly Report on Form 10-Q, which speak only as of the date the statements were made.

Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect.

The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to:

• the constantly changing margin between the price we pay for crude oil and other refinery feedstocks, and the prices at which we are able to sell refined products;

• the timing and extent of changes in commodity prices and underlying demand for our refined products;

• changes in the expected timing of the acquisition of BP’s integrated Southern California refining and marketing business (the “Carson Acquisition”), or the value of and benefits derived from the assets we intend to acquire in the Carson Acquisition;

• changes in global economic conditions and the effects of the global economic downturn on our business, especially in California, and the business of our suppliers, customers, business partners and credit lenders;

• the availability and costs of crude oil, other refinery feedstocks and refined products;

• changes in fuel and utility costs for our facilities;

• changes in the cost or availability of third-party vessels, pipelines and other means of transporting crude oil feedstocks and refined products;

• actions of customers and competitors;

• state and federal environmental, economic, health and safety, energy and other policies and regulations, including those related to climate change and any changes therein, and any legal or regulatory investigations, delays or other factors beyond our control;

• adverse rulings, judgments, or settlements in litigation or other legal or tax matters, including unexpected environmental remediation costs in excess of any reserves;

• operational hazards inherent in refining operations and in transporting and storing crude oil and refined products;

• earthquakes or other natural disasters affecting operations;

• changes in our cash flow from operations;

• changes in capital requirements or in execution of planned capital projects;

• changes in the carrying costs of our inventory;

• disruptions due to equipment interruption or failure at our facilities or third-party facilities;

• direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war;

• weather conditions affecting our operations or the areas in which our refined products are marketed; 

• seasonal variations in demand for refined products;

• changes in the timing of TLLP’s acquisition from Chevron Pipe Line Company and Northwest Terminalling Company, or the value of and benefits derived from the assets TLLP intends to acquire;

• risks related to labor relations and workplace safety; and

• political developments.

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Many of these factors, as well as other factors, are described in our filings with the SEC. All future written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the previous statements. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update any information contained herein or to publicly release the results of any revisions to any forward-looking statements that may be made to reflect events or circumstances that occur, or that we become aware of, after the date of this Quarterly Report on Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk Management

We have established a risk committee comprised of senior level leadership from our financial, strategic, governance, administrative and operational functions. The risk committee’s responsibilities include the performance of an annual review to assess and prioritize the Company’s risks. Our financial, strategic, governance and operational risks’ subject matter experts participate in this annual assessment. The risk committee and other groups in the organization assess the status and effectiveness of risk prevention and mitigation activities, identify emerging risks and facilitate management’s development of our risk assessment and management practices. In addition, the risk committee meets monthly to review priority risks, risk prevention and mitigation activities and the Company’s emerging risks. The risk committee presents a quarterly risk update to executive management. At least annually, the Board of Directors meets with the chair of our risk committee concerning the status and effectiveness of our risk prevention and mitigation activities, emerging risks and risk assessment and management practices.

The risk committee has a responsibility to assess and advise management on the system of controls the Company has put in place to ensure procedures are properly followed and accountability is present at the appropriate levels. The Company has put in place controls designed to:

• create and maintain a comprehensive risk management policy;

• provide for authorization by the appropriate levels of management;

• provide for segregation of duties;

• maintain an appropriate level of knowledge regarding the execution of and the accounting for derivative instruments; and

• have key performance indicators in place to adequately measure the performance of its hedging activities.

Commodity Price Risks

Our primary source of market risk is the difference between the prices we sell our refined products for and the prices we pay for crude oil and other feedstocks. We use derivative instruments to manage the risks from changes in the prices of crude oil and refined products, fluctuations in foreign currency exchange rates, or to capture market opportunities. We believe the governance structure that we have in place is adequate given the size and sophistication of our hedging program.

Our earnings and cash flows from operations depend on the margin, relative to fixed and variable expenses (including the costs of crude oil and other feedstocks), at which we are able to sell our refined products. The prices of crude oil and refined products fluctuate substantially and depend on many factors including the global supply and demand for crude oil and refined products. This demand is impacted by changes in the global economy, the level of foreign and domestic production of crude oil and refined products, geo-political conditions, the availability of imports of crude oil and refined products, the relative strength of the U.S. dollar, the marketing of alternative and competing fuels and the impact of government regulations. The prices we sell our refined products for are also affected by local factors such as local market conditions and the level of operations of other suppliers in our markets.

Prices for refined products are influenced by the price of crude oil. In most cases, an increase or decrease in the price of crude oil results in a corresponding increase or decrease in the price of gasoline and other refined products. The timing, direction and the overall change in refined product prices versus crude oil prices will impact profit margins and could have a significant impact on our earnings and cash flows. Assuming all other factors remained constant, a $1 per barrel change in average gross refining margins, based on our rolling 12-month average throughput of 597 thousand barrels per day, would change annualized pre-tax operating income by approximately $218 million.

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We maintain inventories of crude oil, intermediate products and refined products, the values of which are subject to fluctuations in market prices. Our inventories of refinery feedstocks and refined products totaled 30 million barrels at both March 31, 2013 and December 31, 2012. The average cost of our refinery feedstocks and refined products at March 31, 2013, was approximately $51 per barrel compared to market prices of approximately $120 per barrel. If market prices decline to a level below the average cost of these inventories, we would be required to write down the carrying value of our inventory to market.

We use non-trading derivative instruments to manage exposure to commodity price risks associated with the purchase or sale of crude oil and finished products. We also use non-trading derivative instruments to manage price risks associated with inventories above or below our target levels and to hedge crude oil held in connection with arbitrage opportunities where the price of crude oil is higher in the future than the current spot price. These derivative instruments typically involve options, exchange-traded futures, over-the-counter swaps and options and physical commodity forward purchase and sale contracts (“Forward Contracts”), which had remaining durations of less than two years as of March 31, 2013. Our hedging strategies are monitored daily.

We mark our derivative instruments to market and recognize the changes in their fair value in our statements of consolidated operations.

Net earnings during the first quarters of 2013 and 2012 included net losses of $28 million and $21 million, respectively, on our commodity derivative positions comprised of the following (dollars in millions and volumes in millions of barrels):

		Three Months Ended March 31,
	2013				2012
	Contract  Volumes	Net Gain (Loss)			Contract Volumes	Net Gain  (Loss)
Unrealized gain carried on open derivative positions from prior period	2	$	6		4	$	38
Realized loss on settled derivative positions	85	(25		)	91	(67		)
Unrealized gain (loss) on open net short derivative positions	1	(9		)	3	8
Net Loss		$	(28	)		$	(21	)

Our open positions at March 31, 2013, will expire at various times primarily during 2013 and 2014. We prepared a sensitivity analysis to estimate our exposure to market risk associated with our derivative instruments. This analysis may differ from actual results. Based on our open net positions of one million barrels at March 31, 2013, a $1.00 per-barrel change in quoted market prices of our derivative instruments, assuming all other factors remain constant, could change the fair value of our derivative instruments and pre-tax operating income by approximately $1 million.

Counterparty Credit Risk

We have exposure to concentrations of credit risk related to the ability of our counterparties to meet their contractual payment obligations, and the potential non-performance of counterparties to deliver contracted commodities or services at the contracted price. We have risk management policies in place, and continue to monitor closely the status of our counterparties. We perform ongoing credit evaluations of our customers’ financial condition, and in certain circumstances, require prepayments, letters of credit or other collateral.

Foreign Currency Risk

We are exposed to exchange rate fluctuations on our purchases of Canadian crude oil. We enter into Forward Contracts of Canadian dollars to manage monthly exchange rate fluctuations. We had a loss of $2 million and a gain of $1 million, related to these transactions for the three months ended March 31, 2013 and 2012, respectively. As of March 31, 2013, we had open Forward Contracts to purchase CAD $9 million and CAD $36 million that matured or will mature on April 25, 2013 and May 24, 2013. Based on our open forward contract position, a $0.01 change in the Canadian dollar to U.S. dollar exchange rate would change operating income by less than $1 million.

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Interest Rate Risk

We utilize fixed-rate long-term debt obligations and other borrowings, which are subject to market risk from changes in interest rates. Changes in interest rates affect the interest expense we incur on our variable-rate debt and the fair value of our fixed-rate debt. These changes also affect the rates used to discount liabilities, which could result in changes in our accretion expense related to our asset retirement obligations and pension and postretirement net periodic benefit expense over time.  The fair value of our debt was estimated primarily using quoted market prices.   The carrying value and fair value of our debt was approximately $1.6 billion and $1.7 billion, respectively at March 31, 2013 and December 31, 2012. We currently do not use interest rate swaps to manage our exposure to interest rate risk; however, we continue to monitor the market and our exposure, and in the future, we may enter into these transactions to mitigate risk. We believe in the short-term we have acceptable interest rate risk and continue to monitor the risk on our long-term obligations.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation required by the Securities Exchange Act of 1934, as amended (“the Exchange Act”), under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of the end of the period. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. Our disclosure controls and procedures are designed to provide reasonable assurance that the information that we are required to disclose in reports we file under the Exchange Act is accumulated and communicated to management, as appropriate.

During the quarter ended March 31, 2013, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

In the ordinary course of business, we become party to lawsuits, administrative proceedings and governmental investigations, including environmental, regulatory and other matters. Large, and sometimes unspecified, damages or penalties may be sought from us in some matters and certain matters may require years to resolve. Although we cannot provide assurance, we believe that an adverse resolution of the matters described below will not have a material adverse impact on our consolidated financial position, results of operations or liquidity. The information below describes new proceedings or material developments in proceedings that we previously reported in our annual report on Form 10-K for the year ended December 31, 2012.

On January 28, 2013, we received a notice of violation (“NOV”) from the Northwest Clean Air Agency alleging a violation of air quality regulations at our Washington refinery.  The allegation concerns the modification of a refinery heater in August 2011. While we are evaluating the allegation and cannot currently estimate the amount or timing of the resolution of this matter, we believe that the outcome will not have a material impact on our financial position, results of operations or liquidity.

ITEM 1A.RISK FACTORS

There have been no significant changes from the risk factors previously disclosed in Item 1A of our 2012 Annual Report on Form 10-K.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below provides a summary of all purchases by Tesoro of its common stock during the three-month period ended March 31, 2013.

Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) (c)	Approximate Dollar Value of Shares that May Yet Be Purchased Remaining at Period End Under the Plans or Programs (In Millions) (b) (c)
January 2013	853,600	$	42.83	853,600	$	364
February 2013	515,361	$	53.34	515,361	$	372
March 2013	1,224,108	$	57.79	1,220,479	$	301
Total	2,593,069			2,589,440	$	301

________________

(a) Includes 3,629 shares acquired from employees during the first quarter of 2013 to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to them.

(b) Under a program approved by our Board of Directors in 2011, management is permitted to purchase additional shares of Tesoro common stock to offset the dilutive effect of awards granted under the annual incentive compensation program. The approximate dollar value of shares that may yet be purchased remaining at period end increased by $36 million during February 2013 as a result of the stock-based awards granted during that month, which authorized the purchase of those shares under the 2011 Long-Term Incentive Plan. During March 2013, we purchased the 615,759 shares of Tesoro common stock that were authorized under this program as a result of the February 2013 grant. The remaining 1,973,681 shares repurchased during the three months ended March 31, 2013 related to the share repurchase program described below.

(c) In August 2012, our Board of Directors authorized a separate $500 million share repurchase program. Under the program, management is permitted to purchase Tesoro common stock at its discretion in the open market. The authorization has no time limit and may be suspended or discontinued at any time. We purchased approximately 2.0 million shares of our common stock for approximately $99 million during the three months ended March 31, 2013 under this share repurchase program.

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ITEM 5.OTHER INFORMATION

On May 1, 2013, the Compensation Committee of the Board of Directors approved an amendment and restatement of the Tesoro Corporation Executive Severance and Change in Control Plan (as amended and restated, the “Amended Plan”). The Amended Plan modifies the definition of bonus for all participants other than the Company's Chief Executive Officer (the “CEO”) for purposes of calculating the severance benefit following an involuntary termination without cause, changing it from target bonus to the average of the three actual bonuses paid under the Company's annual incentive program during the three-year period ending on the date of the participant's termination. 

The Amended Plan further provides certain benefits to the CEO that were previously provided under the employment agreement between Gregory J. Goff, the Company's current CEO, and the Company, which agreement automatically expired by its terms on April 30, 2013. The benefits provided to the CEO in the event of an involuntary termination without cause or voluntary for good reason (as defined in the Amended Plan) include the following:

• the definition of bonus for this purpose will be the greater of the highest annual bonus earned under the Company's annual incentive compensation program during the three-year period ending on the date of his termination of employment or $450,000;

• until Mr. Goff becomes retirement eligible on May 1, 2015, he will be deemed vested under the Tesoro Corporation Amended and Restated Executive Security Plan; and

• additional coverage will be provided under group health plans.

Further, the Amended Plan provides that in the absence of a Change-in-Control, the CEO will be entitled to receive a severance benefit upon a voluntary termination under the following circumstances:

• a material adverse change in the governing body to which the CEO reports;

• a material adverse change in the Compensation plans, programs or arrangements in which the CEO is entitled to participate (the “Compensation Plans”) other than a material adverse change in the Compensation Plans that adversely affects other similarly situated executives in a manner proportionate to the material adverse effect of such change on the Chief Executive Officer; 

• CEO's failure to be elected or reelected to the Board; or

• the failure of any successor to the Company (whether direct or indirect and whether by merger, acquisition, consolidation or otherwise) to assume the obligations under the plan.

A separate death/disability benefit was added to the Amended Plan of one times base salary in the event of termination of employment due to the CEO's death or total disability as defined in the Amended Plan.

The foregoing description is qualified in its entirety by reference to the actual terms of the Amended Plan, which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q.

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ITEM 6. EXHIBITS

(a) Exhibits

Exhibit Number	Description of Exhibit
*4.1	Supplemental Indenture, dated as of February 27, 2013, among Tesoro Corporation, certain subsidiary guarantors and U.S. Bank National Association, as trustee, relating to the 4.250% Senior Notes due 2017 and 5.375% Senior Notes due 2022.
*4.2	Supplemental Indenture, dated as of February 27, 2013, among Tesoro Corporation, certain subsidiary guarantors and U.S. Bank National Association, as trustee, relating to the 9.750% Senior Notes due 2019.
*10.1	Amended and Restated Master Terminalling Services Agreement, dated as of February 22, 2013, among Tesoro Refining & Marketing Company LLC, Tesoro Alaska Company and Tesoro Logistics Operations LLC.
*10.2	Amended and Restated Tesoro Corporation Executive Severance and Change in Control Plan effective May 1, 2013.
*31.1	Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**101.INS	XBRL Instance Document
**101.SCH	XBRL Taxonomy Extension Schema Document
**101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
**101.LAB	XBRL Taxonomy Extension Label Linkbase Document
**101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

________________

* Filed herewith.

** Submitted electronically herewith.

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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 thereunto duly authorized.

		TESORO CORPORATION
Date:	May 3, 2013	/s/ GREGORY J. GOFF
		Gregory J. Goff
		President and Chief Executive Officer
		(Principal Executive Officer)
Date:	May 3, 2013	/s/ G. SCOTT SPENDLOVE
		G. Scott Spendlove
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

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EX-4.1

Exhibit 4.1

SUPPLEMENTAL INDENTURE

SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of February 27, 2013 among Tesoro Corporation, a Delaware corporation (the “Company”), Tesoro Insurance Holding Company, a Delaware corporation (“Tesoro Insurance”), Tesoro SoCal Pipeline Company LLC, a Delaware limited liability company (“Tesoro SoCal”), Treasure Franchise Company LLC, a Delaware limited liability company (together with Tesoro Insurance and Tesoro SoCal, the “New Guarantors”), and U.S. Bank National Association, as trustee under the indenture referred to below (the “Trustee”). Capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Indenture (as defined below).

W I T N E S S E T H :

WHEREAS, the Company and the existing Guarantors have heretofore executed and delivered to the Trustee an indenture (as amended, supplemented and in effect, the “Indenture”), dated as of September 27, 2012, pursuant to which the Company has issued an aggregate principal amount of $450,000,000 of 4.250% Senior Notes due 2017 and an aggregate principal amount of $475,000,000 of 5.375% Senior Notes due 2022 (collectively, the “Notes”);

WHEREAS, Article X of the Indenture provides that under certain circumstances the Company may or must cause certain of its Subsidiaries to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiaries shall unconditionally guarantee all of the Company’s Obligations under the Notes pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein; and

WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.

NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the New Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1.     Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2.     Agreement to Guarantee. Each New Guarantor hereby agrees, jointly and severally with all other Guarantors, to guarantee the Company’s Obligations under the Notes and the Indenture on the terms and subject to the conditions set forth in Article X of the Indenture and to be bound by all other applicable provisions of the Indenture as a Guarantor thereunder.

3.     No Recourse Against Others. No past, present or future director, officer, employee, manager, incorporator, partner, member, agent, shareholder or other owner of Capital Stock of any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.

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4.     NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.

5.     Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

6.     Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.

7.     The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the correctness of the recitals of fact contained herein, all of which recitals are made solely by the New Guarantors.

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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.

TESORO CORPORATION
By:	/s/ TRACY D. JACKSON
	Name:	Tracy D. Jackson
	Title:	Vice President and Treasurer

TESORO INSURANCE HOLDING COMPANY
By:	/s/ TRACY D. JACKSON
	Name:	Tracy D. Jackson
	Title:	Vice President and Treasurer

TESORO SOCAL PIPELINE COMPANY LLC
By:	/s/ TRACY D. JACKSON
	Name:	Tracy D. Jackson
	Title:	Vice President and Treasurer

TREASURE FRANCHISE COMPANY LLC
By:	/s/ TRACY D. JACKSON
	Name:	Tracy D. Jackson
	Title:	Vice President and Treasurer

[2017 and 2022 Notes Supplemental Indenture]

U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:	/s/ JAMES KOWALSKI
	Name:	James Kowalski
	Title:	Vice President

[2017 and 2022 Notes Supplemental Indenture]

EX-4.2

Exhibit 4.2

SUPPLEMENTAL INDENTURE

SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of February 27, 2013 among Tesoro Corporation, a Delaware corporation (the “Company”), Tesoro Insurance Holding Company, a Delaware corporation (“Tesoro Insurance”), Tesoro SoCal Pipeline Company LLC, a Delaware limited liability company (“Tesoro SoCal”), Treasure Franchise Company LLC, a Delaware limited liability company (together with Tesoro Insurance and Tesoro SoCal, the “New Guarantors”), and U.S. Bank National Association, as trustee under the indenture referred to below (the “Trustee”). Capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Indenture (as defined below).

WITNESSETH

WHEREAS, the Company and the existing Guarantors have heretofore executed and delivered to the Trustee an indenture (as amended, supplemented and in effect, the “Indenture”), dated as of June 5, 2009, pursuant to which the Company has issued an aggregate principal amount of $300,000,000 of 9.75% Senior Notes due 2019 (the “Notes”);

WHEREAS, Article X of the Indenture provides that under certain circumstances the Company may or must cause certain of its Subsidiaries to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiaries shall unconditionally guarantee all of the Company’s Obligations under the Notes pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein; and

WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.

NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the New Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1.    Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2.    Agreement to Guarantee. Each New Guarantor hereby agrees, jointly and severally with all other Guarantors, to guarantee the Company’s Obligations under the Notes and the Indenture on the terms and subject to the conditions set forth in Article X of the Indenture and to be bound by all other applicable provisions of the Indenture as a Guarantor thereunder.

3.    No Recourse Against Others. No past, present or future director, officer, employee, manager, incorporator, partner, member, agent, shareholder or other owner of Capital Stock of any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their

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creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.

4.    NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.

5.    Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

6.    Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.

7.    The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the correctness of the recitals of fact contained herein, all of which recitals are made solely by the New Guarantors.

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.

TESORO CORPORATION
By:	/s/ TRACY D. JACKSON
	Name:	Tracy D. Jackson
	Title:	Vice President and Treasurer

TESORO INSURANCE HOLDING COMPANY
By:	/s/ TRACY D. JACKSON
	Name:	Tracy D. Jackson
	Title:	Vice President and Treasurer

TESORO SOCAL PIPELINE COMPANY LLC
By:	/s/ TRACY D. JACKSON
	Name:	Tracy D. Jackson
	Title:	Vice President and Treasurer

TREASURE FRANCHISE COMPANY LLC
By:	/s/ TRACY D. JACKSON
	Name:	Tracy D. Jackson
	Title:	Vice President and Treasurer

[2019 Notes Supplemental Indenture]

U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:	/s/ JAMES KOWALSKI
	Name:	James Kowalski
	Title:	Vice President

[2019 Notes Supplemental Indenture]

EX-10.1

Exhibit 10.1

AMENDED AND RESTATED MASTER TERMINALLING SERVICES AGREEMENT

This Amended and Restated Master Terminalling Services Agreement (the “Agreement”) is dated as of February 22, 2013, by and among Tesoro Refining & Marketing Company LLC, a Delaware limited liability company (“TRMC”), Tesoro Alaska Company, a Delaware corporation (“TAK” and, together with TRMC, “Tesoro”) and Tesoro Logistics Operations LLC, a Delaware limited liability company (“TLO”).

RECITALS

WHEREAS, by virtue of their indirect ownership interests in Tesoro Logistics LP (the “Partnership”), TLO's parent entity, each of TAK and TRMC have an economic interest in the financial and commercial success of the Partnership and its operating subsidiary, TLO; and

WHEREAS, the Parties (as defined below and in the case of TRMC, its predecessor corporate entity) entered into a Master Terminalling Services Agreement as of April 26, 2011, and desire to amend and restate that agreement in its entirety as set forth herein to memorialize the terms of their ongoing commercial relationship.

NOW, THEREFORE, in consideration of the covenants and obligations contained herein, the parties to this Agreement hereby agree as follows:

1. DEFINITIONS

Capitalized terms used throughout this Agreement shall have the meanings set forth below, unless otherwise specifically defined herein.

“Additive Facilities” has the meaning set forth in Section 17(a).

“Additized Gasoline” has the meaning set forth in Section 18(a).

“Adjusted Minimum Volume Commitment” means Tesoro's Minimum Throughput Commitment, adjusted by deducting the applicable Stipulated Volume for each Terminal that is no longer subject to this Agreement at any time.

“Agreement” has the meaning set forth in the Preamble.

“Ancillary Services” means the following services to be provided by TLO to Tesoro: ethanol receipt (rail and truck), ethanol storage, ethanol blending, generic gasoline additization, jet additization, jet certification, lubricity/conductivity additization, Product receipt (barge), proprietary additive additization, red dye additization, transmix loading (truck) and winter flow improver additization.

“Applicable Law” means any applicable statute, law, regulation, ordinance, rule, determination, judgment, rule of law, order, decree, permit, approval, concession, grant, franchise, license, requirement, or any similar form of decision of, or any provision or condition of any permit, license or other operating authorization issued by any Governmental Authority

having or asserting jurisdiction over the matter or matters in question, whether now or hereafter in effect.

“Base Gasoline” has the meaning set forth in Section 18(a).

“Blending Instructions” has the meaning set forth in Section 21(c).

“bpd” means barrels per day.

“Business Day” means a day, other than a Saturday or Sunday, on which banks in New York, New York are open for the general transaction of business.

“Capacity Resolution” has the meaning set forth in Section 32(c).

“Carrier” means a third-party agent or contractor hired by Tesoro, who is in the business of transporting Products via tank trucks.

“Commencement Date” has the meaning set forth in Section 2.

“Confidential Information” means all confidential, proprietary or non-public information of a Party, whether set forth in writing, orally or in any other manner, including all non-public information and material of such Party (and of companies with which such Party has entered into confidentiality agreements) that another Party obtains knowledge of or access to, including non-public information regarding products, processes, business strategies and plans, customer lists, research and development programs, computer programs, hardware configuration information, technical drawings, algorithms, know-how, formulas, processes, ideas, inventions (whether patentable or not), trade secrets, schematics and other technical, business, marketing and product development plans, revenues, expenses, earnings projections, forecasts, strategies, and other non-public business, technological, and financial information.

“Credit” has the meaning set forth in Section 7(b).

“Curtailment Fee” has the meaning set forth in Section 30(b).

“DCA” has the meaning set forth in Section 18(a).

“EPA” has the meaning set forth in Section 14(a).

“Ethanol Services” has the meaning set forth in Section 21(a).

“Excess Amounts” means, for any Month, the aggregate volumes throughput by Tesoro in excess of the Minimum Throughput Commitment, multiplied by the weighted average Terminalling Service Fee paid by Tesoro during such Month.

“Extension Period” has the meaning set forth in Section 3.

“First Offer Period” has the meaning set forth in Section 34(b).

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“Force Majeure” means circumstances not reasonably within the control of TLO and which, by the exercise of due diligence, TLO is unable to prevent or overcome that prevent performance of TLO's obligations, including: acts of God, strikes, lockouts or other industrial disturbances, wars, riots, fires, floods, storms, orders of courts or Governmental Authorities, explosions, terrorist acts, breakage, accident to machinery, storage tanks or lines of pipe and inability to obtain or unavoidable delays in obtaining material or equipment and similar events.

“Force Majeure Notice” has the meaning set forth in Section 31(a).

“Force Majeure Period” has the meaning set forth in Section 31(a).

“Governmental Authority” means any federal, state, local or foreign government or any provincial, departmental or other political subdivision thereof, or any entity, body or authority exercising executive, legislative, judicial, regulatory, administrative or other governmental functions or any court, department, commission, board, bureau, agency, instrumentality or administrative body of any of the foregoing.

“Initial Term” has the meaning set forth in Section 3.

“LAC” has the meaning set forth in Section 18(a).

“Minimum Throughput Commitment” means an aggregate amount of Products equal to 100,000 bpd (on a monthly average basis); provided however, that the Minimum Throughput Commitment during the Month in which the Commencement Date occurs shall be prorated in accordance with the ratio of the number of days including and following the Commencement Date in such Month to the total number of days in such Month.

“Month” means a calendar month.

“Notice Period” has the meaning set forth in Section 30(a).

“Offer Period” has the meaning set forth in Section 32(g).

“OPIS” has the meaning set forth in Section 8(a).

“Partnership” has the meaning set forth in the Recitals to this Agreement.

“Partnership Change of Control” means Tesoro Corporation ceases to possess, directly or indirectly, the power to direct or cause the direction of the management and policies of the general partner of the Partnership, whether through ownership of voting securities, by contract, or otherwise.

“Party” or “Parties” means that each of TAK, TRMC and TLO is a “Party” and collectively are the “Parties” to this Agreement.

“Person” means any individual, partnership, limited partnership, joint venture, corporation, limited liability company, limited liability partnership, trust, unincorporated organization or Governmental Authority or any department or agency thereof.

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“Product” or “Products” means the petroleum products, ethanol or biofuels described herein as being handled under this Agreement.

“Purchase Order” has the meaning set forth in Section 5(a).

“Receiving Party Personnel” has the meaning set forth in Section 37(d).

“Red Dye” has the meaning set forth in Section 19(a).

“Refineries” means the Tesoro refineries located in Anacortes, Washington; Kenai, Alaska; Mandan, North Dakota; Salt Lake City, Utah; and Martinez and Los Angeles, California.

“Restoration” has the meaning set forth in Section 32(b).

“Right of First Refusal” has the meaning set forth in Section 32(g).

“Shortfall Payment” has the meaning set forth in Section 7(b).

“Stipulated Volume” means the stipulated volume in bpd as set forth for each Terminal on Schedule A attached hereto.

“Storage Contract” has the meaning set forth in Section 32(g).

“Subject Tank” has the meaning set forth in Section 32(g).

“Suspension Notice” has the meaning set forth in Section 30(a).

“TAK” has the meaning set forth in the Preamble.

“Term” has the meaning set forth in Section 3.

“Terminalling Right of First Refusal” has the meaning set forth in Section 34(b).

“Terminalling Service Fee” means, for any Month during the Term, the total fee per barrel of throughput paid by Tesoro during that Month for terminalling, dedicated storage and Ancillary Services provided by TLO.

“Terminals” means the Terminals set forth on Schedule A attached hereto.

“Termination Notice” has the meaning set forth in Section 31(a).

“Tesoro” has the meaning set forth in the Preamble.

“Tesoro Termination Notice” has the meaning set forth in Section 31(b).

“TLO” has the meaning set forth in the Preamble.

“Transmix” has the meaning set forth in Section 13.

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“TRMC” has the meaning set forth in the Preamble.

2.COMMENCEMENT DATE

The Parties agree that the “Commencement Date” was April 26, 2011.

3.TERM

The initial term of this Agreement shall commence on the Commencement Date and shall continue through April 30, 2021 (the “Initial Term”); provided, however, that Tesoro may, at its option, extend the Initial Term for up to two (2) renewal terms of five (5) years each (each, an “Extension Period”) by providing written notice of its intent to TLO no less than ninety (90) days prior to the end of the Initial Term or the then-current Extension Period. The Initial Term, and any extensions of this Agreement as provided above, shall be referred to herein as the “Term.”

4.MINIMUM THROUGHPUT COMMITMENT

(a)During the Term and subject to the terms and conditions of this Agreement, Tesoro shall throughput the Minimum Throughput Commitment at the Terminals, and TLO shall make available to Tesoro commingled storage and throughput capacity at each respective Terminal, sufficient to allow Tesoro to throughput the Stipulated Volume of Products at such Terminal.

(b)Allocation of storage and throughput capacity for separate Products at each Terminal shall be in accordance with current practices, or as otherwise may be set forth in a Purchase Order, as described below.

(c)Tesoro may throughput volumes in excess of its Minimum Throughput Commitment, up to the then-available capacity of each Terminal, net of any third-party commitments, as determined by TLO at any time, which allocation of any excess capacity shall be in accordance with current practices, or as otherwise may be set forth in a Purchase Order, as described below.

(d)In the event at any time this Agreement is terminated as to one or more Terminals, as provided herein, then the Minimum Throughput Commitment shall thereafter be adjusted to be the Adjusted Minimum Volume Commitment.

5.PURCHASE ORDERS

(a)In addition to the throughput subject to the Minimum Volume Commitment set forth in this Agreement, TLO and Tesoro may enter into purchase orders substantially in the form attached hereto as Exhibit 1 (each, a “Purchase Order”). Upon a request by Tesoro pursuant to this Agreement or as deemed necessary or appropriate by TLO in connection with the services to be delivered pursuant hereto, TLO shall generate a Purchase Order to set forth the specific terms and conditions for providing the applicable services described therein and the applicable fees to be charged for such services. No Purchase Order shall be effective until fully executed by both TLO and Tesoro.

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(b)Items available for inclusion on a Purchase Order include, but are not limited to, the following:

(i)allocation of storage and throughput capacity for separate Products at each Terminal, other than pursuant to current practices;

(ii)per-barrel fees for the volumes Tesoro throughputs at the Terminals;

(iii)if dedicated storage tanks are to be utilized and the fees payable by Tesoro therefor;

(iv)any allocation of excess capacity, other than pursuant to current practices;

(v)fees to be paid by Tesoro for the use of any allocation of excess capacity;

(vi)any Ancillary Services for each Terminal and the fees for such Ancillary Services;

(vii)any surcharge not otherwise imposed by TLO pursuant to Section 6;

(viii)any capital expenditures and related costs subject to reimbursement pursuant to Section 9;

(ix)any cleaning of tanks or the conversion of a dedicated tank to storage of a different Product pursuant to Section 9 and the fees related thereto;

(x)any special or proprietary additive injection services or higher additive injection rates and the fees for such services pursuant to Sections 16 and 18;

(xi)any fees to be paid by Tesoro to TLO for lubricity and conductivity additive and injection services (including DCA injection) provided pursuant to Section 17 and 18 for Low Sulfur Diesel/Ultra Low Sulfur Diesel Fuel delivered to trucks for Tesoro's account;

(xii)any fees for the operation of special additive equipment described in Section 20;

(xiii)the receipt, storage and blending of ethanol into Tesoro's gasoline pursuant to Section 21;

(xiv)the reimbursement of any costs incurred by TLO for periodic software updates, replacement of loading systems or software or other upgrades pursuant to Section 22; and

(xv)any dedicated storage to be provided and applicable fees therefor.

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(c) Any fees set forth in this Agreement and any Purchase Order shall be increased on July 1 of each year of the Term, by a percentage equal to the greater of zero or the positive change in the CPI-U (All Urban Consumers), as reported by the U.S. Bureau of Labor Statistics.

(d) In case of any conflict between the terms of this Agreement and the terms of any Purchase Order, the terms of the applicable Purchase Order shall govern.

6.SURCHARGES

If, during the Term, new laws or regulations are enacted that require TLO to make substantial and unanticipated capital expenditures with respect to the Terminals, TLO may impose a monthly surcharge to cover Tesoro's pro rata share of the cost of complying with these laws or regulations, based upon the percentage of Tesoro's use of the services or facilities impacted by such new laws or regulations. TLO and Tesoro shall use their reasonable commercial efforts to comply with these laws and regulations, and shall negotiate in good faith to mitigate the impact of these laws and regulations and to determine the level of the monthly surcharge.

7.PAYMENT; SHORTFALL PAYMENTS

(a)TLO shall invoice Tesoro on a monthly basis and Tesoro shall pay all amounts due under this Agreement and any Purchase Order (including Shortfall Payments and Curtailment Fees, each as defined herein) no later than ten (10) calendar days after Tesoro's receipt of TLO's invoices. Any past due payments owed by Tesoro to TLO shall accrue interest, payable on demand, at the rate of eight percent (8%) per annum from the due date of the payment through the actual date of payment.

(b)If, during any Month during the Term, Tesoro throughputs aggregate volumes less than the Minimum Throughput Commitment for such Month, then Tesoro shall pay TLO an amount (a “Shortfall Payment”) for any shortfall. Shortfall Payments shall be equal to the weighted average Terminalling Service Fee paid by Tesoro during that Month across all of the Terminals, multiplied by the aggregate monthly shortfall across all Terminals. The dollar amount of any Shortfall Payment paid by Tesoro shall be posted as a credit (a “Credit”) to Tesoro's account and may be applied against any Excess Amounts owed by Tesoro during any of the succeeding three (3) Months. For informational purposes only, attached as Exhibit 2 hereto is a sample calculation demonstrating the Shortfall Payment and its application. Credits will be applied in the order in which such Credits accrue and any remaining portion of the Credit that is not used by Tesoro during the succeeding three (3) Months shall expire (e.g., a Credit that accrues in January will be available in February, March and April, will expire at the end of April, and must be applied prior to applying any Credit which accrues in February).

(c)If at any time during the Term, any tank, rack or other equipment or facility of TLO that is dedicated to Tesoro or otherwise being used to provide services hereunder, is removed from service for reasons other than routine repair and maintenance, and if removal of such tank, rack or other equipment or facility from service restricts Tesoro from being able to throughput its Stipulated Volume and receive associated Ancillary Services at the Terminal where such tank, rack or other equipment or facility is located, then until such tank, rack or other

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equipment or facility is restored to service, Tesoro's Minimum Throughput Commitment shall be reduced by the difference between the Stipulated Volume and the amount that Tesoro can effectively throughput at such location without restriction until such tank, rack or other equipment or facility is restored to service.

8.VOLUME LOSSES

(a)With respect only to the Anchorage, Boise, Burley, Stockton and Vancouver Terminals and on a per Terminal basis, not based on the aggregate of all Terminals, TLO shall bear the risk of any actual volume losses of each Product to the extent that such losses exceed 0.25% of the volumes of such Product received at the Terminal, to be pro rated among users of such Terminal, during any Month during the Term. Volumes and losses of each Product shall be determined and accounted for as of the end of each Month. To the extent that actual losses of any Product are less than 0.25% during any particular Month, Tesoro shall repurchase from TLO the difference between the actual loss and the 0.25% allowance at a price per barrel for that Product as reported by the Oil Price Information Service (“OPIS”) using the monthly average OPIS unbranded contract rack posting for that Product during the Month in which the volume difference was accounted for. All such sales shall be “AS IS”, “WHERE IS”, without any warranty, express or implied, including warranties of merchantability, fitness or title, all of which are expressly excluded. If volume losses of any Product exceed 0.25% during any particular Month, TLO shall pay Tesoro for the difference between the actual loss and the 0.25% allowance at a price per barrel for that Product as reported by OPIS using the monthly average OPIS unbranded contract rack posting for that Product during the Month in which the volume difference was accounted for. Deliveries on Saturday, Sunday or federal holidays shall be excluded from the calculation for the applicable Month.

(b)For all other Terminals, TLO shall have no obligation to measure volume gains and losses and shall have no liability whatsoever for physical losses, except if such losses are caused by the gross negligence or willful misconduct of TLO, as further described in Section 27 herein.

9.REIMBURSEMENT

(a)Tesoro shall reimburse TLO for: (i) the actual cost of any regulatory fees incurred by TLO based on Tesoro's proportionate share of the actual volumes Tesoro throughputs based upon the percentage of Tesoro's use of the services or facilities impacted by regulatory fees; (ii) the actual cost of any capital expenditures that TLO agrees to make upon Tesoro's request pursuant to a Purchase Order to provide services hereunder, other than capital expenditures required for TLO to continue to provide those services specified hereunder; and (iii) the actual cost of any third-party fees, including port fees, incurred in connection with carrying out the terms of this Agreement or any Purchase Order.

(b)If cleaning of any tanks is performed by TLO at the specific request of Tesoro, a Purchase Order shall provide for Tesoro to bear (or reimburse TLO) for all costs to clean, degas or otherwise prepare the tank(s) including, without limitation, the cost of removal, processing, transportation, disposal, of all waste and the cost of any taxes or charges TLO may be required to pay in regard to such waste. For any tanks that are dedicated to Tesoro for segregated storage of

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Tesoro's Products as set forth in any Purchase Order, Tesoro agrees to reimburse TLO for the reasonable cost of changes necessary to return the segregated storage tanks to TLO on termination of their dedication for segregated storage under this Agreement or any Purchase order, in the same condition as originally received less normal wear and tear. If Tesoro requests that any such dedicated tank be converted to storage of a different Product, then a Purchase order shall provide for Tesoro to be responsible for reimbursing TLO for all costs of such conversion, including all costs to clean, degas or otherwise prepare the tank(s) including, without limitation, the cost of removal, processing, transportation, disposal, of all waste and the cost of any taxes or charges TLO may be required to pay in regard to such waste. Tesoro shall not be responsible to TLO for any throughput fees and dedicated tank storage fees associated with any dedicated storage tanks taken out of service during the period that such tank is out of service.

(c)All of the foregoing reimbursements shall be made in accordance with the payment terms set forth in Section 7(a) herein.

10.CUSTODY TRANSFER AND TITLE

(a)Pipeline

(i)Receipts. For Product received into a Terminal by pipeline, custody of the Product shall pass to TLO at the flange where it enters the Terminal's receiving line. For receipts of Product at a Terminal rack at Mandan, Salt Lake City or Wilmington, custody shall transfer at the point where the pipeline from the Refinery crosses onto the property controlled by TLO.

(ii)Deliveries. For Product delivered by a Terminal into pipeline, custody of the Product shall pass to Tesoro at the flange where it exits the Terminal's delivery line.

(b)Rail Receipts. For Product received by rail, custody shall pass to TLO when the locomotive used to transfer Tesoro's rail cars to the Terminal is uncoupled from such rail cars at the Terminal.

(c)Truck. For receipts and deliveries to or from trucks, custody shall pass at the flange where the hoses at TLO's facility interconnect with the truck.

(d)Marine. For receipts and deliveries to or from marine vessel at Vancouver, custody shall pass at the flange where TLO's facility interconnects with the hoses connected to the marine vessel; for receipts and deliveries to or from marine vessel at Anchorage, custody shall pass at the flange where TLO's facility interconnects with the Port of Anchorage Valve Yard.

(e)General. Upon re-delivery of any Product to Tesoro's account, Tesoro shall become solely responsible for any loss, damage or injury to person or property or the environment, arising out of transportation, possession or use of such Product after transfer of custody and the loss allowance provisions hereof shall apply to Product while in TLO's custody. Title to all Tesoro's Product received in the Terminals shall remain with Tesoro at all times. Both Parties acknowledge that this Agreement and any Purchase Orders represent a bailment of Products by Tesoro to TLO and not a consignment of Products, it being understood that TLO has

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no authority hereunder to sell or seek purchasers for the Products of Tesoro, except as provided in Section 8 above and Section 13 below. Tesoro hereby warrants that it shall, at all times, have good title to and the right to deliver, throughput, store and receive Products pursuant to the terms of this Agreement or any applicable Purchase Order.

11.PRODUCT QUALITY

(a)Tesoro warrants that all Products delivered under this Agreement or any Purchaser Order shall meet the latest applicable pipeline specifications for that Product upon receipt at the applicable Terminal and contain no deleterious substances or concentrations of any contaminants that may make it or its components commercially unacceptable in general industry application. Tesoro shall not deliver to any of the Terminals any Products which: (a) would in any way be injurious to any of the Terminals; (b) would render any of the Terminals unfit for the proper storage of similar Products; (c) would contaminate or otherwise downgrade the quality of the Products stored in commingled storage; (d) may not be lawfully stored at the Terminals; or (e) otherwise do not meet applicable Product specifications for such Product that are customary in the location of the Terminal. If, however, there are Products that do not have such applicable specifications, the specifications shall be mutually agreed upon by the Parties. Should Tesoro's commingled Products not meet or exceed the minimum quality standards set forth in this Agreement or any applicable Purchase Order, Tesoro shall be liable for all loss, damage and cost incurred thereby, including damage to Products of third parties commingled with Tesoro's unfit Products.

(b)TLO shall have the right to store compatible Products received for Tesoro's account with Products belonging to TLO or third parties in TLO's commingled storage tanks. TLO shall handle Tesoro's fungible Products in accordance with TLO's prevailing practices and procedures for handling such Products. The quality of all Products tendered into commingled storage for Tesoro's account shall be verified either by Tesoro's refinery analysis or supplier's certification, such that Products so tendered shall meet TLO's Product specifications. All costs for such analysis shall be borne solely by Tesoro. TLO shall have the right to sample any Product tendered to the Terminals hereunder. The cost of such sampling shall be borne solely by TLO. All Products returned to Tesoro shall meet or exceed Product specifications in effect on the date the Products are delivered to Tesoro. Notwithstanding any other provision herein, any and all Products that leave the Terminals shall meet all relevant ASTM, EPA, federal and state specifications, and shall not leave the Terminals in the form of a sub-octane grade Product.

(c)TLO shall exercise reasonable care to ensure that all Products delivered by third Parties into commingled storage with Tesoro's Products meet applicable Product specifications for such Product that are customary in the location of the Terminal. In the event that Tesoro's Products are commingled with third-party Products that do not meet or exceed the minimum quality standards set forth in this Agreement or any Purchase Order, TLO shall be liable for all loss, damage and cost incurred thereby.

12.MEASUREMENT

All quantities of Products received or delivered by or into truck, rail, or marine vessel shall be measured and determined based upon the meter readings at each Terminal, as reflected

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by delivery tickets or bills of lading, or if such meters are unavailable, by applicable calibration tables. All quantities of Products received and delivered by pipeline shall be measured and determined based upon the meter readings of the pipeline operator, as reflected by delivery tickets, or if such meters are unavailable, by applicable calibration tables. Deliveries to a Terminal rack at Mandan, Salt Lake City or Wilmington from a Refinery shall be deemed to be the same as the corresponding volumes delivered contemporaneously from the Terminal rack. Deliveries by book transfer shall be reflected by entries in the books of TLO. All quantities shall be adjusted to net gallons at 60° F in accordance with ASTM D-1250 Petroleum Measurement Tables, or latest revisions thereof. A barrel shall consist of 42 U.S. gallons and a gallon shall contain 231 cubic inches. Meters and temperature probes shall be calibrated according to applicable API standards. Tesoro shall have the right, at its sole expense, and in accordance with rack location procedure, to independently certify such calibration. Storage tank gauging shall be performed by TLO's personnel. TLO's gauging shall be deemed accurate unless challenged by an independent certified gauger. Tesoro may perform joint gauging at its sole expense with TLO's personnel at the time of delivery or receipt of Product, to verify the amount involved. If Tesoro should request an independent gauger, such gauger must be acceptable to TLO and such gauging shall be at Tesoro's sole expense.

13.PRODUCT DOWNGRADE AND INTERFACE

Product downgraded as a result of ordinary Terminal or pipeline operations including line flushing, rack meter provings or other necessary Terminals operations shall not constitute losses for which TLO is liable to Tesoro. TLO shall account for the volume of Product downgraded, and Tesoro's inventory of Products and/or interface shall be adjusted, provided that, in some cases interface volume (“Transmix”) received shall be ratably shared between Tesoro and other customers receiving Products in the same shipment or stored in commingled storage. Tesoro shall remove its Transmix upon notice from TLO and shall be subject to applicable throughput fees upon its removal. If Transmix is not removed within fifteen (15) days after notification, TLO shall have the right to sell such Transmix at market rates and return any proceeds to Tesoro, less applicable throughput fees and delivery costs in effect at the time of such sale.

14.PRODUCT DELIVERIES, RECEIPTS AND WITHDRAWALS

(a)All supervised deliveries, receipts and withdrawals hereunder shall be made within the normal business hours of each Terminal and at such times as may be required by Tesoro upon prior notice and approval by TLO, all in accordance with the agreed-upon scheduling. Unsupervised deliveries, receipts and withdrawals shall be made only with TLO's prior approval and in strict accordance with TLO's current operating procedures for the Terminals. Tesoro warrants that all vehicles permitted to enter the Terminals on behalf of Tesoro shall meet all requirements and standards promulgated by applicable regulatory authority including the Department of Transportation, the Occupational Safety and Health Administration, and the Environmental Protection Agency (the “EPA”). Tesoro further warrants that it shall only send to the Terminals those employees, agents and other representatives acting on behalf of and at Tesoro's direction who have been properly instructed as to the characteristics and safe hauling methods associated with the Products to be loaded and hauled. Tesoro further agrees to be responsible to TLO for the performance under this Agreement or any Purchase Order by its agents and/or representatives receiving Products at the Terminals.

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(b)Tesoro shall withdraw from the Terminals only those Products that it is authorized to withdraw hereunder. Tesoro shall neither duplicate nor permit the duplication of any loading device (i.e., card lock access) provided hereunder. Tesoro shall be fully and solely responsible for all Products loaded through the use of the loading devices issued to Tesoro in accordance with this Agreement or pursuant to any Purchase Order; provided, however; that Tesoro shall not have any responsibility or liability hereunder in the event that the load authorization system provided hereunder fails or malfunctions in any way unless a credit department override is provided, which authorizes Tesoro to load the Products.

(c)Both Parties shall abide by all federal, state and local statutes, laws and ordinances and all rules and regulations which are promulgated by TLO and which are either furnished to Tesoro or posted at the Terminals, with respect to the use of the Terminals as herein provided. It is understood and agreed by Tesoro that these rules and regulations may be changed, amended or modified by TLO at any time. All changes, amendments and modifications shall become binding upon Tesoro ten (10) days following the posting of a copy at the affected Terminals or the receipt by Tesoro of a copy, whichever occurs sooner.

(d)For all purposes hereunder, Tesoro's jobbers, distributors, Carriers, haulers and other customers designated in writing or otherwise by Tesoro to have loading privileges under this Agreement or any Purchase Order or having possession of any loading device furnished to Tesoro pursuant to this Agreement or any Purchase Order, together with their respective officers, servants and employees, shall, when they access the Terminals, be deemed to be representatives of Tesoro.

15.DELIVERIES INTO TRANSPORT TRUCKS

Prior to transporting any Products loaded into transport trucks at the Terminals, Tesoro and its Carriers shall make or cause to be made, the following certifications on the delivery receipt or bill of lading covering the Products received:

“If required by 49 CFR 172.204, this is to certify that the above-named materials are property classified, described, packaged, marked and labeled, and are in proper condition for transportation according to the applicable regulations of the Department of Transportation. Carrier hereby certifies that the cargo tank used for this shipment is a proper container for the commodity loaded therein and complies with Department of Transportation specifications and certifies that cargo tank is properly placarded and marked to comply with regulations pertaining to hazardous materials.”

TLO may require each Carrier coming into the Terminals to expressly agree in writing to be bound by the provisions of this Agreement or any Purchase Order with respect to withdrawals and loading of Products hereunder or thereunder, to conduct its operations at the Terminals in a safe manner, in accordance with all Applicable Laws and regulations, and to carry the levels and types of insurance, with appropriate endorsements and certificates, specified for Tesoro hereunder.

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16.ADDITIZATION OPTIONS

At each Terminal, TLO shall provide equipment for the injection of generic additives, as provided below. Subject to the other provisions set forth herein, and the availability of suitable space in a Terminal and its equipment, Tesoro shall have the option of installing its own proprietary additive systems at the Terminals which TLO shall operate, or utilizing the generic additive service provided by TLO, or a combination of both. Tesoro shall designate pursuant to a Purchase Order which additive injection service it desires. TLO shall be responsible for providing generic additives as provided herein, and Tesoro shall be responsible for providing any special or proprietary additives requested by Tesoro.

17.LUBRICITY AND CONDUCTIVITY ADDITIVE

(a)TLO owns, maintains and operates diesel lubricity and conductivity additive injection facilities (the “Additive Facilities”) at each of the Terminals. TLO shall continue to maintain and operate such Additive Facilities in accordance with customary industry standards during the Term or pursuant to an applicable Purchase Order, including all required reporting and record keeping prescribed by Applicable Law.

(b)During the Term or pursuant to an applicable Purchase Order, TLO shall arrange for purchase and delivery of any and all required lubricity and conductivity additive for injection through the Additive Facilities at the Terminals.

(c)During the Term or pursuant to an applicable Purchase Order, TLO shall inject into all Ultra Low Sulfur Diesel delivered to Tesoro at the Terminals an amount of lubricity and conductivity additive that TLO determines to be sufficient to comply with current ASTM diesel lubricity and conductivity specifications. TLO shall, upon request, provide Tesoro with documentation of additive specifications and additive injection, which TLO shall keep on file at each Terminal.

18.DCA ADDITIVE INJECTION

(a)All gasoline Product leaving the Terminals shall be additized (“Additized Gasoline”). As an exception, TLO shall accommodate a request from Tesoro to lift base gasoline from the Terminals. In that case, the bill of lading issued by TLO shall label all such Product as base gasoline (“Base Gasoline”). TLO shall provide a generic Deposit Control Additive (“DCA”) injection service, including all required reporting and record keeping prescribed by Applicable Law. The additive supplied shall be a an EPA certified DCA. Subject to the other provisions hereof, Tesoro may request TLO to instead inject a different proprietary DCA into certain gasoline delivered hereunder, instead of the generic DCA provided by TLO, and TLO shall accommodate such requests pursuant to a Purchase Order specifying the specific additization required and fees to be charged for its injection, subject to Tesoro providing a suitable Additized Gasoline system for such proprietary additive. TLO shall ensure that such additive is injected into all appropriate gasoline Product delivered to Tesoro at a rate no lower than the Lowest Allowable Concentration (“LAC”) at which such additive was certified. The gasoline additization rate shall be determined by Tesoro, but shall not be less than 1.1 times the LAC specified by the respective additive manufacturer or supplier.

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(b)Notwithstanding the above, Tesoro shall be solely responsible for registering with the EPA or any other government agency its use of generic or proprietary additive in its fuels, as required by Applicable Law. Tesoro shall submit, to each applicable Terminal, evidence of registration in compliance with 40 C.F.R. Part 80. Tesoro shall also be responsible for full compliance with any quarterly or other regulatory reporting, and any other requirements under Applicable Law, rule or regulation related to use of generic or proprietary additive in Tesoro's Product.

19. RED DYE INJECTION

(a)TLO shall provide a generic red dye additive (“Red Dye”) injection service for diesel, including all required reporting and recordkeeping prescribed by Applicable Law. TLO shall be responsible for determining the injection rates, Red Dye inventory levels, meter readings, and calculations of actual treat rates, in compliance with the minimum levels prescribed by the Internal Revenue Service.

(b)Tesoro is responsible for designating which of its accounts shall be authorized to use Red Dye diesel injection services. TLO equipment shall enable designated Carriers and accounts to inject Red Dye upon request prior to loading diesel Product at Terminals. Tesoro's Carrier shall be solely responsible for designating that a load of diesel Product be injected with Red Dye, and TLO shall have no liability with regard to whether a load of Product is additized with Red Dye. TLO shall not be responsible for any loss, damage or liability that arises from Carrier injecting or failing to inject Red Dye into Tesoro's Product.

20. SPECIAL ADDITIVE EQUIPMENT

As set forth in a Purchase Order, and subject to the other provisions set forth herein and the availability of suitable space in a Terminal, TLO shall install and maintain at the Terminals, at Tesoro's sole risk, cost and expense, such special additive equipment as may be desirable for Products to be delivered to Tesoro's account hereunder. The engineering and installation of any fixture, equipment or appurtenance placed on the Terminals in respect thereof shall be subject to TLO's prior approval and supervision. During the Term, TLO shall operate the special additive equipment with any fees therefor to be set forth in a Purchase Order.

(a)Any such gasoline additive system shall include one above ground storage tank (and any necessary modifications thereto), one additive injection pump, any and all necessary piping and injectors. For the avoidance of doubt, the above ground storage tank shall be supplied by Tesoro.

(b)Subject to the supervision of TLO, TLO or its designee shall install the additive system. Tesoro shall be responsible for 100% of all costs of the Additized Gasoline system, including without limitation, costs associated with any required piping, nozzles, fittings, equipment, injection panels, labor and/or installation thereof, and if any existing load rack equipment will not support such additional additive system, then Tesoro shall bear all costs of enlarging or renovating such load rack to support the additional additive system requested by Tesoro pursuant to a Purchase Order. Tesoro shall reimburse TLO for all such costs within ten days after receipt of an invoice from TLO for such costs. Upon completion of the installation of

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the Additized Gasoline system, the Additized Gasoline system shall become the property of TLO, free and clear of any security interest or lien.

(c)Tesoro shall reimburse TLO for any and all necessary modifications to an additional additive system required by Tesoro during the Term.

21. ETHANOL BLENDING SERVICES

(a)Where ethanol receiving, storage and blending facilities are available at a Terminal, and upon Tesoro's request pursuant to a Purchase Order, TLO shall receive, store and blend ethanol into Tesoro's gasoline at a Terminal (“Ethanol Services”). TLO shall provide and operate all equipment required for the Ethanol Services. The equipment shall consist of truck and/or rail unloading racks, tanks, pumps, motors, injectors, computer control, and any other ancillary equipment necessary for the providing of the Ethanol Services.

(b)Tesoro shall be solely responsible for supplying inventories of ethanol at its own expense, including the scheduling and transporting of ethanol into the Terminals, subject to mutually agreeable notice and scheduling procedures. TLO shall receive Tesoro's ethanol into fungible ethanol storage at the Terminal.

(c)Upon a request from Tesoro for Ethanol Services, a Purchase Order shall provide the desired blending ratio of ethanol to gasoline at each applicable Terminal, including the minimum Octane (R+M/2) rating (“Blending Instructions”), for each grade of Tesoro's gasoline Product, prior to blending. TLO shall not change the blending ratios without the prior written authorization of Tesoro.

(d)TLO shall maintain for a minimum of five (5) years written or electronic records of the type and volume of oxygenate blended into Tesoro's gasoline.

(e)TLO shall maintain an industry standard quality assurance oversight program of the ethanol blending process. TLO shall provide Tesoro with an end-of-year report that, at a minimum, summarizes the volume of Tesoro's gasoline received by TLO, the volume of oxygenate added to Tesoro's gasoline, and total volume of blended gasoline.

(f)TLO shall allow Tesoro or its agents to monitor the oxygenate blending operation by periodic audit, sampling, testing and/or records review to ensure the overall volumes and type of oxygenate blended into gasoline is consistent with the oxygenate claimed by Tesoro as required by 40 CFR 80.101(d)(4)(ii)(B)(2).

(g)TLO shall rely on Blending Instructions and data provided by Tesoro in performing its obligations under this Agreement and any Purchase Order. Tesoro agrees to be solely responsible for all claims arising from TLO's use of or reliance on these Blending Instructions and data.

(h)When performing the Ethanol Services as per Tesoro's Blending Instructions, TLO shall not certify to Tesoro or any third-party that blended gasoline does or shall meet ASTM D 4814 or any federal, state, or local regulatory specifications. Tesoro agrees that it is receiving from TLO the Blended Gasoline in an “AS IS, WHERE IS” condition without

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warranties of any kind, including any warranties of merchantability or fitness for a particular purpose, or its ability to meet ASTM or regulatory specifications.

22.ACCOUNTING PROVISIONS AND DOCUMENTATION

(a)TLO shall furnish Tesoro with the following reports covering services hereunder involving Tesoro's Products:

(i)within ten (10) Business Days following the end of the Month, a statement showing, by Product: (A) Tesoro's monthly aggregate deliveries into the Terminals; (B) Tesoro's monthly receipts from the Terminals; (C) calculation of all Tesoro's monthly storage and handling fees; (D) Tesoro's opening inventory for the preceding Month; (E) appropriate monthly loss allowance adjustments (as applicable in accordance with Section 8); and (vi) Tesoro's closing inventory for the preceding Month;

(ii)a copy of any meter calibration report, to be available for inspection upon reasonable request by Tesoro at the Terminals following any calibration;

(iii)upon delivery from the Terminals, a hard copy bill of lading to the Carrier for each truck, barge, or rail delivery. Upon reasonable request only, a hard copy bill of lading shall be provided to Tesoro's accounting group. Upon each truck delivery from the Terminals, bill of lading information shall be sent electronically through General Electric Information Services Petroex System or other mutually agreeable system;

(iv)for each marine shipment, all bills of lading (or other appropriate document in the case of barges) and inspection reports (if conducted by independent inspector); and

(v)transfer documents for each in-tank transfer.

(b)TLO shall be required to maintain the capabilities to support truck load authorization technologies at each Terminal. However, costs incurred by TLO for periodic software updates, replacement of loading systems or software or other upgrades made at the request of Tesoro shall be recoverable from Tesoro pursuant to a Purchase Order either as a lump sum payment or through an increase in terminalling fees. Notwithstanding the foregoing, if an update, replacement or upgrade is made other than at Tesoro's request, TLO and Tesoro shall mutually agree pursuant to a Purchase Order on a fee for such update, replacement or upgrade.

23.AUDIT AND CLAIMS PERIOD

Each Party and its duly authorized agents and/or representatives shall have reasonable access to the accounting records and other documents maintained by the other Party which relate to this Agreement and any Purchase Order, and shall have the right to audit such records at any reasonable time or times during the Term and for a period of up to three years after termination of this Agreement or any applicable Purchase Order. Claims as to shortage in quantity or defects in quality shall be made by written notice within thirty (30) days after the delivery in question or shall be deemed to have been waived.

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24. LIENS

To secure any fees due and Tesoro's performance of its obligations under this Agreement or any Purchase Order, Tesoro hereby grants to TLO an irrevocable lien and security interest in and on all of its Products in the care and custody of TLO and further grants TLO a limited power-of-attorney to dispose of such Products at fair market value to the extent of any and all amounts owed by Tesoro to TLO hereunder, after providing Tesoro with reasonable advance notice of any such sale. At TLO's request, Tesoro shall sign a UCC-1 financing statement acknowledging TLO's security interest in Tesoro's Product in the Terminals.

25. TAXES

Tesoro shall pay or cause to be paid all taxes, levies, royalties, assessments, licenses, fees, charges, surcharges and sums due of any nature whatsoever (other than income taxes, gross receipt taxes and similar taxes) imposed by any federal, state or local government that TLO incurs on Tesoro's behalf for the services provided by TLO under this Agreement or any Purchase Order. If TLO is required to pay any of the foregoing, Tesoro shall promptly reimburse TLO in accordance with the payment terms set forth in this Agreement or any Purchase Order.

26. LIMITATION ON LIABILITY

Notwithstanding anything to the contrary contained herein, neither Party shall be liable or responsible to the other Party or such other Party's affiliated Persons for any consequential, incidental, or punitive damages, or for loss of profits or revenues (collectively referred to as “special damages”) incurred by such Party or its affiliated Persons that arise out of or relate to this Agreement or any Purchase Order, regardless of whether any such claim arises under or results from contract, tort, or strict liability; provided that the foregoing limitation is not intended and shall not affect special damages imposed in favor of unaffiliated Persons that are not Parties to this Agreement.

27. INDEMNITIES

(a)Notwithstanding anything else contained in this Agreement or any Purchase Order, TLO shall release, defend, protect, indemnify, and hold harmless Tesoro from and against any and all demands, claims (including third-party claims), losses, costs, suits, or causes of action (including, but not limited to, any judgments, losses, liabilities, fines, penalties, expenses, interest, reasonable legal fees, costs of suit, and damages, whether in law or equity and whether in contract, tort, or otherwise) for or relating to (i) personal or bodily injury to, or death of the employees of Tesoro and, as applicable, its Carriers, customers, representatives, and agents, (ii) loss of or damage to any property, products, material, and/or equipment belonging to Tesoro and, as applicable, its Carriers, customers, representatives, and agents, and each of their respective affiliates, contractors, and subcontractors (except for those volume losses provided for in Section 8), (iii) loss of or damage to any other property, products, material, and/or equipment of any other description (except for those volume losses provided for in Section 8), and/or personal or bodily injury to, or death of any other Person or Persons; and with respect to clauses (i) through (iii) above, which is caused by or resulting in whole or in part from the acts and omissions of TLO in connection with the ownership or operation of the Terminals and the services provided

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hereunder, and, as applicable, its carriers, customers (other than Tesoro), representatives, and agents, or those of their respective employees with respect to such matters, and (iv) any losses incurred by Tesoro due to violations of this Agreement or any Purchase Order by TLO, or, as applicable, its customers (other than Tesoro), representatives, and agents; PROVIDEDTHAT TLO SHALL NOT BE OBLIGATED TO INDEMNIFY OR HOLD HARMLESS TESORO FROM AND AGAINST ANY CLAIMS TO THE EXTENT THEY RESULT FROM THE BREACH OF CONTRACT, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF TESORO.

(b)Notwithstanding anything else contained in this Agreement or any Purchase Order, Tesoro shall release, defend, protect, indemnify, and hold harmless TLO and, and each of its respective affiliates, officers, directors, shareholders, agents, employees, successors-in-interest, and assignees from and against any and all demands, claims (including third-party claims), losses, costs, suits, or causes of action (including, but not limited to, any judgments, losses, liabilities, fines, penalties, expenses, interest, reasonable legal fees, costs of suit, and damages, whether in law or equity and whether in contract, tort, or otherwise) for or relating to (i) personal or bodily injury to, or death of the employees of TLO and, as applicable, its carriers, customers, representatives, and agents; (ii) loss of or damage to any property, products, material, and/or equipment belonging to TLO and, as applicable, its carriers, customers, representatives, and agents, and each of their respective affiliates, contractors, and subcontractors (except for those volume losses provided for in Section 8); (iii) loss of or damage to any other property, products, material, and/or equipment of any other description (except for those volume losses provided for in Section 8), and/or personal or bodily injury to, or death of any other Person or Persons; and with respect to clauses (i) through (iii) above, which is caused by or resulting in whole or in part from the acts and omissions of Tesoro, in connection with Tesoro's and its customers' use of the Terminals and the services provided hereunder and Tesoro's Products stored hereunder, and, as applicable, its Carriers, customers, representatives, and agents, or those of their respective employees with respect to such matters; and (iv) any losses incurred by TLO due to violations of this Agreement or any Purchase Order by Tesoro, or, as applicable, its Carriers, customers, representatives, and agents; PROVIDED THAT TESORO SHALL NOT BE OBLIGATED TO INDEMNIFY OR HOLD HARMLESS TLO FROM AND AGAINST ANY CLAIMS TO THE EXTENT THEY RESULT FROM THE BREACH OF CONTRACT, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF TLO. For the avoidance of doubt, nothing herein shall constitute a release by Tesoro of any volume losses that are caused by the TLO's gross negligence, breach of this Agreement or any Purchase Order or willful misconduct.

28.INSURANCE

(a)At all times during the Term and for a period of two (2) years after termination of this Agreement for any coverage maintained on a “claims-made” or “occurrence” basis, Tesoro and/or its Carrier (if applicable) shall maintain at their expense the below listed insurance in the amounts specified below which are minimum requirements. Tesoro shall require that Carrier cause all of its contractors providing authorized drivers or authorized vehicles, to carry such insurance, and Tesoro shall be liable to TLO for their failure to do so. Such insurance shall provide coverage to TLO and such policies, other than Worker's Compensation Insurance, shall include TLO as an Additional Insured. Each policy shall provide that it is primary to and not contributory with any other insurance, including any self-insured retention, maintained by TLO

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(which shall be excess) and each policy shall provide the full coverage required by this Agreement and any Purchase Order. All such insurance shall be written with carriers and underwriters acceptable to TLO, and eligible to do business in the states where the Terminals are located and having and maintaining an A.M. Best financial strength rating of no less than “A-” and financial size rating no less than “VII”; provided that Tesoro and/or the Carrier may procure worker's compensation insurance from the state fund of the state where the Terminal(s) are located. All limits listed below are required MINIMUM LIMITS:

(i)Workers Compensation and Occupational Disease Insurance which fully complies with Applicable Law of the state where each Terminal is located, in limits not less than statutory requirements;

(ii)Employers Liability Insurance with a minimum limit of $1,000,000 for each accident, covering injury or death to any employee which may be outside the scope of the worker's compensation statute of the jurisdiction in which the worker's service is performed, and in the aggregate as respects occupational disease;

(iii)Commercial General Liability Insurance, including contractual liability insurance covering Carrier's indemnity obligations under this Agreement or any Purchase Order, with minimum limits of $1,000,000 combined single limit per occurrence for bodily injury and property damage liability, or such higher limits as may be required by TLO or by Applicable Law from time to time. This policy shall include Broad Form Contractual Liability insurance coverage which shall specifically apply to the obligations assumed in this Agreement and any Purchase Order by Tesoro;

(iv)Automobile Liability Insurance covering all owned, non-owned and hired vehicles, with minimum limits of $1,000,000 combined single limit per occurrence for bodily injury and property damage liability, or such higher limit(s) as may be required by Tesoro or by Applicable Law from time to time. Coverage must assure compliance with Sections 29 and 30 of the Motor Carrier Act of 1980 and all applicable rules and regulations of the Federal Highway Administration's Bureau of Motor Carrier Safety and Interstate Commerce Commissioner (Form MCS 90 Endorsement). Limits of liability for this insurance must be in accordance with the financial responsibility requirement of the Motor Carrier Act, but not less than $1,000,000 per occurrence;

(v)Excess (Umbrella) Liability Insurance with limits not less than $4,000,000 per occurrence. Additional excess limits may be utilized to supplement inadequate limits in the primary policies required in items (ii), (iii), and (iv) above;

(vi)Pollution Legal Liability with limits not less than $25,000,000 per loss with an annual aggregate of $25,000,000. Coverage shall apply to bodily injury and property damage including loss of use of damaged property and property that has not been physically injured; clean up costs, defense, including costs and expenses incurred in the investigation, defense or settlement of claim; and

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(vii)Property Insurance, with a limit of no less than $1,000,000, which property insurance shall be first-party property insurance to adequately cover Tesoro's owned property; including personal property of others.

(b)All such policies must be endorsed with a Waiver of Subrogation endorsement, effectively waiving rights of recovery under subrogation or otherwise, against TLO, and shall contain where applicable, a severability of interest clause and a standard cross liability clause.

(c)Upon execution of this Agreement and prior to the operation of any equipment by Tesoro, Carrier or its authorized drivers at the Terminals, Tesoro and/or Carrier will furnish to TLO, and at least annually thereafter (or at any other times upon request by TLO) during the Term (and for any coverage maintained on a “claims-made” basis, for two (2) years after the termination of this Agreement or any applicable Purchase Order), insurance certificates and/or certified copies of the original policies to evidence the insurance required herein, including on behalf of Carrier's contractors providing authorized vehicles or authorized drivers. Such certificates shall be in the form of the “Accord” Certificate of Insurance, and reflect that they are for the benefit of TLO and shall provide that there will be no material change in or cancellation of the policies unless TLO is given at least thirty (30) days prior written notice. Certificates providing evidence of renewal of coverage shall be furnished to TLO prior to policy expiration.

(d)Tesoro and/or Carrier shall be solely responsible for any deductibles or self-insured retention.

29. GOVERNMENT REGULATIONS

(a)Product Certification. Each Party certifies that none of the Products covered by this Agreement or any Purchase Order were derived from crude petroleum, petrochemical, or gas which was produced or withdrawn from storage in violation of any federal, state or other governmental law, nor in violation of any rule, regulation or promulgated by any governmental agency having jurisdiction in the premises.

(b)Applicable Law. The Parties are entering into this Agreement and any Purchase Order in reliance upon and shall fully comply with all Applicable Law which directly or indirectly affects the Products throughput hereunder, or any receipt, throughput delivery, transportation, handling or storage of Products hereunder or the ownership, operation or condition of each Terminal. Each Party shall be responsible for compliance with all Applicable Laws associated with such Party's respective performance hereunder and the operation of such Party's facilities. In the event any action or obligation imposed upon a Party under this Agreement and any Purchase Order shall at any time be in conflict with any requirement of Applicable Law, then this Agreement and any Purchase Order shall immediately be modified to conform the action or obligation so adversely affected to the requirements of the Applicable Law, and all other provisions of this Agreement and any Purchase Order shall remain effective.

(c)New Or Changed Applicable Law: If during the Term, any new Applicable Law becomes effective or any existing Applicable Law or its interpretations is materially changed, which change is not addressed by another provision of this Agreement or any Purchase Order and which has a material adverse economic impact upon a Party, either Party, acting in good

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faith, shall have the option to request renegotiation of the relevant provisions of this Agreement or any Purchase Order with respect to future performance. The Parties shall then meet to negotiate in good faith amendments to this Agreement or to an applicable Purchase Order that will conform to the new Applicable Law while preserving the Parties' economic, operational, commercial and competitive arrangements in accordance with the understandings set forth herein.

30. SUSPENSION OF REFINERY OPERATIONS

(a)In the event that Tesoro decides to permanently or indefinitely suspend refining operations at any of Tesoro's Refineries for a period that shall continue for at least twelve (12) consecutive Months, Tesoro may provide written notice to TLO of Tesoro's intent to terminate that part of this Agreement or any Purchase Order relating to the applicable associated Terminal (the “Suspension Notice”). Such Suspension Notice shall be sent at any time after Tesoro has publicly announced such suspension and, upon the expiration of the twelve (12)-Month period following the date such notice is sent (the “Notice Period”), that part of this Agreement or any Purchase Order relating to such Terminal shall terminate. If Tesoro publicly announces, more than two Months prior to the expiration of the Notice Period, its intent to resume operations at the applicable Refinery, then the Suspension Notice shall be deemed revoked and the applicable portion of this Agreement or any Purchase Order shall continue in full force and effect as if such Suspension Notice had never been delivered.

(b)During the Notice Period, for any Month during which Tesoro does not throughput any volumes of Products at an affected Terminal, Tesoro shall be permitted to reduce its Minimum Throughput Commitment by an amount equal to the Stipulated Volume for such affected Terminal(s), provided that Tesoro pays TLO a fee for such Month (a “Curtailment Fee”). Curtailment Fees for each applicable Month shall be equal to (i) such Terminal's Stipulated Volume multiplied by (ii) the number of days in the Month, multiplied by (iii) the weighted average monthly Terminalling Service Fee incurred by Tesoro at such Terminal during the twelve (12) calendar Months immediately preceding the Refinery's suspension of operations. For the purposes of calculating Shortfall Payments during any Month in which Tesoro pays TLO a Curtailment Fee, volume shortfalls shall be determined by deducting volumes throughput at the Terminals by TRMC during such Month from the Adjusted Minimum Throughput Commitment.

(c)Upon the expiration of the Notice Period, Tesoro shall no longer owe TLO any future Curtailment Fees and shall have no throughput obligation with respect to the affected Terminal, and Tesoro's Minimum Throughput Commitment shall be adjusted to the Adjusted Minimum Volume Commitment for the remaining unaffected Terminals, by deducting the applicable Stipulated Volume for the Terminal removed from this Agreement or any Purchase Order under this Section 30. If refining operations at any of the Refineries are suspended for any reason (including Refinery turnarounds and other scheduled maintenance), then Tesoro shall remain liable for Shortfall Payments under this Agreement or any applicable Purchase Order for the duration of the suspension, unless and until this Agreement or applicable Purchase Order is terminated as provided above. Schedule B attached hereto includes a list of the Terminals associated with each of the Refineries.

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31. FORCE MAJEURE

(a)As soon as possible upon the occurrence of a Force Majeure, TLO shall provide Tesoro with written notice of the occurrence of such Force Majeure (a “Force Majeure Notice”). TLO shall identify in such Force Majeure Notice the approximate length of time that TLO reasonably believes in good faith such Force Majeure shall continue (the “Force Majeure Period”). If TLO advises in any Force Majeure Notice that it reasonably believes in good faith that the Force Majeure Period shall continue for more than twelve (12) consecutive Months, then, subject to Section 32 below, at any time after TLO delivers such Force Majeure Notice, either Party may terminate that portion of this Agreement or any Purchase Order relating to the affected Terminal(s), but only upon delivery to the other Party of a notice (a “Termination Notice”) at least twelve (12) Months prior to the expiration of the Force Majeure Period; provided, however; that such Termination Notice shall be deemed cancelled and of no effect if the Force Majeure Period ends prior to the expiration of such twelve (12)-Month period. If this Agreement or any Purchase Order is terminated as to a Terminal under this Section 31, then Tesoro's Minimum Throughput Commitment shall be adjusted to the Adjusted Minimum Volume Commitment for the remaining unaffected Terminals, by deducting the applicable Stipulated Volume for the Terminal so removed from this Agreement or any Purchase Order. For the avoidance of doubt, neither Party may exercise its right under this Section 31(a) to terminate this Agreement or any Purchase Order as a result of a Force Majeure with respect to any Terminal that has been unaffected by, or has been restored to working order since, the applicable Force Majeure, including pursuant to a Restoration under Section 32.

(b)Notwithstanding the foregoing, if Tesoro delivers a Termination Notice to TLO (the “Tesoro Termination Notice”) and, within thirty (30) days after receiving such Tesoro Termination Notice, TLO notifies Tesoro that TLO reasonably believes in good faith that it shall be capable of fully performing its obligations under this Agreement or any Purchase Order within a reasonable period of time, then the Tesoro Termination Notice shall be deemed revoked and the applicable portion of this Agreement or any Purchase Order shall continue in full force and effect as if such Tesoro Termination Notice had never been given.

(c)If either Party terminates a portion of this Agreement or any Purchase Order related to one or more specific Terminals, then the Minimum Throughput Commitment shall be reduced by the Stipulated Volume for the applicable Terminal(s).

32. CAPABILITIES OF FACILITIES

(a)Interruptions of Service. TLO shall use reasonable commercial efforts to minimize the interruption of service at each Terminal and any portion thereof. TLO shall promptly inform Tesoro operational personnel of any anticipated partial or complete interruption of service at any Terminal, including relevant information about the nature, extent, cause and expected duration of the interruption and the actions TLO is taking to resume full operations, provided that TLO shall not have any liability for any failure to notify, or delay in notifying, Tesoro of any such matters except to the extent Tesoro has been materially prejudiced or damaged by such failure or delay.

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(b)Maintenance and Repair Standards. Subject to Force Majeure and interruptions for routine repair and maintenance, consistent with customary terminal industry standards, TLO shall maintain each Terminal in a condition and with a capacity sufficient to throughput a volume of Tesoro's Products at least equal to the respective Stipulated Volume for such Terminal. TLO's obligations may be temporarily suspended during the occurrence of, and for the entire duration of, a Force Majeure or other interruption of service that prevents TLO from terminalling the Minimum Throughput Commitment hereunder. To the extent TLO is prevented from terminalling volumes equal to the full Minimum Throughput Commitment for reasons of Force Majeure or other interruption of service, then Tesoro's obligation to throughput the Minimum Throughput Commitment and pay any Shortfall Payment shall be reduced proportionately in an amount not to exceed the Stipulated Volume for the affected Terminal. At such time as TLO is capable of terminalling volumes equal to the Minimum Throughput Commitment, Tesoro's obligation to throughput the full Minimum Throughput Commitment shall be restored. If for any reason, including, without limitation, a Force Majeure event, the throughput or storage capacity of any Terminal should fall below the capacity required for throughput of the Stipulated Volume for that Terminal, then within a reasonable period of time after the commencement of such reduction, TLO shall make repairs to the Terminal to restore the capacity of such Terminal to that required for throughput of the Stipulated Volume (“Restoration”). Except as provided below in Section 32(c), all of such Restoration shall be at TLO's cost and expense, unless the damage creating the need for such repairs was caused by the negligence or willful misconduct of Tesoro, its employees, agents or customers.

(c)Capacity Resolution. In the event of the failure of TLO to maintain any Terminal in a condition and with a capacity sufficient to throughput a volume of Tesoro's Products equal to the respective Stipulated Volume for such Terminal, then either Party shall have the right to call a meeting between executives of both Parties by providing at least two (2) Business Days' advance written notice. Any such meeting shall be held at a mutually agreeable location and will be attended by executives of both Parties each having sufficient authority to commit his or her respective Party to a Capacity Resolution (hereinafter defined). At the meeting, the Parties will negotiate in good faith with the objective of reaching a joint resolution for the Restoration of capacity on the Terminal which will, among other things, specify steps to be taken by TLO to fully accomplish Restoration and the deadlines by which the Restoration must be completed (the “Capacity Resolution”). Without limiting the generality of the foregoing, the Capacity Resolution shall set forth an agreed upon time schedule for the Restoration activities. Such time schedule shall be reasonable under the circumstances, consistent with customary terminal industry standards and shall take into consideration TLO's economic considerations relating to costs of the repairs and Tesoro's requirements concerning its refining and marketing operations. TLO shall use commercially reasonable efforts to continue to provide storage and throughput of Tesoro's Products at the affected Terminal, to the extent the Terminal has capability of doing so, during the period before Restoration is completed. In the event that Tesoro's economic considerations justify incurring additional costs to restore the Terminal in a more expedited manner than the time schedule determined in accordance with the preceding sentence, Tesoro may require TLO to expedite the Restoration to the extent reasonably possible, subject to Tesoro's payment, in advance, of the estimated incremental costs to be incurred as a result of the expedited time schedule. In the event the Parties agree to an expedited Restoration plan in which Tesoro agrees to fund a portion of the Restoration cost, then neither Party shall have the right to terminate this Agreement or any applicable Purchase Order pursuant to Section 31 above, so

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long as such Restoration is completed with due diligence, and Tesoro shall pay its portion of the Restoration costs to TLO in advance based on an estimate based on reasonable engineering standards promulgated by the Association for Facilities Engineering. Upon completion, Tesoro shall pay the difference between the actual portion of Restoration costs to be paid by Tesoro pursuant to this Section 32(c) and the estimated amount paid under the preceding sentence within thirty (30) days after receipt of TLO's invoice therefor, or, if appropriate, TLO shall pay Tesoro the excess of the estimate paid by Tesoro over TLO's actual costs as previously described within thirty (30) days after completion of the Restoration.

(d)Tesoro's Right To Cure. If at any time after the occurrence of (x) a Partnership Change of Control or (y) a sale of a Refinery, TLO either (i) refuses or fails to meet with Tesoro within the period set forth in Section 32(c), (ii) fails to agree to perform a Capacity Resolution in accordance with the standards set forth in Section 32(c), or (iii) fails to perform its obligations in compliance with the terms of a Capacity Resolution, Tesoro may, as its sole remedy for any breach by TLO of any of its obligations under Section 32(c), require TLO to complete a Restoration of the affected Terminal, subject to and to the extent permitted under the terms, conditions and/or restrictions of applicable leases, permits and/or Applicable Law. Any such Restoration required under this Section 32(d) shall be completed by TLO at Tesoro's cost. TLO shall use commercially reasonable efforts to continue to provide storage and throughput of Tesoro's Products at the affected Terminal, during the period while such Restoration is being completed. Any work performed by TLO pursuant to this Section 32(d) shall be performed and completed in a good and workmanlike manner consistent with applicable industry standards and in accordance with all applicable laws, rules and/or regulations. Additionally, during such period after the occurrence of (x) a Partnership Change of Control or (y) a sale of a Refinery, Tesoro may exercise any remedies available to it under this Agreement or any Purchase Order (other than termination), including the right to immediately seek temporary and permanent injunctive relief for specific performance by TLO of the applicable provisions of this Agreement or any Purchase Order, including, without limitation, the obligation to make Restorations as described herein.

(e)Commingled Storage. Unless otherwise specified in a Purchase Order, all storage and throughput of Tesoro's volumes shall be on a fungible commingled basis, and TLO may commingle such Products with Products of like grade and kind. All tank heels shall be allocated among all storage users on a pro rata basis. TLO shall have the right to enter into arrangements with third parties to throughput and store volumes of Products at each Terminal, provided however, that TLO shall not enter into any third party arrangements that would restrict or limit the ability of Tesoro to throughput the Stipulated Volume at each Terminal each Month without proration or allocation, on reasonable schedules consistent with Tesoro's requirements, and to receive the Ancillary Services provided herein.

(f)Dedicated Storage. In the event that the Parties determine to use dedicated storage tanks during the Term pursuant to a Purchase Order, such storage tanks and capacities identified on a Purchase Order shall be dedicated and used exclusively for the storage and throughput of Tesoro's Product. For those dedicated tanks, Tesoro shall be responsible for providing all tank heels required for operation of such tanks. Tesoro shall pay the fees specified on a Purchase Order for the dedication of such tanks.

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(g)First Refusal. In the event that TLO desires to enter into a third-party dedicated storage arrangement (a “Storage Contract”) for any storage tank subject to this Agreement and existing on the Commencement Date (a “Subject Tank”), TLO shall provide Tesoro with (i) written notice of its intent to enter into a Storage Contract and the general terms of such transaction and (ii) a thirty (30)-day period (beginning upon Tesoro's receipt of such written notice) (the “Offer Period”) in which Tesoro may make a good faith offer to enter into a Storage Contract with TLO with respect to such Subject Tank (the “Right of First Refusal”). If Tesoro makes an offer on terms no less favorable to TLO than the third-party offer for a Storage Contract with respect to such Subject Tank during the Offer Period, then TLO shall be obligated to enter into a Storage Contract with Tesoro. If Tesoro does not exercise its Right of First Refusal in the manner set forth above, TLO may, for the next ninety (90) days, proceed with the negotiation of the third-party Storage Contract. If no third-party Storage Contract is consummated during such ninety-day period, then the terms and conditions of this Section 32(g) shall again become effective with respect to such Storage Tank.

33. TERMINATION

(a)A Party shall be in default under this Agreement or any Purchase Order if:

(i)the Party materially breaches any provision of this Agreement or applicable Purchase Order and such breach is not cured within fifteen (15) Business Days after notice thereof (which notice shall describe such breach in reasonable detail) is received by such Party;

(ii)the Party (A) files a petition or otherwise commences, authorizes or acquiesces in the commencement of a proceeding or cause of action under any bankruptcy, insolvency, reorganization or similar Applicable Law, or has any such petition filed or commenced against it, (B) makes an assignment or any general arrangement for the benefit of creditors, (C) otherwise becomes bankrupt or insolvent (however evidenced) or (D) has a liquidator, administrator, receiver, trustee, conservator or similar official appointed with respect to it or any substantial portion of its property or assets; or

(iii)if any of the Parties is in default as described above, then (A) if Tesoro is in default, TLO may or (B) if TLO is in default, Tesoro may: (1) terminate this Agreement or applicable Purchase Order upon notice to the defaulting Parties; (2) withhold any payments due to the defaulting Parties under this Agreement or applicable Purchase Order; and/or (3) pursue any other remedy at law or in equity.

(b)Tesoro shall, upon expiration or termination of this Agreement or any Purchase Order, promptly remove all of its Products including any downgraded and interface Product from the Terminals within thirty (30) days of such termination or expiration. In the event all of the Product is not removed within such thirty (30) day period, Tesoro shall be assessed a storage fee to all Products held in storage more than thirty (30) days beyond the termination or expiration of this Agreement or applicable Purchase Order until such time Tesoro's entire Product is removed from the Terminals.

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(c)Tesoro shall, upon expiration or termination of this Agreement or any Purchase Order, promptly remove any and all of its owned equipment not purchased by TLO pursuant to Section 13 above, and restore the Terminals to their condition prior to the installation of such equipment.

34. RIGHT TO ENTER INTO A NEW TERMINALLING AGREEMENT

(a)Upon termination of this Agreement or a Purchase Order for reasons other than (x) a default by Tesoro and (y) any other termination of this Agreement or a Purchase Order initiated by Tesoro pursuant to Sections 30 or 31. Tesoro shall have the right to require TLO to enter into a new terminalling services agreement with Tesoro that (i) is consistent with the terms set forth in this Agreement, (ii) relates to the same Terminals that are the subject matter of this Agreement, and (iii) has commercial terms that are, in the aggregate, equal to or more favorable to TLO than fair market value terms as would be agreed by similarly-situated parties negotiating at arm's length; provided, however; that the term of any such new terminalling services agreement shall not extend beyond April 30, 2031.

(b)In the event that TLO proposes to enter into a terminalling services agreement with a third party upon the termination of this Agreement or any Purchase Order for reasons other than (x) by default by Tesoro and (y) any other termination of this Agreement or any Purchase Order initiated by Tesoro pursuant to Sections 30 or 31, TLO shall give Tesoro 90 days' prior written notice of any proposed new terminalling services agreement with a third party, including (i) details of all of the material terms and conditions thereof and (ii) a thirty (30)-day period (beginning upon Tesoro's receipt of such written notice) (the “First Offer Period”) in which Tesoro may make a good faith offer to enter into a new terminalling agreement with TLO (the “Terminalling Right of First Refusal”). If Tesoro makes an offer on terms no less favorable to TLO than the third-party offer with respect to such terminalling services agreement during the First Offer Period, then TLO shall be obligated to enter into a terminalling services agreement with Tesoro on the terms set forth in subsection (a) above. If Tesoro does not exercise its Terminalling Right of First Refusal in the manner set forth above, TLO may, for the next ninety (90) days, proceed with the negotiation of the third-party terminalling services agreement. If no third party agreement is consummated during such ninety-day period, the terms and conditions of this Section 34(b) shall again become effective.

35. ASSIGNMENT; PARTNERSHIP CHANGE OF CONTROL

(a)Tesoro shall not assign all of its obligations hereunder or under a Purchase Order without TLO's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however; that Tesoro may assign this Agreement or any Purchase Order, without TLO's consent, in connection with a sale by Tesoro of a Refinery associated with one of TLO's Terminals so long as the transferee: (i) agrees to assume all of Tesoro's obligations under this Agreement and any Purchase Order with respect to the associated Terminal(s); and (ii) is financially and operationally capable of fulfilling the terms of this Agreement and any Purchase Order, which determination shall be made by Tesoro in its reasonable judgment.

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(b)TLO shall not assign its rights or obligations under this Agreement or any Purchase Order without Tesoro's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, that (i) TLO may assign this Agreement or any Purchase Order without Tesoro's consent in connection with a sale by TLO of one or more of its Terminals so long as the transferee: (A) agrees to assume all of TLO's obligations under this Agreement and any Purchase Order with respect to the associated Terminal(s); (B) is financially and operationally capable of fulfilling the terms of this Agreement and any Purchase Order, which determination shall be made by TLO in its reasonable judgment; and (C) is not a competitor of Tesoro; and (ii) TLO shall be permitted to make a collateral assignment of this Agreement or any Purchase Order solely to secure working capital financing for TLO.

(c)If either Tesoro or TLO assigns its rights or obligations under this Agreement or any Purchase Order relating to a specific Terminal, then: (i) the Minimum Throughput Commitment shall be converted to the Adjusted Minimum Volume Commitment for the Terminals remaining subject to this Agreement or applicable Purchase Order by reducing by the amount of the Stipulated Volume for such assigned Terminal, and both Tesoro's and TLO's obligations shall continue with respect to the remaining Terminals and the Adjusted Minimum Throughput Commitment; and (ii) the rights and obligations relating to the affected Terminal, and its Stipulated Volume, shall be novated into a new agreement with the assignee, and such assignee shall be responsible for the performance of the assigning Party's obligations relating to the affected Terminal.

(d)Any assignment that is not undertaken in accordance with the provisions set forth above shall be null and void ab initio. A Party making any assignment shall promptly notify the other Party of such assignment, regardless of whether consent is required. This Agreement and any Purchase Order shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

(e)Tesoro's obligations hereunder shall not terminate in connection with a Partnership Change of Control, provided however, that in the case of a Partnership Change of Control, Tesoro shall have the option to extend the Term as provided in Section 3. TLO shall provide Tesoro with notice of any Partnership Change of Control at least sixty (60) days prior to the effective date thereof.

36. NOTICE

All notices, requests, demands, and other communications hereunder will be in writing and will be deemed to have been duly given: (a) if by transmission by facsimile or hand delivery, when delivered; (b) if mailed via the official governmental mail system, five (5) Business Days after mailing, provided said notice is sent first class, postage pre-paid, via certified or registered mail, with a return receipt requested; (c) if mailed by an internationally recognized overnight express mail service such as Federal Express, UPS, or DHL Worldwide, one (1) Business Day after deposit therewith prepaid; or (d) if by e-mail, one Business Day after delivery with receipt confirmed. All notices will be addressed to the Parties at the respective addresses as follows:

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If to TRMC or TAK, to:

c/o Tesoro Refining & Marketing Company LLC

19100 Ridgewood Parkway

San Antonio, Texas 78259

For legal notices:

Attention: Charles S. Parrish, General Counsel

phone: (210) 626-4280

fax: (210) 745-4494

email: charles.s.parrish@tsocorp.com

For all other notices and communications:

Attention: Richard D. Weyen, Vice President, Logistics

phone: (210) 626-4379

fax: (210) 745-4631

email: Rick.D.Weyen@tsocorp.com

If to TLO, to:

Tesoro Logistics Operations LLC

19100 Ridgewood Parkway

San Antonio, Texas 78259

For legal notices:

Attention: Charles S. Parrish, General Counsel

phone: (210) 626-4280

fax: (210) 745-4494

email: charles.s.parrish@tsocorp.com

For all other notices and communications:

Attention: Victoria R. Somers, Contracts Administrator - Logistics

phone: (210) 626-6390

fax: (210) 745-4490

email: victoria.r.somers@tsocorp.com

or to such other address or to such other Person as either Party will have last designated by notice to the other Party.

37. CONFIDENTIAL INFORMATION

(a)Obligations. Each Party shall use reasonable efforts to retain the other Parties' Confidential Information in confidence and not disclose the same to any third party nor use the same, except as authorized by the disclosing Party in writing or as expressly permitted in this Section 37. Each Party further agrees to take the same care with the other Party's Confidential Information as it does with its own, but in no event less than a reasonable degree of care. Excepted from these obligations of confidence and non-use is that information which:

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(i)is available, or becomes available, to the general public without fault of the receiving Party;

(ii)was in the possession of the receiving Party on a non-confidential basis prior to receipt of the same from the disclosing Party (it being understood, for the avoidance of doubt, that this exception shall not apply to information of TLO that was in the possession of Tesoro or any of its affiliates as a result of their ownership or operation of the Terminals prior to the Commencement Date);

(iii)is obtained by the receiving Party without an obligation of confidence from a third party who is rightfully in possession of such information and, to the receiving Party's knowledge, is under no obligation of confidentiality to the disclosing Party; or

(iv)is independently developed by the receiving Party without reference to or use of the disclosing Party's Confidential Information.

For the purpose of this Section 37, a specific item of Confidential Information shall not be deemed to be within the foregoing exceptions merely because it is embraced by, or underlies, more general information in the public domain or in the possession of the receiving Party.

(b)Required Disclosure. Notwithstanding Section 37(a) above, if the receiving Party becomes legally compelled to disclose the Confidential Information by a court, Governmental Authority or Applicable Law, or is required to disclose by the listing standards of the New York Stock Exchange, any of the disclosing Party's Confidential Information, the receiving Party shall promptly advise the disclosing Party of such requirement to disclose Confidential Information as soon as the receiving Party becomes aware that such a requirement to disclose might become effective, in order that, where possible, the disclosing Party may seek a protective order or such other remedy as the disclosing Party may consider appropriate in the circumstances. The receiving Party shall disclose only that portion of the disclosing Party's Confidential Information that it is required to disclose and shall cooperate with the disclosing Party in allowing the disclosing Party to obtain such protective order or other relief.

(c)Return of Information. Upon written request by the disclosing Party, all of the disclosing Party's Confidential Information in whatever form shall be returned to the disclosing Party upon termination of this Agreement or destroyed with destruction certified by the receiving Party, without the receiving Party retaining copies thereof except that one copy of all such Confidential Information may be retained by a Party's legal department solely to the extent that such Party is required to keep a copy of such Confidential Information pursuant to Applicable Law, and the receiving Party shall be entitled to retain any Confidential Information in the electronic form or stored on automatic computer back-up archiving systems during the period such backup or archived materials are retained under such Party's customary procedures and policies; provided, however, that any Confidential Information retained by the receiving Party shall be maintained subject to confidentiality pursuant to the terms of this Section 37, and such archived or back-up Confidential Information shall not be accessed except as required by Applicable Law.

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(d)Receiving Party Personnel. The receiving Party will limit access to the Confidential Information of the disclosing Party to those of its employees, attorneys and contractors that have a need to know such information in order for the receiving Party to exercise or perform its rights and obligations under this Agreement or any Purchase Order (the “Receiving Party Personnel”). The Receiving Party Personnel who have access to any Confidential Information of the disclosing Party will be made aware of the confidentiality provision of this Agreement, and will be required to abide by the terms thereof. Any third party contractors that are given access to Confidential Information of a disclosing Party pursuant to the terms hereof shall be required to sign a written agreement pursuant to which such Receiving Party Personnel agree to be bound by the provisions of this Agreement, which written agreement will expressly state that it is enforceable against such Receiving Party Personnel by the disclosing Party.

(e)Survival. The obligation of confidentiality under this Section 37 shall survive the termination of this Agreement for a period of two (2) years.

38. MISCELLANEOUS

(a)Modification; Waiver. This Agreement or any Purchase Order may be terminated, amended or modified only by a written instrument executed by the Parties. Any of the terms and conditions of this Agreement or any Purchase Order may be waived in writing at any time by the Party entitled to the benefits thereof. No waiver of any of the terms and conditions of this Agreement or any Purchase Order, or any breach thereof, will be effective unless in writing signed by a duly authorized individual on behalf of the Party against which the waiver is sought to be enforced. No waiver of any term or condition or of any breach of this Agreement or any Purchase Order will be deemed or will constitute a waiver of any other term or condition or of any later breach (whether or not similar), nor will such waiver constitute a continuing waiver unless otherwise expressly provided.

(b)Entire Agreement. This Agreement, together with the Schedules and Purchase Orders, constitutes the entire agreement among the Parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the Parties in connection therewith.

(c)Governing Law; Jurisdiction. This Agreement and any Purchase Order shall be governed by the laws of the State of Texas without giving effect to its conflict of laws principles. Each Party hereby irrevocably submits to the exclusive jurisdiction of any federal court of competent jurisdiction situated in the United States District Court for the Western District of Texas, San Antonio Division, or if such federal court declines to exercise or does not have jurisdiction, in the district court of Bexar County, Texas. The Parties expressly and irrevocably submit to the jurisdiction of such Courts and irrevocably waive any objection which they may now or hereafter have to the laying of venue of any action, suit or proceeding arising out of or relating to this Agreement or any Purchase Order brought in such Courts, irrevocably waive any claim that any such action, suit or proceeding brought in any such Court has been brought in an inconvenient forum and further irrevocably waive the right to object, with respect to such claim, action, suit or proceeding brought in any such Court, that such Court does not have jurisdiction over such Party. The Parties hereby irrevocably consent to the service of process by registered

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mail, postage prepaid, or by personal service within or without the State of Texas. Nothing contained herein shall affect the right to serve process in any manner permitted by law.

(d)Counterparts. This Agreement and any Purchase Order may be executed in one or more counterparts (including by facsimile or portable document format (pdf)) for the convenience of the Parties hereto, each of which counterparts will be deemed an original, but all of which counterparts together will constitute one and the same agreement.

(e)Severability. Whenever possible, each provision of this Agreement and any Purchase Order will be interpreted in such manner as to be valid and effective under applicable law, but if any provision of this Agreement or any Purchase Order or the application of any such provision to any Person or circumstance will be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision hereof, and the Parties will negotiate in good faith with a view to substitute for such provision a suitable and equitable solution in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid, illegal or unenforceable provision.

(f)No Third Party Beneficiaries. It is expressly understood that the provisions of this Agreement and any Purchase Order do not impart enforceable rights in anyone who is not a Party or successor or permitted assignee of a Party.

(g)WAIVER OF JURY TRIAL. EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY PROCEEDINGS RELATING TO THIS AGREEMENT OR ANY PURCHASE ORDER OR ANY PERFORMANCE OR FAILURE TO PERFORM OF ANY OBLIGATION HEREUNDER.

(h)Schedules and Purchase Order(s). Each of the Schedules and Purchase Order(s) attached hereto and referred to herein is hereby incorporated in and made a part of this Agreement as if set forth in full herein.

[Remainder of this page intentionally left blank.]

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IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the date first written above.

TESORO ALASKA COMPANY			TESORO REFINING & MARKETING COMPANY LLC
By:	/s/ GREGORY J. GOFF		By:	/s/ GREGORY J. GOFF
	Gregory J. Goff			Gregory J. Goff
	President			President
TESORO LOGISTICS OPERATIONS LLC
By:	TESORO LOGISTICS LP,
		its sole member
By:	TESORO LOGISTICS GP, LLC,
		its general partner
By:	/s/ PHILLIP M. ANDERSON
	Phillip M. Anderson
	President

SCHEDULE A
STIPULATED VOLUMES
Terminal	Stipulated Volume (bpd)
Anchorage	9,000
Boise	7,200
Burley	2,300
Los Angeles	33,300
Mandan	8,900
Salt Lake City	25,300
Stockton	7,600
Vancouver	6,400
TOTAL	100,000

If there are multiple Terminals at any of the above locations, the reference to that location shall include all of such Terminals.

SCHEDULE B
TERMINALS ASSOCIATED WITH REFINERIES
Refineries	Associated Terminal
Alaska Refinery	Anchorage Terminal
Anacortes Refinery	Vancouver Terminal
Golden Eagle Refinery	Stockton Terminal
Los Angeles Refinery	Los Angeles Terminal
Mandan Refinery	Mandan Terminal
Salt Lake City Refinery	Salt Lake City, Boise and Burley Terminals

EXHIBIT 1

FORM OF PURCHASE ORDER

PURCHASE ORDER PURSUANT TO MASTER TERMINALLING AGREEMENT

This Purchase Order is entered as of ___, 20__, by and among Tesoro Refining & Marketing Company LLC, a Delaware limited liability company (“TRMC”), Tesoro Alaska Company, a Delaware corporation (“TAK” and, together with TRMC, “Tesoro”) and Tesoro Logistics Operations LLC, a Delaware limited liability company (“TLO”), pursuant to and in accordance with the terms of the Amended and Restated Master Terminalling Agreement dated as of February 22, 2013, among such parties (the “Agreement).

Capitalized terms not otherwise defined herein shall have the meaning set forth in the Agreement.

Pursuant to Section 5 of the Agreement, the parties hereto agree to the following provisions:

[Insert applicable provisions:

Allocation of storage and throughput capacity for separate Products at each Terminal:

Per-Barrel fees for the volumes Tesoro throughputs at the Terminals:

Dedicated storage tanks and applicable fees:

Allocation of excess capacity and applicable fees:

Ancillary Services and applicable fees:

Surcharges pursuant to Section 6 of the Agreement:

Capital expenditures and related costs subject to reimbursement pursuant to Section 9;

Cleaning of tanks or the conversion of a dedicated tank to storage of a different Product pursuant to Section 9 of the Agreement and applicable fees:

Special or proprietary additive injection services or higher additive injection rates pursuant to Sections 16 and 18 and the fees for such services:

Fees for lubricity and conductivity additive and injection services (including for DCA injection) pursuant to Section 17 or 18 of the Agreement:

Fees for operation of special additive equipment pursuant to Section 20:

Receipt, storage and blending of ethanol into Tesoro's gasoline pursuant to Section 21:

Periodic software updates, replacement of loading systems or software or other upgrades pursuant to Section 22 and applicable costs:

Dedicated storage to be provided and applicable fees:

Other:]

Except as set forth in this Purchase Order, the other terms of the Agreement shall continue in full force and effect and shall apply to the terms of this Purchase Order.

IN WITNESS WHEREOF, the parties hereto have duly executed this Purchase Order as of the date first written above.

TESORO ALASKA COMPANY		TESORO REFINING & MARKETING COMPANY LLC
By:		By:
	Gregory J. Goff		Gregory J. Goff
	President		President
TESORO LOGISTICS OPERATIONS LLC
By:	TESORO LOGISTICS LP,
	its sole member
By:	TESORO LOGISTICS GP, LLC,
	its general partner
By:
	Phillip M. Anderson
	President

EXHIBIT 2

SHORTFALL PAYMENTS

EX-10.2

Exhibit 10.2

TESORO CORPORATION

EXECUTIVE SEVERANCE AND CHANGE IN CONTROL PLAN

EFFECTIVE JANUARY 12, 2011

(as AMENDED AND RESTATED EFFECTIVE MAY 1, 2013)

TESORO CORPORATION

EXECUTIVE SEVERANCE AND CHANGE IN CONTROL PLAN

PREAMBLE

The principal objective of this Executive Severance and Change in Control Plan (the “Plan”) is to reduce uncertainty to select executives of the Company and its Subsidiaries in the event of certain fundamental events involving the control or existence of the Company as well as to provide a benefit in the event of an executive’s termination of employment under certain conditions that are beyond the executive’s control. The Plan is designed to provide a benefit that will meet the objectives described above. The Plan is intended to conform to the requirements of Section 409A of the Code, together with the Regulations, and is intended to qualify as an unfunded plan maintained primarily for the purpose of providing benefits for a select group of management and highly compensated employees of the Company and its Subsidiaries.

SECTION I
DEFINITIONS

1.1 “Affiliate” means each entity that would be considered a single employer with the Company under Section 414(b) or Section 414(c) of the Code, except that the phrase “at least 50%” shall be substituted for the phrase “at least 80%” as used therein.

1.2 “Aggregated Plan” means all agreements, methods, programs and other arrangements that are aggregated with this Plan under Section 1.409A-1(c) of the Regulations.

1.3 “Base Salary” means the rate of base pay as in effect for a Participant on the effective date of such Participant’s eligibility for a benefit hereunder, as provided in Section II hereof.

1.4 “Board” means the Board of Directors of the Company.

1.5 “Bonus” means (i) for purposes of determining the amount of a Participant’s Change in Control Benefit, as provided in Section 3.1 hereof, the target bonus applicable to a Participant under the Company’s annual incentive program for the year in which such Participant’s employment terminates under conditions that result in the eligibility of such Participant for a Change in Control Benefit hereunder or (ii) for purposes of determining the amount of the Severance Benefit for each Participant other than the Chief Executive Officer, as provided in Section 3.2 hereof, the average of the actual bonuses paid under the Company’s annual incentive program during the three (3)-year period ending on the date of the Participant’s termination of employment under conditions that result in the eligibility of such Participant for a Severance Benefit hereunder; provided, however, in the event that the Participant has been employed for fewer than three (3) years from the date of his most recent employment to the date of such termination of employment, the Bonus will be calculated by adding the total amount of the annualized actual bonuses paid during the Participant’s most recent period of employment and dividing that amount

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by the number of years with respect to which a bonus was actually paid or (iii) for purposes of determining the amount of the Chief Executive Officer’s Severance Benefit, as provided in Section 3.2 hereof, the greater of: (a) the highest annual bonus earned under the Company’s annual incentive compensation program during the three (3)-year period ending on the date of the Chief Executive’s Officer’s termination of employment under conditions that result in the eligibility of such Chief Executive Officer for a Severance Benefit hereunder or (b) $450,000.

1.6 “Cause” means the conviction of or a plea of nolocontendere to the charge of a felony (which, through lapse of time or otherwise, is not subject to appeal); a willful refusal without proper legal cause to perform, or gross negligence in performing, the Participant’s duties and responsibilities; a material breach of fiduciary duty to the Company through the misappropriation of Company funds or property; or the unauthorized absence of the Participant from work (other than for sick or approved disability leave or leave under the Family Medical Leave Act) for a period of thirty (30) or more working days out of a consecutive forty-five (45)-working day period.

1.7 “Change in Control” means (i) there shall be consummated (A) any consolidation or merger of Company in which Company is not the continuing or surviving corporation or pursuant to which shares of Company’s common stock would be converted into cash, securities or other property, other than a merger of Company where a majority of the board of directors of the surviving corporation are, and for a one-year period after the merger continue to be, persons who were directors of Company immediately prior to the merger or were elected as directors, or nominated for election as director, by a vote of at least two-thirds of the directors then still in office who were directors of Company immediately prior to the merger, or (B) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Company, or (ii) the shareholders of Company shall approve any plan or proposal for the liquidation or dissolution of Company, or (iii) (A) any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), other than Company or a Subsidiary thereof or any employee benefit plan sponsored by Company or a Subsidiary thereof, shall become the beneficial owner (within the meaning of Rule 13c-3 under the Securities Exchange Act of 1934) of securities of Company representing thirty-five percent (35%) or more of the combined voting power of Company’s then outstanding securities ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, and (B) at any time during a period of one-year thereafter, individuals who immediately prior to the beginning of such period constituted the Board shall cease for any reason to constitute at least a majority thereof, unless election or the nomination by the Board for election by Company’s shareholders of each new director during such period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.

1.8 “Change in Control Benefit” means the benefit payable under Section 3.1 hereof in the event of an involuntary termination of employment without Cause or a voluntary termination of employment for Good Reason following a Change in Control.

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1.9 “Chief Executive Officer” means the Chief Executive Officer of the Company.

1.10 “Code” means the Internal Revenue Code of 1986, as amended from time to time.

1.11 “Committee” means the Compensation Committee of the Board.

1.12 “Company” means Tesoro Corporation, a Delaware corporation, or any successor thereto.

1.13 “Compensation” means a Participant’s Base Salary and Bonus.

1.14 “Death/Disability Benefit” means the benefit payable under Section 3.3 hereof in the event of the Chief Executive Officer’s termination of employment by reason of death or Total Disability.

1.15 “Good Reason” means the occurrence of any of the following:

(a) without Participant’s express written consent, the assignment to Participant of any duties inconsistent with the employment of Participant immediately prior to the Change in Control, or a significant diminution of Participant’s positions, duties, responsibilities and status with the Company from those immediately prior to a Change in Control or a diminution in Participant’s titles or offices as in effect immediately prior to a Change in Control, or any removal of Participant from, or any failure to reelect Participant to, any of such positions;

(b) a material reduction by the Company in Participant’s Base Salary, as in effect immediately prior to a Change in Control;

(c) the failure by the Company to continue benefits, including but not limited to, thrift, pension, life insurance, and health plans, substantially equal in value, in the aggregate, to those in which Participant is participating or is eligible to participate at the time of the Change in Control except as otherwise required by the terms of such plans as in effect at the time of any Change in Control;

(d) the failure by the Company to continue in effect any incentive plan or arrangement in which Participant is participating at the time of a Change in Control (or to substitute and continue other plans or arrangements providing the Participant with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any Change in Control;

(e) the occurrence of an event that meets the criteria set forth under the Company’s relocation policy, as in effect from time to time, with respect to which either (i) the Participant fails to provide express written consent to the relocation or (ii) the Company fails to provide the relocation benefit set forth in such policy; or

(f) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company;

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1.16 “Participant” means an individual who, on the date of his or her termination of employment under the circumstances described in Section II hereof, is either: (i) an officer of the Company or a Subsidiary with the title of Senior Vice President or above whose compensation is approved by the Committee or (ii) an officer of the Company or a Subsidiary with the title of Vice President who is approved for participation by the Chief Executive Officer, and, in each case, who is not otherwise entitled to a change in control or severance benefit, as applicable, under an employment agreement, management stability agreement, or similar type of agreement.

1.17 “Plan” means the Tesoro Corporation Executive Severance and Change in Control Plan, effective January 12, 2011, as amended from time to time.

1.18 “Regulations” means the Treasury Regulations promulgated under the Code.

1.19 “Separation from Service” means a termination of employment of a Participant under the circumstances described in Section II hereof that will result in a reasonably anticipated permanent reduction in the level of bona fide services performed by the Participant for the Company and its Affiliates to 20% or less of the average level of bona fide services performed by the Participant for the Company and its Affiliates (whether as an employee or an independent contractor) in the immediately preceding thirty-six (36) months (or the full period of service to the Company and its Affiliates if the Participant has been providing services to the Company and its Affiliates for fewer than thirty-six (36) months). The determination of whether a Separation from Service has occurred shall be made by the Committee in accordance with the provisions of Section 409A of the Code and the Regulations.

1.20 “Severance Benefit” means the benefit payable under Section 3.2 hereof in the absence of a Change in Control but in the event of an involuntary termination of employment without Cause.

1.21 “Subsidiary” means any entity in which the Company owns or otherwise controls, directly or indirectly, stock or other ownership interests having the voting power to elect a majority of the board of directors, or other governing group having functions similar to a board of directors, as determined by the Committee.

1.22 “Total Disability” means the physical or mental incapacity of the Chief Executive Officer so as to render him incapable of performing his material, usual and customary duties, with or without reasonable accommodation as required by law, for six (6) consecutive months (even if such consecutive absence is interrupted by the Chief Executive Officer’s return to service for fewer than ten (10) consecutive business days if absent thereafter for the same illness or disability). Any termination on account of Total Disability shall be upon thirty (30) days written notice given at any time thereafter while the Chief Executive Officer remains Totally Disabled, provided that a termination for Total Disability hereunder shall not be effective if the Chief Executive Officer returns to the full performance of his duties within such thirty (30) day period.

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The masculine gender, where appearing in the Plan, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates to the contrary.

SECTION II
ELIGIBILITY FOR BENEFITS

2.1 Eligibility for Change in Control Benefit. Each Participant is eligible to receive a Change in Control Benefit if, within the two-year period following a Change in Control, such Participant’s employment with the Company or a Subsidiary is terminated by reason of: (i) involuntary termination other than for Cause or by reason of death, or (ii) voluntary termination by the Participant for Good Reason. The determination of whether a termination of employment shall be for Cause or Good Reason shall be made in the sole and absolute discretion of the Committee. Such benefit shall commence as provided in Section 4.1 hereof, but shall be contingent upon the Committee’s prior receipt of a release executed by the Participant in the form determined by and in the manner prescribed by the Committee.

2.2 Eligibility for Severance Benefit.

(a) Chief Executive Officer. Subject to paragraph (d) below, the Chief Executive Officer is eligible to receive a Severance Benefit if his employment with the Company or a Subsidiary is terminated in the absence of a Change in Control by reason of either: (i) involuntary termination other than for Cause or (ii) voluntary termination following the occurrence or failure of any of the following circumstances, without his express written consent: (A) a material adverse change in the governing body to which the Chief Executive Officer regularly reports, including a requirement that the Chief Executive Officer report to another corporate officer rather than to the Board; (B) a material adverse change in the Compensation plans, programs or arrangements in which the Chief Executive Officer is entitled to participate (the “Compensation Plans”) other than a material adverse change in the Compensation Plans that adversely affects other similarly situated executives in a manner proportionate to the material adverse effect of such change on the Chief Executive Officer; (C) Chief Executive Officer’s failure to be elected or reelected to the Board; or (D) the failure of any successor to the Company (whether direct or indirect and whether by merger, acquisition, consolidation or otherwise) to assume in a writing delivered to the Chief Executive Officer upon the successor becoming such, the obligations of the Company hereunder.

(b) Executive Vice-Presidents. Subject to paragraph (d) below, each Participant who is an Executive Vice-President of the Company is eligible to receive a Severance Benefit if such Participant’s employment with the Company or a Subsidiary is terminated in the absence of a Change in Control by reason of either: (i) involuntary termination other than for Cause or by reason of death or (ii) voluntary termination following a material adverse change in the level of executive officer to whom the Executive Vice President regularly reports.

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(c) Senior Vice Presidents. Subject to paragraph (d) below, each Participant who is a Senior Vice President of the Company is eligible to receive a Severance Benefit if such Participant’s employment with the Company or a Subsidiary is terminated in the absence of a Change in Control by reason of involuntary termination other than for Cause or by reason of death.

(d) Committee Discretion and Executed Release. The determination of whether a termination of employment shall be for Cause or whether a material adverse change in the reporting relationship has occurred under Section 2.2 (a), (b) or (c) shall be made in the sole and absolute discretion of the Committee. Benefits payable hereunder shall commence as provided in Section 4.1 hereof, but shall be contingent upon the Committee’s prior receipt of a release executed by the Participant in the form determined by and in the manner prescribed by the Committee.

2.3 Eligibility for Death/Disability Benefit. The Chief Executive Officer is eligible to receive a Death/Disability Benefit if his employment with the Company or a Subsidiary is terminated in the absence of a Change in Control by reason of his death or Total Disability. Such Death/Disability Benefit is mutually exclusive of any Severance Benefit or Change in Control Benefit hereunder.

SECTION III

AMOUNT AND FORM OF BENEFIT

3.1 Change in Control Benefit. The Change in Control Benefit to which an eligible Participant shall be entitled shall be as follows:

(a) Chief Executive Officer. The Chief Executive Officer shall be entitled to a Change in Control Benefit, payable in cash, equal to three (3) times his Compensation. Furthermore, the Chief Executive Officer and his or her eligible dependents shall be entitled to participate in the Company’s group medical plan (excluding dental and vision benefits) for the thirty (30)-month period commencing on the date of the Chief Executive Officer’s Separation from Service.

(b) Executive Vice-Presidents. Each Executive Vice-President shall be entitled to a Change in Control Benefit, payable in cash, equal to two and one-half (2.5) times his Compensation. Furthermore, the Executive Vice-President and his or her eligible dependents shall be entitled to participate in the Company’s group medical plan (excluding dental and vision benefits) for the thirty (30)-month period commencing on the date of the Executive Vice-President’s Separation from Service.

(c) Senior Vice-Presidents. Each Senior Vice-President shall be entitled to a Change in Control Benefit, payable in cash, equal to two (2) times his Compensation. Furthermore, the Senior Vice-President and his or her eligible dependents shall be

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entitled to participate in the Company’s group medical plan (excluding dental and vision benefits) for the twenty-four (24)-month period commencing on the date of the Senior Vice-President’s Separation from Service.

(d) Vice-Presidents. Each Vice-President who is a Participant in this Plan shall be entitled to a Change in Control Benefit, payable in cash, equal to either one (1) times or one and one-half (1.5) times his Compensation, as determined by the Chief Executive Officer in his sole and absolute discretion. Furthermore, the Vice-President and his or her eligible dependents shall be entitled to participate in the Company’s group medical plan (excluding dental and vision benefits) for a period of either twelve (12) or eighteen (18) months (as determined by the Chief Executive Officer in his sole and absolute discretion) commencing on the date of the Vice-President’s Separation from Service.

3.2 Severance Benefit. The Severance Benefit to which an eligible Participant shall be entitled shall be as follows:

(a) Chief Executive Officer. The Chief Executive Officer shall be entitled to a Severance Benefit, payable in cash, equal to two (2) times his Compensation, together with the benefits described in Section 3.2(d) (i) and (ii) hereof. Furthermore, except to the extent prohibited by law, and applicable only until May 1, 2015, the Chief Executive Officer shall be deemed vested under the Tesoro Corporation Amended and Restated Executive Security Plan (“ESP”) as of the date of the Chief Executive Officer’s eligibility for a Severance Benefit hereunder and the benefit to which the Chief Executive Officer is entitled under the ESP shall be calculated, to the extent applicable, by granting the Chief Executive Officer deemed years of age and service up to the earliest date on which the Chief Executive Officer would be eligible for an early retirement benefit, as determined under the Tesoro Corporation Retirement Plan.

(b) Executive Vice-Presidents. Each Executive Vice-President shall be entitled to a Severance Benefit, payable in cash, equal to one and three-fourths (1.75) times his Compensation, together with the benefits described in Section 3.2(d) (i) and (ii) hereof.

(c) Senior Vice-Presidents. Each Senior Vice-President shall be entitled to a Severance Benefit, payable in cash, equal to one and one-half (1.5) times his Compensation, together with the benefits described in Section 3.2(d) (i) and (ii) hereof.

(d) Additional Benefits. The foregoing eligible Participants set forth in this Section 3.2 shall be entitled to the following benefits, as applicable, in addition to the benefits described in (a), (b) and (c) above:

(i) participation in the Company’s medical plan (excluding dental and vision benefits) for a period of eighteen (18) months commencing on the date of the Participant’s Separation from Service;

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(ii) receipt of reasonable outplacement services, at no cost to the Participant, for up to twelve (12) months, such twelve (12)-month period to commence on the date of the Participant’s Separation from Service; and

(iii) Chief Executive Officer and Chief Executive Officer’s spouse and eligible dependents shall continue to be eligible to participate in, and receive group health coverage under, the Company’s group health plans that provide group health coverage to active employees of the Company from time to time, but only to the extent such plans continue to be available to the Company’s employees and only until the earliest to occur of (A) two and one-half (2½) years after the date of termination of the Chief Executive Officer’s employment, (B) Chief Executive Officer’s death (or in the case of coverage for a qualified beneficiary of Chief Executive Officer, the death of that qualified beneficiary), or (C) the date on which Chief Executive Officer (or in the case of coverage for a qualified beneficiary of Executive, the qualified beneficiary) becomes eligible for coverage under any other group health plan of another employer providing comparable coverage (the “Continuation Coverage Period”); provided that the Company shall pay for one hundred percent (100%) of the premiums for such group health coverage, and the premiums that otherwise would be charged to the Chief Executive Officer for such coverage but for this Section 3.2(d)(iii) shall be included as imputed income; and provided further that the group health plan coverage benefits provided by the Company under this Section 3.2(d)(iii) during any taxable year of the Chief Executive Officer will not affect such benefits provided by the Company in another taxable year during the period of continued coverage and the right to the benefits provided under this Section 3.2(d)(iii) is not subject to liquidation or exchange for another benefit.

3.3 Death/Disability Benefit. The Chief Executive Officer or, in the event of the Chief Executive Officer’s death, the estate of the Chief Executive Officer shall be entitled to a Death/Disability Benefit, payable in cash, equal to one (1) times his Base Salary. In the event of the Chief Executive Officer’s termination of employment on account of Total Disability, this benefit shall be reduced by any payments to the Chief Executive Officer under any long-term disability plan or arrangement of the Company.

SECTION IV
PAYMENT OF BENEFITS

4.1 Benefits payable in accordance with Section III as cash payments will be paid in a single lump sum payment on the first day of the seventh (7th) calendar month beginning after the Participant’s Separation from Service. If a Participant who is entitled to continued coverage under the Company’s group medical plan elects to continue such participation, the Company shall pay the applicable premium for such coverage (which amount shall be the employer-subsidized portion of the premium that applies to active employees of the

9

Company) in accordance with the Company’s standard payroll practices for the period of coverage that applies under Section III hereof. The continued medical plan coverage described herein and the payment of the applicable premium in connection therewith may not affect the benefit to be provided in any other taxable year and may not be liquidated or exchanged for any other benefit.

4.2 The Company will be liable for all benefits due the Participants under the Plan.

4.3 The Plan is a general corporate commitment and each Participant must rely upon the general credit of the Company for the fulfillment of its obligations under the Plan. Under all circumstances the rights of Participants to any asset held by the Company shall be no greater than the rights expressed in this Plan. Nothing contained in this Plan shall constitute a guarantee by the Company that the assets of the Company will be sufficient to pay any benefits under the Plan or would place the Participant in a secured position ahead of general creditors and judgment creditors of the Company. Though the Company may establish or become a signatory to a rabbi trust to accumulate assets to help fulfill its obligations, the Plan and any trust created, shall not create any lien, claim, encumbrance, right, title or other interest of any kind in any Participant in any asset held by the Company, contributed to any trust created, or otherwise be designated to be used for payment of any of its obligations created in this agreement. No specific assets of the Company have been or will be set aside, or will be transferred to a trust or will be pledged for the performance of the Company’s obligations under the Plan which would remove those assets from being subject to the general creditors and judgment creditors of the Company.

4.4 It is intended that this Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA.

4.5 Notwithstanding any provision of this Section IV to the contrary, the benefits payable hereunder may, to the extent expressly provided in this Section 4.5, be paid prior to or later than the date on which they would otherwise be paid to the Participant.

(a) Distribution in the Event of Income Inclusion Under Code Section 409A. If any portion of a Participant’s benefit hereunder is required to be included in income by the Participant prior to receipt due to a failure of this Plan or any Aggregated Plan to comply with the requirements of Section 409A of the Code or the Regulations, the Committee may determine that such Participant shall receive a distribution from the Plan in an amount equal to the portion of his or her benefit required to be included in income as a result of the failure of the Plan or any Aggregated Plan to comply with the requirements of Section 409A of the Code or the Regulations.

(b) Distribution Necessary to Satisfy Applicable Tax Withholding. If the Company is required to withhold amounts to pay the Participant’s portion of the Federal Insurance Contributions Act (FICA) tax imposed under Code Sections 3101, 3121(a) or 3121(v)(2) with respect to amounts that are or will be paid to the Participant under the Plan before they otherwise would be paid, the Committee may determine that such Participant shall receive a distribution from the Plan in

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an amount equal to the lesser of: (i) the amount of the Participant’s benefit hereunder or (ii) the aggregate of the FICA taxes imposed and the income tax withholding related to such amount.

(c) Delay for Payments in Violation of Federal Securities Laws or Other Applicable Law. In the event the Company reasonably anticipates that the payment of benefits as specified hereunder would violate Federal securities laws or other applicable law, the Committee may delay the payment of such benefit hereunder until the earliest date at which the Company reasonably anticipates that the making of such payment would not cause such violation.

(d) Delay for Insolvency or Compelling Business Reasons. In the event the Company determines that the making of any payment of benefits on the date specified hereunder would jeopardize the ability of the Company to continue as a going concern, the Committee may delay the payment of such benefits until the first calendar year in which the Company notifies the Committee that the payment of benefits would not have such effect.

(e) Administrative Delay in Payment. The payment of benefits hereunder shall begin at the date specified in accordance with the provisions of the foregoing paragraphs of this Section IV; provided that, in the case of administrative necessity, the payment of such benefits may be delayed up to the later of the last day of the calendar year in which payment would otherwise be made or the 15^th day of the third calendar month following the date on which payment would otherwise be made. Further, if, as a result of events beyond the control of the Participant, it is not administratively practicable for the Committee to calculate the amount of benefits due to the Participant as of the date on which payment would otherwise be made, the payment may be delayed until the first calendar year in which calculation of the amount is administratively practicable.

SECTION V
CLAIMS PROCEDURES

5.1 Claims for Benefits. The Committee shall determine the rights of any Participant to any benefits hereunder. Any Participant who believes that he has not received the benefits to which he is entitled under the Plan may file a claim in writing with the Committee. The Committee shall, no later than 90 days after the receipt of a claim (plus an additional period of 90 days if required for processing, provided that notice of the extension of time is given to the claimant with the first 90-day period), either allow or deny the claim in writing.

A denial of a claim by the Committee, wholly or partially, shall be written in a manner intended to be understood by the claimant and shall include:

(a) the specific reasons for the denial;

(b) specific reference to pertinent Plan provisions on which the denial is based;

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(c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(d) an explanation of the claim review procedure and the time limits applicable to such procedures, including a statement of the claimant’s right, if applicable, to bring a civil action under Section 502(a) of ERISA.

5.2 Appeal Provisions. A claimant whose claim is denied (or his duly authorized representative) may within 60 days after receipt of denial of a claim file with the Committee a written request for a review of such claim. If the claimant does not file a request for review of his claim within such 60-day period, the claimant shall be deemed to have acquiesced in the original decision of the Committee on his claim, the decision shall become final and the claimant will not be entitled to bring a civil action under Section 502(a) of ERISA. If such an appeal is so filed within such 60-day period the Committee (or its delegate) shall conduct a full and fair review of such claim. During such review, the claimant (or the claimant’s authorized representative) shall be given the opportunity to review all documents that are pertinent to his claim and to submit issues and comments in writing.

The Committee shall mail or deliver to the claimant a written decision on the matter based on the facts and the pertinent provisions of the Plan within 60 days after the receipt of the request for review (unless special circumstances require an extension of up to 60 additional days, in which case written notice of such extension shall be given to the claimant prior to the commencement of such extension). Such decision shall be written in a manner intended to be understood by the claimant, shall state the specific reasons for the decision and the specific Plan provisions on which the decision was based and shall, to the extent permitted by law, be final and binding on all interested persons.

SECTION VI
MISCELLANEOUS

6.1 The Board, or its delegate, may, in its sole discretion, terminate, suspend or amend this Plan at any time, in whole or in part. However, the termination, amendment or suspension of this Plan will not operate to decrease the benefit to which a Participant has become entitled but which has not yet been paid. Notwithstanding the foregoing, the Plan shall automatically terminate, without further action of the Company, upon Insolvency of the Company. For this purpose, Insolvency shall mean the inability of the Company to continue as a going concern.

6.2 Notwithstanding any provision of the Plan to the contrary, the Committee may at any time (without the consent of any Participant) modify, amend or terminate any or all of the provisions of this Plan to the extent necessary to conform the provisions of the Plan with Section 409A of the Code, regardless of whether such modification, amendment or termination of this Plan shall adversely affect the rights of a Participant under the Plan.

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6.3 Nothing contained herein will confer upon any Participant the right to be retained in the service of the Company, nor will it interfere with the right of the Company to discharge or otherwise deal with a Participant without regard to the existence of this Plan.

6.4 No benefit under this Plan shall be assignable or subject to any manner of alienation, sale, transfer, claims of creditors, pledge, attachment or encumbrances of any kind.

6.5 The Committee may adopt rules and regulations to assist it in the administration of the Plan and may delegate such of its duties hereunder as it may deem advisable.

6.6 This Plan is established under and will be construed according to the laws of the State of Texas, except to the extent preempted by federal law.

6.7 This amendment and restatement is signed this 1st day of May, 2013, to be effective as of the date of execution.

TESORO CORPORATION
By:	/s/ CRAIG M. LATORRE
Name:	Craig M. LaTorre
Title:	Vice President, Human Resources and Communications

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Gregory J. Goff, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tesoro Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

(d) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 3, 2013	/s/ GREGORY J. GOFF
		Gregory J. Goff
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, G. Scott Spendlove, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tesoro Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

(d) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 3, 2013	/s/ G. SCOTT SPENDLOVE
		G. Scott Spendlove
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Tesoro Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory J. Goff, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ GREGORY J. GOFF

Gregory J. Goff

Chief Executive Officer

May 3, 2013

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Tesoro Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, G. Scott Spendlove, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ G. SCOTT SPENDLOVE

G. Scott Spendlove

Chief Financial Officer

May 3, 2013

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Tesoro Logistics LP, Activity (Details) (USD $)	0 Months Ended	3 Months Ended			0 Months Ended	3 Months Ended					0 Months Ended	3 Months Ended
	Jan. 14, 2013	Mar. 31, 2013		Mar. 31, 2012	Dec. 06, 2012 Northwest Products System	Mar. 31, 2013 Northwest Products System	Mar. 31, 2013 TLLP Revolving Credit Facility		Jan. 04, 2013 TLLP Revolving Credit Facility	Dec. 31, 2012 TLLP Revolving Credit Facility	Jan. 14, 2013 General Partner	Mar. 31, 2013 General Partner
Variable Interest Entity
Common units issued in offering (units)	9,775,000
Price per unit (dollars per unit)	$ 41.70
Net proceeds from issuance of units	$ 392,000,000
General partners' capital account, units issued (units)	199,490
Percentage ownership of Tesoro Logistics LP		38.00%									2.00%	2.00%
Total capacity		3,496,000,000	[1]				500,000,000	[1]	500,000,000	300,000,000
Total available capacity							650,000,000		650,000,000
Limited partner common units outstanding (units)		1,283,915
Subordinated units outstanding (units)		15,254,890
General partner units outstanding (units)		929,086
Date of acquisition agreement						Dec. 06, 2012
Purchase price					400,000,000
Deposit		$ 27,000,000		$ 0	$ 40,000,000

[1] During the first quarter of 2013, we entered into a term loan credit facility and amended the Tesoro Corporation Revolving Credit Facility (“Revolving Credit Facility”) and the TLLP Revolving Credit Facility. Just prior to closing the Carson Acquisition, the term loan credit facility will provide for $500 million of borrowing capacity and the amended Revolving Credit Facility will provide an increase in the capacity to $3.0 billion. In addition, the TLLP Revolving Credit Facility allows for an increased capacity of up to $650 million, subject to receiving increased commitments from the lenders.

XML

Commitments and Contingencies, Environmental Liabilities (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2004 entities	Dec. 31, 2012
Environmental Liabilities
Accrual for environmental expenditures	$ 86		$ 86
Martinez site contingency accrual	54		54
Environmental insurance coverage ceiling	190
Self-insurance deductible	50
Number of previous owners (owners)		2
Martinez Refinery
Environmental Liabilities
Martinez site contingency accrual	$ 44
Cost-share arrangement percentage responsible	75.00%

XML

Derivative Instruments, Open Positions (Details) (CAD) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Derivative
Open positions maturity period (years)	2 years
April 25,2013
Derivative
Forward contract to purchase Canadian dollars (millions of Canadian dollars)	9
May 24, 2103
Derivative
Forward contract to purchase Canadian dollars (millions of Canadian dollars)	36
Futures | 2013
Derivative
Long (short) contract volumes (thousands of barrels)	(1,013)
Futures | 2014
Derivative
Long (short) contract volumes (thousands of barrels)	25
OTC Swaps | 2013
Derivative
Long (short) contract volumes (thousands of barrels)	(150)
Forwards | 2013
Derivative
Long (short) contract volumes (thousands of barrels)	(94)
Options | 2013
Derivative
Long (short) contract volumes (thousands of barrels)	200

XML

Commitments and Contingencies, Washington Refinery Fire (Details) (Washington Refinery Fire, USD $) In Millions, unless otherwise specified	1 Months Ended		3 Months Ended
	Oct. 31, 2010	Apr. 30, 2010 employees	Mar. 31, 2013
Washington Refinery Fire
Washington Refinery Fire
Loss contingency, period of occurrence			4/1/2010
Number of fatally injured employees in the refinery incident (employees)		7
Fines and penalties assessed	$ 2.4

XML

Derivative Instruments, Derivative Assets and Liabilities (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013		Dec. 31, 2012
Derivatives, Fair Value
Derivative maturity period (years)	2 years
Gross derivative assets	$ 159		$ 95
Gross derivative liabilities	168		101
Net derivative assets	59		27
Net derivative liabilities	30		6
Derivative, Collateral
Cash collateral outstanding	38		27
Commodity Futures Contracts | Prepayments and other current assets
Derivatives, Fair Value
Gross derivative assets	156		95
Gross derivative liabilities	166		100
Commodity Forward Contracts | Receivables
Derivatives, Fair Value
Gross derivative assets	3		0
Gross derivative liabilities	2		0
Commodity Forward Contracts | Accounts payable
Derivatives, Fair Value
Gross derivative assets	0		0
Gross derivative liabilities	0		1
Less: Counterparty Netting and Cash Collateral (a)
Derivatives, Fair Value
Derivative asset amount offset against collateral and netting arrangements	(100)	[1]	(68)	[1]
Derivative liability amount offset against collateral and netting arrangements	$ (138)	[1]	$ (95)	[1]

[1] As of March 31, 2013 and December 31, 2012, cash collateral amounts of $38 million and $27 million, respectively, are netted with mark-to-market derivative assets.

XML

Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2013

Defined Benefit Pension Plans and Defined Benefit Postretirement Plans Disclosure [Abstract]

Schedule of Defined Benefit Plans Disclosures

The components of pension and other postretirement benefit expense (income) included in the condensed statements of consolidated operations for the three months ended March 31, 2013 and 2012, were (in millions):

	Pension Benefits						Other Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
	2013			2012			2013			2012
Service cost	$	8		$	7		$	1		$	1
Interest cost	7			7			1			1
Expected return on plan assets	(6		)	(6		)	—			—
Amortization of prior service credit	—			—			(9		)	(9		)
Recognized net actuarial loss	7			6			2			3
Net Periodic Benefit Expense (Income)	$	16		$	14		$	(5	)	$	(4	)

XML

Stockholders' Equity, Changes to Equity (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Total Equity
Balance at December 31, 2012	$ 4,737
Net earnings	104	62
Shares issued for equity-based compensation awards	32
Excess tax benefits from stock-based compensation arrangements, net	2
Amortization of equity settled awards	14
Dividend payments	(28)
Purchases of common stock	(135)
Net proceeds from issuance of Tesoro Logistics LP common units	392
Distributions to noncontrolling interest	(14)
Balance at March 31, 2013	5,104		4,737
Shares issued for equity-based compensation plans (shares)	0.9		1.9
Tesoro Corporation Stockholders’ Equity
Total Equity
Balance at December 31, 2012	4,251
Net earnings	93
Shares issued for equity-based compensation awards	32
Excess tax benefits from stock-based compensation arrangements, net	2
Amortization of equity settled awards	14
Dividend payments	(28)
Purchases of common stock	(135)
Net proceeds from issuance of Tesoro Logistics LP common units	(6)
Distributions to noncontrolling interest	0
Balance at March 31, 2013	4,223
Noncontrolling Interest
Total Equity
Balance at December 31, 2012	486
Net earnings	11
Shares issued for equity-based compensation awards	0
Excess tax benefits from stock-based compensation arrangements, net	0
Amortization of equity settled awards	0
Dividend payments	0
Purchases of common stock	0
Net proceeds from issuance of Tesoro Logistics LP common units	398
Distributions to noncontrolling interest	(14)
Balance at March 31, 2013	$ 881

XML

Property, Plant and Equipment Property, Plant and Equipment (Policies)

3 Months Ended

Mar. 31, 2013

Property, Plant and Equipment [Abstract]

Interest Capitalization, Policy

We capitalize interest as part of the cost of major projects during the construction period.

XML

Debt, Credit Facilities (Details) (USD $)			3 Months Ended			0 Months Ended				3 Months Ended				0 Months Ended	3 Months Ended
	Mar. 31, 2013		Mar. 31, 2013 Tesoro Corporation Revolving Credit Facility		Jan. 04, 2013 Tesoro Corporation Revolving Credit Facility	Jan. 04, 2013 $500 million- 18 months provision	Jan. 04, 2013 $500 million- two year provision	Mar. 31, 2013 Letter of Credit Facilities agreements		Mar. 31, 2013 TLLP Revolving Credit Facility		Jan. 04, 2013 TLLP Revolving Credit Facility	Dec. 31, 2012 TLLP Revolving Credit Facility	Jan. 28, 2013 Term Loan	Mar. 31, 2013 Term Loan
Credit Facility
Total capacity	$ 3,496,000,000	[1]	$ 1,850,000,000.00	[1],[2]	$ 3,000,000,000			$ 1,146,000,000	[1]	$ 500,000,000	[1]	$ 500,000,000	$ 300,000,000
Total available capacity			2,850,000,000.00		4,000,000,000.0					650,000,000		650,000,000
Debt instrument conditions						500,000,000	500,000,000
Adjusted borrowing base			3,500,000,000
Number of agreements (agreements)								5
Letters of credit, amount outstanding	1,321,000,000		807,000,000	[2]				514,000,000		0
Term loan, borrowing capacity														500,000,000
Debt instrument, maturity date, description														three years
Debt instrument periodic payment percentage														1.00%
Term loan, amount outstanding															$ 0
Line of credit facility, borrowing capacity, description			At March 31, 2013, our Revolving Credit Facility provided for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base of approximately $3.5 billion, consisting of Tesoro’s eligible cash and cash equivalents, receivables and petroleum inventories, net of the standard reserve as defined, or the Revolving Credit Facility’s total capacity of $1.85 billion. Prior to exercising our ability to increase the capacity just prior to closing the Carson Acquisition, the total available capacity can be increased up to an aggregate amount of $2.85 billion, subject to receiving increased commitments.							Effective January 4, 2013, TLLP amended and restated the TLLP Revolving Credit Facility, to increase commitments under the facility from $300 million to $500 million and to allow TLLP to request that the loan availability be increased up to an aggregate of $650 million, subject to receiving increased commitments from the lenders.
Line of credit facility, collateral										The TLLP Revolving Credit Facility is non-recourse to Tesoro, except for TLGP, and is guaranteed by all of TLLP’s subsidiaries and secured by substantially all of TLLP’s assets. Borrowings are available under the TLLP Revolving Credit Facility up to the total loan availability of the facility.
Debt instrument, collateral															The obligations under the Term Loan Facility will be secured by all equity interests of Tesoro Refining & Marketing Company LLC and Tesoro Alaska Company, the Tesoro and USA Gasoline trademarks and those trademarks containing the name “ARCO” that will be acquired by Tesoro in the Carson Acquisition and junior liens on certain assets.
Debt instrument, description															Effective January 28, 2013, we entered into a term loan credit facility agreement (the “Term Loan Facility”), which allows us to borrow up to an aggregate of $500 million on or prior to August 9, 2013.

[1] During the first quarter of 2013, we entered into a term loan credit facility and amended the Tesoro Corporation Revolving Credit Facility (“Revolving Credit Facility”) and the TLLP Revolving Credit Facility. Just prior to closing the Carson Acquisition, the term loan credit facility will provide for $500 million of borrowing capacity and the amended Revolving Credit Facility will provide an increase in the capacity to $3.0 billion. In addition, the TLLP Revolving Credit Facility allows for an increased capacity of up to $650 million, subject to receiving increased commitments from the lenders.

[2] Borrowing base is the lesser of the amount of the periodically adjusted borrowing base or the agreement’s total capacity.

XML

Acquisitions and Other Changes in Operations, Acquisitions (Details) (USD $)	3 Months Ended				0 Months Ended	3 Months Ended	0 Months Ended	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Mar. 31, 2013 Port of Vancouver Terminal	Dec. 06, 2012 Northwest Products System	Mar. 31, 2013 Northwest Products System	Aug. 08, 2012 BP's Southern California Refining and Marketing Business stores	Mar. 31, 2013 BP's Southern California Refining and Marketing Business
Restructuring Activities
Date of acquisition agreement				Apr. 22, 2013		Dec. 06, 2012		Aug. 08, 2012
Restructuring initiation date	Apr. 30, 2013
Asset impairment charges		$ 248,000,000
Processing capacity (thousand barrels per day)							266
Number of stations (stations)							800
Business acquisition, percentage of voting interests to be acquired							51.00%
Purchase price					400,000,000		1,175,000,000
Business acquisition incentive							100,000,000
Advance payments made for acquisition	27,000,000		0		40,000,000		90,000,000	27,000,000
Break-up fee							140,000,000
Transactions costs								$ 12,000,000

XML

Condensed Consolidating Financial Information (Tables)

3 Months Ended

Mar. 31, 2013

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Consolidating Statement of Operations and Comprehensive Income

Condensed Consolidating Statement of Operations and

Comprehensive Income for the Three Months EndedMarch 31, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	9,952		$	822		$	(2,618	)	$	8,156
COSTS AND EXPENSES:
Cost of sales	—			9,197			756			(2,618		)	7,335
Operating, selling, general and administrative expenses	1			486			28			—			515
Depreciation and amortization expense	—			101			5			—			106
Loss on asset disposals and impairments	—			5			3			—			8
OPERATING INCOME (LOSS)	(1		)	163			30			—			192
Equity in earnings (loss) of subsidiaries	96			(6		)	44			(134		)	—
Interest and financing costs, net	(2		)	(25		)	(5		)	2			(30		)
Interest income	—			1			2			(2		)	1
Other expense, net	—			(1		)	—			—			(1		)
EARNINGS BEFORE INCOME TAXES	93			132			71			(134		)	162
Income tax expense (a)	—			55			3			—			58
NET EARNINGS	93			77			68			(134		)	104
Less: Net earnings attributable to noncontrolling interest	—			—			11			—			11
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	$	93		$	77		$	57		$	(134	)	$	93
COMPREHENSIVE INCOME
Total comprehensive income	$	93		$	77		$	68		$	(134	)	$	104
Less: Noncontrolling interest in comprehensive income	—			—			11			—			11
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	$	93		$	77		$	57		$	(134	)	$	93

_______________

(a) The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners’ share of partnership income.

Condensed Consolidating Statement of Operations and

Comprehensive Income for the Three Months EndedMarch 31, 2012

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	9,633		$	596		$	(2,409	)	$	7,820
COSTS AND EXPENSES:
Cost of sales	—			9,012			565			(2,409		)	7,168
Operating, selling, general and administrative expenses	2			389			18			—			409
Depreciation and amortization expense	—			100			3			—			103
Loss on asset disposals and impairments	—			5			1			—			6
OPERATING INCOME (LOSS)	(2		)	127			9			—			134
Equity in earnings (loss) of subsidiaries	59			(13		)	31			(77		)	—
Interest and financing costs, net	(1		)	(33		)	(3		)	1			(36		)
Interest income	—			1			1			(1		)	1
EARNINGS BEFORE INCOME TAXES	56			82			38			(77		)	99
Income tax expense (a)	—			35			2			—			37
NET EARNINGS	56			47			36			(77		)	62
Less: Net earnings attributable to noncontrolling interest	—			—			6			—			6
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	$	56		$	47		$	30		$	(77	)	$	56
COMPREHENSIVE INCOME
Total comprehensive income	$	56		$	47		$	36		$	(77	)	$	62
Less: Noncontrolling interest in comprehensive income	—			—			6			—			6
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	$	56		$	47		$	30		$	(77	)	$	56

_______________

(a) The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners’ share of partnership income.

Condensed Consolidating Balance Sheet

Condensed Consolidating Balance Sheet as of March 31, 2013

(In millions)

	Parent		Guarantor Subsidiaries			Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,517		$	455	$	—		$	1,972
Receivables, less allowance for doubtful accounts	1		1,139			226		—			1,366
Short-term receivables from affiliates	—		—			18		(18		)	—
Inventories	—		1,286			274		—			1,560
Prepayments and other current assets	132		87			5		—			224
Total Current Assets	133		4,029			978		(18		)	5,122
Net Property, Plant and Equipment	—		4,923			362		—			5,285
Investment in Subsidiaries	5,115		(314		)	210		(5,011		)	—
Long-Term Receivables from Affiliates	2,003		—			—		(2,003		)	—
Other Noncurrent Assets, Net	56		875			392		(340		)	983
Total Assets	$	7,307	$	9,513		$	1,942	$	(7,372	)	$	11,390
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	5	$	2,177		$	400	$	—		$	2,582
Other current liabilities	187		406			28		—			621
Short-term payables to affiliates	—		18			—		(18		)	—
Total Current Liabilities	192		2,601			428		(18		)	3,203
Long-Term Payables to Affiliates	—		1,917			86		(2,003		)	—
Deferred Income Taxes	864		—			—		—			864
Other Noncurrent Liabilities	472		157			—		—			629
Debt	1,556		16			358		(340		)	1,590
Equity-Tesoro Corporation	4,223		4,822			189		(5,011		)	4,223
Equity-Noncontrolling interest	—		—			881		—			881
Total Liabilities and Equity	$	7,307	$	9,513		$	1,942	$	(7,372	)	$	11,390

Condensed Consolidating Balance Sheet as of December 31, 2012

(In millions)

	Parent		Guarantor Subsidiaries			Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,244		$	395	$	—		$	1,639
Receivables, less allowance for doubtful accounts	1		1,133			87		—			1,221
Short-term receivables from affiliates	—		—			47		(47		)	—
Inventories	—		1,331			247		—			1,578
Prepayments and other current assets	131		63			4		—			198
Total Current Assets	132		3,771			780		(47		)	4,636
Net Property, Plant and Equipment	—		4,886			359		—			5,245
Investment in Subsidiaries	5,041		(200		)	159		(5,000		)	—
Long-Term Receivables from Affiliates	1,846		—			—		(1,846		)	—
Other Noncurrent Assets, Net	47		724			160		(110		)	821
Total Assets	$	7,066	$	9,181		$	1,458	$	(7,003	)	$	10,702
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	1	$	2,046		$	166	$	—		$	2,213
Other current liabilities	163		487			18		—			668
Short-term payables to affiliates	—		47			—		(47		)	—
Total Current Liabilities	164		2,580			184		(47		)	2,881
Long-Term Payables to Affiliates	—		1,667			179		(1,846		)	—
Deferred Income Taxes	850		—			—		—			850
Other Noncurrent Liabilities	475		172			—		—			647
Debt	1,326		17			354		(110		)	1,587
Equity-Tesoro Corporation	4,251		4,745			255		(5,000		)	4,251
Equity-Noncontrolling interest	—		—			486		—			486
Total Liabilities and Equity	$	7,066	$	9,181		$	1,458	$	(7,003	)	$	10,702

Condensed Consolidating Statement of Cash Flows

Condensed Consolidating Statement of Cash Flows for the Three Months EndedMarch 31, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash from operating activities	$	—		$	135		$	112		$	—		$	247
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(115		)	(10		)	—			(125		)
Proceeds from asset sales	—			—			2			—			2
Advance payments made for acquisition	—			(27		)	—			—			(27		)
Intercompany notes, net	(91		)	—			—			91			—
Net cash used in investing activities	(91		)	(142		)	(8		)	91			(150		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Dividend payments	(28		)	—			—			—			(28		)
Proceeds from stock options exercised	32			—			—			—			32
Distributions to noncontrolling interest	—			—			(14		)	—			(14		)
Purchases of common stock	(135		)	—			—			—			(135		)
Net proceeds from issuance of Tesoro Logistics LP common units	—			—			392			—			392
Excess tax benefits from stock-based compensation arrangements	—			3			—			—			3
Net intercompany borrowings (repayments)	—			273			(182		)	(91		)	—
Borrowings from general partner	230			—			(230		)	—			—
Distributions to TLLP unitholders and general partner	3			4			(7		)	—			—
Financing costs and other	(11		)	—			(3		)	—			(14		)
Net cash from (used in) financing activities	91			280			(44		)	(91		)	236
INCREASE IN CASH AND CASH EQUIVALENTS	—			273			60			—			333
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			1,244			395			—			1,639
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	1,517		$	455		$	—		$	1,972

Condensed Consolidating Statement of Cash Flows for the Three Months EndedMarch 31, 2012

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	13		$	(12	)	$	(16	)	$	—		$	(15	)
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures	—			(107		)	(4		)	—			(111		)
Acquisitions	—			(37		)	—			—			(37		)
Intercompany notes, net	(20		)	—			—			20			—
Net cash used in investing activities	(20		)	(144		)	(4		)	20			(148		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	—			—			85			—			85
Repayments on revolving credit agreements	—			—			(112		)	—			(112		)
Proceeds from stock options exercised	14			—			—			—			14
Distributions to noncontrolling interest	—			—			(6		)	—			(6		)
Purchases of common stock	(10		)	—			—			—			(10		)
Excess tax benefits from stock-based compensation arrangements	—			3			—			—			3
Net intercompany borrowings (repayments)	—			6			14			(20		)	—
Distributions to TLLP unitholders and general partner	3			3			(6		)	—			—
Financing costs and other	—			—			(1		)	—			(1		)
Net cash from (used in) financing activities	7			12			(26		)	(20		)	(27		)
DECREASE IN CASH AND CASH EQUIVALENTS	—			(144		)	(46		)	—			(190		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			805			95			—			900
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	661		$	49		$	—		$	710

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Benefit Plans (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 plans	Mar. 31, 2012
Pension Benefits
General Discussion of Pension Plan
Number of defined benefit plans sponsored (plans)	4
Pension Contributions
Employer contributions to employee retirement plan	$ 12
Components of Net Periodic Benefit Expense and Other Postretirement Expense (Income):
Service cost	8	7
Interest cost	7	7
Expected return on plan assets	(6)	(6)
Amortization of prior service credit	0	0
Recognized net actuarial loss	7	6
Net Periodic Benefit Expense (Income)	16	14
Other Postretirement Benefits
Components of Net Periodic Benefit Expense and Other Postretirement Expense (Income):
Service cost	1	1
Interest cost	1	1
Expected return on plan assets	0	0
Amortization of prior service credit	(9)	(9)
Recognized net actuarial loss	2	3
Net Periodic Benefit Expense (Income)	$ (5)	$ (4)

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Condensed Consolidating Financial Information, Cash Flows (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$ 247	$ (15)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	(125)	(111)
Proceeds from asset sales	2	0
Advance payments made for acquisition	(27)	0
Acquisitions	0	(37)
Intercompany notes, net	0	0
Net cash used in investing activities	(150)	(148)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	0	85
Repayments on revolving credit agreements	0	(112)
Dividend payments	(28)	0
Proceeds from stock options exercised	32	14
Distributions to noncontrolling interest	(14)	(6)
Purchases of common stock	(135)	(10)
Net proceeds from issuance of Tesoro Logistics LP common units	392	0
Excess tax benefits from stock-based compensation arrangements	3	3
Net intercompany borrowings (repayments)	0	0
Borrowings from general partner	0
Distributions to TLLP unitholders and general partner	0	0
Financing costs and other	(14)	(1)
Net cash from (used in) financing activities	236	(27)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	333	(190)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,639	900
CASH AND CASH EQUIVALENTS, END OF PERIOD	1,972	710
Parent
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	0	13
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	0	0
Proceeds from asset sales	0
Advance payments made for acquisition	0
Acquisitions		0
Intercompany notes, net	(91)	(20)
Net cash used in investing activities	(91)	(20)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements		0
Repayments on revolving credit agreements		0
Dividend payments	(28)
Proceeds from stock options exercised	32	14
Distributions to noncontrolling interest	0	0
Purchases of common stock	(135)	(10)
Net proceeds from issuance of Tesoro Logistics LP common units	0
Excess tax benefits from stock-based compensation arrangements	0	0
Net intercompany borrowings (repayments)	0	0
Borrowings from general partner	230
Distributions to TLLP unitholders and general partner	3	3
Financing costs and other	(11)	0
Net cash from (used in) financing activities	91	7
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	0	0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	0	0
CASH AND CASH EQUIVALENTS, END OF PERIOD	0	0
Guarantor Subsidiaries
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	135	(12)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	(115)	(107)
Proceeds from asset sales	0
Advance payments made for acquisition	(27)
Acquisitions		(37)
Intercompany notes, net	0	0
Net cash used in investing activities	(142)	(144)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements		0
Repayments on revolving credit agreements		0
Dividend payments	0
Proceeds from stock options exercised	0	0
Distributions to noncontrolling interest	0	0
Purchases of common stock	0	0
Net proceeds from issuance of Tesoro Logistics LP common units	0
Excess tax benefits from stock-based compensation arrangements	3	3
Net intercompany borrowings (repayments)	273	6
Borrowings from general partner	0
Distributions to TLLP unitholders and general partner	4	3
Financing costs and other	0	0
Net cash from (used in) financing activities	280	12
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	273	(144)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,244	805
CASH AND CASH EQUIVALENTS, END OF PERIOD	1,517	661
Non- Guarantors
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	112	(16)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	(10)	(4)
Proceeds from asset sales	2
Advance payments made for acquisition	0
Acquisitions		0
Intercompany notes, net	0	0
Net cash used in investing activities	(8)	(4)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements		85
Repayments on revolving credit agreements		(112)
Dividend payments	0
Proceeds from stock options exercised	0	0
Distributions to noncontrolling interest	(14)	(6)
Purchases of common stock	0	0
Net proceeds from issuance of Tesoro Logistics LP common units	392
Excess tax benefits from stock-based compensation arrangements	0	0
Net intercompany borrowings (repayments)	(182)	14
Borrowings from general partner	(230)
Distributions to TLLP unitholders and general partner	(7)	(6)
Financing costs and other	(3)	(1)
Net cash from (used in) financing activities	(44)	(26)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	60	(46)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	395	95
CASH AND CASH EQUIVALENTS, END OF PERIOD	455	49
Eliminations
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	0	0
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	0	0
Proceeds from asset sales	0
Advance payments made for acquisition	0
Acquisitions		0
Intercompany notes, net	91	20
Net cash used in investing activities	91	20
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements		0
Repayments on revolving credit agreements		0
Dividend payments	0
Proceeds from stock options exercised	0	0
Distributions to noncontrolling interest	0	0
Purchases of common stock	0	0
Net proceeds from issuance of Tesoro Logistics LP common units	0
Excess tax benefits from stock-based compensation arrangements	0	0
Net intercompany borrowings (repayments)	(91)	(20)
Borrowings from general partner	0
Distributions to TLLP unitholders and general partner	0	0
Financing costs and other	0	0
Net cash from (used in) financing activities	(91)	(20)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	0	0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	0	0
CASH AND CASH EQUIVALENTS, END OF PERIOD	$ 0	$ 0

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Stock-Based Compensation Stock-Based Compensation, Performance Share Awards and Market Stock Units (Details) (USD $)	3 Months Ended
	Mar. 31, 2013
Performance share awards
Stock-Based Compensation Arrangement by Stock-based Payment Award
Award requisite service period (years)	3 years
Award vesting period (years)	3 years
Awards granted (shares)	200,000
Weighted average grant date fair value (dollar per share)	$ 53.67
Performance share awards | Minimum
Stock-Based Compensation Arrangement by Stock-based Payment Award
Vesting percentages of stock based compensation arrangements	0.00%
Performance share awards | Maximum
Stock-Based Compensation Arrangement by Stock-based Payment Award
Vesting percentages of stock based compensation arrangements	200.00%
Market stock units
Stock-Based Compensation Arrangement by Stock-based Payment Award
Award requisite service period (years)	3 years
Award vesting period (years)	3 years
Awards granted (shares)	400,000
Weighted average grant date fair value (dollar per share)	$ 64.74
Market condition percentage	50.00%
Market stock units | Minimum
Stock-Based Compensation Arrangement by Stock-based Payment Award
Vesting percentages of stock based compensation arrangements	50.00%
Market stock units | Maximum
Stock-Based Compensation Arrangement by Stock-based Payment Award
Vesting percentages of stock based compensation arrangements	200.00%

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Derivative Instruments, Derivative Gains and Losses (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Derivative Instruments, Gain (Loss)
Gain/(loss) recognized in income on derivatives	$ (30)	$ (20)
Revenues
Derivative Instruments, Gain (Loss)
Gain/(loss) recognized in income on derivatives	2	(10)
Cost of sales
Derivative Instruments, Gain (Loss)
Gain/(loss) recognized in income on derivatives	(30)	(11)
Other expense, net
Derivative Instruments, Gain (Loss)
Gain/(loss) recognized in income on derivatives	(2)	1
Commodity Futures Contracts
Derivative Instruments, Gain (Loss)
Gain/(loss) recognized in income on derivatives	(26)	(12)
Commodity OTC Swap Contracts
Derivative Instruments, Gain (Loss)
Gain/(loss) recognized in income on derivatives	0	(6)
Commodity Forward Contracts
Derivative Instruments, Gain (Loss)
Gain/(loss) recognized in income on derivatives	(2)	(3)
Foreign Currency Forward Contracts
Derivative Instruments, Gain (Loss)
Gain/(loss) recognized in income on derivatives	$ (2)	$ 1

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Earnings Per Share (Notes)

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

EARNINGS PER SHARE

EARNINGS PER SHARE

We compute basic earnings per share by dividing net earnings attributable to Tesoro Corporation stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share include the effects of potentially dilutive shares outstanding during the period.

Share and per share calculations are presented below (in millions, except per share amounts):

	Three Months Ended March 31,
	2013		2012
Basic:
Net earnings attributable to Tesoro Corporation stockholders	$	93	$	56
Weighted average common shares outstanding	137.0		139.5
Basic Earnings Per Share	$	0.68	$	0.40
Diluted:
Net earnings attributable to Tesoro Corporation stockholders	$	93	$	56
Weighted average common shares outstanding	137.0		139.5
Common stock equivalents	2.6		2.3
Total diluted shares	139.6		141.8
Diluted Earnings Per Share	$	0.67	$	0.39

Potentially dilutive common stock equivalents are excluded from the calculation of diluted earnings per share if the effect of including such securities in the calculation would have been anti-dilutive. Anti-dilutive securities were 0.2 million and 3.0 million for the three months ended March 31, 2013 and 2012, respectively.

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Operating Segments (Details)	3 Months Ended
	Mar. 31, 2013 segments
Segment Reporting Information
Number of operating segments (segments)	2
Foreign operations	We do not have significant operations in foreign countries. Therefore, revenue generated and long-lived assets located in foreign countries are not material to our operations.
Refining
Segment Reporting Information
Number of refineries (refineries)	7
Segment reporting description	We own and operate seven petroleum refineries located in California, Washington, Alaska, Hawaii, North Dakota and Utah. These refineries manufacture gasoline and gasoline blendstocks, jet fuel, diesel fuel, residual fuel oil and other refined products. We sell these refined products, together with refined products purchased from third parties, at wholesale through terminal facilities and other locations. Our refining segment also sells refined products to unbranded marketers and opportunistically exports refined products to foreign markets.
Retail
Segment Reporting Information
Number of states with retail sites (states)	18
Segment reporting description	Our retail segment sells gasoline, diesel fuel and convenience store items through company-operated retail stations and branded jobber/dealers in 18 states.

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Earnings Per Share (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Basic:
Net earnings attributable to Tesoro Corporation stockholders	$ 93	$ 56
Weighted average common shares outstanding	137.0	139.5
Basic Earnings Per Share	$ 0.68	$ 0.40
Diluted:
Net earnings attributable to Tesoro Corporation stockholders	$ 93	$ 56
Weighted average common shares outstanding	137.0	139.5
Common stock equivalents	2.6	2.3
Total diluted shares	139.6	141.8
Diluted Earnings Per Share	$ 0.67	$ 0.39
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0.2	3.0

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

Financial instruments recognized at fair values in our condensed consolidated balance sheets by level within the fair value hierarchy were as follows (in millions):

	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total as of March 31, 2013
Assets:
Commodity Futures Contracts	$	154	$	2	$	—	$	(100	)	$	56
Commodity Forward Contracts	—		3		—		—			3
Total Assets	$	154	$	5	$	—	$	(100	)	$	59
Liabilities:
Commodity Futures Contracts	$	158	$	8	$	—	$	(138	)	$	28
Commodity Forward Contracts	—		2		—		—			2
RINs Obligation	—		8		—		—			8
Total Liabilities	$	158	$	18	$	—	$	(138	)	$	38

	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total as of December 31, 2012
Assets:
Commodity Futures Contracts	$	91	$	4	$	—	$	(68	)	$	27
Total Assets	$	91	$	4	$	—	$	(68	)	$	27
Liabilities:
Commodity Futures Contracts	$	96	$	4	$	—	$	(95	)	$	5
Commodity Forward Contracts	—		1		—		—			1
RINs Obligation	—		1		—		—			1
Total Liabilities	$	96	$	6	$	—	$	(95	)	$	7

________________

(a) Represents the impact of netting assets, liabilities and cash collateral when a legal right of offset exists. As of March 31, 2013 and December 31, 2012, cash collateral amounts of $38 million and $27 million, respectively, are netted with mark-to-market derivative assets.

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Inventories (Tables)

3 Months Ended

Mar. 31, 2013

Inventory Disclosure [Abstract]

Schedule of Inventory, Current

Components of inventories were as follows (in millions):

	March 31, 2013		December 31, 2012
Domestic crude oil and refined products	$	1,141	$	1,178
Foreign subsidiary crude oil	274		246
Materials and supplies	94		94
Oxygenates and by-products	35		44
Merchandise	16		16
Total Inventories	$	1,560	$	1,578

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Commitments and Contingencies, Other Matters (Details) (USD $) In Millions, unless otherwise specified		1 Months Ended	12 Months Ended
	Mar. 31, 2013 MTBE Contaimination Litigation lawsuits	Sep. 29, 2010 TAPS Litigation	Dec. 31, 2008 TAPS Litigation
Other Matters
Remaining lawsuits (lawsuits)	2
Funds received from TAPS, net of contingent legal fees			$ 50
Summary judgement awarded to Chevron		$ 16

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Inventories (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Inventory Disclosure [Abstract]
Domestic crude oil and refined products	$ 1,141,000,000	$ 1,178,000,000
Foreign subsidiary crude oil	274,000,000	246,000,000
Materials and supplies	94,000,000	94,000,000
Oxygenates and by-products	35,000,000	44,000,000
Merchandise	16,000,000	16,000,000
Total Inventories	1,560,000,000	1,578,000,000
Excess of replacement or current costs over stated LIFO value	$ 2,000,000,000	$ 1,600,000,000

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Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

The following table presents the fair value (in millions) of our derivative instruments as of March 31, 2013 and December 31, 2012. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements including cash collateral on deposit with, or received from, brokers. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements when a legal right of offset exists. As a result, the asset and liability amounts below will not agree with the amounts presented in our condensed consolidated balance sheets.

		Derivative Assets						Derivative Liabilities
	Balance Sheet Location	March 31, 2013			December 31, 2012			March 31, 2013			December 31, 2012
Commodity Futures Contracts	Prepayments and other current assets	$	156		$	95		$	166		$	100
Commodity Forward Contracts	Receivables	3			—			2			—
Commodity Forward Contracts	Accounts payable	—			—			—			1
Total Gross Mark-to-Market Derivatives		159			95			168			101
Less: Counterparty Netting and Cash Collateral (a)		(100		)	(68		)	(138		)	(95		)
Total Net Fair Value of Derivatives		$	59		$	27		$	30		$	6

________________

(a) As of March 31, 2013 and December 31, 2012, cash collateral amounts of $38 million and $27 million, respectively, are netted with mark-to-market derivative assets.

Schedule of Mark-to-Market Derivatives

Gains (losses) for our mark-to market derivatives for the three months ended March 31, 2013 and 2012, were as follows (in millions):

	Three Months Ended March 31,
	2013			2012
Commodity Futures Contracts	$	(26	)	$	(12	)
Commodity OTC Swap Contracts	—			(6		)
Commodity Forward Contracts	(2		)	(3		)
Foreign Currency Forward Contracts	(2		)	1
Total Loss on Mark-to-Market Derivatives	$	(30	)	$	(20	)

The income statement location of gains (losses) for our mark-to market derivatives above were as follows (in millions):

	Three Months Ended March 31,
Income Statement Location:	2013			2012
Revenues	$	2		$	(10	)
Cost of sales	(30		)	(11		)
Other expense, net	(2		)	1
Total Loss on Mark-to-Market Derivatives	$	(30	)	$	(20	)

Schedule of Open Long (Short) Positions

The information below presents the net volume of outstanding commodity contracts by type of instrument and year of maturity as of March 31, 2013 (volumes in thousands of barrels):

Mark-to-Market Derivatives
Derivative instrument and Year of maturity	Long (Short) Contract Volumes
Futures
2013	(1,013)
2014	25
OTC Swaps
2013	(150)
Forwards
2013	(94)
Options
2013	200

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Debt (Tables)

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

Schedule of Debt

Our total debt balance at March 31, 2013 and December 31, 2012, was as follows (in millions):

	March 31, 2013		December 31, 2012
Total Debt	$	1,593	$	1,590
Less: Current maturities	3		3
Debt, less current maturities	$	1,590	$	1,587

Schedule of Line of Credit Facilities

We had available capacity under our credit agreements as follows at March 31, 2013 (in millions):

	Total Capacity (a)		Amount Borrowed as of March 31, 2013		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (b)	$	1,850	$	—	$	807	$	1,043	January 4, 2018
TLLP Revolving Credit Facility	500		—		—		500		December 31, 2017
Letter of Credit Facilities	1,146		—		514		632
Total credit agreements	$	3,496	$	—	$	1,321	$	2,175

________________

(a) During the first quarter of 2013, we entered into a term loan credit facility and amended the Tesoro Corporation Revolving Credit Facility (“Revolving Credit Facility”) and the TLLP Revolving Credit Facility. Just prior to closing the Carson Acquisition, the term loan credit facility will provide for $500 million of borrowing capacity and the amended Revolving Credit Facility will provide an increase in the capacity to $3.0 billion. In addition, the TLLP Revolving Credit Facility allows for an increased capacity of up to $650 million, subject to receiving increased commitments from the lenders.

(b) Borrowing base is the lesser of the amount of the periodically adjusted borrowing base or the agreement’s total capacity.

As of March 31, 2013, our credit facilities were subject to the following expenses and fees:

Credit Facility	30 day Eurodollar (LIBOR) Rate	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Tesoro Corporation Revolving Credit Facility ($1.85 billion) (c)	0.20%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($500 million) (d)	0.20%	2.00%	3.25%	1.00%	0.375%

________________

(c) We can elect the interest rate to apply to the Revolving Credit Facility between a base rate plus the base rate margin, or a Eurodollar rate, for the applicable term, plus, the Eurodollar margin at the time of the borrowing. The applicable margin varies based on the Revolving Credit Facility’s credit ratings. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate. We also incur commitment fees for the unused portion of the Revolving Credit Facility at an annual rate.

(d) TLLP can elect the interest rate to apply to the TLLP Revolving Credit Facility between a base rate plus the base rate margin, or a Eurodollar rate, for the applicable term, plus, the Eurodollar margin at the time of the borrowing. The applicable margin varies based upon a certain leverage ratio, as defined by the TLLP Revolving Credit Facility. TLLP incurs commitment fees for the unused portion of the TLLP Revolving Credit Facility at an annual rate.

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Acquisitions and Other Changes in Operations (Notes)

3 Months Ended

Mar. 31, 2013

Restructuring and Related Activities [Abstract]

ACQUISITIONS AND OTHER CHANGES IN OPERATIONS

ACQUISITIONS AND OTHER CHANGES IN OPERATIONS

Joint Venture

Effective April 22, 2013, we entered into an equally owned joint venture with Savage Companies to construct, own and operate a unit train unloading and marine loading terminal at the Port of Vancouver, Washington, subject to approval by regulatory agencies and Port Commissioners. The project will allow for the delivery of various grades of North American crude oil to the U.S. West Coast.

Hawaii Operations

On April 30, 2013, we ceased refining operations at our Hawaii refinery and began to make adjustments to accommodate product imports, terminalling and distribution. We will maintain the existing distribution system to support marketing operations and fulfill supply commitments while continuing to offer the Hawaii operations for sale. We recognized $248 million of impairment charges and asset retirement obligations in the fourth quarter of 2012.

We may recognize contract termination or other exit costs associated with the changes in our Hawaii refining operations. These assets continue to be reported as held and used at March 31, 2013 because all of the accounting criteria for the held-for-sale classification have not been met.

TLLP Acquisition of the Northwest Products System

In December 2012, TLLP executed definitive agreements to purchase the Northwest Products System. For additional information regarding the acquisition, see Note B.

Acquisition of BP’s Southern California Refining and Marketing Business

In August 2012, we entered into a purchase and sale agreement with BP West Coast Products, LLC and certain other sellers to purchase BP’s integrated Southern California refining and marketing business (the “Carson Acquisition”). The assets to be acquired include the 266 thousand barrels per day (“Mbpd”) Carson refinery located adjacent to our Wilmington refinery, related marine terminals, land storage terminals, pipelines and product marketing terminals. In addition, the assets include the ARCO^® brand and associated registered trademarks, as well as a master franchisee license for the ampm^® convenience store brand and the supply rights to approximately 800 branded dealer-operated and branded wholesale stations in Southern California, Nevada and Arizona. Additionally, we will acquire a 51% ownership in the gas-fueled Watson cogeneration facility and an anode coke calcining operation, both located near the Carson refinery.

The purchase price is $1.175 billion, plus the value of inventories at the time of closing. The purchase and sale agreement provides for a $100 million reduction in the purchase price upon meeting certain conditions as defined in the agreement. This acquisition, which is subject to customary closing conditions and will require approval from the Federal Trade Commission and the California Attorney General, is expected to close before mid-2013. The purchase and sale agreement also required an advance payment of $90 million. During the three months ended March 31, 2013, we made additional incremental advance payments of $27 million as required by the purchase and sale agreement. The initial advance payment and the incremental advance payments will be applied to the amount due at closing. The agreement provides for us to pay a break-up fee of up to $140 million in the event that we terminate the agreement (except for termination for specified reasons). In the event a break-up fee is required, the advance payments will be applied to the amount due.

During the three months ended March 31, 2013, we incurred transaction costs of approximately $12 million related to the acquisition, which are included in selling, general and administrative expenses in our statements of condensed consolidated operations. Upon the closing of the Carson Acquisition, the sellers have agreed, subject to certain limitations, to retain certain obligations, responsibilities, liabilities, costs and expenses arising out of the pre-closing operations of the assets. We have agreed to assume certain obligations, responsibilities, liabilities, costs and expenses arising out of or incurred in connection with decrees, orders and settlements the sellers entered into with governmental and non-governmental entities prior to closing. Under the purchase and sale agreement, we have agreed to assume certain environmental liabilities, primarily remediation obligations.

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Property, Plant and Equipment (Tables)

3 Months Ended

Mar. 31, 2013

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

Property, plant and equipment, at cost, is as follows (in millions):

	March 31, 2013			December 31, 2012
Refining	$	6,374		$	6,268
Retail	765			763
Corporate	223			226
Property, plant and equipment, at cost	7,362			7,257
Accumulated depreciation	(2,077		)	(2,012		)
Net property, plant and equipment	$	5,285		$	5,245

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Tesoro Logistics LP, Agreements (Details) (USD $)	3 Months Ended
	Mar. 31, 2013
Long-term Purchase Commitment
Omnibus or administrative fees	$ 2,500,000.0
Operational service fees	$ 2,000,000
Various pipeline transportation, trucking, terminal distribution and storage services agreements
Long-term Purchase Commitment
Agreement time period	2016 through 2022
Number of contract renewals (renewals)	2
Termination provision (years)	1 year
Contract renewal terms
Long-term Purchase Commitment
Agreement time period	five-year

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Commitments and Contingencies, Tax Matters (Details)	3 Months Ended
	Mar. 31, 2013
Commitments and Contingencies Disclosure [Abstract]
Significant change in unrecognized tax benefits	We do not expect our unrecognized tax benefits to change significantly over the next twelve months

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Condensed Statements of Consolidated Operations and Comprehensive Income (Unaudited) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013		Mar. 31, 2012
Income Statement [Abstract]
REVENUES (a)	$ 8,156		$ 7,820
COSTS AND EXPENSES:
Cost of sales (a)	7,335		7,168
Operating expenses	400		347
Selling, general and administrative expenses	115		62
Depreciation and amortization expense	106		103
Loss on asset disposals and impairments	8		6
OPERATING INCOME (LOSS)	192		134
Interest and financing costs, net	(30)		(36)
Interest income	1		1
Other expense, net	(1)		0
EARNINGS BEFORE INCOME TAXES	162		99
Income tax expense	58	[1]	37	[1]
NET EARNINGS	104		62
Less: Net earnings attributable to noncontrolling interest	11		6
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	93		56
NET EARNINGS PER SHARE:
Basic	$ 0.68		$ 0.40
Diluted	$ 0.67		$ 0.39
WEIGHTED AVERAGE COMMON SHARES:
Basic	137.0		139.5
Diluted	139.6		141.8
DIVIDENDS PER SHARE	$ 0.20		$ 0
COMPREHENSIVE INCOME
Total comprehensive income	104		62
Less: Noncontrolling interest in comprehensive income	11		6
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	93		56
SUPPLEMENTAL INFORMATION:
(a) Includes excise taxes collected by our retail segment	$ 134		$ 99

[1] The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners’ share of partnership income.

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Fair Value Measurements (Details) (USD $)	3 Months Ended
	Mar. 31, 2013		Dec. 31, 2012
Fair Value Measurements
Gross derivative assets	$ 159,000,000		$ 95,000,000
Net derivative assets	59,000,000		27,000,000
Gross derivative liabilities	168,000,000		101,000,000
Net derivative liabilities	30,000,000		6,000,000
Derivative liabilities and RINs obligation	38,000,000		7,000,000
Cash collateral posted	38,000,000		27,000,000
Percent of trade receivables payables with balances outstanding	1.00%
Days outstanding on trade receivables and payables (days)	90 days
Nonfinancial assets	0
Nonfinancial liabilities	0
Carrying (Reported) Amount, Fair Value Disclosure
Fair Value Measurements
Debt carrying value and fair value disclosures	1,600,000,000		1,600,000,000
Commodity Futures Contracts
Fair Value Measurements
Net derivative assets	56,000,000		27,000,000
Net derivative liabilities	28,000,000		5,000,000
Commodity Forward Contracts
Fair Value Measurements
Net derivative assets	3,000,000
Net derivative liabilities	2,000,000		1,000,000
RINs Obligation
Fair Value Measurements
RINs obligation	8,000,000		1,000,000
Level 1
Fair Value Measurements
Gross derivative assets	154,000,000		91,000,000
Derivative liabilities and RINs obligation	158,000,000		96,000,000
Level 1 | Commodity Futures Contracts
Fair Value Measurements
Gross derivative assets	154,000,000		91,000,000
Gross derivative liabilities	158,000,000		96,000,000
Level 1 | Commodity Forward Contracts
Fair Value Measurements
Gross derivative assets	0
Gross derivative liabilities	0		0
Level 1 | RINs Obligation
Fair Value Measurements
RINs obligation	0		0
Level 2
Fair Value Measurements
Gross derivative assets	5,000,000		4,000,000
Derivative liabilities and RINs obligation	18,000,000		6,000,000
Level 2 | Estimate of Fair Value, Fair Value Disclosure
Fair Value Measurements
Debt carrying value and fair value disclosures	1,700,000,000		1,700,000,000
Level 2 | Commodity Futures Contracts
Fair Value Measurements
Gross derivative assets	2,000,000		4,000,000
Gross derivative liabilities	8,000,000		4,000,000
Level 2 | Commodity Forward Contracts
Fair Value Measurements
Gross derivative assets	3,000,000
Gross derivative liabilities	2,000,000		1,000,000
Level 2 | RINs Obligation
Fair Value Measurements
RINs obligation	8,000,000		1,000,000
Level 3
Fair Value Measurements
Gross derivative assets	0		0
Derivative liabilities and RINs obligation	0		0
Level 3 | Commodity Futures Contracts
Fair Value Measurements
Gross derivative assets	0		0
Gross derivative liabilities	0		0
Level 3 | Commodity Forward Contracts
Fair Value Measurements
Gross derivative assets	0
Gross derivative liabilities	0		0
Level 3 | RINs Obligation
Fair Value Measurements
RINs obligation	0		0
Netting and Collateral (a)
Fair Value Measurements
Derivative asset amount offset against collateral and netting arrangements	(100,000,000)	[1]	(68,000,000)	[1]
Derivative liabilities and RINs obligation	(138,000,000)	[1]	(95,000,000)	[1]
Netting and Collateral (a) | Commodity Futures Contracts
Fair Value Measurements
Derivative asset amount offset against collateral and netting arrangements	(100,000,000)	[1]	(68,000,000)	[1]
Derivative liability amount offset against collateral and netting arrangements	(138,000,000)	[1]	(95,000,000)	[1]
Netting and Collateral (a) | Commodity Forward Contracts
Fair Value Measurements
Derivative asset amount offset against collateral and netting arrangements	0	[1]
Derivative liability amount offset against collateral and netting arrangements	0	[1]	0	[1]
Netting and Collateral (a) | RINs Obligation
Fair Value Measurements
RINs obligation	$ 0	[1]	$ 0	[1]

[1] Represents the impact of netting assets, liabilities and cash collateral when a legal right of offset exists. As of March 31, 2013 and December 31, 2012, cash collateral amounts of $38 million and $27 million, respectively, are netted with mark-to-market derivative assets.

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Basis of Presentation (Notes)

3 Months Ended

Mar. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION

BASIS OF PRESENTATION

As used in this report, the terms “Tesoro,” “we,” “us” or “our” may refer to Tesoro Corporation, one or more of its consolidated subsidiaries or all of them taken as a whole. The words “we,” “us” or “our” generally include Tesoro Logistics LP (“TLLP”) and its subsidiaries as consolidated subsidiaries of Tesoro Corporation with certain exceptions where there are transactions or obligations between TLLP and Tesoro Corporation or its other subsidiaries. When used in descriptions of agreements and transactions, “TLLP” or the “Partnership” refers to TLLP and its consolidated subsidiaries.

The interim condensed consolidated financial statements and notes thereto of Tesoro Corporation and its subsidiaries have been prepared by management without audit according to the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of results for the periods presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed.

The consolidated balance sheet at December 31, 2012, has been condensed from the audited consolidated financial statements at that date. Certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations. However, management believes that the disclosures presented herein are adequate to present the information fairly. The accompanying condensed consolidated financial statements and notes should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012.

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts and disclosures of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We review our estimates on an ongoing basis, based on currently available information. Changes in facts and circumstances may result in revised estimates and actual results could differ from those estimates. The results of operations for any interim period are not necessarily indicative of results for the full year. Certain prior year balances have been aggregated or disaggregated in order to conform to the current year presentation.

Our consolidated financial statements include TLLP, a variable interest entity. As the general partner of TLLP, we have the sole ability to direct the activities of TLLP that most significantly impact its economic performance. We are also considered to be the primary beneficiary for accounting purposes and are TLLP’s primary customer. Under our long-term transportation agreements with TLLP, transactions with us accounted for 93% of TLLP’s total revenues for both the three months ended March 31, 2013 and 2012. As TLLP does not derive a significant amount of revenue from third parties, there is limited risk to Tesoro associated with TLLP’s operations. However, in the event TLLP incurs a loss, our operating results will reflect TLLP’s loss, net of intercompany eliminations, to the extent of our ownership interest in TLLP. See Note B for additional information relating to TLLP.

New Accounting Standards and Disclosures

Presentation of Comprehensive Income

The Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) in February 2013 that provides entities the option of presenting information related to reclassification adjustments on the face of the financial statements or in the notes to the financial statements for items that are reclassified from other comprehensive income to net income in the statement where those components are presented. The requirements from the new ASU are effective for interim and annual periods beginning after December 15, 2012. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.

Fair Value Measurements and Disclosures

The FASB issued an ASU in December 2011, which requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of these arrangements on its financial position. The guidance requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. In January 2013, the FASB amended and clarified the scope of the disclosures to include only derivative instruments, repurchase agreements and securities lending transactions. The provisions for this ASU are effective for interim and annual reporting periods beginning on January 1, 2013. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.

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Stock-Based Compensation, Summary of Stock-Based Compensation Expense (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense	$ 52	$ 21
Income tax benefit for stock-based compensation arrangements	20	8
Tax benefit realized from exercise of stock-based compensation arrangements	17	10
Stock appreciation rights
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense	39	12
Performance share awards
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense	8	2
Market stock units
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense	4	3
Other stock-based awards
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense	$ 1	$ 4

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2013

Share-based Compensation [Abstract]

Summary of Stock-based Compensation Expense

Stock-based compensation expense included in our condensed statements of consolidated operations was as follows (in millions):    

	Three Months Ended March 31,
	2013		2012
Stock appreciation rights	$	39	$	12
Performance share awards	8		2
Market stock units	4		3
Other stock-based awards	1		4
Total Stock-Based Compensation Expense	$	52	$	21

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Condensed Consolidating Financial Information, Statement of Operations and Comprehensive Income (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013		Mar. 31, 2012
Condensed Financial Statements, captions
REVENUES	$ 8,156		$ 7,820
COSTS AND EXPENSES:
Cost of sales	7,335		7,168
Operating, selling, general and administrative expenses	515		409
Depreciation and amortization expense	106		103
Loss on asset disposals and impairments	8		6
OPERATING INCOME (LOSS)	192		134
Equity in earnings (loss) of subsidiaries	0		0
Interest and financing costs, net	(30)		(36)
Interest income	1		1
Other expense, net	(1)		0
EARNINGS BEFORE INCOME TAXES	162		99
Income tax expense (a)	58	[1]	37	[1]
NET EARNINGS	104		62
Less: Net earnings attributable to noncontrolling interest	11		6
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	93		56
COMPREHENSIVE INCOME
Total comprehensive income	104		62
Less: Noncontrolling interest in comprehensive income	11		6
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	93		56
Parent
Condensed Financial Statements, captions
REVENUES	0		0
COSTS AND EXPENSES:
Cost of sales	0		0
Operating, selling, general and administrative expenses	1		2
Depreciation and amortization expense	0		0
Loss on asset disposals and impairments	0		0
OPERATING INCOME (LOSS)	(1)		(2)
Equity in earnings (loss) of subsidiaries	96		59
Interest and financing costs, net	(2)		(1)
Interest income	0		0
Other expense, net	0
EARNINGS BEFORE INCOME TAXES	93		56
Income tax expense (a)	0	[1]	0	[1]
NET EARNINGS	93		56
Less: Net earnings attributable to noncontrolling interest	0		0
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	93		56
COMPREHENSIVE INCOME
Total comprehensive income	93		56
Less: Noncontrolling interest in comprehensive income	0		0
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	93		56
Guarantor Subsidiaries
Condensed Financial Statements, captions
REVENUES	9,952		9,633
COSTS AND EXPENSES:
Cost of sales	9,197		9,012
Operating, selling, general and administrative expenses	486		389
Depreciation and amortization expense	101		100
Loss on asset disposals and impairments	5		5
OPERATING INCOME (LOSS)	163		127
Equity in earnings (loss) of subsidiaries	(6)		(13)
Interest and financing costs, net	(25)		(33)
Interest income	1		1
Other expense, net	(1)
EARNINGS BEFORE INCOME TAXES	132		82
Income tax expense (a)	55	[1]	35	[1]
NET EARNINGS	77		47
Less: Net earnings attributable to noncontrolling interest	0		0
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	77		47
COMPREHENSIVE INCOME
Total comprehensive income	77		47
Less: Noncontrolling interest in comprehensive income	0		0
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	77		47
Non- Guarantors
Condensed Financial Statements, captions
REVENUES	822		596
COSTS AND EXPENSES:
Cost of sales	756		565
Operating, selling, general and administrative expenses	28		18
Depreciation and amortization expense	5		3
Loss on asset disposals and impairments	3		1
OPERATING INCOME (LOSS)	30		9
Equity in earnings (loss) of subsidiaries	44		31
Interest and financing costs, net	(5)		(3)
Interest income	2		1
Other expense, net	0
EARNINGS BEFORE INCOME TAXES	71		38
Income tax expense (a)	3	[1]	2	[1]
NET EARNINGS	68		36
Less: Net earnings attributable to noncontrolling interest	11		6
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	57		30
COMPREHENSIVE INCOME
Total comprehensive income	68		36
Less: Noncontrolling interest in comprehensive income	11		6
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	57		30
Eliminations
Condensed Financial Statements, captions
REVENUES	(2,618)		(2,409)
COSTS AND EXPENSES:
Cost of sales	(2,618)		(2,409)
Operating, selling, general and administrative expenses	0		0
Depreciation and amortization expense	0		0
Loss on asset disposals and impairments	0		0
OPERATING INCOME (LOSS)	0		0
Equity in earnings (loss) of subsidiaries	(134)		(77)
Interest and financing costs, net	2		1
Interest income	(2)		(1)
Other expense, net	0
EARNINGS BEFORE INCOME TAXES	(134)		(77)
Income tax expense (a)	0	[1]	0	[1]
NET EARNINGS	(134)		(77)
Less: Net earnings attributable to noncontrolling interest	0		0
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	(134)		(77)
COMPREHENSIVE INCOME
Total comprehensive income	(134)		(77)
Less: Noncontrolling interest in comprehensive income	0		0
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	$ (134)		$ (77)

[1] The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners’ share of partnership income.

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Inventories Inventories (Policies)

3 Months Ended

Mar. 31, 2013

Inventory Disclosure [Abstract]

Inventory, Policy

We use the last-in, first-out cost method as the primary method to determine the cost of crude oil held by our U.S. subsidiaries and refined product inventories in our refining and retail segments. We determine the carrying value of inventories of crude oil held by our foreign subsidiaries, oxygenates and by-products using the first-in, first-out cost method.

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Operating Segments (Tables)

3 Months Ended

Mar. 31, 2013

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment

Segment information is as follows:

	Three Months Ended March 31,
	2013			2012
	(In millions)
Revenues
Refining:
Refined products	$	7,536		$	7,562
Crude oil resales and other	475			156
Retail:
Fuel (a)	1,554			1,306
Merchandise and other	57			55
Intersegment sales from Refining to Retail	(1,466		)	(1,259		)
Total Revenues	$	8,156		$	7,820
Segment Operating Income (Loss)
Refining	$	283		$	191
Retail	17			(4		)
Total Segment Operating Income	300			187
Corporate and unallocated costs	(108		)	(53		)
Operating Income	192			134
Interest and financing costs, net	(30		)	(36		)
Interest income	1			1
Other expense, net	(1		)	—
Earnings Before Income Taxes	$	162		$	99
Depreciation and Amortization Expense
Refining	$	92		$	91
Retail	9			10
Corporate	5			2
Total Depreciation and Amortization Expense	$	106		$	103
Capital Expenditures
Refining	$	109		$	91
Retail	7			8
Corporate	3			3
Total Capital Expenditures	$	119		$	102

________________

(a) Federal and state motor fuel taxes on sales by our retail segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $134 million and $99 million for the three months ended March 31, 2013 and 2012, respectively.

	March 31, 2013		December 31, 2012
	(In millions)
Identifiable Assets:
Refining	$	8,605	$	8,340
Retail	781		741
Corporate	2,004		1,621
Total Assets	$	11,390	$	10,702

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Derivative Instruments Derivative Instruments (Policies)

3 Months Ended

Mar. 31, 2013

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Derivatives, Policy

The accounting for changes in the fair value of a commodity derivative depends on whether the derivative has been designated in a hedging relationship and whether we have elected the normal purchases and normal sales exception. We did not designate any of our derivatives for hedge accounting during the three months ended March 31, 2013 and 2012, respectively. The accounting for the change in fair value can be summarized as follows:

Derivative Treatment	Accounting Method
Normal purchases and normal sales exception	Accrual accounting
Designated in qualifying hedging relationship	Hedge accounting
All other derivatives	Mark-to-market accounting

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Tesoro Logistics LP (Notes)

3 Months Ended

Mar. 31, 2013

Variable Interest Entity, Measure of Activity [Abstract]

TESORO LOGISTICS LP

TESORO LOGISTICS LP

TLLP is a publicly traded limited partnership that was formed to own, operate, develop and acquire logistics assets. Its assets are integral to the success of Tesoro’s refining and marketing operations and are used to gather crude oil and distribute, transport and store crude oil and refined products. As of March 31, 2013, its assets consisted of a crude oil gathering system in the Williston Basin and terminalling, transportation and storage assets in the midwestern and western United States, including refined products and marine terminals, a rail car unloading facility, a crude oil and refined products storage facility and transportation pipelines.

Equity Issuance and Revolver Amendment

On January 14, 2013, TLLP closed an equity offering (“TLLP Equity Issuance”) of 9,775,000 common units at a public offering price of $41.70 per unit. Net proceeds to TLLP from the sale of the units were approximately $392 million. In connection with the offering, Tesoro Logistics GP, LLC (“TLGP”) purchased 199,490 general partner units at a price of $41.70 per unit to maintain its 2% general partner interest in TLLP.

Effective January 4, 2013, TLLP amended and restated its senior secured revolving credit agreement (the “TLLP Revolving Credit Facility”), to increase commitments under the facility from $300 million to $500 million and to allow TLLP to request that the loan availability be increased up to an aggregate of $650 million, subject to receiving increased commitments from the lenders.

We held an approximate 38% interest in TLLP at March 31, 2013, including a 2% interest in the general partner. This interest includes 1,283,915 common units, 15,254,890 subordinated units and 929,086 general partner units. All intercompany transactions with TLLP are eliminated upon consolidation.

Acquisition

In December 2012, TLLP executed definitive agreements to purchase Chevron Pipe Line Company’s and Northwest Terminalling Company’s (collectively, “Chevron”) northwest products system (the “Northwest Products System”) for a total purchase price of $400 million. On March 28, 2013, TLLP and Chevron amended these agreements to extend the final closing date, which is the date that either party can terminate the agreements without defaulting under the terms of the agreements, from April 1, 2013 to June 1, 2013. The transaction is subject to regulatory approval and is expected to close during the second quarter of 2013. TLLP paid a deposit of $40 million upon execution of the purchase agreements, which may be retained by Chevron upon certain contract termination events.

The Northwest Products System consists of a regulated common carrier products pipeline running from Salt Lake City, Utah to Spokane, Washington and a jet fuel pipeline to the Salt Lake City International Airport. It also includes certain assets of the Northwest Terminalling Company consisting of the Boise and Pocatello, Idaho and Pasco, Washington refined products terminals. Under the terms of the purchase and sale agreements, TLLP will assume environmental liabilities related to the Northwest Products System. TLLP is evaluating the environmental liabilities existing at the time the purchase and sale agreements were executed. In addition, TLLP is evaluating the impact associated with a leak that Chevron identified on a diesel pipeline in March 2013.

Agreements with TLLP

TLLP generates revenue by charging fees for gathering, transporting and storing crude oil and for terminalling, transporting and storing crude oil and refined products. We do not provide financial or equity support through any liquidity arrangements or financial guarantees to TLLP.

TLLP provides us with various pipeline transportation, trucking, terminal distribution and storage services under long-term, fee-based commercial agreements expiring 2016 through 2022. Each of these agreements, with the exception of the storage and transportation services agreement, contain minimum volume commitments. Each agreement has fees that are indexed for inflation and, except for a trucking transportation services agreement, provides us with options to renew for two additional five-year terms. The agreements also include provisions that permit us to suspend, reduce or terminate our obligations under the applicable agreement if certain events occur after one year of continuing minimum payments.

In addition to commercial agreements, we are also party to an omnibus agreement with TLLP, which among other things, addresses the payment of an annual fee to us, currently $2.5 million, for the provision of various general and administrative services provided to TLLP. We are also party to an operational services agreement with TLLP, under which TLLP reimburses us with an annual fee, currently $2 million, for the provision of certain operational services in support of their pipelines, terminals and storage facility.

With the exception of affiliate balances which are eliminated upon consolidation, and their impact on equity, the TLLP condensed combined consolidated balance sheets as of March 31, 2013 and December 31, 2012, as presented below, are included in the condensed consolidated balance sheets of Tesoro Corporation.

	March 31, 2013		December 31, 2012
	(In millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	415	$	19
Receivables
Trade	—		—
Affiliate	19		18
Prepayments	1		1
Total Current Assets	435		38
NET, PROPERTY, PLANT AND EQUIPMENT	284		274
DEPOSITS	40		40
OTHER NONCURRENT ASSETS	12		11
Total Assets	$	771	$	363
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable
Trade	$	10	$	9
Affiliate	7		7
Deferred revenue - affiliate	2		2
Accrued interest and financing costs	12		6
Other current liabilities	3		3
Total Current Liabilities	34		27
DEBT	358		354
EQUITY (DEFICIT)	379		(18		)
Total Liabilities and Equity (Deficit)	$	771	$	363

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Millions, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
CURRENT ASSETS
Cash and cash equivalents	$ 1,972	$ 1,639
Receivables, less allowance for doubtful accounts	1,366	1,221
Inventories	1,560	1,578
Prepayments and other current assets	224	198
Total Current Assets	5,122	4,636
NET PROPERTY, PLANT AND EQUIPMENT	5,285	5,245
OTHER NONCURRENT ASSETS, NET	983	821
Total Assets	11,390	10,702
CURRENT LIABILITIES
Accounts payable	2,582	2,213
Other current liabilities	621	668
Total Current Liabilities	3,203	2,881
DEFERRED INCOME TAXES	864	850
OTHER NONCURRENT LIABILITIES	629	647
DEBT	1,590	1,587
COMMITMENTS AND CONTINGENCIES (Note K)
TESORO CORPORATION STOCKHOLDERS’ EQUITY
Common stock, par value $0.162/3; authorized 200,000,000 shares; 153,525,771 shares issued (152,579,955 in 2012)	26	25
Preferred stock, no par value; authorized 5,000,000 shares; 0 shares issued	0	0
Additional paid-in capital	1,111	1,070
Retained earnings	3,714	3,649
Treasury stock, 17,010,602 common shares (14,417,533 in 2012), at cost	(491)	(356)
Accumulated other comprehensive loss	(137)	(137)
Total Tesoro Corporation Stockholders’ Equity	4,223	4,251
NONCONTROLLING INTEREST	881	486
Total Equity	5,104	4,737
Total Liabilities and Equity (Deficit)	$ 11,390	$ 10,702

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Stockholders' Equity (Notes)

3 Months Ended

Mar. 31, 2013

Stockholders' Equity Attributable to Parent [Abstract]

STOCKHOLDERS' EQUITY

STOCKHOLDERS’ EQUITY

See Note M for information relating to stock-based compensation. Changes to equity during the three months ended March 31, 2013, are presented below (in millions):

	Tesoro Corporation Stockholders’ Equity			Noncontrolling  Interest			Total Equity
Balance at December 31, 2012	$	4,251		$	486		$	4,737
Net earnings	93			11			104
Shares issued for equity-based compensation awards	32			—			32
Excess tax benefits from stock-based compensation arrangements, net	2			—			2
Amortization of equity settled awards	14			—			14
Dividend payments	(28		)	—			(28		)
Purchases of common stock	(135		)	—			(135		)
Net proceeds from issuance of Tesoro Logistics LP common units	(6		)	398			392
Distributions to noncontrolling interest	—			(14		)	(14		)
Balance at March 31, 2013	$	4,223		$	881		$	5,104

We issued approximately 0.9 million and 1.9 million shares primarily for stock option exercises under our equity-based compensation plans during the three months ended March 31, 2013 and twelve months ended December 31, 2012, respectively. 

Share Repurchase Programs

Under a $500 million share repurchase program authorized by our Board of Directors (the “Board”), management is permitted to purchase Tesoro common stock at its discretion in the open market. The authorization has no time limit and may be suspended or discontinued at any time. Under this program, we purchased approximately 2.0 million shares of our common stock for $99 million during the three months ended March 31, 2013.

In addition, we purchased over 0.6 million shares of our common stock for approximately $36 million during the three months ended March 31, 2013 under the existing program designed to offset the dilutive effect of outstanding and future stock-based compensation awards.

Cash Dividends

On February 5, 2013, our Board declared a quarterly cash dividend on common stock of $0.20 per share, which resulted in a cash payment of $28 million during the three months ended March 31, 2013. On May 1, 2013, our Board declared a cash dividend of $0.20 per share, payable on June 14, 2013 to shareholders of record on May 31, 2013.

Our Revolving Credit Facility and senior notes each limit our ability to pay cash dividends or buy back our stock. The limitation in each of our debt agreements is based on limits on restricted payments (as defined in our debt agreements), which include dividends, purchases of our stock or voluntary prepayments of subordinate debt. The aggregate amount of restricted payments cannot exceed an amount defined in each of the debt agreements. The indentures for our senior notes also limit certain of our subsidiaries ability to make certain payments and distributions.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	Apr. 29, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	TESORO CORP /NEW/
Entity Central Index Key	0000050104
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		135,815,196

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Stock-Based Compensation (Notes)

3 Months Ended

Mar. 31, 2013

Share-based Compensation [Abstract]

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

Stock-based compensation expense included in our condensed statements of consolidated operations was as follows (in millions):    

	Three Months Ended March 31,
	2013		2012
Stock appreciation rights	$	39	$	12
Performance share awards	8		2
Market stock units	4		3
Other stock-based awards	1		4
Total Stock-Based Compensation Expense	$	52	$	21

We have aggregated expenses for certain award types as they are not considered significant. The income tax benefit recognized in the income statement for stock-based compensation was $20 million and $8 million for the three months ended March 31, 2013 and 2012, respectively. The reduction in current taxes payable recognized from tax deductions resulting from exercises and vestings under all of our stock-based compensation arrangements totaled $17 million and $10 million for the three months ended March 31, 2013 and 2012, respectively.

Stock Appreciation Rights

A stock appreciation right (“SAR”) entitles an employee to receive cash in an amount equal to the excess of the fair market value of one share of common stock on the date of exercise over the grant price of the SAR. The fair value of each SAR is estimated at the end of each reporting period using the Black-Scholes option-pricing model. We have not granted any SARs since 2010. We paid cash of $18 million and $9 million to settle approximately 0.9 million and 0.6 million SARs that were exercised during the three months ended March 31, 2013 and 2012, respectively. We had $100 million and $79 million recorded in accrued liabilities associated with our SARs awards at March 31, 2013 and December 31, 2012, respectively.

Performance Share Awards

Performance Conditions

We granted additional performance condition performance share awards under the 2011 Long-Term Incentive Plan (“2011 Plan”) on February 4, 2013. The vesting percentages of these equity awards, range from 0-200%, and are tied to performance conditions over a three-year period. These performance share awards vest at the end of the performance period. The fair value of performance share awards tied to performance measures is estimated using the market price of our common stock on the grant date. The estimated fair value of these performance share awards is amortized over a three-year vesting period using the straight-line method. The value of the award ultimately paid will be based on return on capital employed, which is measured against our performance peer group.

Market Conditions

We granted additional market condition performance share awards under the 2011 Plan on February 4, 2013. The vesting percentages of these equity awards, range from 0-200%, and are tied to market conditions over a three-year performance period. These performance share awards vest at the end of the performance period. The fair value of each performance share award is estimated on the grant date using a Monte Carlo simulation model. The fair value of the performance share awards granted prior to 2013 is estimated using a Monte Carlo simulation model at the end of each reporting period. The estimated fair value of all market condition performance share awards is amortized over a three-year vesting period using the straight-line method. The value of the award ultimately paid will be based on relative total shareholder return, which is measured against our performance peer group and the S&P 500 Index.

During the three months ended March 31, 2013, we granted 0.2 million performance share awards at a weighted average grant date fair value of $53.67 per share.

Market Stock Units

We granted 0.4 million market stock units at a grant date fair value of $64.74 per unit under the 2011 Plan during the three months ended March 31, 2013. These market stock units vest at the end of a three-year performance period. The number of shares ultimately issued will be based on Tesoro’s stock price changes over the performance period. The market stock units’ potential payout can range from 50-200% of targeted award value, unless the average closing stock price at vesting has decreased more than 50% from the average closing stock price at the grant date, then no market stock units will be paid out. The fair value of each market stock unit is estimated on the grant date using a Monte Carlo simulation model. The estimated fair value of these market stock units is amortized over a three-year vesting period using the straight-line method.

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Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)	Mar. 31, 2013	Dec. 31, 2012
TESORO CORPORATION STOCKHOLDERS’ EQUITY
Common stock, par value (dollar per share)	$ 0.167	$ 0.167
Common stock, authorized shares (shares)	200,000,000	200,000,000
Common stock, shares issued (shares)	153,525,771	152,579,955
Preferred stock, no par value (dollar per share)	$ 0	$ 0
Preferred stock, authorized shares (shares)	5,000,000	5,000,000
Preferred stock, shares issued (shares)	0	0
Treasury stock, common shares (shares)	17,010,602	14,417,533

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Derivative Instruments (Notes)

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

The timing, direction and overall change in refined product prices versus crude oil prices impacts profit margins and has a significant impact on our earnings and cash flows. Consequently, we use non-trading derivative instruments to manage exposure to commodity price risks associated with the purchase or sale of feedstocks, refined products and energy supplies to or from the Company’s refineries, terminals, retail operations and customers. We also use non-trading derivative instruments to manage price risks associated with inventories above or below our target levels. To achieve our objectives, we use derivative instruments such as Options, Futures Contracts, OTC Swap Contracts, OTC Option Contracts and Forward Contracts, which had remaining maturity dates of less than two years as of March 31, 2013. We believe that there is minimal credit risk with respect to our counterparties.

We are also exposed to exchange rate fluctuations on our purchases of Canadian crude oil. We enter into Forward Contracts of Canadian dollars to manage these monthly exchange rate fluctuations.

The accounting for changes in the fair value of a commodity derivative depends on whether the derivative has been designated in a hedging relationship and whether we have elected the normal purchases and normal sales exception. We did not designate any of our derivatives for hedge accounting during the three months ended March 31, 2013 and 2012, respectively. The accounting for the change in fair value can be summarized as follows:

Derivative Treatment	Accounting Method
Normal purchases and normal sales exception	Accrual accounting
Designated in qualifying hedging relationship	Hedge accounting
All other derivatives	Mark-to-market accounting

The primary derivative instruments that we use have the following characteristics. Options provide the right, but not the obligation to buy or sell the commodity at a specified price in the future. Futures Contracts include a requirement to buy or sell the commodity at a fixed price in the future. OTC Swap Contracts, OTC Option Contracts and Forward Contracts require cash settlement for the commodity based on the difference between a contracted fixed or floating price and the market price on the settlement date. Certain of these contracts require cash collateral if our liability position exceeds specified thresholds.

The following table presents the fair value (in millions) of our derivative instruments as of March 31, 2013 and December 31, 2012. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements including cash collateral on deposit with, or received from, brokers. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements when a legal right of offset exists. As a result, the asset and liability amounts below will not agree with the amounts presented in our condensed consolidated balance sheets.

		Derivative Assets						Derivative Liabilities
	Balance Sheet Location	March 31, 2013			December 31, 2012			March 31, 2013			December 31, 2012
Commodity Futures Contracts	Prepayments and other current assets	$	156		$	95		$	166		$	100
Commodity Forward Contracts	Receivables	3			—			2			—
Commodity Forward Contracts	Accounts payable	—			—			—			1
Total Gross Mark-to-Market Derivatives		159			95			168			101
Less: Counterparty Netting and Cash Collateral (a)		(100		)	(68		)	(138		)	(95		)
Total Net Fair Value of Derivatives		$	59		$	27		$	30		$	6

________________

(a) As of March 31, 2013 and December 31, 2012, cash collateral amounts of $38 million and $27 million, respectively, are netted with mark-to-market derivative assets.

Gains (losses) for our mark-to market derivatives for the three months ended March 31, 2013 and 2012, were as follows (in millions):

	Three Months Ended March 31,
	2013			2012
Commodity Futures Contracts	$	(26	)	$	(12	)
Commodity OTC Swap Contracts	—			(6		)
Commodity Forward Contracts	(2		)	(3		)
Foreign Currency Forward Contracts	(2		)	1
Total Loss on Mark-to-Market Derivatives	$	(30	)	$	(20	)

The income statement location of gains (losses) for our mark-to market derivatives above were as follows (in millions):

	Three Months Ended March 31,
Income Statement Location:	2013			2012
Revenues	$	2		$	(10	)
Cost of sales	(30		)	(11		)
Other expense, net	(2		)	1
Total Loss on Mark-to-Market Derivatives	$	(30	)	$	(20	)

Open Long (Short) Positions

All of our open positions are scheduled to mature within two years. As of March 31, 2013, we had open Forward Contracts to purchase CAD $9 million and CAD $36 million that matured or will mature on April 25, 2013 and May 24, 2013.

The information below presents the net volume of outstanding commodity contracts by type of instrument and year of maturity as of March 31, 2013 (volumes in thousands of barrels):

Mark-to-Market Derivatives
Derivative instrument and Year of maturity	Long (Short) Contract Volumes
Futures
2013	(1,013)
2014	25
OTC Swaps
2013	(150)
Forwards
2013	(94)
Options
2013	200

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Fair Value Measurements (Notes)

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

We classify financial assets and financial liabilities into the following fair value hierarchy:

• level 1 - valued based on quoted prices in active markets for identical assets and liabilities;

• level 2 - valued based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability; and

• level 3 - valued based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We measure fair value using level 1 inputs, when available, because they provide the most reliable evidence of fair value. Derivative instruments and our Renewable Identification Numbers (“RINs”) are our only financial assets and liabilities measured at fair value on a recurring basis. We did not have any financial assets or liabilities classified as level 3 at March 31, 2013 or December 31, 2012. See Note G for further information on the Company’s derivative instruments.

Our derivative instruments consist primarily of options (“Options”), exchange-traded futures (“Futures Contracts”), over-the-counter swaps and options (“OTC Swap Contracts” and “OTC Option Contracts,” respectively), and physical commodity forward purchase and sale contracts (“Forward Contracts”). Options are valued using quoted prices from exchanges and are categorized in level 1 of the fair value hierarchy. Futures Contracts are valued based on quoted prices from exchanges and are categorized in level 1 or level 2 of the fair value hierarchy based on the liquidity of the instrument. OTC Swap Contracts, OTC Option Contracts and Forward Contracts are valued using third-party broker quotes, industry pricing services and price curves derived from commodity exchange postings, with consideration of counterparty credit risk. These quotes are corroborated with market data and are categorized in level 2 of the fair value hierarchy.

Our RINs obligation represents our period-end deficit for the purchase of RINs to satisfy the requirement to blend biofuels into the products we have produced.  Our RINs obligation is based on our RINs deficit and the price of those RINs as of the balance sheet date.  Our RINs obligation is categorized in level 2 of the fair value hierarchy and is measured at fair value using the market approach based on quoted prices from an independent pricing service.

Financial instruments recognized at fair values in our condensed consolidated balance sheets by level within the fair value hierarchy were as follows (in millions):

	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total as of March 31, 2013
Assets:
Commodity Futures Contracts	$	154	$	2	$	—	$	(100	)	$	56
Commodity Forward Contracts	—		3		—		—			3
Total Assets	$	154	$	5	$	—	$	(100	)	$	59
Liabilities:
Commodity Futures Contracts	$	158	$	8	$	—	$	(138	)	$	28
Commodity Forward Contracts	—		2		—		—			2
RINs Obligation	—		8		—		—			8
Total Liabilities	$	158	$	18	$	—	$	(138	)	$	38

	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total as of December 31, 2012
Assets:
Commodity Futures Contracts	$	91	$	4	$	—	$	(68	)	$	27
Total Assets	$	91	$	4	$	—	$	(68	)	$	27
Liabilities:
Commodity Futures Contracts	$	96	$	4	$	—	$	(95	)	$	5
Commodity Forward Contracts	—		1		—		—			1
RINs Obligation	—		1		—		—			1
Total Liabilities	$	96	$	6	$	—	$	(95	)	$	7

________________

(a) Represents the impact of netting assets, liabilities and cash collateral when a legal right of offset exists. As of March 31, 2013 and December 31, 2012, cash collateral amounts of $38 million and $27 million, respectively, are netted with mark-to-market derivative assets.

Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We have elected to offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously.

We believe the carrying value of our other financial instruments, including cash and cash equivalents, receivables, accounts payable and certain accrued liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations, including:

• the short term duration of the instruments (less than one percent of our trade receivables and payables are outstanding for greater than 90 days); and

• the expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk.

The fair value of our debt is based on prices from recent trade activity and is categorized in level 2 of the fair value hierarchy. The carrying value and fair value of our debt was approximately $1.6 billion and $1.7 billion, respectively at March 31, 2013 and December 31, 2012.

There were no material nonfinancial assets or liabilities that were measured at fair value during the three months ended March 31, 2013.

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Fair Value Measurements (Policies)

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments, Policy

We classify financial assets and financial liabilities into the following fair value hierarchy:

• level 1 - valued based on quoted prices in active markets for identical assets and liabilities;

• level 2 - valued based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability; and

• level 3 - valued based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We measure fair value using level 1 inputs, when available, because they provide the most reliable evidence of fair value. Derivative instruments and our Renewable Identification Numbers (“RINs”) are our only financial assets and liabilities measured at fair value on a recurring basis.

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Operating Segments (Notes)

3 Months Ended

Mar. 31, 2013

Segment Reporting [Abstract]

OPERATING SEGMENTS

OPERATING SEGMENTS

The Company’s revenues are derived from two operating segments, refining and retail. We own and operate seven petroleum refineries located in California, Washington, Alaska, Hawaii, North Dakota and Utah. These refineries manufacture gasoline and gasoline blendstocks, jet fuel, diesel fuel, residual fuel oil and other refined products. We sell these refined products, together with refined products purchased from third parties, at wholesale through terminal facilities and other locations. Our refining segment also sells refined products to unbranded marketers and opportunistically exports refined products to foreign markets. Our retail segment sells gasoline, diesel fuel and convenience store items through company-operated retail stations and branded jobber/dealers in 18 states. We do not have significant operations in foreign countries. Therefore, revenue generated and long-lived assets located in foreign countries are not material to our operations.

We evaluate the performance of our segments based primarily on segment operating income. Segment operating income includes those revenues and expenses that are directly attributable to management of the respective segment. Intersegment sales from refining to retail are made at prevailing market rates. Income taxes, other expense, net, interest income, net interest and financing costs, corporate depreciation and corporate general and administrative expenses are excluded from segment operating income. Identifiable assets are those used by the segments, whereas corporate assets are principally cash and other assets that are not associated with a specific operating segment.

Segment information is as follows:

	Three Months Ended March 31,
	2013			2012
	(In millions)
Revenues
Refining:
Refined products	$	7,536		$	7,562
Crude oil resales and other	475			156
Retail:
Fuel (a)	1,554			1,306
Merchandise and other	57			55
Intersegment sales from Refining to Retail	(1,466		)	(1,259		)
Total Revenues	$	8,156		$	7,820
Segment Operating Income (Loss)
Refining	$	283		$	191
Retail	17			(4		)
Total Segment Operating Income	300			187
Corporate and unallocated costs	(108		)	(53		)
Operating Income	192			134
Interest and financing costs, net	(30		)	(36		)
Interest income	1			1
Other expense, net	(1		)	—
Earnings Before Income Taxes	$	162		$	99
Depreciation and Amortization Expense
Refining	$	92		$	91
Retail	9			10
Corporate	5			2
Total Depreciation and Amortization Expense	$	106		$	103
Capital Expenditures
Refining	$	109		$	91
Retail	7			8
Corporate	3			3
Total Capital Expenditures	$	119		$	102

________________

(a) Federal and state motor fuel taxes on sales by our retail segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $134 million and $99 million for the three months ended March 31, 2013 and 2012, respectively.

	March 31, 2013		December 31, 2012
	(In millions)
Identifiable Assets:
Refining	$	8,605	$	8,340
Retail	781		741
Corporate	2,004		1,621
Total Assets	$	11,390	$	10,702

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Benefit Plans (Notes)

3 Months Ended

Mar. 31, 2013

Compensation and Retirement Disclosure [Abstract]

BENEFIT PLANS

BENEFIT PLANS

Tesoro sponsors the following four defined benefit pension plans: the funded qualified employee retirement plan, the unfunded nonqualified executive security plan, the unfunded nonqualified restoration retirement plan and the unfunded nonqualified supplemental executive retirement plan. Although our funded employee retirement plan fully meets all funding requirements under applicable laws and regulations, we voluntarily contributed $12 million during the three months ended March 31, 2013 to improve the funded status of the plan.

The components of pension and other postretirement benefit expense (income) included in the condensed statements of consolidated operations for the three months ended March 31, 2013 and 2012, were (in millions):

	Pension Benefits						Other Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
	2013			2012			2013			2012
Service cost	$	8		$	7		$	1		$	1
Interest cost	7			7			1			1
Expected return on plan assets	(6		)	(6		)	—			—
Amortization of prior service credit	—			—			(9		)	(9		)
Recognized net actuarial loss	7			6			2			3
Net Periodic Benefit Expense (Income)	$	16		$	14		$	(5	)	$	(4	)

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Stock-Based Compensation Stock-Based Compensation, Stock Appreciation Rights (Details) (Stock appreciation rights, USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		27 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Dec. 31, 2012
Stock appreciation rights
Stock-Based Compensation Arrangement by Stock-based Payment Award
Awards granted (shares)			0
Cash paid to settle awards	$ 18	$ 9
Exercised (shares)	900,000	600,000
Accrued stock appreciation rights	$ 100		$ 100	$ 79

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Debt (Notes)

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

DEBT

DEBT

Our total debt balance at March 31, 2013 and December 31, 2012, was as follows (in millions):

	March 31, 2013		December 31, 2012
Total Debt	$	1,593	$	1,590
Less: Current maturities	3		3
Debt, less current maturities	$	1,590	$	1,587

Credit Facilities Overview

We had available capacity under our credit agreements as follows at March 31, 2013 (in millions):

	Total Capacity (a)		Amount Borrowed as of March 31, 2013		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (b)	$	1,850	$	—	$	807	$	1,043	January 4, 2018
TLLP Revolving Credit Facility	500		—		—		500		December 31, 2017
Letter of Credit Facilities	1,146		—		514		632
Total credit agreements	$	3,496	$	—	$	1,321	$	2,175

________________

(a) During the first quarter of 2013, we entered into a term loan credit facility and amended the Tesoro Corporation Revolving Credit Facility (“Revolving Credit Facility”) and the TLLP Revolving Credit Facility. Just prior to closing the Carson Acquisition, the term loan credit facility will provide for $500 million of borrowing capacity and the amended Revolving Credit Facility will provide an increase in the capacity to $3.0 billion. In addition, the TLLP Revolving Credit Facility allows for an increased capacity of up to $650 million, subject to receiving increased commitments from the lenders.

(b) Borrowing base is the lesser of the amount of the periodically adjusted borrowing base or the agreement’s total capacity.

As of March 31, 2013, our credit facilities were subject to the following expenses and fees:

Credit Facility	30 day Eurodollar (LIBOR) Rate	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Tesoro Corporation Revolving Credit Facility ($1.85 billion) (c)	0.20%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($500 million) (d)	0.20%	2.00%	3.25%	1.00%	0.375%

________________

(c) We can elect the interest rate to apply to the Revolving Credit Facility between a base rate plus the base rate margin, or a Eurodollar rate, for the applicable term, plus, the Eurodollar margin at the time of the borrowing. The applicable margin varies based on the Revolving Credit Facility’s credit ratings. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate. We also incur commitment fees for the unused portion of the Revolving Credit Facility at an annual rate.

(d) TLLP can elect the interest rate to apply to the TLLP Revolving Credit Facility between a base rate plus the base rate margin, or a Eurodollar rate, for the applicable term, plus, the Eurodollar margin at the time of the borrowing. The applicable margin varies based upon a certain leverage ratio, as defined by the TLLP Revolving Credit Facility. TLLP incurs commitment fees for the unused portion of the TLLP Revolving Credit Facility at an annual rate.

Tesoro Corporation Revolving Credit Facility

Effective January 4, 2013, we entered into the Sixth Amended and Restated Credit Agreement, which allows the capacity of our Revolving Credit Facility to be increased to an aggregate of $3.0 billion, just prior to closing the Carson Acquisition (“Increase Effective Date”). Additionally, the agreement allows for us to request that the capacity be increased up to an aggregate of $4.0 billion, subject to receiving increased commitments from the lenders; however, we must offer to reduce the commitments by at least $500 million on or prior to the 18 month anniversary of the Increase Effective Date and by an additional $500 million on or prior to the two year anniversary of the Increase Effective Date.

At March 31, 2013, our Revolving Credit Facility provided for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base of approximately $3.5 billion, consisting of Tesoro’s eligible cash and cash equivalents, receivables and petroleum inventories, net of the standard reserve as defined, or the Revolving Credit Facility’s total capacity of $1.85 billion. Prior to exercising our ability to increase the capacity just prior to closing the Carson Acquisition, the total available capacity can be increased up to an aggregate amount of $2.85 billion, subject to receiving increased commitments.

Letter of Credit Agreements

The Revolving Credit Facility allows us to obtain letters of credit under separate letter of credit agreements for foreign crude oil purchases. As of March 31, 2013, our five separate uncommitted letter of credit agreements had $514 million outstanding. Capacity under these letter of credit agreements is available on an uncommitted basis and can be terminated by either party, at any time.

TLLP Revolving Credit Facility

Effective January 4, 2013, TLLP amended and restated the TLLP Revolving Credit Facility, to increase commitments under the facility from $300 million to $500 million and to allow TLLP to request that the loan availability be increased up to an aggregate of $650 million, subject to receiving increased commitments from the lenders.

The TLLP Revolving Credit Facility is non-recourse to Tesoro, except for TLGP, and is guaranteed by all of TLLP’s subsidiaries and secured by substantially all of TLLP’s assets. Borrowings are available under the TLLP Revolving Credit Facility up to the total loan availability of the facility.

Term Loan Credit Facility

Effective January 28, 2013, we entered into a term loan credit facility agreement (the “Term Loan Facility”), which allows us to borrow up to an aggregate of $500 million on or prior to August 9, 2013. The obligations under the Term Loan Facility will be secured by all equity interests of Tesoro Refining & Marketing Company LLC and Tesoro Alaska Company, the Tesoro and USA Gasoline trademarks and those trademarks containing the name “ARCO” that will be acquired by Tesoro in the Carson Acquisition and junior liens on certain assets.

The Term Loan Facility matures three years from the initial borrowing. The Term Loan Facility will be subject to equal quarterly payments in an amount equal to 1.00% per annum of the initial borrowing with the final payment of all amounts outstanding due on the maturity date. As of March 31, 2013, we had no borrowings on the Term Loan Facility.

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Property, Plant and Equipment (Notes)

3 Months Ended

Mar. 31, 2013

Property, Plant and Equipment [Abstract]

PROPERTY, PLANT AND EQUIPMENT

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, is as follows (in millions):

	March 31, 2013			December 31, 2012
Refining	$	6,374		$	6,268
Retail	765			763
Corporate	223			226
Property, plant and equipment, at cost	7,362			7,257
Accumulated depreciation	(2,077		)	(2,012		)
Net property, plant and equipment	$	5,285		$	5,245

We capitalize interest as part of the cost of major projects during the construction period. Capitalized interest totaled $4 million for both the three months ended March 31, 2013 and 2012, respectively, and is recorded as a reduction to net interest and financing costs in our statements of condensed consolidated operations.

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Commitments and Contingencies (Notes)

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Environmental and Tax Matters

We are a party to various litigation and contingent loss situations, including environmental and income tax matters, arising in the ordinary course of business. Although we cannot predict the ultimate outcomes of these matters with certainty, we have accrued for the estimated liabilities when appropriate. We believe that the outcome of these matters will not have a material impact on our liquidity or financial position, although the resolution of certain of these matters could have a material impact on our interim or annual results of operations. Additionally, if applicable, we accrue receivables for probable third-party recoveries.

We are subject to extensive federal, state and local environmental laws and regulations. These laws, which change frequently, regulate the discharge of materials into the environment and may require us to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites, install additional controls or make other modifications to certain emission sources, equipment or facilities.

We are subject to extensive federal, state and foreign tax laws and regulations. Newly enacted tax laws and regulations, and changes in existing tax laws and regulations, could result in increased expenditures in the future. We are also subject to audits by federal, state and foreign taxing authorities in the normal course of business. It is possible that tax audits could result in claims against us in excess of recorded liabilities. We believe that resolution of any such claim(s) would not have a material impact on our financial position, results of operations or liquidity. We do not expect our unrecognized tax benefits to change significantly over the next twelve months.

Environmental Liabilities

We are incurring and expect to continue to incur expenses for environmental liabilities at a number of currently and previously owned or operated refining, pipeline, terminal and retail station properties. We have accrued liabilities for these expenses and believe these accruals are adequate based on current information and projections that can be reasonably estimated. Our environmental accruals are based on estimates including engineering assessments, and it is possible that our projections will change and that additional costs will be recorded as more information becomes available.

Our accruals for environmental expenditures totaled $86 million at both March 31, 2013 and December 31, 2012. These accruals include $54 million at both March 31, 2013 and December 31, 2012, related to environmental liabilities for site cleanup activities assumed from a prior owner, arising from operations at our Martinez refinery prior to August 2000. Of the $54 million accrued, approximately $44 million is subject to a cost-share agreement where we are responsible for 75% of the expenditures. We cannot reasonably determine the full extent of remedial activities that may be required at the Martinez refinery. Therefore, it is possible that we will identify additional investigation and remediation costs as more information becomes available. We have filed insurance claims under environmental insurance policies. These policies provide coverage up to $190 million for expenditures in excess of $50 million in self-insurance, but the insurer has challenged coverage and filed a declaratory relief action in federal court. We have not recognized possible insurance recoveries related to this matter.

We have investigated conditions at certain active wastewater treatment units at our Martinez refinery.  The investigation was driven by an order received in 2004 from the San Francisco Bay Regional Water Quality Control Board. The order named us as well as two previous owners of the Martinez refinery.  We cannot currently estimate the amount of the ultimate resolution of the order, but we believe it will not have a material adverse impact on our financial position, results of operations or liquidity.

Washington Refinery Fire

The naphtha hydrotreater unit at our Washington refinery was involved in a fire in April 2010, which fatally injured seven employees and rendered the unit inoperable. The Washington State Department of Labor & Industries (“L&I”), the U.S. Chemical Safety and Hazard Investigation Board (“CSB”) and the U.S. Environmental Protection Agency (“EPA”) initiated separate investigations of the incident. L&I completed its investigation in October 2010, issued citations and assessed a $2.4 million fine, which we appealed. L&I reassumed jurisdiction of the citation and affirmed the allegations in December 2010. We disagree with L&I’s characterizations of operations at our Washington refinery and believe, based on available evidence and scientific reviews, that many of the agency’s conclusions are mistaken. We filed an appeal of the citation in January 2011.

We filed business interruption insurance and property damage insurance claims related to down time from this incident. Certain business interruption claims remain open as of March 31, 2013.

Other Matters

In the ordinary course of business, we become party to lawsuits, administrative proceedings and governmental investigations, including environmental, regulatory and other matters. Large, and sometimes unspecified, damages or penalties may be sought from us in some matters. We have not established accruals for these matters unless a loss is probable, and the amount of loss is currently estimable. On the basis of existing information, we believe that the resolution of these matters, individually or in the aggregate, will not have a material adverse impact on our liquidity or financial position, although the resolution of certain of these matters could have a material impact on our interim or annual results of operations.

Legal

We are a defendant, along with other manufacturing, supply and marketing defendants, in two remaining lawsuits alleging methyl tertiary butyl ether (“MTBE”) contamination in groundwater. The defendants are being sued for having manufactured MTBE and having manufactured, supplied and distributed gasoline containing MTBE. The plaintiffs in the remaining cases, all in California, are municipalities and governmental authorities. The plaintiffs allege, in part, that the defendants are liable for manufacturing or distributing a defective product. The suits generally seek individual, unquantified compensatory and punitive damages and attorney’s fees. We intend to vigorously assert our defenses against these claims. While we cannot currently estimate the final amount or timing of the resolution of these matters, we have established an accrual for them and believe that the outcome will not have a material impact on our financial position, results of operations or liquidity.

During 2009, Chevron filed a lawsuit against us claiming they are entitled to a share of the refunds we received in 2008 from the owners of the Trans-Alaska Pipeline System (“TAPS”). We received $50 million in 2008, net of contingent legal fees, for excessive intrastate rates charged by TAPS during 1997 through 2000 and the period of 2001 through June 2003. Chevron is asserting that it is entitled to a share of its portion of the refunds for retroactive price adjustments under our previous crude oil contracts with them. The trial court judge granted Chevron’s motion for summary judgment and awarded them $16 million, including interest, in September 2010. We disagree with the trial court and have appealed the decision to the Alaska Supreme Court in which the proceeding is now pending. We have established an accrual for this matter and its resolution will not have a material impact on our financial position, results of operations or liquidity.

Environmental

The EPA has alleged that we have violated certain Clean Air Act regulations at our Alaska, Washington, Martinez, Hawaii and Utah refineries. We are continuing discussions of the EPA’s claims with the EPA and the U.S. Department of Justice (“DOJ”). We previously received a notice of violation (“NOV”) in March 2011 from the EPA alleging violations of Title V of the Clean Air Act at our Alaska refinery. The alleged violations in the NOV arise from a 2007 state of Alaska inspection and inspections by the EPA in 2008 and 2010. We also previously received NOVs in 2005 and 2008 alleging violations of the Clean Air Act at our Washington refinery. We are discussing all of these allegations with the EPA and DOJ. The ultimate resolution of these matters could require us to incur material capital expenditures and/or civil penalties. While we cannot currently estimate the amount or timing of the resolution of these matters, and currently believe that the outcome will not have a material impact on our liquidity or financial position, the ultimate resolution could have a material impact on our interim or annual results of operations.

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Condensed Consolidating Financial Information, Narrative (Details)	3 Months Ended
	Mar. 31, 2013
Guarantor Information
Percentage ownership of Tesoro Logistics LP	38.00%
Percentage ownership of subsidiary guarantors	100.00%
4.250% Senior Notes Due 2017
Guarantor Information
Debt instrument interest rate	4.25%
9.750% Senior Notes Due 2019
Guarantor Information
Debt instrument interest rate	9.75%
5.375% Senior Notes Due 2022
Guarantor Information
Debt instrument interest rate	5.375%

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Condensed Consolidating Financial Information, Balance Sheet (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Current Assets:
Cash and cash equivalents	$ 1,972	$ 1,639	$ 710	$ 900
Receivables, less allowance for doubtful accounts	1,366	1,221
Short-term receivables from affiliates	0	0
Inventories	1,560	1,578
Prepayments and other current assets	224	198
Total Current Assets	5,122	4,636
Net Property, Plant and Equipment	5,285	5,245
Investment in Subsidiaries	0	0
Long-Term Receivables from Affiliates	0	0
Other Noncurrent Assets, Net	983	821
Total Assets	11,390	10,702
Current Liabilities:
Accounts payable	2,582	2,213
Other current liabilities	621	668
Short-term payables to affiliates	0	0
Total Current Liabilities	3,203	2,881
Long-Term Payables to Affiliates	0	0
Deferred Income Taxes	864	850
Other Noncurrent Liabilities	629	647
Debt	1,590	1,587
Equity-Tesoro Corporation	4,223	4,251
Equity-Noncontrolling interest	881	486
Total Liabilities and Equity (Deficit)	11,390	10,702
Parent
Current Assets:
Cash and cash equivalents	0	0	0	0
Receivables, less allowance for doubtful accounts	1	1
Short-term receivables from affiliates	0	0
Inventories	0	0
Prepayments and other current assets	132	131
Total Current Assets	133	132
Net Property, Plant and Equipment	0	0
Investment in Subsidiaries	5,115	5,041
Long-Term Receivables from Affiliates	2,003	1,846
Other Noncurrent Assets, Net	56	47
Total Assets	7,307	7,066
Current Liabilities:
Accounts payable	5	1
Other current liabilities	187	163
Short-term payables to affiliates	0	0
Total Current Liabilities	192	164
Long-Term Payables to Affiliates	0	0
Deferred Income Taxes	864	850
Other Noncurrent Liabilities	472	475
Debt	1,556	1,326
Equity-Tesoro Corporation	4,223	4,251
Equity-Noncontrolling interest	0	0
Total Liabilities and Equity (Deficit)	7,307	7,066
Guarantor Subsidiaries
Current Assets:
Cash and cash equivalents	1,517	1,244	661	805
Receivables, less allowance for doubtful accounts	1,139	1,133
Short-term receivables from affiliates	0	0
Inventories	1,286	1,331
Prepayments and other current assets	87	63
Total Current Assets	4,029	3,771
Net Property, Plant and Equipment	4,923	4,886
Investment in Subsidiaries	(314)	(200)
Long-Term Receivables from Affiliates	0	0
Other Noncurrent Assets, Net	875	724
Total Assets	9,513	9,181
Current Liabilities:
Accounts payable	2,177	2,046
Other current liabilities	406	487
Short-term payables to affiliates	18	47
Total Current Liabilities	2,601	2,580
Long-Term Payables to Affiliates	1,917	1,667
Deferred Income Taxes	0	0
Other Noncurrent Liabilities	157	172
Debt	16	17
Equity-Tesoro Corporation	4,822	4,745
Equity-Noncontrolling interest	0	0
Total Liabilities and Equity (Deficit)	9,513	9,181
Non- Guarantors
Current Assets:
Cash and cash equivalents	455	395	49	95
Receivables, less allowance for doubtful accounts	226	87
Short-term receivables from affiliates	18	47
Inventories	274	247
Prepayments and other current assets	5	4
Total Current Assets	978	780
Net Property, Plant and Equipment	362	359
Investment in Subsidiaries	210	159
Long-Term Receivables from Affiliates	0	0
Other Noncurrent Assets, Net	392	160
Total Assets	1,942	1,458
Current Liabilities:
Accounts payable	400	166
Other current liabilities	28	18
Short-term payables to affiliates	0	0
Total Current Liabilities	428	184
Long-Term Payables to Affiliates	86	179
Deferred Income Taxes	0	0
Other Noncurrent Liabilities	0	0
Debt	358	354
Equity-Tesoro Corporation	189	255
Equity-Noncontrolling interest	881	486
Total Liabilities and Equity (Deficit)	1,942	1,458
Eliminations
Current Assets:
Cash and cash equivalents	0	0	0	0
Receivables, less allowance for doubtful accounts	0	0
Short-term receivables from affiliates	(18)	(47)
Inventories	0	0
Prepayments and other current assets	0	0
Total Current Assets	(18)	(47)
Net Property, Plant and Equipment	0	0
Investment in Subsidiaries	(5,011)	(5,000)
Long-Term Receivables from Affiliates	(2,003)	(1,846)
Other Noncurrent Assets, Net	(340)	(110)
Total Assets	(7,372)	(7,003)
Current Liabilities:
Accounts payable	0	0
Other current liabilities	0	0
Short-term payables to affiliates	(18)	(47)
Total Current Liabilities	(18)	(47)
Long-Term Payables to Affiliates	(2,003)	(1,846)
Deferred Income Taxes	0	0
Other Noncurrent Liabilities	0	0
Debt	(340)	(110)
Equity-Tesoro Corporation	(5,011)	(5,000)
Equity-Noncontrolling interest	0	0
Total Liabilities and Equity (Deficit)	$ (7,372)	$ (7,003)

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Operating Segments, Results (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013		Mar. 31, 2012		Dec. 31, 2012
Segment Reporting Information, Operating Income (Loss)
Total Revenues	$ 8,156		$ 7,820
OPERATING INCOME (LOSS)	192		134
Reconciliation of Operating Income from Segments to Consolidated
Total Segment Operating Income	300		187
Corporate and unallocated costs	(108)		(53)
Segment Reporting Information, Income before Income Taxes
Interest and financing costs, net	(30)		(36)
Interest income	1		1
Other expense, net	(1)		0
EARNINGS BEFORE INCOME TAXES	162		99
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Depreciation and Amortization Expense	106		103
Capital Expenditures	119		102
Identifiable Assets:	11,390				10,702
Table Footnotes
Federal and state motor fuel taxes on sales by our retail segment	134		99
Refining:
Segment Reporting Information, Operating Income (Loss)
OPERATING INCOME (LOSS)	283		191
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Depreciation and Amortization Expense	92		91
Capital Expenditures	109		91
Identifiable Assets:	8,605				8,340
Refined products
Segment Reporting Information, Operating Income (Loss)
Revenues	7,536		7,562
Crude oil resales and other
Segment Reporting Information, Operating Income (Loss)
Revenues	475		156
Retail:
Segment Reporting Information, Operating Income (Loss)
OPERATING INCOME (LOSS)	17		(4)
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Depreciation and Amortization Expense	9		10
Capital Expenditures	7		8
Identifiable Assets:	781				741
Fuel (a)
Segment Reporting Information, Operating Income (Loss)
Revenues	1,554	[1]	1,306	[1]
Merchandise and other
Segment Reporting Information, Operating Income (Loss)
Revenues	57		55
Intersegment sales from Refining to Retail
Segment Reporting Information, Operating Income (Loss)
Intersegment sales from Refining to Retail	(1,466)		(1,259)
Corporate
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Depreciation and Amortization Expense	5		2
Capital Expenditures	3		3
Identifiable Assets:	$ 2,004				$ 1,621

[1] Federal and state motor fuel taxes on sales by our retail segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $134 million and $99 million for the three months ended March 31, 2013 and 2012, respectively.

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2013

Stockholders' Equity Attributable to Parent [Abstract]

Stockholders' equity and noncontrolling interest

Changes to equity during the three months ended March 31, 2013, are presented below (in millions):

	Tesoro Corporation Stockholders’ Equity			Noncontrolling  Interest			Total Equity
Balance at December 31, 2012	$	4,251		$	486		$	4,737
Net earnings	93			11			104
Shares issued for equity-based compensation awards	32			—			32
Excess tax benefits from stock-based compensation arrangements, net	2			—			2
Amortization of equity settled awards	14			—			14
Dividend payments	(28		)	—			(28		)
Purchases of common stock	(135		)	—			(135		)
Net proceeds from issuance of Tesoro Logistics LP common units	(6		)	398			392
Distributions to noncontrolling interest	—			(14		)	(14		)
Balance at March 31, 2013	$	4,223		$	881		$	5,104

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Property, Plant and Equipment (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	$ 7,362		$ 7,257
Accumulated depreciation	(2,077)		(2,012)
Net property, plant and equipment	5,285		5,245
Capitalized interest	4	4
Refining
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	6,374		6,268
Retail
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	765		763
Corporate
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	$ 223		$ 226

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Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Significant Accounting Policies

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts and disclosures of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.

Use of Estimates, Policy

We review our estimates on an ongoing basis, based on currently available information. Changes in facts and circumstances may result in revised estimates and actual results could differ from those estimates. The results of operations for any interim period are not necessarily indicative of results for the full year. Certain prior year balances have been aggregated or disaggregated in order to conform to the current year presentation.

Consolidation, Variable Interest Entity, Policy

Our consolidated financial statements include TLLP, a variable interest entity. As the general partner of TLLP, we have the sole ability to direct the activities of TLLP that most significantly impact its economic performance. We are also considered to be the primary beneficiary for accounting purposes and are TLLP’s primary customer.

New Accounting Standards, Policy

New Accounting Standards and Disclosures

Presentation of Comprehensive Income

The Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) in February 2013 that provides entities the option of presenting information related to reclassification adjustments on the face of the financial statements or in the notes to the financial statements for items that are reclassified from other comprehensive income to net income in the statement where those components are presented. The requirements from the new ASU are effective for interim and annual periods beginning after December 15, 2012. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.

Fair Value Measurements and Disclosures

The FASB issued an ASU in December 2011, which requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of these arrangements on its financial position. The guidance requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. In January 2013, the FASB amended and clarified the scope of the disclosures to include only derivative instruments, repurchase agreements and securities lending transactions. The provisions for this ASU are effective for interim and annual reporting periods beginning on January 1, 2013. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.

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Tesoro Logistics LP (Tables)

3 Months Ended

Mar. 31, 2013

Variable Interest Entity, Classification of Carrying Amount, Assets and Liabilities, Net [Abstract]

Subsidiary Balance Sheet

With the exception of affiliate balances which are eliminated upon consolidation, and their impact on equity, the TLLP condensed combined consolidated balance sheets as of March 31, 2013 and December 31, 2012, as presented below, are included in the condensed consolidated balance sheets of Tesoro Corporation.

	March 31, 2013		December 31, 2012
	(In millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	415	$	19
Receivables
Trade	—		—
Affiliate	19		18
Prepayments	1		1
Total Current Assets	435		38
NET, PROPERTY, PLANT AND EQUIPMENT	284		274
DEPOSITS	40		40
OTHER NONCURRENT ASSETS	12		11
Total Assets	$	771	$	363
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable
Trade	$	10	$	9
Affiliate	7		7
Deferred revenue - affiliate	2		2
Accrued interest and financing costs	12		6
Other current liabilities	3		3
Total Current Liabilities	34		27
DEBT	358		354
EQUITY (DEFICIT)	379		(18		)
Total Liabilities and Equity (Deficit)	$	771	$	363

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Debt, Overview (Details) (USD $)				3 Months Ended			3 Months Ended
	Mar. 31, 2013		Dec. 31, 2012	Mar. 31, 2013 Tesoro Corporation Revolving Credit Facility ($1.85 billion)		Jan. 04, 2013 Tesoro Corporation Revolving Credit Facility ($1.85 billion)	Mar. 31, 2013 TLLP Revolving Credit Facility ($500 million)		Jan. 04, 2013 TLLP Revolving Credit Facility ($500 million)	Dec. 31, 2012 TLLP Revolving Credit Facility ($500 million)	Jan. 28, 2013 Term Loan	Mar. 31, 2013 Letter of Credit Facilities
Debt Instrument
Total Debt	$ 1,593,000,000		$ 1,590,000,000
Less: Current maturities	3,000,000		3,000,000
Debt, less current maturities	1,590,000,000		1,587,000,000
Total Capacity	3,496,000,000	[1]		1,850,000,000.00	[1],[2]	3,000,000,000	500,000,000	[1]	500,000,000	300,000,000		1,146,000,000	[1]
Amount Borrowed	0			0	[2]		0					0
Outstanding Letters of Credit	1,321,000,000			807,000,000	[2]		0					514,000,000
Available Capacity	2,175,000,000			1,043,000,000	[2]		500,000,000					632,000,000
Expiration				Jan. 04, 2018	[2]		Dec. 31, 2017
Term loan, borrowing capacity											500,000,000
Total available capacity				$ 2,850,000,000.00		$ 4,000,000,000.0	$ 650,000,000		$ 650,000,000
30 day Eurodollar (LIBOR) Rate				0.20%	[3]		0.20%	[4]
Eurodollar Margin				1.50%	[3]		2.00%	[4]
Base Rate				3.25%	[3]		3.25%	[4]
Base Rate Margin				0.50%	[3]		1.00%	[4]
Commitment Fee (unused portion)				0.375%	[3]		0.375%	[4]

[1] During the first quarter of 2013, we entered into a term loan credit facility and amended the Tesoro Corporation Revolving Credit Facility (“Revolving Credit Facility”) and the TLLP Revolving Credit Facility. Just prior to closing the Carson Acquisition, the term loan credit facility will provide for $500 million of borrowing capacity and the amended Revolving Credit Facility will provide an increase in the capacity to $3.0 billion. In addition, the TLLP Revolving Credit Facility allows for an increased capacity of up to $650 million, subject to receiving increased commitments from the lenders.

[2] Borrowing base is the lesser of the amount of the periodically adjusted borrowing base or the agreement’s total capacity.

[3] We can elect the interest rate to apply to the Revolving Credit Facility between a base rate plus the base rate margin, or a Eurodollar rate, for the applicable term, plus, the Eurodollar margin at the time of the borrowing. The applicable margin varies based on the Revolving Credit Facility’s credit ratings. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate. We also incur commitment fees for the unused portion of the Revolving Credit Facility at an annual rate.

[4] TLLP can elect the interest rate to apply to the TLLP Revolving Credit Facility between a base rate plus the base rate margin, or a Eurodollar rate, for the applicable term, plus, the Eurodollar margin at the time of the borrowing. The applicable margin varies based upon a certain leverage ratio, as defined by the TLLP Revolving Credit Facility. TLLP incurs commitment fees for the unused portion of the TLLP Revolving Credit Facility at an annual rate.

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Tesoro Logistics LP, Balance Sheet (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
CURRENT ASSETS
Cash and cash equivalents	$ 1,972	$ 1,639	$ 710	$ 900
Receivables
Trade	1,366	1,221
Affiliate	0	0
Prepayments	224	198
Total Current Assets	5,122	4,636
NET, PROPERTY, PLANT AND EQUIPMENT	5,285	5,245
OTHER NONCURRENT ASSETS	983	821
Total Assets	11,390	10,702
Accounts payable
Affiliate	0	0
Other current liabilities	621	668
Total Current Liabilities	3,203	2,881
DEBT	1,590	1,587
Total Liabilities and Equity (Deficit)	11,390	10,702
Tesoro Logistics LP
CURRENT ASSETS
Cash and cash equivalents	415	19
Receivables
Trade	0	0
Affiliate	19	18
Prepayments	1	1
Total Current Assets	435	38
NET, PROPERTY, PLANT AND EQUIPMENT	284	274
DEPOSITS	40	40
OTHER NONCURRENT ASSETS	12	11
Total Assets	771	363
Accounts payable
Trade	10	9
Affiliate	7	7
Deferred revenue - affiliate	2	2
Accrued interest and financing costs	12	6
Other current liabilities	3	3
Total Current Liabilities	34	27
DEBT	358	354
EQUITY (DEFICIT)	379	(18)
Total Liabilities and Equity (Deficit)	$ 771	$ 363

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Condensed Statements of Consolidated Cash Flows (Unaudited) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings	$ 104	$ 62
Adjustments to reconcile net earnings to net cash from (used in) operating activities:
Depreciation and amortization expense	106	103
Loss on asset disposals and impairments	8	6
Stock-based compensation expense	52	21
Deferred income taxes	14	24
Excess tax benefits from stock-based compensation arrangements	(3)	(3)
Deferred charges	(159)	(126)
Other changes in noncurrent assets and liabilities	(14)	(4)
Changes in current assets and current liabilities:
Receivables	(144)	(92)
Inventories	18	51
Prepayments and other	(26)	(10)
Accounts payable and accrued liabilities	291	(47)
Net cash from (used in) operating activities	247	(15)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	(125)	(111)
Proceeds from asset sales	2	0
Acquisitions	0	(37)
Advance payments made for acquisition	(27)	0
Net cash used in investing activities	(150)	(148)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	0	85
Repayments on revolving credit agreements	0	(112)
Dividend payments	(28)	0
Proceeds from stock options exercised	32	14
Net proceeds from issuance of Tesoro Logistics LP common units	392	0
Distributions to noncontrolling interest	(14)	(6)
Purchases of common stock	(135)	(10)
Excess tax benefits from stock-based compensation arrangements	3	3
Financing costs and other	(14)	(1)
Net cash from (used in) financing activities	236	(27)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	333	(190)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,639	900
CASH AND CASH EQUIVALENTS, END OF PERIOD	1,972	710
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid, net of capitalized interest	(4)	(2)
Income taxes paid, net	45	0
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
Capital expenditures included in accounts payable at end of period	$ 69	$ 36

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Inventories (Notes)

3 Months Ended

Mar. 31, 2013

Inventory Disclosure [Abstract]

INVENTORIES

INVENTORIES

Components of inventories were as follows (in millions):

	March 31, 2013		December 31, 2012
Domestic crude oil and refined products	$	1,141	$	1,178
Foreign subsidiary crude oil	274		246
Materials and supplies	94		94
Oxygenates and by-products	35		44
Merchandise	16		16
Total Inventories	$	1,560	$	1,578

We use the last-in, first-out cost method as the primary method to determine the cost of crude oil held by our U.S. subsidiaries and refined product inventories in our refining and retail segments. We determine the carrying value of inventories of crude oil held by our foreign subsidiaries, oxygenates and by-products using the first-in, first-out cost method. The total carrying value of our crude oil and refined product inventories was less than replacement cost by approximately $2.0 billion and $1.6 billion at March 31, 2013 and December 31, 2012, respectively.

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Stockholders' Equity Stockholders' Equity, Share Repurchases and Dividends (Details) (USD $) Share data in Millions, except Per Share data, unless otherwise specified	0 Months Ended	3 Months Ended		0 Months Ended	3 Months Ended
	Feb. 05, 2013	Mar. 31, 2013	Mar. 31, 2012	May 01, 2013 Dividend Declared	Mar. 31, 2013 Dividend Declared	Mar. 31, 2013 $500 million share repurchase program	Mar. 31, 2013 Anti-dilutive share repurchase program
Share repurchase program, authorized amount						$ 500,000,000
Number of shares purchased (shares)						2.0	0.6
Share repurchases, value		135,000,000				99,000,000	36,000,000
Dividends declared (dollars per share)	$ 0.20	$ 0.20	$ 0	$ 0.20
Dividend payments		$ 28,000,000	$ 0
Dividends payable, date declared					May 01, 2013
Dividends, date to be paid					Jun. 14, 2013
Dividends, date of record					May 31, 2013

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

Share and per share calculations are presented below (in millions, except per share amounts):

	Three Months Ended March 31,
	2013		2012
Basic:
Net earnings attributable to Tesoro Corporation stockholders	$	93	$	56
Weighted average common shares outstanding	137.0		139.5
Basic Earnings Per Share	$	0.68	$	0.40
Diluted:
Net earnings attributable to Tesoro Corporation stockholders	$	93	$	56
Weighted average common shares outstanding	137.0		139.5
Common stock equivalents	2.6		2.3
Total diluted shares	139.6		141.8
Diluted Earnings Per Share	$	0.67	$	0.39

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Basis of Presentation Basis of Presentation (Details)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Variable interest entity, measure of activity, revenues	93.00%	93.00%

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Condensed Consolidating Financial Information (Notes)

3 Months Ended

Mar. 31, 2013

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

CONDENSED CONSOLIDATING FINANCIAL INFORMATION

CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Separate condensed consolidating financial information of Tesoro Corporation (the “Parent”), subsidiary guarantors and non-guarantors are presented below. At March 31, 2013, Tesoro and certain subsidiary guarantors have fully and unconditionally guaranteed our 4.250% Senior Notes due 2017, 9.750% Senior Notes due 2019 and 5.375% Senior Notes due 2022. TLLP, in which we had a 38% ownership interest as of March 31, 2013, and other subsidiaries have not guaranteed these obligations. As a result of these guarantee arrangements, we are required to present the following condensed consolidating financial information, which should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto. The following condensed consolidating financial information is provided as an alternative to providing separate financial statements for guarantor subsidiaries. Separate financial statements of Tesoro’s subsidiary guarantors are not included because the guarantees are full and unconditional and these subsidiary guarantors are 100% owned and are jointly and severally liable for Tesoro’s outstanding senior notes. The information is presented using the equity method of accounting for investments in subsidiaries.

Condensed Consolidating Statement of Operations and

Comprehensive Income for the Three Months EndedMarch 31, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	9,952		$	822		$	(2,618	)	$	8,156
COSTS AND EXPENSES:
Cost of sales	—			9,197			756			(2,618		)	7,335
Operating, selling, general and administrative expenses	1			486			28			—			515
Depreciation and amortization expense	—			101			5			—			106
Loss on asset disposals and impairments	—			5			3			—			8
OPERATING INCOME (LOSS)	(1		)	163			30			—			192
Equity in earnings (loss) of subsidiaries	96			(6		)	44			(134		)	—
Interest and financing costs, net	(2		)	(25		)	(5		)	2			(30		)
Interest income	—			1			2			(2		)	1
Other expense, net	—			(1		)	—			—			(1		)
EARNINGS BEFORE INCOME TAXES	93			132			71			(134		)	162
Income tax expense (a)	—			55			3			—			58
NET EARNINGS	93			77			68			(134		)	104
Less: Net earnings attributable to noncontrolling interest	—			—			11			—			11
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	$	93		$	77		$	57		$	(134	)	$	93
COMPREHENSIVE INCOME
Total comprehensive income	$	93		$	77		$	68		$	(134	)	$	104
Less: Noncontrolling interest in comprehensive income	—			—			11			—			11
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	$	93		$	77		$	57		$	(134	)	$	93

_______________

(a) The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners’ share of partnership income.

Condensed Consolidating Statement of Operations and

Comprehensive Income for the Three Months EndedMarch 31, 2012

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	9,633		$	596		$	(2,409	)	$	7,820
COSTS AND EXPENSES:
Cost of sales	—			9,012			565			(2,409		)	7,168
Operating, selling, general and administrative expenses	2			389			18			—			409
Depreciation and amortization expense	—			100			3			—			103
Loss on asset disposals and impairments	—			5			1			—			6
OPERATING INCOME (LOSS)	(2		)	127			9			—			134
Equity in earnings (loss) of subsidiaries	59			(13		)	31			(77		)	—
Interest and financing costs, net	(1		)	(33		)	(3		)	1			(36		)
Interest income	—			1			1			(1		)	1
EARNINGS BEFORE INCOME TAXES	56			82			38			(77		)	99
Income tax expense (a)	—			35			2			—			37
NET EARNINGS	56			47			36			(77		)	62
Less: Net earnings attributable to noncontrolling interest	—			—			6			—			6
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	$	56		$	47		$	30		$	(77	)	$	56
COMPREHENSIVE INCOME
Total comprehensive income	$	56		$	47		$	36		$	(77	)	$	62
Less: Noncontrolling interest in comprehensive income	—			—			6			—			6
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	$	56		$	47		$	30		$	(77	)	$	56

_______________

(a) The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners’ share of partnership income.

Condensed Consolidating Balance Sheet as of March 31, 2013

(In millions)

	Parent		Guarantor Subsidiaries			Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,517		$	455	$	—		$	1,972
Receivables, less allowance for doubtful accounts	1		1,139			226		—			1,366
Short-term receivables from affiliates	—		—			18		(18		)	—
Inventories	—		1,286			274		—			1,560
Prepayments and other current assets	132		87			5		—			224
Total Current Assets	133		4,029			978		(18		)	5,122
Net Property, Plant and Equipment	—		4,923			362		—			5,285
Investment in Subsidiaries	5,115		(314		)	210		(5,011		)	—
Long-Term Receivables from Affiliates	2,003		—			—		(2,003		)	—
Other Noncurrent Assets, Net	56		875			392		(340		)	983
Total Assets	$	7,307	$	9,513		$	1,942	$	(7,372	)	$	11,390
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	5	$	2,177		$	400	$	—		$	2,582
Other current liabilities	187		406			28		—			621
Short-term payables to affiliates	—		18			—		(18		)	—
Total Current Liabilities	192		2,601			428		(18		)	3,203
Long-Term Payables to Affiliates	—		1,917			86		(2,003		)	—
Deferred Income Taxes	864		—			—		—			864
Other Noncurrent Liabilities	472		157			—		—			629
Debt	1,556		16			358		(340		)	1,590
Equity-Tesoro Corporation	4,223		4,822			189		(5,011		)	4,223
Equity-Noncontrolling interest	—		—			881		—			881
Total Liabilities and Equity	$	7,307	$	9,513		$	1,942	$	(7,372	)	$	11,390

Condensed Consolidating Balance Sheet as of December 31, 2012

(In millions)

	Parent		Guarantor Subsidiaries			Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,244		$	395	$	—		$	1,639
Receivables, less allowance for doubtful accounts	1		1,133			87		—			1,221
Short-term receivables from affiliates	—		—			47		(47		)	—
Inventories	—		1,331			247		—			1,578
Prepayments and other current assets	131		63			4		—			198
Total Current Assets	132		3,771			780		(47		)	4,636
Net Property, Plant and Equipment	—		4,886			359		—			5,245
Investment in Subsidiaries	5,041		(200		)	159		(5,000		)	—
Long-Term Receivables from Affiliates	1,846		—			—		(1,846		)	—
Other Noncurrent Assets, Net	47		724			160		(110		)	821
Total Assets	$	7,066	$	9,181		$	1,458	$	(7,003	)	$	10,702
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	1	$	2,046		$	166	$	—		$	2,213
Other current liabilities	163		487			18		—			668
Short-term payables to affiliates	—		47			—		(47		)	—
Total Current Liabilities	164		2,580			184		(47		)	2,881
Long-Term Payables to Affiliates	—		1,667			179		(1,846		)	—
Deferred Income Taxes	850		—			—		—			850
Other Noncurrent Liabilities	475		172			—		—			647
Debt	1,326		17			354		(110		)	1,587
Equity-Tesoro Corporation	4,251		4,745			255		(5,000		)	4,251
Equity-Noncontrolling interest	—		—			486		—			486
Total Liabilities and Equity	$	7,066	$	9,181		$	1,458	$	(7,003	)	$	10,702

Condensed Consolidating Statement of Cash Flows for the Three Months EndedMarch 31, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash from operating activities	$	—		$	135		$	112		$	—		$	247
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(115		)	(10		)	—			(125		)
Proceeds from asset sales	—			—			2			—			2
Advance payments made for acquisition	—			(27		)	—			—			(27		)
Intercompany notes, net	(91		)	—			—			91			—
Net cash used in investing activities	(91		)	(142		)	(8		)	91			(150		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Dividend payments	(28		)	—			—			—			(28		)
Proceeds from stock options exercised	32			—			—			—			32
Distributions to noncontrolling interest	—			—			(14		)	—			(14		)
Purchases of common stock	(135		)	—			—			—			(135		)
Net proceeds from issuance of Tesoro Logistics LP common units	—			—			392			—			392
Excess tax benefits from stock-based compensation arrangements	—			3			—			—			3
Net intercompany borrowings (repayments)	—			273			(182		)	(91		)	—
Borrowings from general partner	230			—			(230		)	—			—
Distributions to TLLP unitholders and general partner	3			4			(7		)	—			—
Financing costs and other	(11		)	—			(3		)	—			(14		)
Net cash from (used in) financing activities	91			280			(44		)	(91		)	236
INCREASE IN CASH AND CASH EQUIVALENTS	—			273			60			—			333
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			1,244			395			—			1,639
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	1,517		$	455		$	—		$	1,972

Condensed Consolidating Statement of Cash Flows for the Three Months EndedMarch 31, 2012

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	13		$	(12	)	$	(16	)	$	—		$	(15	)
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures	—			(107		)	(4		)	—			(111		)
Acquisitions	—			(37		)	—			—			(37		)
Intercompany notes, net	(20		)	—			—			20			—
Net cash used in investing activities	(20		)	(144		)	(4		)	20			(148		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	—			—			85			—			85
Repayments on revolving credit agreements	—			—			(112		)	—			(112		)
Proceeds from stock options exercised	14			—			—			—			14
Distributions to noncontrolling interest	—			—			(6		)	—			(6		)
Purchases of common stock	(10		)	—			—			—			(10		)
Excess tax benefits from stock-based compensation arrangements	—			3			—			—			3
Net intercompany borrowings (repayments)	—			6			14			(20		)	—
Distributions to TLLP unitholders and general partner	3			3			(6		)	—			—
Financing costs and other	—			—			(1		)	—			(1		)
Net cash from (used in) financing activities	7			12			(26		)	(20		)	(27		)
DECREASE IN CASH AND CASH EQUIVALENTS	—			(144		)	(46		)	—			(190		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			805			95			—			900
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	661		$	49		$	—		$	710