10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

(Mark One)

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

For the quarterly period ended September 30, 2014

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 þ 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 þ 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	þ	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 þ

There were 126,245,340 shares of the registrant’s Common Stock outstanding at October 28, 2014.

TESORO CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	Page
Item 1. Financial Statements (Unaudited)
Condensed Statements of Consolidated Operations - Three and Nine Months Ended September 30, 2014 and 2013	3
Condensed Statements of Consolidated Comprehensive Income - Three and Nine Months Ended September 30, 2014 and 2013	4
Condensed Consolidated Balance Sheets - September 30, 2014 and December 31, 2013	5
Condensed Statements of Consolidated Cash Flows - Nine Months Ended September 30, 2014 and 2013	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3. Quantitative and Qualitative Disclosures About Market Risk	57
Item 4. Controls and Procedures	59
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	60
Item 1A. Risk Factors	60
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 5. Other Information	61
Item 6. Exhibits	63
SIGNATURES	64

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TESORO CORPORATION

CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(In millions, except per share amounts)
REVENUES (a)	$	11,151		$	11,241		$	32,188		$	27,485
COSTS AND EXPENSES:
Cost of sales (a)	9,594			10,355			28,409			24,827
Operating expenses	624			542			1,813			1,351
Selling, general and administrative expenses	86			54			209			229
Depreciation and amortization expense	144			140			409			356
(Gain) loss on asset disposals and impairments	1			4			(2		)	19
OPERATING INCOME	702			146			1,350			703
Interest and financing costs, net	(51		)	(47		)	(169		)	(110		)
Other income, net	12			22			14			78
EARNINGS BEFORE INCOME TAXES	663			121			1,195			671
Income tax expense	249			47			437			243
NET EARNINGS FROM CONTINUING OPERATIONS	414			74			758			428
Earnings (loss) from discontinued operations, net of tax	(1		)	35			(2		)	23
NET EARNINGS	413			109			756			451
Less: Net earnings from continuing operations attributable to    noncontrolling interest	17			10			58			32
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	396		$	99		$	698		$	419
NET EARNINGS (LOSS) ATTRIBUTABLE TO TESORO    CORPORATION
Continuing operations	$	397		$	64		$	700		$	396
Discontinued operations	(1		)	35			(2		)	23
Total	$	396		$	99		$	698		$	419
NET EARNINGS (LOSS) PER SHARE - BASIC:
Continuing operations	$	3.11		$	0.48		$	5.41		$	2.92
Discontinued operations	(0.01		)	0.26			(0.02		)	0.17
Total	$	3.10		$	0.74		$	5.39		$	3.09
Weighted average common shares outstanding - Basic	127.9			134.6			129.5			135.8
NET EARNINGS (LOSS) PER SHARE - DILUTED:
Continuing operations	$	3.06		$	0.46		$	5.32		$	2.86
Discontinued operations	(0.01		)	0.26			(0.02		)	0.17
Total	$	3.05		$	0.72		$	5.30		$	3.03
Weighted average common shares outstanding - Diluted	129.7			136.8			131.7			138.1
DIVIDENDS PER SHARE	$	0.30		$	0.25		$	0.80		$	0.65
SUPPLEMENTAL INFORMATION:
(a) Includes excise taxes collected by our retail segment          (excluding credits)	$	148		$	151		$	441		$	423

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

3

TESORO CORPORATION

CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(In millions)
COMPREHENSIVE INCOME
Net Earnings	$	413	$	109	$	756	$	451
Pension and other postretirement benefit liability adjustments,    net of tax expense of $48 million	—		—		—		73
Total comprehensive income	413		109		756		524
Less: Noncontrolling interest in comprehensive income	17		10		58		32
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	396	$	99	$	698	$	492

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

4

TESORO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2014			December 31, 2013
	(Dollars in millions, except per share amounts)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (TLLP: $3 and $23, respectively)	$	1,530		$	1,238
Receivables, less allowance for doubtful accounts	1,578			1,313
Inventories	2,674			2,565
Prepayments and other current assets	182			210
Total Current Assets	5,964			5,326
NET PROPERTY, PLANT AND EQUIPMENT (TLLP: $1,489 and $1,398, respectively)	7,088			6,875
OTHER NONCURRENT ASSETS, NET	1,173			1,188
Total Assets	$	14,225		$	13,389
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	2,737		$	2,596
Other current liabilities	931			812
Total Current Liabilities	3,668			3,408
DEFERRED INCOME TAXES	1,167			1,018
OTHER NONCURRENT LIABILITIES	560			655
DEBT (TLLP: $1,276 and $1,164, respectively)	2,938			2,823
COMMITMENTS AND CONTINGENCIES (Note L)
EQUITY
TESORO CORPORATION STOCKHOLDERS’ EQUITY
Common stock, par value $0.162/3; authorized 200,000,000 shares; 156,447,233 shares issued (154,712,627 in 2013)	26			26
Additional paid-in capital	1,265			1,186
Retained earnings	4,534			3,940
Treasury stock, 29,525,051 common shares (22,907,890 in 2013), at cost	(1,170		)	(798		)
Accumulated other comprehensive loss	(52		)	(52		)
Total Tesoro Corporation Stockholders’ Equity	4,603			4,302
NONCONTROLLING INTEREST	1,289			1,183
Total Equity	5,892			5,485
Total Liabilities and Equity	$	14,225		$	13,389

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

5

TESORO CORPORATION

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2014			2013
	(Dollars in millions)
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings	$	756		$	451
Adjustments to reconcile net earnings to net cash from (used in) operating activities:
Depreciation and amortization expense	409			357
Debt redemption charges	41			—
Gain on sale of Hawaii Business	—			(80		)
Stock-based compensation expense	20			34
Deferred income taxes	227			222
Deferred charges	(119		)	(333		)
Other non-cash operating activities	(59		)	(46		)
Changes in current assets and current liabilities	(228		)	65
Net cash from operating activities	1,047			670
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	(477		)	(447		)
Acquisitions	(17		)	(2,615		)
Proceeds from sale of Hawaii Business	—			539
Other investing activities	11			—
Net cash used in investing activities	(483		)	(2,523		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	295			2,068
Borrowings under term loan credit agreement	—			500
Proceeds from debt offering	300			550
Repayments on revolving credit agreements	(52		)	(1,368		)
Repayments of debt	(433		)	(6		)
Dividend payments	(104		)	(88		)
Proceeds from stock options exercised	14			69
Net proceeds from issuance of Tesoro Logistics LP common units	156			392
Distributions to noncontrolling interest	(63		)	(43		)
Purchases of common stock	(350		)	(341		)
Taxes paid related to net share settlement of equity awards	(22		)	(5		)
Other financing activities	(13		)	(22		)
Net cash from (used in) financing activities	(272		)	1,706
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	292			(147		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,238			1,639
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,530		$	1,492

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

6

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, 2013 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, 2013.

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. 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 various long-term, fee-based commercial agreements with TLLP, transactions with us accounted for 86% and 87% of TLLP’s total revenues for the three and nine months ended September 30, 2014, respectively. TLLP does not derive a significant amount of revenue from third parties. However, in the event TLLP incurs a loss, our operating results will reflect TLLP’s loss, net of intercompany eliminations. See Note C for additional information relating to TLLP.

On September 25, 2013, we completed the sale of all of our interest in Tesoro Hawaii, LLC, which operated a 94 thousand barrel per day (“Mbpd”) Hawaii refinery, retail stations and associated logistics assets (the “Hawaii Business”). Unless otherwise noted, the information in the notes to the condensed consolidated financial statements relates to our continuing operations.

New Accounting Standards and Disclosures

Revenue Recognition

The Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) in May 2014, which provides accounting guidance for all revenue arising from contracts to provide goods or services to customers. The requirements from the new ASU are effective for interim and annual periods beginning after December 15, 2016, and early adoption is not permitted. The standard allows for either full retrospective adoption or modified retrospective adoption. At this time, we are evaluating the guidance to determine the method of adoption and the impact of this ASU on our financial statements and related disclosures.

7

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE B - ACQUISITIONS

Los Angeles Acquisition

We acquired BP’s integrated Southern California refining, marketing and logistics business on June 1, 2013 from BP West Coast Products, LLC and other affiliated sellers (the “Los Angeles Acquisition”) consistent with our business strategy and providing us with an opportunity to combine two West Coast refining, marketing and logistics businesses resulting in a more efficient integrated refining, marketing and logistics system. The acquired assets include the 266 Mbpd Carson refinery located adjacent to our Wilmington refinery, related marine terminals, land terminals and pipelines. The assets also 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 835 branded dealer-operated and branded wholesale stations in central and southern California, Nevada and Arizona. Additionally, we acquired an anode coke calcining operation and a 51% ownership in the Watson cogeneration facility, both located at the Carson refinery. We also assumed certain environmental liabilities, primarily remediation obligations. For additional information regarding the assumed environmental liabilities, see Note L.

Our allocation of the Los Angeles Acquisition's $2.33 billion purchase price was finalas of June 30, 2014. The table below presents the final acquisition date purchase price allocation (in millions):

Receivables	$	197
Inventories	1,096
Prepayments and other current assets	14
Property, plant and equipment	1,088
Acquired intangibles, net	63
Other noncurrent assets, net	112
Other current liabilities	(25		)
Other noncurrent liabilities	(182		)
Debt	(36		)
Total purchase price	$	2,327

If the Los Angeles Acquisition had occurred prior to 2013, our pro forma revenues and net earnings would have been $33.4 billion and $515 million for the nine months ended September 30, 2013, respectively.

NOTE C – 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 generate revenue by charging fees for gathering crude oil using its High Plains System and for terminalling, transporting and storing crude oil and refined products using terminal facilities and pipelines in the western United States. Tesoro Logistics GP, LLC (“TLGP”), a fully consolidated subsidiary, serves as the general partner of TLLP. We held an approximate 35% and 36% interest in TLLP at September 30, 2014 and December 31, 2013, respectively, including the general partner interest. This interest at September 30, 2014 includes 19,481,557 common units and 1,163,138 general partner units. During the second quarter of 2014, all subordinated units converted to common units. All intercompany transactions with TLLP are eliminated upon consolidation.

TLLP provides us with various pipeline transportation, trucking, terminal distribution, storage and coke-handling services under long-term, fee-based commercial agreements. Each of these agreements, with the exception of the storage and transportation services agreement, contain minimum volume commitments. We do not provide financial or equity support through any liquidity arrangements or financial guarantees to TLLP.

8

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

QEPFS Acquisition

On October 19, 2014, TLLP reached a definitive agreement (“QEPFS Purchase Agreement”) to acquire the natural gas gathering, processing, treating and transportation and crude oil gathering business of QEP Resources, Inc.’s wholly-owned subsidiary, QEP Field Services Company, LLC (“QEPFS”), with operations in Wyoming, Colorado, Utah and the Williston Basin in North Dakota (the “QEPFS Acquisition”). QEPFS also provides natural gas liquids fractionation and transportation services for its producer customers through QEPFS’ direct ownership and operation of two gathering systems and two processing complexes. The acquisition transforms TLLP into a full-service logistics company with assets allowing geographic diversification in support of our strategic initiatives. As part of the transaction, TLLP will acquire 56% of the limited partner interests in QEP Midstream Partners, LP (“QEP Midstream”). Additionally, TLLP is acquiring the general partner of QEP Midstream including its 2% general partner interest and 100% of the incentive distribution rights. TLLP expects to pay total consideration of approximately $2.5 billion, including $230 million to refinance QEP Midstream’s outstanding debt. The transaction is subject to regulatory approval and other closing conditions. The QEPFS Purchase Agreement provides for us to pay a break-up fee of $150 millionin the event that we terminate the agreement, except for termination for specified reasons.

On October 24, 2014, in connection with the QEPFS Acquisition, TLLP closed a registered public offering of 23 million common units, including an over-allotment option that was exercised allowing the underwriters to purchase an additional 3 million common units, representing limited partner interests in TLLP (the “October Equity Offering”) to raise $1.3 billion, including the purchase of common units by Tesoro of an amount equal to $500 million and TLGP’s $27 million contribution to maintain its 2% general partner interest in TLLP. Additionally, on October 29, 2014, TLLP completed a private offering of $1.3 billion aggregate principal amount of senior notes (the “Senior Notes Offering”) pursuant to a private placement transaction conducted under Rule 144A and Regulation S of the Securities Act of 1933, as amended. The Senior Notes Offering consists of tranches for 5.50% senior notes due in 2019 and 6.25% senior notes due in 2022. TLLP intends to use the proceeds from the October Equity Offering, Senior Notes Offering, and the general partner contribution to repay amounts outstanding under its existing revolving credit facility with the remainder, including amounts to be borrowed under TLLP’s expanded revolving credit facility, to be used primarily to fund the QEPFS acquisition and payment of related fees and expenses. Refer to Note J for further information on the Senior Notes Offering and expansion of TLLP’s revolving credit facility.

Other Transactions

During the three months ended September 30, 2014, TLLP purchased certain terminalling and pipeline assets owned by Tesoro and two of our subsidiaries for total consideration of $270 million. On July 1, 2014, TLLP closed on the purchase of the first portion consisting of three marketing terminals and a storage facility in exchange for consideration of $241 million, comprised of approximately $214 million in cash financed with borrowings under TLLP’s revolving credit facility, and the issuance of equity to us with a fair value of $27 million.  On September 30, 2014, TLLP completed the second portion by acquiring Tesoro Alaska Pipeline Company LLC, which owns a refined products pipeline located in Alaska, for total cash consideration of $29 million, financed with borrowings under TLLP’s revolving credit facility.

On August 22, 2014, TLLP completed a public offering of 2.1 million common units for net proceeds of $142 million. Using the proceeds from the offering, TLLP redeemed an aggregate principal amount of $130 million of its 5.875% Senior Notes due 2020 (the “2020 Notes”) at a premium. TLLP recorded charges for premiums paid due to the early redemption and expensing of unamortized debt issuance costs totaling $10 million. We reimbursed TLLP through a capital contribution of $8 million related to the early debt redemption premiums.

On June 25, 2014, TLLP filed a prospectus supplement to its shelf registration statement filed with the SEC in 2012, authorizing the continuous issuance of up to an aggregate of $200 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of its offerings. During the three months ended September 30, 2014, TLLP issued 193,900 common units under this program for net proceeds of $14 million.

9

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE D - DISCONTINUED OPERATIONS

On September 25, 2013, we completed the sale of our Hawaii Business and received gross proceeds of $539 million, including $75 million from the sale of assets and $464 million from the sale of inventory and other net working capital. Additional contingent consideration includes an earnout arrangement payable over three years for an aggregate amount of up to $40 million based on consolidated gross margins. Any income related to the earnout arrangement will not be recorded until it is considered realizable. We have also agreed to indemnify the purchaser for up to $15 million of environmental remediation costs related to the Hawaii Business, subject to limitations described in the purchase agreement, and retained responsibility for the resolution of certain Clean Air Act allegations as described in Note L. The asset retirement obligations were assumed by the purchaser upon close of the transaction; therefore, we will not incur any removal or other closure costs for this business.

The results of operations for this business have been presented as discontinued operations in the condensed statements of consolidated operations for the three and nine months ended September 30, 2014 and 2013. There were no revenues for the three and nine months ended September 30, 2014. Revenues from the discontinued Hawaii Business for the three and nine months ended September 30, 2013 were $585 million and $2.0 billion, respectively. We recorded losses, before and after tax, of $2 million and $1 million, respectively, for the three months ended September 30, 2014 and $3 million and $2 million, respectively, for the nine months ended September 30, 2014 related to the Hawaii Business. We recorded income, before and after tax of $56 million and $35 million, respectively, including a pre-tax gain on sale of $80 million, for the three months ended September 30, 2013 and $39 million and $23 million, respectively, for the nine months ended September 30, 2013 related to the Hawaii Business.

Cash flows related to the discontinued Hawaii Business have been combined with the cash flows from continuing operations in the condensed statements of consolidated cash flows for both periods presented. Cash flows used in operating activities were $2 million for the nine months ended September 30, 2014. Cash flows provided by operating activities were $74 million and cash flows used in investing activities were $537 million for the nine months ended September 30, 2013.

NOTE E – 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. Our share calculations are presented below (in millions):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2014	2013	2014	2013
Weighted average common shares outstanding	127.9	134.6	129.5	135.8
Common stock equivalents	1.8	2.2	2.2	2.3
Total diluted shares	129.7	136.8	131.7	138.1

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 0.1 millionand 0.2 million for the three months ended September 30, 2014 and 2013, respectively, and0.1 million for both the nine months ended September 30, 2014 and 2013, respectively.

10

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE F – INVENTORIES

Components of inventories were as follows (in millions):

	September 30, 2014		December 31, 2013
Domestic crude oil and refined products	$	2,200	$	1,847
Foreign subsidiary crude oil	282		523
Other inventories	192		195
Total Inventories	$	2,674	$	2,565

The total carrying value of our crude oil and refined product inventories was less than replacement cost by approximately$1.6 billion and $1.7 billion at September 30, 2014 and December 31, 2013, respectively.

NOTE G - PROPERTY, PLANT AND EQUIPMENT

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

	September 30, 2014			December 31, 2013
Refining	$	6,820		$	6,546
TLLP	1,710			1,569
Retail	812			778
Corporate	242			230
Property, plant and equipment, at cost	9,584			9,123
Accumulated depreciation	(2,496		)	(2,248		)
Net property, plant and equipment	$	7,088		$	6,875

We capitalize interest as part of the cost of major projects during the construction period. Capitalized interest totaled $7 million and $3 million for the three months ended September 30, 2014 and 2013, respectively, and $17 million and $12 million for the nine months ended September 30, 2014 and 2013, respectively, and is recorded as a reduction to net interest and financing costs in our condensed statements of consolidated operations.

NOTE H - DERIVATIVE INSTRUMENTS

In the ordinary course of business, our profit margins, earnings and cash flows are impacted by the timing, direction and overall change in pricing for commodities used throughout our operations. We use non-trading derivative instruments to manage our exposure to the following:

• price risks associated with the purchase or sale of feedstocks, refined products and energy supplies to or from our refineries, terminals, retail operations and customers;

• price risks associated with inventories above or below our target levels;

• future emission credit requirements; and

• exchange rate fluctuations on our purchases of Canadian crude oil.

Our accounting for derivative instruments depends on whether the underlying commodity will be used or sold in the normal course of business. For contracts where the crude oil or refined products are expected to be used or sold in the normal course of business, we apply the normal purchase normal sale exception and follow the accrual method of accounting. All other derivative instruments are recorded at fair value using mark-to-market accounting.

11

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our derivative instruments include forward purchase and sale contracts (“Forward Contracts”), exchange-traded futures (“Futures Contracts”), over-the-counter swaps (“OTC Swap Contracts”), options (“Options”), and over-the-counter options (“OTC Option Contracts”). Forward Contracts are agreements to buy or sell the commodity at a predetermined price at a specified future date. Futures Contracts are standardized agreements, traded on a futures exchange, to buy or sell the commodity at a predetermined price at a specified future date. Options provide the right, but not the obligation to buy or sell the commodity at a specified price in the future. OTC Swap Contracts and OTC Option 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. We believe that we have minimal credit risk with respect to our counterparties.

The following table presents the fair value (in millions) of our derivative instruments as of September 30, 2014 and December 31, 2013. 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 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	September 30, 2014			December 31, 2013			September 30, 2014			December 31, 2013
Commodity Futures Contracts (a)	Prepayments and other current assets	$	373		$	140		$	324		$	158
Commodity Forward Contracts	Receivables	1			—			—			—
Commodity Forward Contracts	Accounts payable	—			—			1			1
Foreign Currency Forward    Contracts	Accounts payable	—			—			1			—
Total Gross Mark-to-Market    Derivatives		374			140			326			159
Less: Counterparty Netting and    Cash Collateral (b)		(302		)	(72		)	(324		)	(137		)
Total Net Fair Value of Derivatives		$	72		$	68		$	2		$	22

________________

(a) We had derivative assets totaling $7 million and $3 million at September 30, 2014 and December 31, 2013, respectively, related to corn futures used to manage our biofuel exposure. Additionally, we had derivative liabilities totaling $3 million and $1 million at September 30, 2014 and December 31, 2013, respectively, related to corn futures.

(b) As of September 30, 2014 and December 31, 2013, cash collateral amounts of $22 million and $65 million, respectively, are netted with mark-to-market derivative assets.

Gains (losses) for our mark-to market derivatives for the three and nine months ended September 30, 2014 and 2013 were as follows (in millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Commodity Futures Contracts	$	167		$	(73	)	$	90		$	(89	)
Commodity OTC Swap Contracts	(2		)	—			(5		)	—
Commodity Forward Contracts	1			7			5			3
Foreign Currency Forward Contracts	(3		)	—			(3		)	(4		)
Total Gain (Loss) on Mark-to-Market Derivatives	$	163		$	(66	)	$	87		$	(90	)

12

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenues	$	6		$	(10	)	$	7		$	—
Cost of sales	160			(45		)	83			(65		)
Other income, net	(3		)	—			(3		)	(4		)
Net loss from discontinued operations	—			(11		)	—			(21		)
Total Gain (Loss) on Mark-to-Market Derivatives	$	163		$	(66	)	$	87		$	(90	)

Open Long (Short) Positions

The information below presents the net volume of outstanding commodity and other contracts by type of instrument, year of maturity and unit of measure as of September 30, 2014 (units in thousands):

	Contract Volumes by Year of Maturity
Mark-to-Market Derivative Instrument	2014	2015	2016	2017	Unit of Measure
Crude oil, refined products and blending products:
Futures - short	(8,625)	(116)	—	—	Barrels
OTC Swaps - long	200	—	—	—	Barrels
Forwards - short	(272)	—	—	—	Barrels
Carbon credits:
Futures - long	—	—	1,000	1,000	Tons
Renewable identification numbers:
Futures - short	(500)	—	—	—	Gallons
Corn:
Futures - short	(2,720)	—	—	—	Bushels

At September 30, 2014, we had open Forward Contracts to purchase CAD $66 million that matured on October 24, 2014.

NOTE I – FAIR VALUE MEASUREMENTS

We classify financial assets and liabilities according to the fair value hierarchy. Financial assets and liabilities classified as level 1 instruments are valued based on quoted prices in active markets for identical assets and liabilities. Level 2 instruments are valued based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices, such as liquidity, that are observable for the asset or liability. These instruments include derivative instruments that are valued using market quotations from independent price reporting agencies, third-party broker quotes and price curves derived from commodity exchange postings that are corroborated with market data. Level 3 instruments are 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 do not have any financial assets or liabilities classified as level 3 at September 30, 2014 or December 31, 2013.

Our financial assets and liabilities measured at fair value on a recurring basis include derivative instruments along with obligations for Renewable Identification Numbers (“RINs”) and cap and trade emission credits for the state of California (together with RINs, our “Environmental Credit Obligations”). See Note H for further information on our derivative instruments. Our Environmental Credit Obligations represent the fair value of our deficit at each balance sheet date for RINs and California cap and trade credits needed to satisfy requirements mandated by the U.S. Environmental Protection Agency (“EPA”) and the state of California, respectively. RINs are assigned to biofuels produced or imported into the U.S. as required by the EPA, which sets annual quotas for the percentage of biofuels that must be blended into transportation fuels consumed in the U.S. As a producer of petroleum transportation fuels, we are required to blend biofuels into the products we produce at a rate that will meet the EPA’s quota. If we are unable to blend at that rate, we must purchase RINs in the open market to satisfy the requirement. Our liability for cap and trade emission credits for the state of California represent our deficit of credits to satisfy emission reduction requirements mandated in California’s Assembly Bill 32 in each period for which our carbon emissions exceed the level allowed by the regulation.

13

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

	September 30, 2014
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	360	$	13	$	—	$	(302	)	$	71
Commodity Forward Contracts	—		1		—		—			1
Total Assets	$	360	$	14	$	—	$	(302	)	$	72
Liabilities:
Commodity Futures Contracts	$	316	$	8	$	—	$	(324	)	$	—
Commodity Forward Contracts	—		1		—		—			1
Foreign Currency Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		18		—		—			18
Total Liabilities	$	316	$	28	$	—	$	(324	)	$	20

	December 31, 2013
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	136	$	4	$	—	$	(72	)	$	68
Total Assets	$	136	$	4	$	—	$	(72	)	$	68
Liabilities:
Commodity Futures Contracts	$	156	$	2	$	—	$	(137	)	$	21
Commodity Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		5		—		—			5
Total Liabilities	$	156	$	8	$	—	$	(137	)	$	27

________________

(a) Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We 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. As of September 30, 2014 and December 31, 2013, cash collateral amounts of $22 million and $65 million, respectively, are netted with mark-to-market derivative assets.

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 borrowings under the Tesoro Corporation revolving credit facility (the “Revolving Credit Facility”), the TLLP senior secured revolving credit agreement (the “TLLP Revolving Credit Facility”) and our term loan credit facility agreement (the “Term Loan Credit Facility”), which include variable interest rates, approximate fair value. The fair value of our fixed rate debt is based on prices from recent trade activity and is categorized in level 2 of the fair value hierarchy. The carrying and fair value of our debt were both approximately $2.9 billion at September 30, 2014. The carrying value and fair value of our debt were approximately $2.8 billion and $2.9 billion, respectively, at December 31, 2013.

14

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE J – DEBT

Our total debt balance at September 30, 2014 and December 31, 2013 was as follows (in millions):

	September 30, 2014		December 31, 2013
Total debt (a)	$	2,944	$	2,829
Less: Current maturities	6		6
Debt, less current maturities	$	2,938	$	2,823

________________

(a) Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was $1.3 billion and $1.2 billion at September 30, 2014 and December 31, 2013, respectively.

TLLP Senior Notes due 2019 and 2022

On October 29, 2014, TLLP completed the Senior Notes Offering with tranches of $500 million of 5.50% senior notes due in 2019 (the “TLLP 2019 Notes”) and $800 million of 6.25% senior notes due in 2022 (the “TLLP 2022 Notes”). Interest on each series of notes will be payable semi-annually on each April 15 and October 15, beginning April 15, 2015. The proceeds from the TLLP 2019 Notes were used to repay amounts outstanding under the TLLP Revolving Credit Facility related to its recent acquisition of logistics assets from Tesoro during the third quarter of 2014. The TLLP 2022 Notes closed into escrow to fund the QEPFS Acquisition. The remaining net proceeds from the TLLP 2019 Notes, the TLLP 2022 Notes and borrowings under the revolving credit facility will be a source of funding for the QEPFS Acquisition. The escrowed proceeds from the TLLP 2022 Notes will be released to fund the QEPFS Acquisition upon TLLP’s closing of the acquisition and other customary conditions outlined in the debt agreement. If these conditions are not satisfied by December 31, 2014 (subject to monthly extensions until February 28, 2015), the TLLP 2022 Notes can be redeemed at 100% of their initial issue price, plus accrued and unpaid interest.

TLLP Senior Note Redemption

During the three months ended September 30, 2014, using the proceeds from its August 2014 offering, TLLP redeemed an aggregate principal amount of $130 million of the 2020 Notes at a premium. TLLP recorded charges totaling $10 million as net interest and financing costs in our condensed statement of consolidated operations for premiums paid due to the early redemption and expensing of unamortized debt issuance costs. Refer to Note C for additional information on TLLP’s senior note redemption.

Exchange Offer

TLLP entered into a registration rights agreement in connection with the December 2013 private offering of $250 million of unregistered 2020 Notes (the “Unregistered Notes”). On July 25, 2014, TLLP completed an offer to exchange the Unregistered Notes for notes registered under the Securities Act of 1933, as amended (the “Exchange Notes”). In accordance with the terms of the Exchange Notes, each holder of the Unregistered Notes were entitled to receive Exchange Notes, which are identical in all material respects to the Unregistered Notes (including principal amount, interest rate, maturity and redemption rights), except that the Exchange Notes generally are not subject to transfer restrictions.

15

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5.125% Senior Notes due 2024

Effective March 18, 2014, we issued $300 million aggregate principal amount of 5.125% Senior Notes due 2024 (the “2024 Notes”).  The 2024 Notes have a ten-year maturity and are subject to optional redemption by Tesoro beginning April 1, 2019 at premiums of 2.563% through March 31, 2020; 1.708% from April 1, 2020 through March 31, 2021; 0.854% from April 1, 2021 through March 31, 2022; and at par thereafter, or at a make-whole plus accrued and unpaid interest before April 1, 2019. In addition, at any time prior to April 1, 2017, we may redeem up to 35% of the aggregate principal amount at 105.125% of face value with proceeds from certain equity issuances. The terms of the 2024 Notes are generally less restrictive than those contained in our senior notes due in 2017 and 2022, and exclude some limitations on restricted payments, asset sales and other transactions that are included in those senior notes. These notes are unsecured obligations and guaranteed by certain of our domestic subsidiaries, excluding TLGP and TLLP and its subsidiaries. The proceeds from the issuance of the 2024 Notes, together with cash on hand, were used to pay for fees and expenses related to the note issuance and to redeem all outstanding 9.750% Senior Notes due 2019 (the “2019 Notes”) for an aggregate purchase price of $329 million, including accrued interest and premiums. In connection with the redemption of the 2019 Notes, we incurred charges totaling $31 million comprised of premiums paid on the 2019 Notes of $19 million and non-cash charges associated with the expensing of $8 million and $4 million of unamortized debt discount and issuance costs, respectively. Our debt redemption charges for the 2019 Notes are recorded in net interest and financing costs in our condensed statements of consolidated operations.

Credit Facilities Overview

We had available capacity under our credit facilities as follows at September 30, 2014 (in millions):

	Total Capacity		Amount Borrowed as of September 30, 2014		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (a)	$	3,000	$	—	$	824	$	2,176	January 4, 2018
TLLP Revolving Credit Facility	575		243		—		332		December 31, 2017
Term Loan Credit Facility	398		398		—		—		May 30, 2016
Letter of Credit Facilities	1,837		—		784		1,053
Total credit facilities	$	5,810	$	641	$	1,608	$	3,561

________________

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

As of September 30, 2014, 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    ($3.0 billion) (b)	0.16%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($575 million) (c)	0.16%	2.50%	3.25%	1.50%	0.50%
Term Loan Credit Facility ($398 million) (b)	0.16%	2.25%	3.25%	1.25%	—%

________________

(b) We can elect the interest rate to apply to the 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 on the Revolving Credit Facility varies primarily based upon our credit ratings. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate.

(c) TLLP has the option to elect if the borrowings will bear interest at either, a base rate plus the base rate margin or a Eurodollar rate, for the applicable period, 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. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate.

16

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tesoro Corporation Revolving Credit Facility

At September 30, 2014, 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 $4.4 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 $3.0 billion. The total available capacity can be increased up to an aggregate amount 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 November 21, 2014, and by an additional $500 million on or prior to May 21, 2015. We had unused credit availability of approximately 73% of the eligible borrowing base at September 30, 2014.

TLLP Revolving Credit Facility

The TLLP Revolving Credit Facility provided for total loan availability of $575 million as of September 30, 2014, and TLLP may 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 $243 million in borrowings outstanding under the TLLP Revolving Credit Facility, which incurred interest at a weighted average interest rate of 2.65% at September 30, 2014. In conjunction with the announcement of the QEPFS Acquisition, TLLP executed a commitment letter to amend and restate the TLLP Revolving Credit Facility to increase the total loan availability to $900 million and extend the maturity date five years from the date the facility is amended and restated.

Term Loan Credit Facility

We entered into the Term Loan Credit Facility in January 2013, which allowed us to borrow up to an aggregate of $500 million. We borrowed $500 million on May 30, 2013 to fund a portion of the Los Angeles Acquisition. The obligations under the Term Loan Credit Facility are secured by all equity interests of Tesoro Refining & Marketing Company LLC and Tesoro Alaska Company LLC, the Tesoro and USA Gasoline trademarks and those trademarks containing the name “ARCO” acquired in the Los Angeles Acquisition and junior liens on certain assets. The Term Loan Credit Facility may be repaid at any time but amounts may not be re-borrowed. The borrowings under our Term Loan Credit Facility incurred interest at a rate of 2.40% as of September 30, 2014.

Our Revolving Credit Facility, senior notes and Term Loan Credit Facility each limit our ability to make certain 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.

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. Our uncommitted letter of credit agreements had $784 million outstanding as of September 30, 2014. Capacity under these letter of credit agreements is available on an uncommitted basis and can be terminated by either party at any time.

NOTE K – BENEFIT PLANS

Tesoro sponsors four defined benefit pension plans, including one funded qualified employee retirement plan and three unfunded nonqualified executive plans. Although our funded employee retirement plan fully meets all funding requirements under applicable laws and regulations, we voluntarily contributed $60 million during the nine months ended September 30, 2014 to improve the funded status of the plan. Tesoro also provides other postretirement health care benefits to retirees who met certain service requirements and were participating in our group health insurance program at retirement.

17

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The components of pension and other postretirement benefit expense (income) for the three and nine months ended September 30, 2014 and 2013 were (in millions):

	Pension Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Service cost	$	12		$	13		$	38		$	27
Interest cost	7			9			24			22
Expected return on plan assets	(6		)	(6		)	(21		)	(18		)
Amortization of prior service cost	—			1			1			1
Recognized net actuarial loss	3			3			10			16
Net Periodic Benefit Expense	$	16		$	20		$	52		$	48
	Other Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Service cost	$	—		$	—		$	2		$	3
Interest cost	1			1			2			2
Amortization of prior service credit	(8		)	(8		)	(25		)	(27		)
Recognized net actuarial loss	1			1			4			6
Recognized curtailment gain	—			(17		)	—			(17		)
Net Periodic Benefit Income	$	(6	)	$	(23	)	$	(17	)	$	(33	)

NOTE L - COMMITMENTS AND CONTINGENCIES

Environmental Matters

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 incurring and expect to continue to incur expenses for environmental remediation 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. Additionally, we have recognized environmental remediation liabilities assumed in past acquisitions from the prior owners that include amounts estimated for site cleanup and monitoring activities arising from operations at refineries, certain terminals and pipelines, and retail stations prior to the dates of our acquisitions. 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.

18

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our accruals for environmental expenditures totaled $261 million and $262 million at September 30, 2014 and December 31, 2013, respectively, including $21 million and $24 million for TLLP, respectively. These accruals include $218 million and $216 million at September 30, 2014 and December 31, 2013, respectively, related to amounts estimated for site cleanup activities arising from operations at our Martinez refinery prior to August 2000 and operations of assets acquired in the Los Angeles Acquisition prior to June 1, 2013. We cannot reasonably determine the full extent of remedial activities that may be required at the Martinez refinery and for assets acquired in the Los Angeles Acquisition, and it is possible that we will identify additional investigation and remediation costs for site cleanup activities as more information becomes available. Our estimates for site cleanup activities reflect amounts for which we are responsible under applicable cost-sharing arrangements. We also have insurance policiesrelated to certain matters at our Martinez refinery that provide coverage up to $190 million for expenditures in excess of $50 million in self-insurance. We have not recognized possible insurance recoveries and the insurer has challenged coverage and filed a declaratory relief action in federal court.

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 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. In separate September 2013 and November 2013 orders, the Board of Industrial Insurance Appeals granted partial summary judgment in our favor and dismissed most of the citations. We have established an accrual for this matter although we cannot currently estimate the final amount or timing of its resolution. The outcome of this matter will not have a material impact on our liquidity, financial position, or results of operations.

On May 1, 2014, the CSB finalized its investigation report on the April 2010 naphtha hydrotreater unit fire at our Washington refinery. In the report, the CSB made recommendations to federal and state agencies, the American Petroleum Industry and us. In response to the recommendations made to us, we have communicated to the CSB the actions we are and will be taking. Our completion of those actions will not have a material impact on our liquidity, financial position, or results of operations.

On August 15, 2014, the U.S. Department of Justice (“DOJ”) announced the closure of its investigation of the Washington naphtha hydrotreater fire. In the announcement, the DOJ, who conducted the investigation in conjunction with EPA, stated it declined to bring criminal charges.

We received a notice of violation (“NOV”) from the EPA alleging 46 violations of the Clean Air Act Risk Management Plan requirements at our Washington refinery on November 20, 2013. The EPA conducted an investigation of the refinery in 2011, following the April 2010 fire in the naphtha hydrotreater unit. While we have submitted a response to the EPA and requested clarification of certain allegations, we cannot currently estimate the amount or timing of the resolution of this matter. We believe the outcome will not have a material impact on our liquidity, financial position, or results of operations.

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.

Legal

We are a defendant, along with other manufacturing, supply and marketing defendants, in a lawsuit brought by the Orange County Water District, alleging methyl tertiary butyl ether (“MTBE”) contamination in groundwater. The lawsuit is proceeding in the United States District Court of the Southern District of New York and the defendants are being sued for having manufactured MTBE and having manufactured, supplied and distributed gasoline containing MTBE. The plaintiff alleges, in part, that the defendants are liable for manufacturing or distributing a defective product. The suit generally seeks individual, unquantified compensatory and punitive damages and attorney’s fees. We intend to vigorously assert our defenses against this claim. While we cannot currently estimate the final amount or timing of the resolution of this matter, we have established an accrual and believe that the outcome will not have a material impact on our liquidity, financial position, or results of operations.

19

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Environmental

The EPA has alleged that we have violated certain Clean Air Act regulations at our Alaska, Washington, Martinez, North Dakota and Utah refineries. We also retained the responsibility for resolving similar allegations relating to our former Hawaii refinery, which we sold in September 2013. We previously received a NOV in March 2011 from the EPA alleging violations of Title V of the Clean Air Act at our Alaska refinery, which arose 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 continuing discussions of all EPA claims with the EPA and the DOJ. The ultimate resolution of these matters could have a material impact on our future interim or annual results of operations, as we may be required to incur material capital expenditures and/or civil penalties. However, we do not believe that the outcome will have a material impact on our liquidity or financial position.

We have investigated conditions at certain active wastewater treatment units at our Martinez refinery pursuant to an order received in 2004 from the San Francisco Bay Regional Water Quality Control Board that 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 liquidity, financial position, or results of operations.

Tax

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. However, we believe that resolution of any such claim(s) would not have a material impact on our liquidity, financial position, or results of operations. It is reasonably possible that unrecognized tax benefits may decrease by as much as $8 million in the next twelve months, related primarily to state apportionment matters. However, since the tax was fully paid in prior years, the unrecognized tax benefit would be eliminated without impacting expense.

20

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE M - STOCKHOLDERS’ EQUITY

Changes to equity during the nine months ended September 30, 2014 are presented below (in millions):

	Tesoro Corporation Stockholders’ Equity			Noncontrolling  Interest			Total Equity
Balance at December 31, 2013 (a)	$	4,302		$	1,183		$	5,485
Net earnings	698			58			756
Purchases of common stock	(350		)	—			(350		)
Dividend payments	(104		)	—			(104		)
Shares issued for equity-based compensation awards (b)	14			—			14
Amortization of equity settled awards	20			1			21
Excess tax benefits from stock-based compensation arrangements, net	18			—			18
Taxes paid related to net share settlement of equity awards	(22		)	—			(22		)
Net proceeds from issuance of Tesoro Logistics LP common units	—			156			156
Distributions to noncontrolling interest	—			(63		)	(63		)
Other	27			(46		)	(19		)
Balance at September 30, 2014 (a)	$	4,603		$	1,289		$	5,892

________________

(a) We have 5.0 million shares of preferred stock authorized with no par value per share. No shares of preferred stock were outstanding as of September 30, 2014 and December 31, 2013.

(b) We issued approximately 0.5 million shares and 2.0 million shares for proceeds of $14 million and $69 million primarily for stock option exercises under our equity-based compensation plans during the nine months ended September 30, 2014 and 2013, respectively.

Share Repurchases

We are authorized by our Board to purchase shares of our common stock in open market transactions at our discretion. The Board’s authorization has no time limit and may be suspended or discontinued at any time. Purchases of our common stock can also be made to offset the dilutive effect of stock-based compensation awards and to meet our obligations under employee benefit and compensation plans, including the exercise of stock options and vesting of restricted stock and to fulfill other stock compensation requirements. We purchased approximately 6.2 million shares and 6.4 million shares of our common stock for approximately $350 million and $336 million during the nine months ended September 30, 2014 and 2013, respectively. On July 30, 2014, our Board approved a new $1.0 billion share repurchase program to become effective upon the full completion of our current $1.0 billion share repurchase authorization.

Cash Dividends

We paid cash dividends totaling $39 million and $104 million for the three and nine months ended September 30, 2014, respectively, based on a $0.30 per share and $0.25 per share quarterly cash dividend on common stock in the third quarter and the first two quarters, respectively. We paid cash dividends totaling $33 million and $88 million for the three and nine months ended September 30, 2013, respectively, based on a $0.25 per share quarterly cash dividend on common stock in the third quarter and a $0.20 per share quarterly cash dividend on common stock in the first and second quarters. On October 30, 2014, our Board declared a cash dividend of $0.30 per share, payable on December 15, 2014 to shareholders of record on November 28, 2014.

NOTE N - STOCK-BASED COMPENSATION

Stock-based compensation expense (benefit), including discontinued operations, was as follows (in millions):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014			2013
Stock appreciation rights (a)	$	4	$	(18	)	$	(2	)	$	6
Performance share awards (b)	3		—			7			10
Market stock units (c)	4		5			12			13
Other stock-based awards (d)	1		—			3			5
Total Stock-Based Compensation Expense (Benefit)	$	12	$	(13	)	$	20		$	34

________________

(a) We paid cash of $22 million and $32 million to settle 0.8 million and 1.4 million SARs that were exercised during the nine months ended September 30, 2014 and 2013, respectively. We had $53 million and $76 million recorded in accrued liabilities associated with our SARs awards at September 30, 2014 and December 31, 2013, respectively.

(b) We granted 0.2 million performance share awards, including awards with performance and market conditions, at a weighted average grant date fair value of $53.89 per share under the amended and restated 2011 Long-Term Incentive Plan (“2011 Plan”) during the nine months ended September 30, 2014.

(c) We granted 0.5 million market stock units at a weighted average grant date fair value of $59.83 per unit under the 2011 Plan during the nine months ended September 30, 2014.

(d) We have aggregated expenses for certain award types as they are not considered significant.

The income tax effect recognized in the income statement for stock-based compensation was a benefit of $7 million and an expense of $5 million for the three months ended September 30, 2014 and 2013, respectively, and a benefit of $9 million and $12 million for the nine months ended September 30, 2014 and 2013, 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 $7 million and $1 million for the three months ended September 30, 2014 and 2013, respectively, and $41 million and $39 million for the nine months ended September 30, 2014 and 2013, respectively.

21

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE O - OPERATING SEGMENTS

The Company’s revenues are derived from three operating segments: refining, TLLP and retail. We own and operate six petroleum refineries located in California, Washington, Alaska, North Dakota and Utah that 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 and opportunistically export refined products to foreign markets. TLLP’s assets and operations include certain crude oil gathering assets and crude oil and refined products terminalling and transportation assets acquired from Tesoro and other third parties. Revenues from the TLLP segment are generated by charging fees for gathering crude oil and for terminalling, transporting and storing crude oil and refined products. Our retail segment sells gasoline, diesel fuel and convenience store items through company-operated retail stations and branded jobber/dealers in 16 states. Since we do not have significant operations in foreign countries, 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 prices which approximate market. TLLP revenues include intersegment transactions with our refining segment at prices which we believe are no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. Income taxes, other income, net, interest and financing costs, net, corporate depreciation and corporate general and administrative expenses are excluded from segment operating income.

22

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Segment information related to continuing operations is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(In millions)
Revenues
Refining:
Refined products	$	10,409		$	10,674		$	30,429		$	25,564
Crude oil resales and other	434			358			1,060			1,425
TLLP:
Crude oil gathering	32			24			84			66
Terminalling and transportation	118			73			326			146
Retail:
Fuel (a)	3,382			3,362			9,929			7,087
Merchandise and other	73			70			203			177
Intersegment sales	(3,297		)	(3,320		)	(9,843		)	(6,980		)
Total Revenues	$	11,151		$	11,241		$	32,188		$	27,485
Segment Operating Income
Refining (b)	$	578		$	128		$	1,137		$	766
TLLP (c)	61			13			169			53
Retail	138			56			229			96
Total Segment Operating Income	777			197			1,535			915
Corporate and unallocated costs (d)	(75		)	(51		)	(185		)	(212		)
Operating Income	702			146			1,350			703
Interest and financing costs, net (e)	(51		)	(47		)	(169		)	(110		)
Other income, net (f)	12			22			14			78
Earnings Before Income Taxes	$	663		$	121		$	1,195		$	671
Depreciation and Amortization Expense
Refining	$	112		$	109		$	317		$	286
TLLP	18			16			51			28
Retail	10			9			30			26
Corporate	4			6			11			16
Total Depreciation and Amortization Expense	$	144		$	140		$	409		$	356
Capital Expenditures
Refining	$	118		$	88		$	280		$	317
TLLP	63			23			137			59
Retail	9			10			27			26
Corporate	4			2			20			10
Total Capital Expenditures	$	194		$	123		$	464		$	412

___________________________

(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 $148 million and $151 million for the three months ended September 30, 2014 and 2013, respectively, and $441 million and $423 million for the nine months ended September 30, 2014 and 2013, respectively.

(b) Includes $16 million in business interruption insurance recoveries for the three and nine months ended September 30, 2013.

(c) We present TLLP’s segment operating income net of general and administrative expenses totaling $6 million and $4 million representing TLLP’s corporate costs for the three months ended September 30, 2014 and 2013, respectively, and $14 million and $12 million for the nine months ended September 30, 2014 and 2013, respectively that are not allocated to TLLP’s operating segments.

(d) Includes stock-based compensation expense of $12 million and benefit of $12 million for the three months ended September 30, 2014 and 2013, respectively, and expense of $20 million and $33 million for the nine months ended September 30, 2014 and 2013, respectively. The significant impact to stock-based compensation expense during the three and nine months ended September 30, 2014 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

(e) Includes charges totaling $10 million and $41 million for premiums and unamortized debt issuance costs associated with the redemption of the 2019 Notes and 2020 Notes during the three and nine months ended September 30, 2014.

(f) Includes $54 million in refunds from a settlement of a rate proceeding from the California Public Utilities Commission for the nine months ended September 30, 2013 and the release of a $16 million legal reserve as a result of the favorable settlement of litigation for the three and nine months ended September 30, 2013.

23

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE P - CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Separate condensed consolidating financial information of Tesoro Corporation (the “Parent”), subsidiary guarantors and non-guarantors is presented below. At September 30, 2014, Tesoro and certain subsidiary guarantors have fully and unconditionally guaranteed our 4.250% Senior Notes due 2017, 5.375% Senior Notes due 2022, and 2024 Notes. TLLP, in which we had a 35% ownership interest as of September 30, 2014, 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. This 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. Intercompany transactions between subsidiaries are presented gross and eliminated in the eliminations column. Additionally, the results of operations of the Hawaii Business have been reported as discontinued operations in these condensed consolidating statements of operations and comprehensive income for the three and nine months ended September 30, 2014 and 2013.

Condensed Consolidating Statement of Operations

for the Three Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	12,528		$	1,671		$	(3,048	)	$	11,151
COSTS AND EXPENSES:
Cost of sales	—			11,076			1,504			(2,986		)	9,594
Operating, selling, general and administrative expenses	2			692			78			(62		)	710
Depreciation and amortization expense	—			125			19			—			144
Loss on asset disposals and impairments	—			1			—			—			1
OPERATING INCOME (LOSS)	(2		)	634			70			—			702
Equity in earnings of subsidiaries	405			11			—			(416		)	—
Interest and financing costs, net	(10		)	(23		)	(28		)	10			(51		)
Other income, net	—			12			10			(10		)	12
EARNINGS BEFORE INCOME TAXES	393			634			52			(416		)	663
Income tax expense (benefit) (a)	(3		)	241			11			—			249
NET EARNINGS FROM CONTINUING OPERATIONS	396			393			41			(416		)	414
Loss from discontinued operations, net of tax	—			(1		)	—			—			(1		)
NET EARNINGS	396			392			41			(416		)	413
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			17			—			17
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	396		$	392		$	24		$	(416	)	$	396
COMPREHENSIVE INCOME
Total comprehensive income	$	396		$	392		$	41		$	(416	)	$	413
Less: Noncontrolling interest in comprehensive income	—			—			17			—			17
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	396		$	392		$	24		$	(416	)	$	396

_________________

(a) The income tax expense (benefit) 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 Statement of Operations

for the Three Months EndedSeptember 30, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	13,233		$	1,514		$	(3,506	)	$	11,241
COSTS AND EXPENSES:
Cost of sales	—			12,436			1,424			(3,505		)	10,355
Operating, selling, general and administrative expenses	1			544			52			(1		)	596
Depreciation and amortization expense	—			126			14			—			140
Loss on asset disposals and impairments	—			4			—			—			4
OPERATING INCOME (LOSS)	(1		)	123			24			—			146
Equity in earnings of subsidiaries (a)	56			10			—			(66		)	—
Interest and financing costs, net	(7		)	(34		)	(12		)	6			(47		)
Other income, net	—			22			6			(6		)	22
EARNINGS BEFORE INCOME TAXES	48			121			18			(66		)	121
Income tax expense (benefit) (b)	(2		)	50			(1		)	—			47
NET EARNINGS FROM CONTINUING OPERATIONS	50			71			19			(66		)	74
Earnings (loss) from discontinued operations, net of tax	49			(14		)	—			—			35
NET EARNINGS	99			57			19			(66		)	109
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			10			—			10
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	99		$	57		$	9		$	(66	)	$	99
COMPREHENSIVE INCOME
Total comprehensive income	$	99		$	57		$	19		$	(66	)	$	109
Less: Noncontrolling interest in comprehensive income	—			—			10			—			10
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	99		$	57		$	9		$	(66	)	$	99

_________________

(a) Revised to conform to current period presentation of equity in earnings of subsidiaries that reflects equity in earnings of subsidiaries within the guarantor and non-guarantor columns net of intercompany amounts.

(b) The income tax expense (benefit) 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.

25

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Operations

for the Nine Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	36,821		$	5,110		$	(9,743	)	$	32,188
COSTS AND EXPENSES:
Cost of sales	—			33,312			4,668			(9,571		)	28,409
Operating, selling, general and administrative expenses	6			1,981			207			(172		)	2,022
Depreciation and amortization expense	—			355			54			—			409
(Gain) loss on asset disposals and impairments	—			3			(5		)	—			(2		)
OPERATING INCOME (LOSS)	(6		)	1,170			186			—			1,350
Equity in earnings of subsidiaries	722			38			—			(760		)	—
Interest and financing costs, net	(27		)	(106		)	(63		)	27			(169		)
Other income, net	2			12			27			(27		)	14
EARNINGS BEFORE INCOME TAXES	691			1,114			150			(760		)	1,195
Income tax expense (benefit) (a)	(7		)	419			25			—			437
NET EARNINGS FROM CONTINUING OPERATIONS	698			695			125			(760		)	758
Loss from discontinued operations, net of tax	—			(2		)	—			—			(2		)
NET EARNINGS	698			693			125			(760		)	756
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			58			—			58
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	698		$	693		$	67		$	(760	)	$	698
COMPREHENSIVE INCOME
Total comprehensive income	$	698		$	693		$	125		$	(760	)	$	756
Less: Noncontrolling interest in comprehensive income	—			—			58			—			58
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	698		$	693		$	67		$	(760	)	$	698

_________________

(a) The income tax expense (benefit) 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.

26

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Operations

for the Nine Months EndedSeptember 30, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	32,776		$	3,417		$	(8,708	)	$	27,485
COSTS AND EXPENSES:
Cost of sales	—			30,330			3,204			(8,707		)	24,827
Operating, selling, general and administrative expenses	8			1,460			113			(1		)	1,580
Depreciation and amortization expense	—			329			27			—			356
Loss on asset disposals and impairments	—			16			3			—			19
OPERATING INCOME (LOSS)	(8		)	641			70			—			703
Equity in earnings of subsidiaries (a)	386			21			—			(407		)	—
Interest and financing costs, net	(13		)	(85		)	(24		)	12			(110		)
Other income, net	—			78			12			(12		)	78
EARNINGS BEFORE INCOME TAXES	365			655			58			(407		)	671
Income tax expense (benefit) (b)	(5		)	246			2			—			243
NET EARNINGS FROM CONTINUING OPERATIONS	370			409			56			(407		)	428
Earnings (loss) from discontinued operations, net of tax	49			(26		)	—			—			23
NET EARNINGS	419			383			56			(407		)	451
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			32			—			32
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	419		$	383		$	24		$	(407	)	$	419
COMPREHENSIVE INCOME
Total comprehensive income	$	492		$	383		$	56		$	(407	)	$	524
Less: Noncontrolling interest in comprehensive income	—			—			32			—			32
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	492		$	383		$	24		$	(407	)	$	492

_________________

(a) Revised to conform to current period presentation of equity in earnings of subsidiaries that reflects equity in earnings of subsidiaries within the guarantor and non-guarantor columns net of intercompany amounts.

(b) The income tax expense (benefit) 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.

27

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Balance Sheet as of September 30, 2014

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,438	$	92	$	—		$	1,530
Receivables, less allowance for doubtful accounts	—		1,286		292		—			1,578
Short-term receivables from affiliates	—		166		—		(166		)	—
Inventories	—		2,392		282		—			2,674
Prepayments and other current assets	42		128		13		(1		)	182
Total Current Assets	42		5,410		679		(167		)	5,964
Net Property, Plant and Equipment	—		5,531		1,557		—			7,088
Investment in Subsidiaries	5,973		404		—		(6,377		)	—
Long-Term Receivables from Affiliates	3,146		—		—		(3,146		)	—
Long-Term Intercompany Note Receivable	—		—		1,377		(1,377		)	—
Other Noncurrent Assets, Net	48		1,089		36		—			1,173
Total Assets	$	9,209	$	12,434	$	3,649	$	(11,067	)	$	14,225
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	1	$	2,376	$	360	$	—		$	2,737
Short-term payables to affiliates	—		—		166		(166		)	—
Other current liabilities	219		638		75		(1		)	931
Total Current Liabilities	220		3,014		601		(167		)	3,668
Long-Term Payables to Affiliates	—		3,138		8		(3,146		)	—
Deferred Income Taxes	1,167		—		—		—			1,167
Other Noncurrent Liabilities	252		293		15		—			560
Debt	1,622		40		1,276		—			2,938
Long-Term Intercompany Note Payable	1,377		—		—		(1,377		)	—
Equity-Tesoro Corporation	4,571		5,949		460		(6,377		)	4,603
Equity-Noncontrolling Interest	—		—		1,289		—			1,289
Total Liabilities and Equity	$	9,209	$	12,434	$	3,649	$	(11,067	)	$	14,225

28

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Balance Sheet as of December 31, 2013

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,161	$	77	$	—		$	1,238
Receivables, less allowance for doubtful accounts	12		1,182		119		—			1,313
Short-term receivables from affiliates	—		—		43		(43		)	—
Inventories	—		2,041		524		—			2,565
Prepayments and other current assets	109		89		14		(2		)	210
Total Current Assets	121		4,473		777		(45		)	5,326
Net Property, Plant and Equipment	—		5,428		1,447		—			6,875
Investment in Subsidiaries (a)	5,242		342		—		(5,584		)	—
Long-Term Receivables from Affiliates	3,080		—		—		(3,080		)	—
Long-Term Intercompany Note Receivable	—		—		1,134		(1,134		)	—
Other Noncurrent Assets, Net	58		1,092		38		—			1,188
Total Assets	$	8,501	$	11,335	$	3,396	$	(9,843	)	$	13,389
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	1	$	2,110	$	485	$	—		$	2,596
Short-term payables to affiliates	—		43		—		(43		)	—
Other current liabilities	112		636		66		(2		)	812
Total Current Liabilities	113		2,789		551		(45		)	3,408
Long-Term Payables to Affiliates	—		2,939		141		(3,080		)	—
Deferred Income Taxes	1,018		—		—		—			1,018
Other Noncurrent Liabilities	320		327		8		—			655
Debt	1,614		45		1,164		—			2,823
Long-Term Intercompany Note Payable	1,134		—		—		(1,134		)	—
Equity-Tesoro Corporation (a)	4,302		5,235		349		(5,584		)	4,302
Equity-Noncontrolling Interest	—		—		1,183		—			1,183
Total Liabilities and Equity	$	8,501	$	11,335	$	3,396	$	(9,843	)	$	13,389

________________

(a) Revised to conform to current period presentation that reflects investment in subsidiary and equity amounts within the guarantor and non-guarantor columns net of intercompany amounts.

29

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Cash Flows for the Nine Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	(31	)	$	926		$	152		$	—		$	1,047
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(341		)	(136		)	—			(477		)
Acquisitions	—			(17		)	—			—			(17		)
Intercompany notes, net	261			—			—			(261		)	—
Other investing activities	—			1			10			—			11
Net cash from (used in) investing activities	261			(357		)	(126		)	(261		)	(483		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	—			—			295			—			295
Proceeds from debt offering	300			—			—			—			300
Repayments on revolving credit agreements	—			—			(52		)	—			(52		)
Repayments of debt	(300		)	(2		)	(131		)	—			(433		)
Dividend payments	(104		)	—			—			—			(104		)
Proceeds from stock options exercised	14			—			—			—			14
Net proceeds from issuance of Tesoro Logistics LP common units	—			—			156			—			156
Distributions to noncontrolling interest	—			—			(63		)	—			(63		)
Purchases of common stock	(350		)	—			—			—			(350		)
Taxes paid related to net share settlement of equity awards	(22		)	—			—			—			(22		)
Net intercompany borrowings (repayments)	—			(324		)	63			261			—
Borrowings from general partner	243			—			(243		)	—			—
Distributions to TLLP unitholders and general partner	13			15			(28		)	—			—
Other financing activities	(24		)	19			(8		)	—			(13		)
Net cash used in financing activities	(230		)	(292		)	(11		)	261			(272		)
INCREASE IN CASH AND CASH EQUIVALENTS	—			277			15			—			292
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			1,161			77			—			1,238
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	1,438		$	92		$	—		$	1,530

30

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Cash Flows for the Nine Months EndedSeptember 30, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	(17	)	$	702		$	(15	)	$	—		$	670
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(397		)	(50		)	—			(447		)
Acquisitions	—			(1,901		)	(714		)	—			(2,615		)
Proceeds from sale of Hawaii Business	539			—			—			—			539
Intercompany notes, net	(2,117		)	—			—			2,117			—
Other investing activities	—			(2		)	2			—			—
Net cash used in investing activities	(1,578		)	(2,300		)	(762		)	2,117			(2,523		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	1,524			—			544			—			2,068
Borrowings under term loan credit agreements	500			—			—			—			500
Proceeds from debt offering	—			—			550			—			550
Repayments on revolving credit agreements	(824		)	—			(544		)	—			(1,368		)
Repayments of debt	(3		)	(3		)	—			—			(6		)
Dividend payments	(88		)	—			—			—			(88		)
Proceeds from stock options exercised	69			—			—			—			69
Net proceeds from issuance of Tesoro Logistics LP common units	—			—			392			—			392
Distributions to noncontrolling interest	—			—			(43		)	—			(43		)
Purchases of common stock	(341		)	—			—			—			(341		)
Taxes paid related to net share settlement of equity awards	(5		)	—			—			—			(5		)
Net intercompany borrowings (repayments)	—			1,695			422			(2,117		)	—
Borrowings from general partner	774			—			(774		)	—			—
Distributions to TLLP unitholders and general partner	10			12			(22		)	—			—
Other financing activities	(21		)	11			(12		)	—			(22		)
Net cash from financing activities	1,595			1,715			513			(2,117		)	1,706
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	—			117			(264		)	—			(147		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			1,244			395			—			1,639
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	1,361		$	131		$	—		$	1,492

31

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 page 57 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, 2013.

BUSINESS STRATEGY AND OVERVIEW

Strategy and Goals

Our vision is to create a safer and cleaner future as efficient providers of reliable transportation fuel solutions. 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, trading and optimization activities to provide additional value to the business;

• maintain our financial position by exercising capital discipline and focusing on a balanced use of free cash flow;

• 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 who are accountable for delivering on our commitments.

Our goals were focused on these strategic priorities and we accomplished the following in the first nine months of 2014:

	Operational Efficiency & Effectiveness	Commercial Excellence	Financial Discipline	Value Driven Growth	High Performing Culture
Captured synergies from the Los Angeles Acquisition and other business improvements and expect to meet or exceed full year expectations	•	•	•	•	•
TLLP announced its planned acquisition of the natural gas gathering, processing, treating and transportation and crude oil gathering assets of QEP Field Services Company for $2.5 billion transforming TLLP into a full-service logistics company with revenue diversification		•	•	•	•
Leveraged TLLP’s logistics operations to strategically source lower cost crude oil and continue to capture value-driven growth through TLLP’s investment in new assets for crude oil gathering and refined products distribution	•	•	•	•	•
TLLP redeemed $130 million of 5.875% Senior Notes due 2020 using proceeds of its August 2014 issuance of 2.1 million common units			•
Completed the issuance of $300 million aggregate principal amount of 5.125% Senior Notes due 2024, and redeemed the outstanding 9.750% Senior Notes due 2019			•
Purchased 6.2 million shares of our common stock and paid $0.30 per share and $0.25 per share dividends in the third quarter and first two quarters, respectively			•
TLLP completed its acquisition of the West Coast Logistics Assets from Tesoro for a purchase price of $270 million			•	•
TLLP launched its Continuous Offering Program authorizing the issuance of up to an aggregate of $200 million of common units in amounts, at prices, and on terms determined by market conditions			•	•

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Synergy and Business Improvement Objectives

During the first nine months of 2014, we estimate that we delivered $390 million towards our ongoing initiatives around synergy and business improvement objectives, including approximately $165 million related to the California synergies, approximately $135 million related to enhanced gross margins, and approximately $90 million related to business improvements. These initiatives focus on improving capture rates and managing our costs to drive improvements in operating income. Our 2014 achievements include the following:

• Increased overall refining capture rates during the first nine months of 2014 compared to the same period of 2013 through the following:

◦ Enhanced our abilities to blend and share gasoline and jet supplies through new feedstock and product interconnections between the Carson and Wilmington facilities; and

◦ Improved the product flexibility between gasoline and distillates at the Carson and Wilmington facilities.

• Improved crude oil, feedstock and product movements into and around our Carson and Wilmington facilities through the following:

◦ Optimized in-bound crude oil movements across the marine docks acquired in the Los Angeles Acquisition (as defined on page 38) providing opportunities for our Wilmington facility to source different grades of crude oil;

◦ Diversified the revenue stream for the Los Angeles logistics system by opening the system to third-party business, including the expansion of Tesoro Logistics LP’s San Diego terminal;

◦ Reduced feedstock sales during maintenance and turnaround activities within our west coast system; and

◦ Improved procurement and scheduling activities across the business.

• Realized full-year benefit from the completion of the phase one expansion of the Salt Lake City waxy crude unit;

• Realized full-year benefit from the expansion of the Mandan distillate desulfurization unit allowing increased distillate production and the refinery to run an additional 3 thousand barrels per day (“Mbpd”) of total throughput;

• Further optimized our marketing portfolio through expanding our Exxon^® and Mobil^® branding rights to include Utah, Arizona and western Idaho and the acquisition of 15 retail stations in the Salt Lake City area enhancing our integration in that market; and

• Achieved value-driven growth through our interest in Tesoro Logistics LP with its continued focus on organic growth projects and acquisition of logistics assets from us.

Tesoro Logistics LP (“TLLP”)

TLLP 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 fully consolidated subsidiary, serves as the general partner of TLLP. We held an approximate 35% interest in TLLP at September 30, 2014, including the general partner interest. Our ownership interest in TLLP include subordinated units that were converted to common units during the second quarter of 2014 and thereafter participate on terms equal with all other common units in distributions of available cash. At the time of conversion, our ownership interest in TLLP and financial position were not impacted. In the first nine months of 2014, 87% of TLLP’s revenue was derived from us primarily under various long-term, fee-based commercial agreements that generally include minimum volume commitments. TLLP plans to expand its business through organic growth, including constructing new assets and increasing the utilization of existing assets, and by acquiring assets from us and third parties.

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Total market value of TLLP units held by Tesoro was $1.4 billion and $1.0 billion at September 30, 2014 and December 31, 2013, respectively. At September 30, 2014, Tesoro held 19,481,557 common units at a market value of $70.77 per unit based on the closing unit price as of that date. At December 31, 2013, Tesoro held 3,855,824 common units and 15,254,890 subordinated units at a market value of $52.34 per unit based on the closing unit price as of that date. For the three and nine months ended September 30, 2014 and 2013, cash distributions received from TLLP, including incentive distribution rights, is as follows (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Cash distributions received from TLLP (a):
For common units held	$	12	$	9	$	34	$	25
For general partner units held	8		2		21		5

__________________

(a) Represents distributions received from TLLP during the three and nine months ended September 30, 2014 and 2013 on common units and general partner units held by Tesoro.

During the first nine months of 2014, TLLP accomplished the following (refer to Notes C and J of the financial statements for further information):

• redeemed an aggregate principal amount of $130 million of its 5.875% Senior Notes due 2020 (the “2020 Notes”) in August 2014 using the proceeds from the issuance of 2.1 million common units;

• purchased certain terminalling and pipeline assets owned by Tesoro and two of our subsidiaries for $270 million during the third quarter of 2014; and

• launched the continuous offering program in June 2014 authorizing the continuous issuance of up to an aggregate of $200 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of its offerings.

On October 19, 2014, TLLP reached a definitive agreement (“QEPFS Purchase Agreement”) to acquire the natural gas gathering, processing, treating and transportation and crude oil gathering business of QEP Resources, Inc.’s wholly-owned subsidiary, QEP Field Services Company, LLC (“QEPFS”), with operations in Wyoming, Colorado, Utah and the Williston Basin in North Dakota (the “QEPFS Acquisition”). QEPFS also provides natural gas liquids fractionation and transportation services for its producer customers through QEPFS’ direct ownership and operation of two gathering systems and two processing complexes. The acquisition transforms TLLP into a full-service logistics company with assets allowing geographic diversification in support of our strategic initiatives. As part of the transaction, TLLP will acquire 56% of the limited partner interests in QEP Midstream Partners, LP (“QEP Midstream”). Additionally, TLLP is acquiring the general partner of QEP Midstream including its 2% general partner interest and 100% of the incentive distribution rights. TLLP expects to pay total consideration of approximately $2.5 billion, including $230 million to refinance QEP Midstream’s outstanding debt. The transaction is subject to regulatory approval and other closing conditions and is expected to close in the fourth quarter of 2014. The QEPFS Purchase Agreement provides for us to pay a break-up fee of $150 millionin the event that we terminate the agreement, except for termination for specified reasons. Refer to Notes C and J of the financial statements for further information.

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RESULTS OF OPERATIONS

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.

As of December 31, 2013, we began reporting the logistics assets and operations of TLLP as a separate operating segment. In previous periods, when certain quantitative thresholds had not been met, TLLP’s assets and operations were presented within our refining operating segment. TLLP’s assets and operations include certain crude oil gathering assets and crude oil and refined products terminalling and transportation assets acquired from Tesoro and third parties. The historical results of operations of these assets have been retrospectively adjusted to conform to current presentation. These adjustments resulted in lower gross refining margins. The refining segment now includes costs for transportation and terminalling services provided by TLLP that were previously eliminated with consolidated reporting of TLLP revenues within our refining segment results.

On September 25, 2013, we completed the sale of all of our interest in Tesoro Hawaii, LLC (the “Hawaii Business”). We have reflected its results of operations as discontinued operations in our condensed consolidated statements of operations for all periods presented, and, unless otherwise noted, we have excluded the Hawaii Business from the financial and operational data presented in the tables and discussion that follow.

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 earnings before interest, income taxes, depreciation and amortization expenses (“EBITDA”). We define EBITDA as consolidated earnings, including earnings attributable to noncontrolling interest, excluding net earnings (loss) from discontinued operations, before depreciation and amortization expense, net interest and financing costs, income taxes and interest income.

We present EBITDA because we believe some investors and analysts use EBITDA to help analyze our cash flows including our ability to satisfy principal and interest obligations with respect to our indebtedness and use cash for other purposes, including capital expenditures. EBITDA is also used by some investors and analysts to analyze and compare companies on the basis of operating performance and by management for internal analysis. EBITDA should not be considered as an alternative to U.S. GAAP net earnings or net cash from operating activities. EBITDA has important limitations as an analytical tool, because it excludes some items that affect net earnings and net cash from operating activities.

35

Summary

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(In millions, except per share amounts)
REVENUES	$	11,151		$	11,241		$	32,188		$	27,485
COSTS AND EXPENSES:
Cost of sales	9,594			10,355			28,409			24,827
Operating expenses	624			542			1,813			1,351
Selling, general and administrative expenses	86			54			209			229
Depreciation and amortization expense	144			140			409			356
(Gain) loss on asset disposals and impairments	1			4			(2		)	19
OPERATING INCOME	702			146			1,350			703
Interest and financing costs, net	(51		)	(47		)	(169		)	(110		)
Other income, net	12			22			14			78
EARNINGS BEFORE INCOME TAXES	663			121			1,195			671
Income tax expense	249			47			437			243
NET EARNINGS FROM CONTINUING OPERATIONS	414			74			758			428
Earnings (loss) from discontinued operations, net of tax	(1		)	35			(2		)	23
NET EARNINGS	413			109			756			451
Less: Net earnings from continuing operations attributable to    noncontrolling interest	17			10			58			32
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	$	396		$	99		$	698		$	419
NET EARNINGS (LOSS) ATTRIBUTABLE TO TESORO      CORPORATION
Continuing operations	$	397		$	64		$	700		$	396
Discontinued operations	(1		)	35			(2		)	23
Total	$	396		$	99		$	698		$	419
NET EARNINGS (LOSS) PER SHARE - BASIC:
Continuing operations	$	3.11		$	0.48		$	5.41		$	2.92
Discontinued operations	(0.01		)	0.26			(0.02		)	0.17
Total	$	3.10		$	0.74		$	5.39		$	3.09
Weighted average common shares outstanding - Basic	127.9			134.6			129.5			135.8
NET EARNINGS (LOSS) PER SHARE - DILUTED:
Continuing operations	$	3.06		$	0.46		$	5.32		$	2.86
Discontinued operations	(0.01		)	0.26			(0.02		)	0.17
Total	$	3.05		$	0.72		$	5.30		$	3.03
Weighted average common shares outstanding - Diluted	129.7			136.8			131.7			138.1

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	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(In millions)
Reconciliation of Net Earnings to EBITDA
Net earnings attributable to Tesoro Corporation	$	396		$	99		$	698		$	419
Earnings (loss) from discontinued operations, net of tax	1			(35		)	2			(23		)
Depreciation and amortization expense	144			140			409			356
Income tax expense	249			47			437			243
Interest and financing costs, net	51			47			169			110
Interest income	(1		)	—			(1		)	(1		)
EBITDA (a)	$	840		$	298		$	1,714		$	1,104
Reconciliation of Cash Flows from (used in) Operating Activities to EBITDA
Net cash from (used in) operating activities	$	671		$	831		$	1,047		$	670
Net earnings attributable to noncontrolling interest	(17		)	(10		)	(58		)	(32		)
Net cash used in (from) discontinued operations	1			118			2			(74		)
Debt redemption charges	(10		)	—			(41		)	—
Deferred charges	40			56			119			333
Changes in current assets and current liabilities	25			(615		)	228			129
Income tax expense	249			47			437			243
Stock-based compensation benefit (expense)	(12		)	12			(20		)	(33		)
Interest and financing costs, net	51			47			169			110
Deferred income taxes	(203		)	(180		)	(227		)	(222		)
Other	45			(8		)	58			(20		)
EBITDA (a)	$	840		$	298		$	1,714		$	1,104

________________

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

Consolidated Results

Three Months Ended September 30, 2014 versus September 30, 2013

Overview. Our net earnings from continuing operations attributable to Tesoro Corporation were $397 million ($3.06 per diluted share) for the three months ended September 30, 2014 (“2014 Quarter”) compared to $64 million ($0.46 per diluted share) for the three months ended September 30, 2013 (“2013 Quarter”).

Gross Margins. Our gross refining margin increased$547 million during the 2014 Quarter compared to the 2013 Quarter driven by lower crude oil prices leading to an improved margin environment resulting in an increase of $6.99 in our gross refining margin per barrel. Our gross retail margin increased $93 million primarily due to higher fuel margins as well as higher fuel sales volumes. Operating income for TLLP increased $48 million due to higher throughput volumes driven by acquired assets and continued expansion of its crude oil gathering assets.

37

Other Costs and Expenses. Operating expenses increased $82 million to $624 million in the 2014 Quarter compared to the 2013 Quarter primarily due to lower than expected maintenance costs during the 2013 Quarter for our Los Angeles refinery and higher energy costs primarily caused by elevated natural gas prices during the 2014 Quarter. Our selling, general and administrative expenses were $86 million in the 2014 Quarter compared to $54 million in the 2013 Quarter primarily attributable to changes in stock-based compensation expense during the 2014 Quarter as compared to the 2013 Quarter, principally related to our stock appreciation rights that are adjusted based on the market price of the stock each period. The stock-based compensation impact on the 2014 Quarter results include an expense of $12 million due to an increase in the stock price per share during the period as compared to the 2013 Quarter results, which included a benefit of $12 million due to the decrease in the stock price per share during that period.

Other Income. Other income during the 2013 Quarter included the release of a $16 million legal reserve as a result of a favorable settlement of litigation.

Income Taxes. Our income tax expense totaled $249 million in the 2014 Quarter versus $47 million in the 2013 Quarter. The combined federal and state effective income tax rate was 37.6% and 38.8% during the 2014 Quarter and the 2013 Quarter, respectively. The 2014 rate benefited from an increased domestic manufacturing deduction.

Nine Months Ended September 30, 2014 versus September 30, 2013

Overview. For the year-to-date periods, our net earnings from continuing operations attributable to Tesoro Corporation were $700 million ($5.32 per diluted share) for the nine months ended September 30, 2014 (“2014 Period”) compared to $396 million ($2.86 per diluted share) for the nine months ended September 30, 2013 (“2013 Period”).

Gross Margins. Our gross refining margin increased$843 million during the 2014 Period compared to the 2013 Period driven by higher refined product sales volumes resulting from the acquisition of BP’s integrated Southern California refining, marketing and logistics business on June 1, 2013 from BP West Coast Products, LLC and other affiliated sellers (the “Los Angeles Acquisition”). The increase in refined product sales volume was supplemented by an increase of $1.39 in our gross refining margin per barrel during the 2014 Period caused by a higher margin environment. Our gross retail margin increased $172 million due to higher fuel margins as well as higher fuel sales volumes resulting from our expanded retail network. TLLP increased operating income by $116 million due to higher throughput volumes driven by acquired assets and continued expansion of its crude oil gathering assets.

Other Costs and Expenses. Operating expenses increased $462 million to $1.8 billion in the 2014 Period compared to the 2013 Period primarily due to higher operating expenses resulting from the Los Angeles Acquisition. Our selling, general and administrative expenses were $209 million in the 2014 Period compared to $229 million in the 2013 Period. The difference was primarily attributable to changes in stock-based compensation expense during the 2014 Period as compared to the 2013 Period, principally related to our stock appreciation rights that are adjusted based on the market price of the stock each period. The stock-based compensation impact on the 2014 Period results include an expense of $20 million as compared to the $33 million expense during the 2013 Period. Depreciation increased $53 million due to the increase of assets from the Los Angeles Acquisition.

Interest and financing costs, net. Interest and financing costs increased approximately $59 million to $169 million during the 2014 Period from $110 million during the 2013 Period. The increase consisted of a $39 million charge for premiums paid and unamortized debt issuance costs and the discount related to the redemption of the 9.750% Senior Notes due 2019 (the “2019 Notes”) and 2020 Notes in the 2014 Period. Additionally, incremental interest expense of $30 million was incurred during the 2014 Period compared to the 2013 Period associated with the 2020 Notes and TLLP’s 6.125% Senior Notes due 2021 issued during the second half of 2013. TLLP used these borrowings to finance its acquisition of logistics assets from us that we acquired in connection with the Los Angeles Acquisition. During the 2014 Period, our interest costs reflected a net savings compared to the 2013 Period of $6 million as a result of refinancing the 2019 Notes with the 5.125% Senior Notes due 2024 (the “2024 Notes”) in March 2014.

Other Income. Other income during the 2013 Period included a refund from the settlement of a rate proceeding from the California Public Utilities Commission of $54 million and the release of a $16 million legal reserve as a result of a favorable settlement of litigation.

Income Tax Expense. Our income tax expense totaled $437 million in the 2014 Period versus $243 million in the 2013 Period. The combined federal and state effective income tax rate was 36.6% and 36.2% during the 2014 Period and the 2013 Period, respectively.

38

Refining Segment

We currently own and operate six petroleum refineries located in the western United States and sell transportation fuels to a wide variety of customers. Our refineries produce the majority of the transportation fuels that we sell. Our six refineries have a combined crude oil capacity of 850 Mbpd. We purchase crude oil and other feedstocks from domestic and foreign sources, including the Middle East, South America, western Africa, Canada, and other locations either through term agreements with renewal provisions or in the spot market. Our retail network provides a committed outlet for the majority of the gasoline produced by our refineries; however, we also sell gasoline and gasoline blendstocks, jet fuel, diesel fuel, heavy fuel oils and residual products in both the bulk and wholesale markets in the western United States. We also opportunistically export refined products to certain foreign markets.

Market Overview. Our profitability is heavily influenced by the cost of crude oil and aggregate value of 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 prices are set by the market and are outside of our control.

The following chart illustrates average benchmark crude oil pricing relevant to our markets.

Average Crude Oil Prices ($/barrel)

Source: PLATTS

Our Mid-Continent and Pacific Northwest refineries have benefited from processing inland U.S. and Canada crude oil priced on the basis of West Texas Intermediate crude oil (“WTI”) resulting in discounts compared to benchmark Brent crude oil (“Brent”) processed at our coastal refineries. The WTI discount to Brent averaged over $6per barrel during the third quarter of 2014, compared to approximately $4 per barrel during the third quarter of 2013.

We supply our North Dakota refinery exclusively with Bakken crude oil, our Washington refinery primarily with Bakken and Canadian Light Sweet crude oil and our Utah refinery with light sweet crude oil from Wyoming and Colorado as well as Uinta Basin waxy crude oil. In the third quarter of 2014, the average discount of Bakken crude oil to WTI increased to about $8 per barrel, compared to an average discount of less than $6 per barrel in the third quarter of 2013. The average discount of Canadian Light Sweet crude oil to WTI decreased to about$8 per barrel in the third quarter of 2014, compared to approximately $9 per barrel during the third quarter of 2013. Our California refineries run a significant amount of South American heavy (“Oriente”), San Joaquin Valley Heavy (“SJVH”) crude oil and light crude oil from Iraq (“Basrah”), which have historically priced at a discount to Brent.

39

The following charts illustrate average benchmark refined product differentials relevant to our markets and comparison to pricing for WTI or Alaska North Slope (“ANS”) crude oil.

Average Mid-Continent Benchmark

Product Differentials to WTI ($/barrel)

Source: PLATTS

Average U.S. West Coast Benchmark

Product Differentials to ANS ($/barrel)

Source: PLATTS

Average Mid-Continent benchmark gasoline margins and diesel fuel margins were down approximately 1% and 4%, respectively, in the third quarter of 2014 as compared to the third quarter of 2013. Average U.S. West Coast benchmark gasoline margins and diesel fuel margins were up approximately 57% and 16%, respectively, in the third quarter of 2014, as compared to third quarter of 2013.

40

Operational Data and Results. 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. 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. We calculate Manufacturing Costs per barrel by dividing Manufacturing Costs by total refining throughput. We calculate refined product sales margin per barrel by dividing refined product sales and refined product cost of sales by total refining throughput, and subtracting refined product cost of sales per barrel from refined product sales 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.

Our Refining segment operating data are as follows:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2014	2013	2014	2013
Throughput (Mbpd)
Heavy crude (a)	157	208	163	195
Light crude	641	591	614	425
Other feedstocks	60	64	54	48
Total Throughput	858	863	831	668
Yield (Mbpd)
Gasoline and gasoline blendstocks	445	418	430	331
Jet fuel	130	126	126	93
Diesel fuel	199	198	196	152
Heavy fuel oils, residual products, internally produced fuel    and other	141	173	135	132
Total Yield	915	915	887	708
Refined Product Sales (Mbpd) (b)
Gasoline and gasoline blendstocks	516	499	511	407
Jet fuel	146	144	146	108
Diesel fuel	223	223	208	175
Heavy fuel oils, residual products and other	87	98	85	85
Total Refined Product Sales	972	964	950	775

________________

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

(b) 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.

41

Our Refining segment operating results are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(Dollars in millions, except per barrel amounts)
Revenues
Refined products (c)	$	10,409	$	10,674	$	30,429	$	25,564
Crude oil resales and other	434		358		1,060		1,425
Total Revenues	$	10,843	$	11,032	$	31,489	$	26,989
Segment Operating Income
Gross refining margin (d)	$	1,222	$	675	$	3,008	$	2,165
Expenses
Manufacturing costs	428		378		1,280		919
Other operating expenses	95		57		259		174
Selling, general and administrative expenses	7		2		14		9
Depreciation and amortization expense	112		109		317		286
Loss on asset disposals and impairments	2		1		1		11
Segment Operating Income	$	578	$	128	$	1,137	$	766
Gross refining margin ($/throughput barrel)	$	15.49	$	8.50	$	13.27	$	11.88
Manufacturing Cost before Depreciation and Amortization    Expense ($/throughput barrel)	$	5.42	$	4.76	$	5.65	$	5.04
Refined Product Sales Margin ($/barrel) (b)
Average sales price	$	118.75	$	120.39	$	119.04	$	120.54
Average costs of sales	106.93		113.47		107.77		111.38
Refined Product Sales Margin	$	11.82	$	6.92	$	11.27	$	9.16

________________

(c) Refined product sales include intersegment sales to our retail segment at prices which approximate market of $3.2 billion for both the three months ended September 30, 2014 and 2013, respectively, and $9.5 billion and $6.8 billion for the nine months ended September 30, 2014 and 2013, respectively.

(d) Gross refining margin includes the effect of intersegment sales to the retail segment at prices which approximate market and fees charged by TLLP for the transportation and terminalling of crude oil and refined products at prices which we believe are no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. Gross refining margin approximates total refining throughput multiplied by the gross refining margin per barrel.

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Our Refining segment operating results by region are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(Dollars in millions, except per barrel amounts)
Refining Data by Region
California (Martinez and Los Angeles)
Refining throughput (Mbpd)	538		557		528		397
Gross refining margin	$	644	$	342	$	1,620	$	1,028
Gross refining margin ($/throughput barrel)	$	13.01	$	6.67	$	11.24	$	9.47
Manufacturing cost before depreciation and amortization    expense ($/throughput barrel)	$	6.26	$	5.39	$	6.46	$	5.75
Pacific Northwest (Washington and Alaska)
Refining throughput (Mbpd)	187		182		172		153
Gross refining margin	$	269	$	109	$	538	$	421
Gross refining margin ($/throughput barrel)	$	15.64	$	6.48	$	11.49	$	10.11
Manufacturing cost before depreciation and amortization    expense ($/throughput barrel)	$	4.00	$	3.57	$	4.33	$	4.13
Mid-Continent (North Dakota and Utah)
Refining throughput (Mbpd)	133		124		131		118
Gross refining margin	$	308	$	224	$	846	$	711
Gross refining margin ($/throughput barrel)	$	25.23	$	19.66	$	23.62	$	22.12
Manufacturing cost before depreciation and amortization    expense ($/throughput barrel)	$	4.02	$	3.68	$	4.08	$	3.82

Three Months EndedSeptember 30, 2014 Compared with Three Months EndedSeptember 30, 2013

Overview. Operating income for our refining segment increased$450 million, or 352%, to $578 million during the 2014 Quarter as compared to the 2013 Quarter as a result of lower crude oil prices leading to an improved margin environment resulting in an increase of $4.90 in our refined product sales margin per barrel, coupled with higher refined product sales volumes due to higher demand during the 2014 Quarter.

Refining Throughput. Total refining throughput remained relatively steady during the 2014 Quarter as compared to the 2013 Quarter.

Refined Product Sales. Revenues from sales of refined products decreased$265 million to $10.4 billion in the 2014 Quarter as compared to the 2013 Quarter, primarily due to a decrease in average product sales price of $1.64 per barrel, or 1%, to $118.75 per barrel in the 2014 Quarter as compared to the 2013 Quarter. The decrease in revenues was partially offset by increased refined product sales volumes of 8 Mbpd, or 1%, to 972 Mbpd in the 2014 Quarter as compared to the 2013 Quarter.

Costs of Sales and Expenses. Our average costs of sales decreased$6.54 per barrel, or 6%, to $106.93 per barrel during the 2014 Quarter compared to the 2013 Quarter, reflecting decreases in crude oil prices as well as gains on derivative contracts used to hedge our exposure to commodity pricing. Manufacturing and other operating expenses increased$88 million to $523 million in the 2014 Quarter as compared to the 2013 Quarter primarily as a result of increases in maintenance costs due to lower than expected maintenance costs during the 2013 Quarter for our Los Angeles refinery and higher energy costs primarily caused by higher natural gas prices during the 2014 Quarter. These increases were partially offset by transportation cost savings realized from crude oil cargo sharing between our California and Anacortes refineries.

Gross Refining Margins. Our gross refining margin per barrel increased$6.99 per barrel, or 82%, to $15.49 per barrel in the 2014 Quarter as compared to the 2013 Quarter given a stronger margin environment across all regions and a marginal year-over-year increase in WTI to Brent crude oil discounts.

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Total gross margin increased$547 million, or 81%, to $1.2 billion in the 2014 Quarter as compared to the 2013 Quarter. Gross margins in the California, Pacific Northwest and Mid-Continent regions increased $302 million, $160 million and $84 million, respectively. Gross refining margin increases in the California region were due to the realization of synergies that improved margin capture as well as gains on derivative contracts used to hedge our exposure to commodity pricing. Margins increased in the Mid-Continent region due to additional throughput resulting from the expansion of the waxy crude unit at our Utah refinery and the distillate desulfurization unit at our North Dakota refinery. The increase in the Pacific Northwest region was driven by stronger industry gasoline and diesel margins in the Pacific Northwest partially driven by marginally higher discounts on advantaged Bakken crude oil. We were able to transport cost-advantaged Bakken crude oil, which continued to price at a discount to ANS during the 2014 Quarter, to our Washington refinery using TLLP’s Anacortes rail facility. These feedstock advantages remained steady in comparison to the 2013 Quarter.

Nine Months EndedSeptember 30, 2014 Compared with Nine Months EndedSeptember 30, 2013

Overview. Operating income for our refining segment increased$371 million, or 48%, to $1.1 billion during the 2014 Period as compared to the 2013 Period as a result of higher gross margins per barrel, which exceeded the offset of increased manufacturing costs and other operating expenses during the 2014 Period.

Refining Throughput. Total refining throughput increased163 Mbpd, or 24%, to 831 Mbpd during the 2014 Period as compared to the 2013 Period due to higher throughput in the California region following the Los Angeles Acquisition, including a 266 Mbpd refinery, combined with higher throughput at the Washington and Utah refineries due to scheduled turnarounds in the 2013 Period.

Refined Product Sales. Revenues from sales of refined products increased$4.9 billion to $30.4 billion in the 2014 Period as compared to the 2013 Period, primarily due to increased refined product sales volumes of 175 Mbpd, or 23%, to 950 Mbpd in the 2014 Period as compared to the 2013 Period primarily resulting from the Los Angeles Acquisition. The increase in refined product sales volumes was partially offset by a decrease in the average product sales price of $1.50 per barrel, or 1%, to $119.04 per barrel in the 2014 Period as compared to the 2013 Period.

Costs of Sales and Expenses. Our average costs of sales decreased$3.61 per barrel, or 3%, to $107.77 per barrel during the 2014 Period compared to the 2013 Period, reflecting lower crude oil prices. Manufacturing and other operating expenses increased$446 million to $1.5 billion in the 2014 Period as compared to the 2013 Period primarily as a result of higher throughput during the 2014 Period driven by the Los Angeles Acquisition partially offset by transportation cost savings from crude oil cargo sharing between our California and Anacortes refineries.

Gross Refining Margins. Our gross refining margin per barrel increased$1.39 per barrel, or 12%, to $13.27 per barrel in the 2014 Period as compared to the 2013 Period given a stronger margin environment across all regions and a marginal year-over-year increase in WTI to Brent crude oil discounts.

Total gross margin increased$843 million, or 39%, to $3.0 billion in the 2014 Period as compared to the 2013 Period. Gross margins in the California, Pacific Northwest and Mid-Continent regions increased $592 million, $117 million and $135 million, respectively. Gross refining margin increases in the California region were due to the addition of the Los Angeles refinery and realization of synergies that improved margin capture resulting in higher refining margins. Margins increased in the Mid-Continent region due to additional throughput resulting from the expansion of the waxy crude unit at our Utah refinery and the distillate desulfurization unit at our North Dakota refinery. The increase in the Pacific Northwest region was driven by stronger industry gasoline and diesel margins in the Pacific Northwest as a result of lower discounts on advantaged crude oil. Total refinery utilization was 98% in the 2014 Period as compared to 96% in the 2013 Period primarily as a result of reduced turnaround activities, operational efficiencies and reliability. We were able to transport cost-advantaged Bakken crude oil, which continued to price at a discount to ANS during the 2014 Period, to our Washington refinery using TLLP’s Anacortes rail facility.

TLLP Segment

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 generate revenue by charging fees for gathering crude oil using its High Plains System and for terminalling, transporting and storing crude oil and refined products using terminal facilities and pipelines in the western United States.

Operational Data and Results. Management uses average revenue per barrel to evaluate performance and compare profitability to other companies in the industry. We calculate average revenue per barrel as revenue divided by the number of days in the period divided by throughput. Investors and analysts use this financial measure to help analyze and compare companies in the industry on the basis of operating performance. This financial measure should not be considered as an alternative to segment operating income, revenues and operating expenses or any other measure of financial performance presented in accordance with U.S. GAAP.

Our TLLP segment operating data are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Crude Oil Gathering
Pipeline gathering throughput (Mbpd)	136		91		114		85
Average pipeline gathering revenue per barrel	$	1.38	$	1.28	$	1.35	$	1.26
Trucking volume (Mbpd)	51		47		47		45
Average trucking revenue per barrel	$	3.30	$	3.02	$	3.24	$	3.04
Terminalling and Transportation
Terminalling throughput (Mbpd)	943		1,020		919		675
Average terminalling revenue per barrel	$	1.03	$	0.63	$	0.97	$	0.67
Pipeline transportation throughput (Mbpd)	843		213		824		153
Average pipeline transportation revenue per barrel (a)	$	0.36	$	0.71	$	0.36	$	0.54

Our TLLP segment operating results are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014			2013
	(Dollars in millions)
Segment Operating Income
Revenues
Crude oil gathering	$	32	$	24	$	84		$	66
Terminalling and transportation	118		73		326			146
Total Revenues (b)	150		97		410			212
Expenses
Operating expenses (c)	55		59		155			109
General and administrative expenses (d)	16		9		39			22
Depreciation and amortization expense	18		16		51			28
Gain on asset disposals and impairments	—		—		(4		)	—
Segment Operating Income	$	61	$	13	$	169		$	53

________________

(a) We did not separately track transportation volumes on the pipeline assets located in southern California that TLLP acquired from one of our subsidiaries; therefore, the 2013 pipeline volumes have not been adjusted to include the activity from the date we acquired the assets on June 1, 2013 through September 30, 2013.

(b) TLLP segment revenues from services provided to our refining segment were $130 million and $81 million for the three months ended September 30, 2014 and 2013, respectively, and $358 million and $187 million for the nine months ended September 30, 2014 and 2013, respectively. These amounts are eliminated upon consolidation.

(c) TLLP segment operating expenses include amounts billed by Tesoro for services provided to TLLP under various operational contracts. These amounts totaled $1 million and $28 million for the three months ended September 30, 2014 and 2013, respectively, and $24 million and $48 million for the nine months ended September 30, 2014 and 2013, respectively. These amounts are eliminated upon consolidation. TLLP segment third-party operating expenses related to the transportation of crude oil and refined products are reclassified to cost of sales in our condensed statements of consolidated operations upon consolidation.

(d) TLLP segment general and administrative expenses include amounts charged by Tesoro for general and administrative services provided to TLLP under various operational and administrative contracts. These amounts totaled $10 million and $6 million for the three months ended September 30, 2014 and 2013, respectively, and $28 million and $13 million for the nine months ended September 30, 2014 and 2013, respectively. These amounts are eliminated upon consolidation.

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Three Months EndedSeptember 30, 2014 Compared with Three Months EndedSeptember 30, 2013

Overview. Operating income for TLLP increased $48 million to $61 million due to the higher revenues as well as a decrease in operating expenses of $4 million to $55 million in the 2014 Quarter as compared to the 2013 Quarter.

Revenues and Throughput. Pipeline gathering throughput volume increased due to continued expansion of TLLP’s crude oil gathering assets, primarily the High Plains System. These higher throughput volumes resulted in an increase to revenues of $53 million to $150 million during the 2014 Quarter as compared to the 2013 Quarter. Terminalling and transportation pipeline throughput volumes increased during the 2014 Quarter as compared to the 2013 Quarter driven by new commercial agreements that went into effect after the 2013 Quarter for the logistics assets that were part of our Los Angeles Acquisition (the “Los Angeles Logistics Assets”) and certain terminalling and pipeline assets acquired from Tesoro.

Operating and Other Expenses. Operating expenses decreased $4 million primarily as a result of higher imbalance settlement gains during the 2014 Quarter. General and administrative expenses increased by $7 million due to higher allocations of overhead costs associated with increased costs to support the growth of the business.

Nine Months EndedSeptember 30, 2014 Compared with Nine Months EndedSeptember 30, 2013

Overview. Operating income increased $116 million to $169 million due to the higher revenues partially offset by an increase in operating expenses of $46 million to $155 million in the 2014 Period as compared to the 2013 Period resulting from increased labor and operating costs associated with the acquired operations.

Revenues and Throughput. Terminalling and transportation throughput volumes increased during the 2014 Period as compared to the 2013 Period driven by TLLP’s 2013 acquisitions from Chevron of the northwest products system and the logistics assets that were part of our Los Angeles Acquisition. Pipeline gathering throughput volume also increased due to continued expansion of TLLP’s crude oil gathering assets. These higher throughput volumes resulted in an increase to revenues of $198 million to $410 million during the 2014 Period as compared to the 2013 Period.

Operating and Other Expenses. Increases in operating expenses, general and administrative expenses and depreciation expenses of $46 million, $17 million and $23 million, respectively, were driven by TLLP’s 2013 acquisitions of the northwest products system from Chevron and the logistics assets that were part of our Los Angeles Acquisition.

Retail Segment

We sell gasoline and diesel fuel in the western United States through company-operated retail stations and agreements with third-party branded dealers and distributors (or “Jobber/dealers”). Our retail network provides a committed outlet for the majority of the gasoline produced by our refineries. Many of our company-operated retail stations include convenience stores that sell a wide variety of merchandise items. Our retail segment included a network of 2,279 branded retail stations under the ARCO^®, Shell^®, Exxon^®, Mobil^®, USA Gasoline^TM and Tesoro^® brands as of September 30, 2014. Effective May 1, 2014, we expanded our Exxon^® and Mobil^® branding rights to include Utah, Arizona and western Idaho. We acquired 15 additional retail stations in the Salt Lake City region in May 2014, which we are re-branding using the Exxon^® brand.

Operational Data and Results. Management uses fuel margin per gallon to compare fuel results 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 may 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.

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Our Retail segment operating data and results are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(Dollars in millions, except per gallon amounts)
Average Number of Stations (during the period) (a)
Company-operated	586		572		580		570
Branded jobber/dealer	1,693		1,640		1,694		1,154
Total Average Retail Stations	2,279		2,212		2,274		1,724
Fuel Sales (millions of gallons) (a)	1,075		1,046		3,121		2,139
Revenues (a)
Fuel	$	3,382	$	3,362	$	9,929	$	7,087
Merchandise and other	73		70		203		177
Total Revenues	$	3,455	$	3,432	$	10,132	$	7,264
Fuel Margin ($/gallon)	$	0.20	$	0.12	$	0.14	$	0.14
Segment Operating Income
Gross Margins
Fuel (a)	$	214	$	123	$	445	$	294
Merchandise and other non-fuel	33		31		92		71
Total Gross Margins	247		154		537		365
Expenses
Operating expenses	97		86		271		231
Selling, general and administrative expenses	2		1		5		8
Depreciation and amortization expense	10		9		30		26
Loss on asset disposals and impairments	—		2		2		4
Segment Operating Income	$	138	$	56	$	229	$	96

________________

(a) Increases from prior year for the nine months ended September 30, 2014 reflect the acquisition of supply rights for approximately 835 dealer-operated and branded wholesale retail stations with the Los Angeles Acquisition.

Three Months EndedSeptember 30, 2014 Compared with Three Months EndedSeptember 30, 2013

Overview. Operating income increased$82 million to $138 million during the 2014 Quarter as compared to the 2013 Quarter primarily as a result of our increased gross fuel margin.

Gross Margin. Gross margin increased$93 million, or 60%, to $247 million during the 2014 Quarter as compared to the 2013 Quarter primarily due to the higher fuel margin per gallon as well as higher fuel sales volumes. Fuel sales volumes increased 29 million gallons to 1.1 billion gallons during the 2014 Quarter. Additionally, we experienced higher fuel margin driven by capture of favorable market conditions where declining street prices were outpaced by spot market prices at the rack.

Operating and Other Expenses. The increase of $11 million in operating expenses was primarily driven by our larger retail network.

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Nine Months EndedSeptember 30, 2014 Compared with Nine Months EndedSeptember 30, 2013

Overview. Operating income increased$133 million to $229 million during the 2014 Period as compared to the 2013 Period as a result of our increased gross margin.

Gross Margin. Gross margin increased$172 million, or 47%, to $537 million during the 2014 Period as compared to the 2013 Period due to the 46% increase in fuel sales volumes to 3.1 billion gallons. The increase was primarily driven by a higher station count resulting from stations acquired as part of the Los Angeles Acquisition and continued expansion of our retail network. Additionally, gross margin was positively impacted by an increase of $21 million in merchandise and other non-fuel margin.

Operating and Other Expenses. The increase of $40 million in operating expenses was primarily driven by our larger retail network.

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 page 57 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.

Capitalization

Our capital structure at September 30, 2014 was comprised of the following (in millions):

Debt, including current maturities:	September 30, 2014
Tesoro Corporation Revolving Credit Facility	$	—
Term Loan Credit Facility	398
4.250% Senior Notes due 2017	450
5.375% Senior Notes due 2022	475
5.125% Senior Notes due 2024	300
Capital lease obligations and other	45
Tesoro Debt	1,668
TLLP Revolving Credit Facility	243
5.875% TLLP Senior Notes due 2020	475
6.125% TLLP Senior Notes due 2021	550
TLLP Capital lease obligations and other	8
TLLP Debt	1,276
Total Debt	2,944
Total Equity	5,892
Total Capitalization	$	8,836

At September 30, 2014, our debt to capitalization ratio decreased to 33% as compared to 34% at December 31, 2013. Our debt to capitalization ratio, excluding TLLP, was 27% and 28% at September 30, 2014 and December 31, 2013, respectively, which excludes TLLP total debt, including capital leases, of $1.3 billion and $1.2 billion, respectively. The ratio also excludes noncontrolling interest of $1.3 billion and $1.2 billion at September 30, 2014 and December 31, 2013, respectively. TLLP’s debt is non-recourse to Tesoro, except for TLGP.

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The Tesoro Corporation revolving credit facility (the “Revolving Credit Facility”), senior notes and term loan credit facility agreement (the “Term Loan Credit Facility”) each limit our ability to make certain 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. We do not believe that these limitations will restrict our ability to pay dividends or buy back stock under our current programs.

During the nine months ended September 30, 2014, we accomplished the following as discussed in further detail in Note J of our financial statements:

• TLLP redeemed an aggregate principal amount of $130 million of the 2020 Notes using proceeds from the issuance of 2.1 million common units on August 22, 2014;

• TLLP completed an offer to exchange the notes during the private offering of $250 million of the 2020 Notes for notes registered under the Securities Act of 1933, as amended; and

• we issued $300 million aggregate principal amount of the 2024 Notes in March 2014 and using the proceeds from the issuance of the 2024 Notes, together with cash on hand, we redeemed all outstanding 2019 Notes for an aggregate purchase price of $329 million, including accrued interest and premiums.

TLLP Senior Notes due 2019 and 2022

On October 29, 2014, TLLP completed the Senior Notes Offering with tranches of $500 million of 5.50% senior notes due in 2019 (the “TLLP 2019 Notes”) and $800 million of 6.25% senior notes due in 2022 (the “TLLP 2022 Notes”). Interest on each series of notes will be payable semi-annually on each April 15 and October 15, beginning April 15, 2015. The proceeds from the TLLP 2019 Notes were used to repay amounts outstanding under the TLLP Revolving Credit Facility related to its recent acquisition of logistics assets from Tesoro during the third quarter of 2014. The TLLP 2022 Notes closed into escrow to fund the QEPFS Acquisition. The remaining net proceeds from the TLLP 2019 Notes, the TLLP 2022 Notes and borrowings under the revolving credit facility will be used primarily to fund the QEPFS Acquisition. The escrowed proceeds from the TLLP 2022 Notes will be released to fund the QEPFS Acquisition upon TLLP’s closing of the acquisition and other customary conditions outlined in the debt agreement. If these conditions are not satisfied by December 31, 2014 (subject to monthly extensions until February 28, 2015), the TLLP 2022 Notes can be redeemed at 100% of their initial issue price, plus accrued and unpaid interest.

Credit Facilities Overview

Our primary sources of liquidity are cash flows from operations with additional sources available under borrowing capacity from our revolving lines of credit. We ended the third quarter of 2014 with $1.5 billion of cash and cash equivalents and borrowings of $398 million under the Term Loan Credit Facility and $243 million under the TLLP senior secured revolving credit agreement (the “TLLP Revolving Credit Facility”). We believe available capital resources will be adequate to meet our capital expenditure, working capital and debt service requirements. We had available capacity under our credit facilities as follows at September 30, 2014 (in millions):

	Total Capacity		Amount Borrowed as of September 30, 2014		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving    Credit Facility (a)	$	3,000	$	—	$	824	$	2,176	January 4, 2018
TLLP Revolving Credit Facility	575		243		—		332		December 31, 2017
Term Loan Credit Facility	398		398		—		—		May 30, 2016
Letter of Credit Facilities	1,837		—		784		1,053
Total credit facilities	$	5,810	$	641	$	1,608	$	3,561

________________

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

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As of September 30, 2014, 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    ($3.0 billion) (b)	0.16%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($575 million) (c)	0.16%	2.50%	3.25%	1.50%	0.50%
Term Loan Credit Facility ($398 million) (b)	0.16%	2.25%	3.25%	1.25%	—%

________________

(b) We can elect the interest rate to apply to the 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 on the Revolving Credit Facility varies primarily based upon our credit ratings. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate.

(c) TLLP has the option to elect if the borrowings will bear interest at either, a base rate plus the base rate margin or a Eurodollar rate, for the applicable period, 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. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate.

Tesoro Corporation Revolving Credit Facility

At September 30, 2014, 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 $4.4 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 $3.0 billion. The total available capacity can be increased up to an aggregate amount 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 November 21, 2014, and by an additional $500 million on or prior to May 21, 2015. We had unused credit availability of approximately 73% of the eligible borrowing base at September 30, 2014.

The Revolving Credit Facility is guaranteed by substantially all of Tesoro’s active domestic subsidiaries excluding TLGP, TLLP and its subsidiaries, and certain foreign subsidiaries, and is secured by substantially all of Tesoro’s active domestic subsidiaries’ crude oil and refined product inventories, cash and receivables.

Our Revolving Credit Facility, senior notes and Term Loan Credit Facility each limit our ability to make certain 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. We do not believe that the limitations will restrict our ability to pay dividends or buy back stock under our current programs. These existing covenants and restrictions may limit, among other things, our ability to:

• pay dividends and make other distributions with respect to our capital stock and purchase, redeem or retire our capital stock;

• incur additional indebtedness and issue preferred stock;

• make voluntary prepayments of subordinate debt;

• sell assets unless the proceeds from those sales are used to repay debt or are reinvested in our business;

• incur liens on assets to secure certain debt;

• engage in certain business activities;

• make certain payments and distributions from our subsidiaries;

• engage in certain mergers or consolidations and transfers of assets; and

• enter into certain transactions with affiliates.

We have a default covenant that requires us to maintain specified levels of tangible net worth. There were no changes to the Revolving Credit Facility covenants during the nine months ended September 30, 2014. We were in compliance with our debt covenants as of and for the nine months ended September 30, 2014.

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TLLP Revolving Credit Facility

The TLLP Revolving Credit Facility provided for total loan availability of $575 million as of September 30, 2014, and TLLP may 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 $243 million in borrowings outstanding under the TLLP Revolving Credit Facility, which incurred interest at a weighted average interest rate of 2.65% at September 30, 2014. In conjunction with the announcement of the QEPFS Acquisition, TLLP executed a commitment letter to amend and restate the TLLP Revolving Credit Facility to increase the total loan availability to $900 million and extend the maturity date five years from the date the facility is amended and restated.

TLLP was in compliance with all TLLP Revolving Credit Facility covenants and conditions as of and for the nine months ended September 30, 2014. 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

We entered into the Term Loan Credit Facility in January 2013, which allowed us to borrow up to an aggregate of $500 million. We borrowed $500 million on May 30, 2013 to fund a portion of the Los Angeles Acquisition. The obligations under the Term Loan Credit Facility are secured by all equity interests of Tesoro Refining & Marketing Company LLC and Tesoro Alaska Company LLC, the Tesoro and USA Gasoline trademarks and those trademarks containing the name “ARCO” acquired in the Los Angeles Acquisition and junior liens on certain assets. The Term Loan Credit Facility may be repaid at any time but amounts may not be re-borrowed. The borrowings under our Term Loan Credit Facility incurred interest at a rate of 2.40% as of September 30, 2014.

The Term Loan Credit Facility contains affirmative covenants, representations and warranties and events of default substantially similar to those set forth in the Revolving Credit Facility and contains negative covenants substantially similar to those established in the indentures for the 4.250% Senior Notes due 2017, 5.375% Senior Notes due 2022 and 2024 Notes.

Share Repurchases

We are authorized by our Board to purchase shares of our common stock in open market transactions at our discretion. The Board’s authorization has no time limit and may be suspended or discontinued at any time. Purchases of our common stock can also be made to offset the dilutive effect of stock-based compensation awards and to meet our obligations under employee benefit and compensation plans, including the exercise of stock options and vesting of restricted stock and to fulfill other stock compensation requirements. We purchased approximately 2.5 million shares and 2.0 million shares of our common stock for approximately $150 million and $100 million during the three months ended September 30, 2014 and 2013, respectively, and 6.2 million shares and 6.4 million shares of our common stock for approximately $350 million and $336 million during the nine months ended September 30, 2014 and 2013, respectively. On July 30, 2014, our Board approved a new $1.0 billion share repurchase program to become effective upon the full completion of our current $1.0 billion share repurchase authorization, expected by the end of 2014. With the new program, we have $1.2 billion remaining under our authorized programs, of which we have purchased approximately $50 million of additional shares through October 2014.

Cash Dividends

We paid cash dividends totaling $39 million and $104 million for the three and nine months ended September 30, 2014, respectively, based on a $0.30 per share and $0.25 per share quarterly cash dividend on common stock in the third quarter and the first two quarters, respectively. We paid cash dividends totaling $33 million and $88 million for the three and nine months ended September 30, 2013, respectively, based on a $0.25 per share quarterly cash dividend on common stock in the third quarter and a $0.20 per share quarterly cash dividend on common stock in the first and second quarters. On October 30, 2014, our Board declared a cash dividend of $0.30 per share, payable on December 15, 2014 to shareholders of record on November 28, 2014.

Cash Flow Summary

Working capital (excluding cash) increased$86 million in the 2014 Period primarily related to the timing of customer payments on accounts receivable, increased inventory levels and the timing of our payments for crude oil and refined product purchases.

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

	Nine Months Ended September 30,
	2014			2013
Cash Flows From (Used in):
Operating activities	$	1,047		$	670
Investing activities	(483		)	(2,523		)
Financing activities	(272		)	1,706
Increase (Decrease) in Cash and Cash Equivalents	$	292		$	(147	)

Net cash from operating activities during the 2014 Period totaled $1.0 billion, as compared to net cash from operating activities of $670 million in the 2013 Period. The increase in net cash from operating activities of $377 million was primarily due to the increase in net income of $305 million and a $214 milliondecrease in deferred charges primarily as a result of decreased turnaround and other deferred expenditure spending during the 2014 Period compared to the 2013 Period. Net cash used in investing activities decreased$2.0 billion to $483 million in the 2014 Period as compared to $2.5 billion in the 2013 Period, primarily due to the Los Angeles Acquisition made in the 2013 Period. Net cash used in financing activities during the 2014 Period totaled $272 million as compared to net cash from financing activities of $1.7 billion in the 2013 Period. The decrease of $2.0 billion is primarily attributable to $1.7 billion of net borrowings in the 2013 Period used to fund the Los Angeles Acquisition and $392 million of proceeds received during the 2013 Period for the sale of TLLP common units.

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):

Major Projects	Total Project Expected Capital Expenditures (a)		Actual 2014 Capital Expenditures (b)		Expected Capital Expenditures for Remainder of 2014 (a)		Expected In-service Date
In Process:
Utah Refinery Expansion (c)	$	335	$	105	$	30	2013-2015
TLLP’s Connolly Gathering System (d)	150		10		15		2014-2015
Under Development:
Los Angeles Refinery Integration (e)	$	265	$	—	$	6	2017
Xylene Extraction (f)	400		—		—		2017

________________

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

(b) 2014 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. The first phase of this project was completed in the second quarter of 2013 and the second phase is expected to be completed in 2015. Our spending for phase two of this project was increased $60 million during the first quarter of 2014 due to revised cost estimates.

(d) TLLP is building and funding the construction of a pipeline gathering system (the “Connolly Gathering System”) to gather crude oil from various points in Dunn County, North Dakota for delivery at its existing Connolly Station with an expected capacity of approximately 60 Mbpd.

(e) The integration project at the Los Angeles refinery is designed to improve the flexibility of gasoline and diesel yields and reduce carbon dioxide emissions. The proposed project, subject to final board approval, project scoping, engineering and regulatory approval, includes decommissioning the fluid catalytic cracking unit at our Wilmington refinery.

(f) The xylene extraction project at our Anacortes, Washington refinery is designed to recover up to 15 Mbpd of mixed xylenes, which is used to make polyester fibers and films for clothing, food packaging and beverage containers. The proposed project is subject to final board approval, project scoping, engineering and regulatory approval, which we expect to finalize in early 2015.

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Capital expenditures during the 2014 Quarter and Period were $194 million and $464 million respectively, including $63 million and $137 million of TLLP capital spending for the 2014 Quarter and Period, respectively. Our capital spending is expected to be $550 million for 2014, revised due to timing of capital spending, reflecting the Company’s emphasis on long term strategic priorities including continued focus on safety and reliability and increased focus on value-driven growth. The 2014 capital spend excludes $200 million for TLLP for which we expect to reimburse TLLP approximately $24 million. Our 2014 Quarter, Period and full-year capital expenditure amounts, excluding TLLP capital spending, are comprised of the following project categories at September 30, 2014:

Project Category	Percent of 2014 Quarter Capital Expenditures	Percent of 2014 Period Capital Spending	Percent of 2014 Expected Capital Expenditures
Regulatory	31%	25%	25%
Sustaining	22%	27%	25%
Income Improvement	47%	48%	50%

Turnarounds and other Deferred Expenditures

We spent $27 million and $105 million during the 2014 Quarter and 2014 Period, respectively, for turnarounds, catalysts and other deferred expenditures, including $19 million and $89 million primarily for a turnaround and catalyst replacement at our California refineries during the 2014 Quarter and 2014 Period, respectively. Total expected spending for 2014 on turnarounds and catalysts is $195 million with the balance being primarily spent at our Martinez refinery. Additionally, total expected spend on deferred branding costs in our retail segment is $20 million for 2014.

Investment in Joint Ventures

In 2013, we entered into a joint venture with Savage Companies to construct, own and operate a unit train unloading and marine loading terminal at Port of Vancouver, USA (the “Vancouver Energy” terminal) with a total capacity of 360 Mbpd allowing for the delivery of cost-advantaged North American crude oil to the U.S. West Coast. Our contribution to the project is expected to be between $95 million and $105 million reflecting cost estimates outlined in the first quarter of 2014 that were updated to include the entire project scope and better definition of requirements to comply with American Society of Civil Engineering and International Building Codes for seismic risks in the area. Our contributions, totaling $4 million during the 2014 Period, are considered investments in joint ventures and are presented in net cash used in investing activities in our condensed statements of consolidated cash flows. The project is progressing through the Energy Facility Site Evaluation Council (“EFSEC”) permitting process in the state of Washington. During the second quarter of 2014, EFSEC approved the land-use consistency indicating the planned facility is in line with Vancouver, Washington zoning requirements. Additionally, EFSEC issued the Environmental Impact Study scoping report. We submitted the majority of our Preliminary Draft Environmental Impact Study to EFSEC in July 2014 and the remaining portion in September 2014. We expect EFSEC to release the Draft Environmental Impact Study for public comment and begin the adjudicative phase shortly, which is the last stage prior to a recommendation being submitted to the governor of Washington. The joint venture will begin construction of the facilities upon the governor’s approval of the project and issuance of permits. Project construction is estimated to take nine to twelve months, however initial operations are expected to begin within a few months of construction start.

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.

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Environmental Laws and Regulations

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 requirements, 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 liquidity, consolidated financial position, or results of operations.

The U.S. Environmental Protection Agency (“EPA”) proposed regulating greenhouse gas (“GHG”) emissions under the Clean Air Act in 2009. The first of these regulations, finalized in April 2010, set standards for the control of GHG emissions from light trucks and cars which could reduce the demand for our manufactured transportation fuels. In addition, the EPA has also finalized regulations to establish permitting requirements for stationary sources that emit GHG above a certain threshold. On October 15, 2013, the U.S. Supreme Court agreed to hear challenges to the EPA’s GHG regulations but limited the argument to whether the EPA’s GHG regulations for vehicles necessarily trigger Clean Air Act permitting requirements for stationary sources. On June 23, 2014, the U.S. Supreme Court narrowed the EPA’s regulatory authority but upheld portions of the EPA’s rulemaking that would regulate GHG emissions from permitted stationary sources. The stationary source permitting requirements could impose emission controls that increase required capital expenditures at our refineries. We cannot currently predict the impact of these regulations on our liquidity, financial position, or results of operations.

The Energy Independence and Security Act was enacted into federal law in December 2007 creating a second Renewable Fuels Standard (“RFS2”) requiring the total volume of renewable transportation fuels (including ethanol and advanced biofuels) sold or introduced in the U.S. to reach 18.2 billion gallons in 2014 and to increase to 36.0 billion gallons by 2022. However, the EPA has proposed to reduce the total renewable fuel and advanced biofuel requirement to 15.2 billion gallons for 2014. These 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 Renewable Identification Numbers (“RINs”) that were carried over from prior periods, blending renewable fuels obtained from third parties and purchases of RINs in the open market. The spending related to the purchases of RINs for 2014 is not expected to be material based on our operations and the current regulatory environment. Actual costs related to RINs may differ due to changes in the market price of RINs and the ultimate destinations of our products. 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 statute and implementing its regulations, 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 by requiring 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 that became effective in January 2013, and all of AB 32 related regulations are to be fully implemented by 2020. In December 2011, a U.S. District Court ruled that the LCFS violates the U.S. Constitution. CARB appealed the decision and, on September 18, 2013, the U.S. Ninth Circuit Court of Appeals reversed the lower court’s decision and remanded the case to the lower court to rule on whether the ethanol provisions of the LCFS are unconstitutional. We cannot predict the ultimate outcome of the lower court’s ruling on the LCFS, and the implementation and implications of AB 32 will take many years to realize. On January 1, 2015, transportation fuels will be brought into the California cap-and-trade program, which will make fuel suppliers responsible for carbon emission from their products. CARB expects the cost for carbon emissions will be passed through to consumers. Consequently, we cannot currently predict the impact of the LCFS, cap and trade requirements, and other AB 32 related regulations on our liquidity, financial position, or results of operations.

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Environmental Liabilities

We are incurring and expect to continue to incur expenses for environmental remediation 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. Additionally, we have recognized environmental remediation liabilities assumed in past acquisitions from the prior owners that include amounts estimated for site cleanup and monitoring activities arising from operations at refineries, certain terminals and pipelines, and retail stations prior to the dates of our acquisitions. 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 $261 million and $262 million at September 30, 2014 and December 31, 2013, respectively, including $21 million and $24 million for TLLP, respectively. These accruals include $218 million and $216 million at September 30, 2014 and December 31, 2013, respectively, related to amounts estimated for site cleanup activities arising from operations at our Martinez refinery prior to August 2000 and operations of assets acquired in the Los Angeles Acquisition prior to June 1, 2013. We cannot reasonably determine the full extent of remedial activities that may be required at the Martinez refinery and for assets acquired in the Los Angeles Acquisition, and it is possible that we will identify additional investigation and remediation costs for site cleanup activities as more information becomes available. Our estimates for site cleanup activities reflect amounts for which we are responsible under applicable cost-sharing arrangements. We also have insurance policies related to certain matters at our Martinez refinery that provide coverage up to $190 million for expenditures in excess of $50 million in self-insurance. We have not recognized possible insurance recoveries and the insurer has challenged coverage and filed a declaratory relief action in federal court.

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 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. In separate September 2013 and November 2013 orders, the Board of Industrial Insurance Appeals granted partial summary judgment in our favor and dismissed most of the citations. We have established an accrual for this matter although we cannot currently estimate the final amount or timing of its resolution. The outcome of this matter will not have a material impact on our liquidity, financial position, or results of operations.

On May 1, 2014, the CSB finalized its investigation report on the April 2010 naphtha hydrotreater unit fire at our Washington refinery. In the report, the CSB made recommendations to federal and state agencies, the American Petroleum Industry and us. In response to the recommendations made to us, we have communicated to the CSB the actions we are and will be taking. Our completion of those actions will not have a material impact on our liquidity, financial position, or results of operations.

On August 15, 2014, the U.S. Department of Justice (“DOJ”) announced the closure of its investigation of the Washington naphtha hydrotreater fire. In the announcement, the DOJ, who conducted the investigation in conjunction with EPA, stated it declined to bring criminal charges.

We received a notice of violation (“NOV”) from the EPA alleging 46 violations of the Clean Air Act Risk Management Plan requirements at our Washington refinery on November 20, 2013. The EPA conducted an investigation of the refinery in 2011, following the April 2010 fire in the naphtha hydrotreater unit. While we have submitted a response to the EPA and requested clarification of certain allegations, we cannot currently estimate the amount or timing of the resolution of this matter. We believe the outcome will not have a material impact on our liquidity, financial position, or results of operations.

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.

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Environmental

The EPA has alleged that we have violated certain Clean Air Act regulations at our Alaska, Washington, Martinez, North Dakota and Utah refineries. We also retained the responsibility for resolving similar allegations relating to our former Hawaii refinery, which we sold in September 2013. We previously received a NOV in March 2011 from the EPA alleging violations of Title V of the Clean Air Act at our Alaska refinery, which arose 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 continuing discussions of all EPA claims with the EPA and the DOJ. The ultimate resolution of these matters could have a material impact on our future interim or annual results of operations, as we may be required to incur material capital expenditures and/or civil penalties. However, we do not believe that the outcome will have a material impact on our liquidity or financial position.

We have investigated conditions at certain active wastewater treatment units at our Martinez refinery pursuant to an order received in 2004 from the San Francisco Bay Regional Water Quality Control Board that 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 liquidity, financial position, or results of operations.

Certain non-governmental organizations filed a Request for Agency Action (the “Request”) with the Utah Department of Environmental Quality (“UDEQ”) concerning our Utah refinery in October 2012. 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. In orders issued on July 10 and September 9, 2014, the UDEQ Administrative Law Judge recommended the Executive Director of UDEQ deny Petitioners’ request for a stay of the project and dismiss their challenge to the permit. The Executive Director’s issuance of a final decision is still pending. While we cannot estimate the timing or estimated amount, if any, associated with the outcome of this matter, we do not believe it will have a material adverse impact on our liquidity, financial position, or results of operations.

The CSB is investigating February and March 2014 incidents at our Martinez refinery involving sulfuric acid exposure at the Alkylation Unit.  The California Department of Industrial Relations (“Cal-OSHA”) along with Contra Costa County Health District (“CCCHD”) also started investigations of the incidents. In addition, the EPA is conducting an investigation to evaluate the Martinez refinery’s compliance with certain federal environmental acts and the Risk Management Plan requirements under the Clean Air Act.  While we cannot currently predict the timing and the resolution of these investigations, we believe the outcome will not have a material impact on our liquidity, financial position, or results of operations.

In August 2014, we received citations from Cal-OSHA alleging violations of the California Labor Code associated with the two incidents at our Martinez refinery in February and March 2014. We are working with Cal-OSHA to mitigate and resolve the allegations. While we cannot currently estimate the amount or timing of the resolution of this matter, the outcome will not have a material impact on our liquidity, financial position, or results of operations.

Tax

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. However, we believe that resolution of any such claim(s) would not have a material impact on our liquidity, financial position, or results of operations. It is reasonably possible that unrecognized tax benefits may decrease by as much as $8 million in the next twelve months, related primarily to state apportionment matters. However, since the tax was fully paid in prior years, the unrecognized tax benefit would be eliminated without impacting expense.

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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 as well as RINs and carbon credits, 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 value of and benefits derived from the assets acquired in the acquisition of BP’s integrated Southern California refining, marketing and logistics business;

• 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;

• regulatory and other requirements concerning the transportation of crude oil, particularly from the Bakken area;

• 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;

• risks related to labor relations and workplace safety; and

• political developments.

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.

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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 in coordination with our subject matter experts, assessment of the status and effectiveness of risk prevention and mitigation activities, identification of emerging risks and the facilitation of management’s development of risk assessment and management practices. The risk committee is also responsible to assess and advise management on the Company’s system of controls to ensure procedures are properly followed and appropriate accountability is present. The Company’s controls are 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

• implement key indicators to measure the performance of its hedging activities.

The risk committee meets at least monthly to review priority risks, risk prevention and mitigation activities and the Company’s emerging risks. In addition, our risk committee chairman presents a quarterly risk update to executive management and an annual update to our Board of Directors concerning the status and effectiveness of our risk prevention and mitigation activities, emerging risks and risk assessment and management practices.

Commodity Price Risks

Our primary source of market risk is the difference between the sale prices for our refined products and the purchase prices for crude oil and other feedstocks. Refined product prices are directly influenced by the price of crude oil. 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. Our refined product sale prices are also affected by local factors such as local market conditions and the level of operations of other suppliers in our markets.

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 could have a significant impact on our profit margins, earnings and cash flows. Assuming all other factors remained constant, a $1 per barrel change in average gross refining margins, based on our quarter-to-date average throughput of 858 Mbpd, would change annualized pre-tax operating income by approximately $310 million. This analysis may differ from actual results.

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 40 million barrels and 39 million barrels at September 30, 2014 and December 31, 2013, respectively. The average cost of our refinery feedstocks and refined products at September 30, 2014, was approximately $66 per barrel compared to market prices of approximately $108 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 value.

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 and inventories above or below our target levels. We also use these instruments to manage the impact of market volatility and arbitrage opportunities for crude oil where the price of crude oil is higher in the future than the current spot price. For the purchase or sale of crude oil and finished products to be used in our normal operations, we may enter into physical commodity forward purchase and sale contracts (“Forward Contracts”), which are not typically classified and reported as derivatives for accounting purposes. The gains or losses associated with these Forward Contracts are recognized as incurred in our financial statements separate from the gains or losses associated with other derivative instruments reported below and in Note H to our financial statements in Part 1 Item 1.

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Also, we may enter into derivative contracts such as exchange-traded futures, over-the-counter swaps, options and over-the-counter options, most of which had remaining durations of less than one year as of September 30, 2014, to economically hedge price risk associated with our physical commodity Forward Contracts or to take advantage of other market opportunities. We mark-to-market these derivative instruments each period during the contract term, which can create timing differences for gain or loss recognition in our financial statements. The derivative gains or losses presented below do not reflect the realized losses or gains, respectively, from the settlement of our physical commodity transactions. Both the derivative and the physical commodity Forward Contracts’ gains and losses are reflected in our gross refining margin in the refining segment. We evaluate our performance based on all contract types available to manage our risk, which includes contracts that may or may not be classified and reported as derivatives for accounting purposes.

We believe the governance structure that we have in place is adequate given the size and sophistication of our commodity optimization, inventory management and trading activities. Our governance over commodity activities includes regular monitoring of the performance of our risk management strategies and limits over dollar and volume based transactional authority, commodity position, aggregate spread, stop-loss and value-at-risk. Performance against our strategies and authorized limits is monitored daily via position reports and profit and loss analysis and is reviewed on a regular basis, at least monthly, by our risk committee.

Net earnings during the third quarters of 2014 and 2013 included a net gain of $166 million and net loss of $66 million, respectively, on our commodity derivative positions comprised of the following (dollars in millions and volumes in millions of barrels, gallons, tons or bushels):

	Three Months Ended September 30,
	2014			2013
	Contract  Volumes	Net Gain		Contract Volumes	Net Gain  (Loss)
Unrealized gain (loss) carried on open derivative positions    from prior period	56	$	14	1	$	(24	)
Realized gain (loss) on settled derivative positions	174	103		162	(82		)
Unrealized gain on open net derivative positions	7	49		14	40
Net Gain (Loss)		$	166		$	(66	)

Our open derivative positions at September 30, 2014, will expire at various times through 2017. 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 at September 30, 2014, a 1% 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 $10 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. Customer concentrations within the refining industry may affect our overall exposure to counterparty risk because these customers may be similarly impacted by changes in economic or other conditions.  In addition, financial services companies are the counterparties in certain of our price risk management activities, and such financial services companies could be adversely impacted by periods of uncertainty and illiquidity in the credit or capital markets. We have credit management processes in place by which we closely monitor the status of our counterparties by performing ongoing credit evaluations of their financial condition. In certain circumstances, we require prepayments, letters of credit or other credit enhancement.

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Interest Rate Risk

Our use of fixed or variable-rate debt directly exposes us to interest rate risk. Fixed rate debt, such as our senior notes, exposes us to changes in the fair value of our debt due to changes in market interest rates. Fixed rate debt also exposes us to the risk that we may need to refinance maturing debt with new debt at higher rates, or that we may be obligated to pay rates higher than the current market. Variable-rate debt, such as borrowings under our Revolving Credit Facility or Term Loan Credit Facility, exposes us to short-term changes in market rates that impact our interest expense. The fair value of our debt was estimated primarily using quoted market prices. The carrying and fair value of our debt were both approximately $2.9 billion at September 30, 2014. The carrying value and fair value of our debt were approximately $2.8 billion and $2.9 billion, respectively, at December 31, 2013. 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. With all other variables constant, a 0.25% change in the interest rate associated with the borrowings outstanding under our Term Loan Credit Facility at September 30, 2014 would change annual interest expense by approximately $2 million. There were no borrowings outstanding under the Revolving Credit Facility and $243 million borrowings outstanding under the TLLP Revolving Credit Facility as of September 30, 2014.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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 Securities Exchange Act of 1934, as amended (“the Exchange Act”), is accumulated and appropriately communicated to management. There have been no significant changes in our internal controls over financial reporting (as defined by applicable SEC rules) during the quarter ended September 30, 2014 that have materially affected or are reasonably likely to materially affect these controls.

We expect to complete during 2014 a transition from the 1992 framework of the Committee of Sponsoring Organizations of the Treadway Commission to its 2013 framework for assessing our internal control effectiveness over financial reporting.

We carried out an evaluation required by Rule 13a-15(b) of 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 at the end of the reporting period. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

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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 liquidity, consolidated financial position, or results of operations. 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, 2013.

In October 2014, we reached an agreement to settle 23 notices of violation (“NOV”) received from the Bay Area Air Quality Management District (the “BAAQMD”). The NOVs issued from April 2011 to April 2012 allege violations of air quality regulations at our Martinez refinery.  Pending finalization of the settlement agreement, the outcome will not have a material impact on our liquidity, financial position, or results of operations.

In October 2014, we finalized the settlement of a NOV issued on March 12, 2014 by the Northwest Clean Air Agency jointly to Tesoro Refining & Marketing Company LLC and Tesoro Logistics Operations LLC alleging a violation of air quality regulations at TLLP’s Anacortes Crude Rail Offloading facility.  The allegation concerns hydrocarbon releases from the wastewater system at the unloading facility during the period of November 2012 through September 2013.  The final resolution of this matter did not have a material impact on our financial position, results of operations or liquidity.

On August 15, 2014, the U.S. Department of Justice (“DOJ”) announced the closure of its investigation of the Washington naphtha hydrotreater fire. In the announcement, the DOJ, who conducted the investigation in conjunction with the U.S. Environmental Protection Agency, stated that it declined to bring criminal charges.

On May 1, 2014, the U.S. Chemical Safety and Hazard Investigation Board (“CSB”) finalized its investigation report on the April 2010 naphtha hydrotreater unit fire at our Washington refinery. In the report, the CSB made recommendations to federal and state agencies, the American Petroleum Industry and us. In response to the recommendations made to us, we have communicated to the CSB the actions we are and will be taking. Our completion of those actions will not have a material impact on our liquidity, financial position, or results of operations.

In April 2014, we agreed to settle the November 19, 2013 NOV from the BAAQMD for $285,000. The NOV alleged the release of hydrocarbon emissions from the cooling tower at our Martinez refinery in September 2010 violated air quality regulations.  The resolution of this matter will not have a material impact on our liquidity, financial position, or results of operations.

On January 16, 2014, we received a NOV from the Alaska Department of Environmental Conservation (ADEC) alleging violations of emission limits in 7 process heaters at our Kenai refinery. The allegations are based on results of emission tests conducted in September 2013.  We are working with ADEC to mitigate the emissions and resolve the allegations. While we cannot currently estimate the amount or timing of the resolution of this matter, the outcome will not have a material impact on our liquidity, financial position, or results of operations.

ITEM 1A. RISK FACTORS

There have been no significant changes from the risk factors previously disclosed in Item 1A of our 2013 Annual Report on Form 10-K.

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

The table below provides a summary of all purchases by Tesoro Corporation of its common stock during the three-month period ended September 30, 2014.

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)	Approximate Dollar Value of Shares that May Yet Be Purchased Remaining at Period End Under the Plans or Programs (In Millions) (b)
July 2014	946,282	$	59.18	944,589	$	244
August 2014	696,909	$	63.00	696,909	$	200
September 2014	802,657	$	62.63	802,108	$	150
Total	2,445,848			2,443,606

________________

(a) Includes 2,242 shares acquired from employees during the third quarter of 2014 to satisfy tax withholding obligations in connection with the vesting of performance share awards, market stock units and restricted stock issued to them.

(b) Our Board of Directors authorized a $1.0 billion share repurchase program as revised in November 2013. 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. On July 30, 2014, our Board approved a new $1.0 billion share repurchase program to become effective upon the full completion of our current $1.0 billion share repurchase authorization, expected by the end of 2014. This new share repurchase program is not included in the amounts listed as the new share repurchase program does not commence until the completion of the current share repurchase program.

ITEM 5. OTHER INFORMATION

Indentures for TLLP Senior Notes due 2019 and 2022

On October 29, 2014, Tesoro Logistics LP (“TLLP”) and its wholly-owned subsidiary Tesoro Logistics Finance Corp. (together with TLLP, the “Issuers”) closed their previously announced offering (the “Offering”) of $500 million aggregate principal amount of the Issuers’ 5.50% Senior Notes due 2019 (the “TLLP 2019 Notes”) and $800 million aggregate principal amount of the Issuers’ 6.25% Senior Notes due 2022 (the “TLLP 2022 Notes” and, together with the TLLP 2019 Notes, the “TLLP Senior Notes”) pursuant to a private placement transaction conducted under Rule 144A and Regulation S of the Securities Act of 1933, as amended. TLLP used the proceeds from the TLLP 2019 Notes to repay indebtedness outstanding under its existing revolving credit facility and will use the remaining proceeds for general partnership purposes. The proceeds from the TLLP 2022 Notes were funded into escrow, which upon release, will be used, together with the portion of the proceeds from the offering of the TLLP 2019 Notes that was to be used for general partnership purposes, the proceeds from an equity offering by TLLP that closed on October 24, 2014 (including an investment by Tesoro Corporation in such offering), the proceeds from borrowings under TLLP’s amended and restated revolving credit facility and the proceeds from a contribution to TLLP’s equity by its general partner, to fund the consummation of TLLP’s announced acquisition of QEP Field Services, LLC from QEP Resources, Inc. (the “Acquisition”) and the payment of related fees and expenses.

The TLLP Senior Notes were issued pursuant to an Indenture, dated as of October 29, 2014 (the “Indenture”), among the Issuers, the guarantors party thereto and U.S. Bank National Association, as trustee. Interest on the TLLP 2019 Notes accrues beginning on October 29, 2014 at a rate of 5.50% per year. Interest on the TLLP 2022 Notes accrues beginning on October 29, 2014 at a rate of 6.25% per year. Interest on the TLLP Senior Notes is payable semi-annually on April 15 and October 15 of each year, commencing on April 15, 2015. The TLLP 2019 Notes mature on October 15, 2019 and the TLLP 2022 Notes mature on October 15, 2022. The Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on, among other things, making investments, incurring additional indebtedness or issuing preferred units, paying dividends or making distributions on units or redeeming or repurchasing subordinated debt, creating liens, incurring dividend or other payment restrictions affecting subsidiaries, selling assets, merging or consolidating with other entities and entering into transactions with affiliates.

The foregoing summary of the Indenture is qualified in its entirety by reference to the text of the Indenture effective October 29, 2014, which is filed as Exhibit 4.3 to this Quarterly Report on Form 10-Q and is incorporated by reference herein.

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Amendments to EDCP and SERP

On October 30, 2014, the Compensation Committee of the Board of Directors (the “Compensation Committee”) approved an increase in the amount of the supplemental match under the Tesoro Corporation Executive Deferred Compensation Plan (“EDCP”).  The purpose of the EDCP is to provide executives and key management personnel the opportunity to make additional pre-tax deferrals capped under our qualified 401(k) plan (“Thrift Plan”), due to salary and deferral limitations imposed under the Internal Revenue Code and as an additional resource for tax planning.  Previously, participants could elect to defer up to 50% of their base salary and/or up to 100% of their annual bonus compensation after FICA tax deductions.  Except as provided below, we would match the participant’s base salary contributions dollar-for-dollar up to 4% of eligible earnings above the IRS salary limitation.  With the increase approved by the Committee, effective as of January 1, 2015, the maximum amount of such match will be increased to 6% of eligible earnings above the IRS salary limitation, which more closely resembles the provisions of our Thrift Plan and market practice among our peer companies.  A participant will vest in our matching contributions upon the completion of three years of service.  Participants that are eligible for supplemental retirement benefits under the Tesoro Corporation Executive Security Plan or an executive employment contract are eligible to defer compensation under the EDCP, but are not eligible for the matching provisions of the EDCP. 

On October 30, 2014, the Compensation Committee made a determination that, effective as of January 1, 2015, the Tesoro Corporation Supplemental Executive Retirement Plan (“SERP”) will no longer be available to new participants.  The SERP is a non-qualified cash balance account based pension plan that was approved and adopted by the Compensation Committee on January 12, 2011.  The SERP provided eligible senior level executives, who were hired on or after January 12, 2011, a supplemental cash balance pension benefit in excess of those earned under the qualified retirement plan. 

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ITEM 6. EXHIBITS

(a) Exhibits

Exhibit Number	Description of Exhibit
4.1	Supplemental Indenture, dated as of March 3, 2014, 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 (incorporated by reference herein to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014, File No. 1-3473).
4.2	Indenture (including form of note), dated as of March 18, 2014, among Tesoro Corporation, the guarantors named therein and U.S. Bank National Association, as trustee, relating to the 5.125% Senior Notes due 2024 (incorporated by reference herein to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 18, 2014, File No. 1-3473).
*4.3	Indenture, dated as of October 29, 2014, among Tesoro Logistics LP, Tesoro Logistics Finance Corp., the guarantors named therein and U.S. Bank National Association, as trustee.
*4.4	Registration Rights Agreement, dated as of October 29, 2014, among Tesoro Logistics LP, Tesoro Logistics Finance Corp., the guarantors named therein and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several initial purchasers.
*4.5	Second Supplemental Indenture dated as of October 8, 2014, among Tesoro Alaska Pipeline Company LLC, Tesoro Logistics LP, Tesoro Logistics Finance Corp., the guarantors named therein and U.S. National Bank Association, as trustee, relating to the 6.125% Senior Notes due 2021.
*4.6	Fourth Supplemental Indenture dated as of October 8, 2014, among Tesoro Alaska Pipeline Company LLC, Tesoro Logistics LP, Tesoro Logistics Finance Corp., the guarantors named therein and U.S. National Bank Association, as trustee, relating to the 5.875% Senior Notes due 2020.
#10.1	Tesoro Corporation Non-Employee Director Compensation Program (incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014, File No. 1-3473).
*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.

# Compensatory plan or arrangement.

63

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:	October 31, 2014	/s/ GREGORY J. GOFF
		Gregory J. Goff
		President and Chief Executive Officer
		(Principal Executive Officer)
Date:	October 31, 2014	/s/ STEVEN M. STERIN
		Steven M. Sterin
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

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EX-4.3

Exhibit 4.3

EXECUTION VERSION

TESORO LOGISTICS LP
TESORO LOGISTICS FINANCE CORP.

AND EACH OF THE GUARANTORS PARTY HERETO

5.50% SENIOR NOTES DUE 2019

6.25% SENIOR NOTES DUE 2022

________________________

INDENTURE

Dated as of October 29, 2014

______________________

U.S. BANK NATIONAL ASSOCIATION,

as Trustee

________________________

001214-0006-16616731.1

CROSS-REFERENCE TABLE*

Trust Indenture Act Section		Indenture Section
310(a)(1)		7.10
(a)(2)		7.10
(a)(3)		N.A.
(a)(4)		N.A.
(a)(5)		7.10
(b)		7.10
311(a)		7.11
(b)		7.11
312(a)		2.05
(b)		12.03
(c)		12.03
313(a)		7.06
(b)(1)		N.A.
(b)(2)		7.06; 7.07
(c)		7.06; 12.02
(d)		7.06
314 (a)(4)		4.04; 12.05
(b)		N.A
(c)(1)	12.05		12.04
(c)(2)	12.05		12.04
(c)(3)	12.05		N.A.
(d)	12.05		N.A.
(e)	N.A .		12.05
(f)	N.A .		N.A.
315(a)		N.A.
(b)		N.A.
(c)		N.A.
(d)		N.A.
(e)		N.A.
316(a)(last sentence)		2.06
(a)(1)(A)		6.05
(a)(1)(B)		6.04
(a)(2)		N.A
(b)		6.07
(c)		2.12; 9.04
317(a)(1)		6.08
(a)(2)		6.09
(b)		2.04
318(a)		12.01
(b)		N.A.
(c)		12.01

N.A. means not applicable.

* This Cross Reference Table is not part of the Indenture.

001214-0006-16616731.1

TABLE OF CONTENTS

Page

ARTICLE 1

DEFINITIONS AND INCORPORATION

BY REFERENCE

Section 1.01 Definitions.    1

Section 1.02 Other Definitions    25

Section 1.03 Incorporation by Reference of Trust Indenture Act    25

Section 1.04 Rules of Construction    26

ARTICLE 2

THE NOTES

Section 2.01 Form and Dating    26

Section 2.02 Execution and Authentication    27

Section 2.03 Registrar and Paying Agent    27

Section 2.04 Paying Agent to Hold Money in Trust    28

Section 2.05 Holder Lists    28

Section 2.06 Transfer and Exchange    28

Section 2.07 Replacement Notes    38

Section 2.08 Outstanding Notes    38

Section 2.09 Treasury Notes    39

Section 2.10 Temporary Notes    39

Section 2.11 Cancellation    39

Section 2.12 Defaulted Interest    39

Section 2.13 Issuance of Additional Notes    39

ARTICLE 3

REDEMPTION AND PREPAYMENT

Section 3.01 Notices to Trustee    40

Section 3.02 Selection of Notes To Be Redeemed or Purchased    40

Section 3.03 Notice of Redemption    40

Section 3.04 Effect of Notice of Redemption    41

Section 3.05 Deposit of Redemption or Purchase Price    41

Section 3.06 Notes Redeemed or Purchased in Part    42

Section 3.07 Optional Redemption    42

Section 3.08 Mandatory Redemption    43

Section 3.09 Offer to Purchase by Application of Excess Proceeds    43

Section 3.10 Special Mandatory Redemption    45

ARTICLE 4

COVENANTS

Section 4.01 Payment of Notes    45

Section 4.02 Maintenance of Office or Agency    45

Section 4.03 Reports    46

Section 4.04 Compliance Certificate    46

Section 4.05 Taxes    47

Section 4.06 Stay, Extension and Usury Laws    47

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Section 4.07 Restricted Payments    47

Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries    50

Section 4.09 Incurrence of Indebtedness and Issuance of Disqualified Equity    52

Section 4.10 Asset Sales    55

Section 4.11 Transactions with Affiliates.    56

Section 4.12 Liens    58

Section 4.13 Limitations on Finance Corp. Activities    59

Section 4.14 Corporate Existence    59

Section 4.15 Offer to Repurchase Upon Change of Control    59

Section 4.16 Additional Guarantors    61

Section 4.17 Designation of Restricted and Unrestricted Subsidiaries    61

Section 4.18 Covenant Termination    61

ARTICLE 5

SUCCESSORS

Section 5.01 Merger, Consolidation or Sale of Assets    62

Section 5.02 Successor Person Substituted    63

ARTICLE 6

DEFAULTS AND REMEDIES

Section 6.01 Events of Default    63

Section 6.02 Acceleration    65

Section 6.03 Other Remedies    66

Section 6.04 Waiver of Past Defaults    66

Section 6.05 Control by Majority    66

Section 6.06 Limitation on Suits    66

Section 6.07 Rights of Holders of Notes to Receive Payment    67

Section 6.08 Collection Suit by Trustee    67

Section 6.09 Trustee May File Proofs of Claim    67

Section 6.10 Priorities    67

Section 6.11 Undertaking for Costs    68

ARTICLE 7

TRUSTEE

Section 7.01 Duties of Trustee    68

Section 7.02 Rights of Trustee    69

Section 7.03 Individual Rights of Trustee    70

Section 7.04 Trustee’s Disclaimer    70

Section 7.05 Notice of Defaults    70

Section 7.06 Reports by Trustee to Holders of the Notes    70

Section 7.07 Compensation and Indemnity    70

Section 7.08 Replacement of Trustee    71

Section 7.09 Successor Trustee by Merger, etc    72

Section 7.10 Eligibility; Disqualification    72

Section 7.11 Preferential Collection of Claims Against the Issuers    72

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ARTICLE 8

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance    72

Section 8.02 Legal Defeasance and Discharge    72

Section 8.03 Covenant Defeasance    73

Section 8.04 Conditions to Legal or Covenant Defeasance    73

Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions    74

Section 8.06 Repayment to the Issuers    75

Section 8.07 Reinstatement    75

ARTICLE 9

AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01 Without Consent of Holders of Notes    75

Section 9.02 With Consent of Holders of Notes    76

Section 9.03 Compliance with Trust Indenture Act    78

Section 9.04 Revocation and Effect of Consents    78

Section 9.05 Notation on or Exchange of Notes    78

Section 9.06 Trustee to Sign Amendments, etc    78

ARTICLE 10

NOTE GUARANTEES

Section 10.01 Guarantee    78

Section 10.02 Limitation on Guarantor Liability    79

Section 10.03 Note Guarantee    80

Section 10.04 Evidenced by Indenture; No Notation of Subsidiary Guarantee.    80

Section 10.05 Guarantors May Consolidate, etc., on Certain Terms    80

Section 10.06 Releases    81

ARTICLE 11

SATISFACTION AND DISCHARGE

Section 11.01 Satisfaction and Discharge    81

Section 11.02 Application of Trust Money    82

ARTICLE 12

MISCELLANEOUS

Section 12.01 Trust Indenture Act Controls    83

Section 12.02 Notices    83

Section 12.03 Communication by Holders of Notes with Other Holders of Notes    84

Section 12.04 Certificate and Opinion as to Conditions Precedent    84

Section 12.05 Statements Required in Certificate or Opinion    84

Section 12.06 Rules by Trustee and Agents    85

Section 12.07 No Personal Liability of Directors, Officers, Employees and Unitholders    85

Section 12.08 Governing Law    85

Section 12.09 No Adverse Interpretation of Other Agreements    85

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001214-0006-16616731.1

Section 12.10 Successors    85

Section 12.11 Severability    85

Section 12.12 Counterpart Originals    85

Section 12.13 Table of Contents, Headings, etc    85

ARTICLE 13

ESCROW MATTERS

Section 13.01 Escrow Accounts    86

Section 13.02 Release of Escrowed Property    86

Section 13.03 Trustee Direction to Execute Escrow Agreement    86

EXHIBITS

Exhibit A-1 FORM OF 2019 NOTE

Exhibit A-2 FORM OF 2022 NOTE

Exhibit B FORM OF CERTIFICATE OF TRANSFER

Exhibit C FORM OF CERTIFICATE OF EXCHANGE

Exhibit D FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS

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001214-0006-16616731.1

INDENTURE dated as of October 29, 2014 among Tesoro Logistics LP, a Delaware limited partnership (“TLLP”),and Tesoro Logistics Finance Corp. (“Finance Corp.”and, together with TLLP, the“Issuers”),the Guarantors (as defined) and U.S. Bank National Association, a national banking association, as trustee.

The Issuers, the Guarantors and the Trustee agree as follows for the benefitof each other and for the equal and ratable benefit of the Holders (as defined) of the 5.50% Senior Notes due 2019 (the “2019 Notes”) and the 6.25% Senior Notes due 2022 (the “2022 Notes” and, together with the 2019 Notes, the “Notes”):

ARTICLE 1

DEFINITIONS AND INCORPORATION
BY REFERENCE

Section 1.01    Definitions.

“144A Global Note”means a Global Note substantially in the form of Exhibit A-1 or Exhibit A-2 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A.

“Acquired Debt” means, with respect to any specified Person:

(1)     Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person, but excluding Indebtedness which is extinguished, retired or repaid in connection with such Person merging with or becoming a Restricted Subsidiary of such specific Person; and

(2)     Indebtedness secured by a Lien encumbering any asset acquired by such specified Person, but excluding Indebtedness which is extinguished, retired or repaid in connection with such asset being acquired by such Person.

“Acquisition” means the acquisition of QEP Field Services, LLC pursuant to the Acquisition Agreement.

“Acquisition Agreement” means the Membership Interest Purchase Agreement, dated as of October 19, 2014, by and between Tesoro Logistics LP and QEP Field Services Company.

“Additional Notes”means additional Notes (other than the applicable Initial Notes) issued under this Indenture in accordance with Sections 2.02, 2.13 and 4.09 hereof, as part of the same series as the applicable Initial Notes.

“Affiliate”of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms “controlling,”“controlled by”and “under common control with”have correlative meanings.

“Agent”means any Registrar, co-registrar, Paying Agent or additional paying agent.

“Applicable Premium”means, (x) with respect to any 2019 Note on any Redemption Date, the excess of: (a) the present value at such Redemption Date of (i) the principal amount of such 2019 Note plus (ii) all required interest payments due on such 2019 Note (excluding accrued and unpaid interest to, but excluding, the Redemption Date) through September 15, 2019 computed using a discount rate equal to the Treasury Rate as of such Redemption Date plus 50 basis points; over (b) the principal amount of the 2019 Note; and

(y) with respect to any 2022 Note on any Redemption Date, the greater of:

(1)     1.00% of the principal amount of the 2022 Note; and

001214-0006-16616731.1

(2)     the excess of: (a) the present value at such Redemption Date of (i) the Redemption Price of such 2022 Note at October 15, 2018 (such redemption price being described in Section 3.07(b)(2)) plus (ii) all required interest payments due on such 2022 Note through October 15, 2018 (excluding accrued and unpaid interest to, but excluding, the Redemption Date), computed using a discount rate equal to the Treasury Rate as of such Redemption Date plus 50 basis points; over (b) the principal amount of the 2022 Note.

“Applicable Procedures”means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer or exchange.

“Asset Sale”means:

(1)     the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of TLLP and its Restricted Subsidiaries taken as a whole will be governed by Section 4.15 hereof and/or Section 5.01 hereof and not by Section 4.10 hereof; and

(2)     the issuance of Equity Interests in any of TLLP’s Restricted Subsidiaries or the sale of Equity Interests in any of its Restricted Subsidiaries.

Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:

(1)     any sale, assignment, lease, license, transfer, abandonment or other disposition of (A) damaged, worn-out, unserviceable or other obsolete or excess equipment or other property or (B) other property no longer necessary for the proper conduct of the business of TLLP or any of its Subsidiaries;

(2)     any single transaction or series of related transactions that: (a) involves assets having a Fair Market Value of less than $25.0 million or (b) results in net proceeds to TLLP and its Restricted Subsidiaries of less than $25.0 million;

(3)     a transfer of assets between or among TLLP and its Restricted Subsidiaries;

(4)     an issuance of Equity Interests by a Restricted Subsidiary of TLLP to TLLP or to a Restricted Subsidiary of TLLP;

(5)     the sale or lease of products, equipment, services or accounts receivable in the ordinary course of business;

(6)     the trade, sale, exchange or other disposition of cash or Cash Equivalents, Hedging Obligations or other financial instruments;

(7)     a Restricted Payment that does not violate Section 4.07 hereof or a Permitted Investment;

(8)    any lease of assets entered into in the ordinary course of business and with respect to which TLLP or any Restricted Subsidiary of TLLP is the lessor and the lessee has no option to purchase such assets for less than fair market value at any time the right to acquire such asset occurs;

(9)     any trade or exchange by TLLP or any Restricted Subsidiary of properties or assets of any type for properties or assets of any type owned or held by another Person, including any disposition of some or all of the Equity Interests of a Restricted Subsidiary, provided that the fair market value of the properties or assets traded or exchanged by TLLP or such Restricted Subsidiary (together with any cash or Cash Equivalent together with the liabilities assumed) is reasonably equivalent to the fair market value of the properties or assets (together with any cash or

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Cash Equivalent together with liabilities assumed) to be received by TLLP or such Restricted Subsidiary; and provided further that any cash received must be applied in accordance with Section 4.10 hereof;

(10)    the disposition of assets received in settlement of debts accrued in the ordinary course of business;

(11)     the creation or perfection of a Lien that is not prohibited by Section 4.12 hereof;

(12)     surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or other claims of any kind;

(13)     the grant in the ordinary course of business of any non-exclusive license of patents, trademarks, registrations therefor and other similar intellectual property; and

(14)     any disposition of defaulted receivables that arose in the ordinary course of business for collection.

“Attributable Debt”in respect of a sale-and-leaseback transaction means, at the time of determination, the present value (discounted at the interest rate borne by the 2022 Notes (unless the 2022 Notes are no longer outstanding, in which case it shall be discounted at the rate borne by the 2019 Notes), compounded annually) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale-and-leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. As used in the preceding sentence, “net rental payments” under any lease for any such period shall mean the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder, excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates, utilities, operating and labor costs and other items that do not constitute payment for property rights. In the case of any lease that is terminable by the lessee upon payment of penalty, such net rental payment shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated.

“Available Cash”has the meaning assigned to such term in the Partnership Agreement, as in effect on the Issue Date.

“Bankruptcy Law”means Title 11, U.S. Code, as amended, or any similar federal or state law for the relief of debtors.

“Beneficial Owner”has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

“Board of Directors” means:

(1)     with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;

(2)     with respect to a partnership, the Board of Directors or Board of Managers of the general partner of the partnership, or in the case of TLLP, the Board of Directors of the General Partner;

(3)     with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and

(4)     with respect to any other Person, the board or committee of such Person serving a similar function.

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“Business Day” means any day other than a Legal Holiday.

“Capital Lease Obligation”means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty; provided that any obligations of TLLP or its Restricted Subsidiaries or of a special purpose or other entity not consolidated with TLLP and its Restricted Subsidiaries (i) that were not or would not have been included on the consolidated balance sheet of TLLP as capital lease obligations on the Issue Date and (ii) that are subsequently recharacterized as capital lease obligations of TLLP and its Restricted Subsidiaries on a consolidated basis due to a change in accounting treatment or otherwise after the Issue Date, may, in TLLP’s sole discretion, be deemed not to be treated as a Capital Lease Obligation or Indebtedness.

“Capital Stock” means:

(1)     in the case of a corporation, corporate stock;

(2)     in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;

(3)     in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and

(4)     any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person;

but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.

“Cash Equivalents”means:

(1)     United States dollars;

(2)     securities issued or fully guaranteed or insured by the United States government or any agency thereof having maturities of not more than twenty-four (24) months from the date of acquisition thereof;

(3)     time deposits with, certificates of deposit, bankers’ acceptances or Eurodollar time deposits of, any commercial bank that (a) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia or any United States branch of a foreign bank, and is a member of the Federal Reserve System, (b) issues long term securities with a rating of at least A- (or the then-equivalent grade, in each case with a stable outlook) by S&P and A3 (or the then-equivalent grade, in each case with a stable outlook) by Moody’s at the time of acquisition and (c) has combined capital and surplus of at least $500,000,000, in each case with maturities of not more than twenty-four (24) months from the date of acquisition thereof;

(4)     commercial paper of an issuer rated at least “A-2” (or the then-equivalent grade) by S&P or “P-2” (or the then-equivalent grade) by Moody’s at the time of acquisition or guaranteed by a letter of credit issued by a financial institution rated at least A- (or the then-equivalent grade, in each case with stable outlook) by S&P and A3 (or the then-equivalent grade, in each case with stable outlook) by Moody’s at the time of acquisition and such financial institution otherwise meets the requirements of subsections (a) and (c) of clause (3) of this definition, in each case having a tenor of not more than 270 days;

(5)     taxable and tax-exempt municipal securities rated at least A- (or the then-equivalent grade) by S&P and A3 (or the then-equivalent grade) by Moody’s, including variable rate municipal securities, having maturities or put rights of not more than twenty-four (24) months from the date of acquisition;

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(6)     corporate or bank debt of an issuer rated at least A- (or the then-equivalent grade, in each case with a stable outlook) by S&P and A3 (or the then-equivalent grade, in each case with stable outlook) by Moody’s at the time of acquisition and having maturities of not more than twenty-four (24) months from the date of acquisition;

(7)     repurchase agreements relating to any of the investments listed in clauses (1) through (6) above with a market value at least equal to the consideration paid in connection therewith, with any Person who regularly engages in the business of entering into repurchase agreements and has a combined capital and surplus of not less than $500,000,000 whose long term securities are rated at least A- (or the then-equivalent grade) by S&P and A3 (or the then-equivalent grade) by Moody’s at the time of acquisition;

(8)     asset-backed securities having as the underlying asset securities issued or guaranteed by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association rated at least A- (or the then-equivalent grade, in each case with stable outlook) by S&P and A3 (or the then-equivalent grade, in each case with case with stable outlook) by Moody’s at the time of acquisition and having maturities of not more than twenty-four (24) months from the date of acquisition; and

(9)     Investments, classified in accordance with GAAP as current assets of TLLP or any of its Subsidiaries, in money market mutual or similar funds having assets in excess of $100,000,000, at least 95% of the assets of which are comprised of assets specified in clauses (1) through (8) above of this definition.

“Change of Control”means the occurrence of any of the following:

(1)     the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of TLLP and its Subsidiaries taken as a whole (unless immediately following such sale, lease, transfer, conveyance or other disposition in compliance with this Indenture such assets are owned, directly or indirectly, by (A) TLLP or a Subsidiary of TLLP, (B) a Person controlled by TLLP or a Subsidiary of TLLP or (C) a Qualified Owner) to any “person” (as that term is used in Section 13(d) of the Exchange Act);

(2)     the adoption of a plan relating to the liquidation or dissolution of TLLP or the removal of the General Partner by the limited partners of TLLP; or

(3)     the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any “person” (as defined above), other than a Qualified Owner, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the General Partner, measured by voting power rather than number of shares.

Notwithstanding the preceding, a conversion of TLLP from a limited partnership to a corporation, limited liability company or other form of entity or an exchange of all of the outstanding limited partnership interests for capital stock in a corporation, for member interests in a limited liability company or for Equity Interests in such other form of entity shall not constitute a Change of Control, so long as following such conversion or exchange the “persons” (as defined above) who Beneficially Owned the Capital Stock of TLLP immediately prior to such transactions continue to Beneficially Own in the aggregate more than 50% of the Voting Stock of such entity, or continue to Beneficially Own sufficient Equity Interests in such entity to elect a majority of its directors, managers, trustees or other persons serving in a similar capacity for such entity.

“Change of Control Triggering Event” means the occurrence of a Change of Control, which occurrence is followed by a Ratings Decline within 90 days.

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“Clearstream” meansClearstream Banking, société anonyme, and its successors.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute.

“Consolidated Cash Flow”means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus,without duplication:

(1)     an amount (to the extent not included in Consolidated Net Income) equal to the dividends or distributions paid during such period in cash or Cash Equivalents to such Person or any of its Restricted Subsidiaries by a Person that is not a Restricted Subsidiary of such Person; plus

(2)     an amount equal to (i) any extraordinary loss plus (ii) any net loss realized by such Person or any of its Restricted Subsidiaries in connection with sales of assets or the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries, in each case, to the extent such losses were deducted in computing such Consolidated Net Income; plus

(3)     provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus

(4)     the Fixed Charges of such Person and its Restricted Subsidiaries for such period (together with items excluded from the definition of “Fixed Charges” pursuant to clauses (1)(a)(t) through (z) and clause (2) thereof), to the extent that any such Fixed Charges was deducted in computing such Consolidated Net Income; plus

(5)     depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; plus

(6)     unrealized non-cash losses resulting from foreign currency balance sheet adjustments required by GAAP to the extent such losses were deducted in computing such Consolidated Net Income; minus

(7)     non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business and other than any non-cash gains to the extent they represent the reversal of an accrual or reserve for a potential cash item that reduced Consolidated Cash Flow in any prior period,

in each case, on a consolidated basis and determined in accordance with GAAP.

“Consolidated Net Income”means, with respect to any specified Person for any period, the aggregate of the Net Income attributable to such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:

(1)     the aggregate Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person;

(2)     [reserved];

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(3)     the cumulative effect of a change in accounting principles will be excluded;

(4)     unrealized losses and gains under Hedging Obligations included in the determination of Consolidated Net Income, including, without limitation those resulting from the application of Accounting Standards Codification No. 815 will be excluded;

(5)     any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with (a) any asset sale (including dispositions pursuant to sale-and-leaseback transactions) or (b) the disposition of any securities by such Person or the extinguishment of any Indebtedness or Hedging Obligations of such Person shall be excluded;

(6)     any impairment charge or asset write-off pursuant to Accounting Standards Codification No. 350, “Goodwill and Other Intangible Assets,” shall be excluded;

(7)     any non-cash or other charges relating to any premium or penalty paid, write-off of deferred finance costs or other charges in connection with redeeming or retiring any Indebtedness prior to its Stated Maturity shall be excluded;

(8)     any non-cash compensation charge arising from any grant of stock, stock options or other equity-based awards shall be excluded; and

(9)     any extraordinary, unusual or nonrecurring gain, loss or charge, together with any related provision for taxes on such extraordinary or nonrecurring gain, loss or charge, shall be excluded.

“Consolidated Net Tangible Assets”means, with respect to any Person at any date of determination, the aggregate amount of total assets included in such Person’s most recent quarterly or annual consolidated balance sheet prepared in accordance with GAAP less applicable reserves reflected in such balance sheet, after deducting the following amounts: (a) all current liabilities reflected in such balance sheet, and (b) all goodwill, trademarks, patents, unamortized debt discounts and expenses and other like intangibles reflected in such balance sheet, with such pro forma adjustments to total assets, reserves, current liabilities, goodwill, trademarks, patents, unamortized debt discounts and expenses and other like intangibles as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of “Fixed Charge Coverage Ratio.”

“Corporate Trust Office of the Trustee”will be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Issuers.

“Credit Agreement”means (x) prior to the consummation of the Transactions, the Existing Credit Agreement and (y) upon consummation of the Transactions, the New Credit Agreement.

“Credit Facilities”means, one or more debt facilities (including, without limitation, the Credit Agreement) or commercial paper facilities or Debt Issuances, in each case, not with Tesoro Corporation or any parent of TLLP (other than a facility the portion of which Tesoro Corporation or any parent of TLLP loans, finances or otherwise invests or participates in constitutes less than 10% of the proposed or outstanding issue amount of such facility, Debt Issuance or class of securities), providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders, other financiers or to special purpose entities formed to borrow from (or sell such receivables to) such lenders or other financiers against such receivables), letters of credit, bankers’ acceptances, other borrowings or Debt Issuances, in each case, as amended, restated, modified, renewed, extended, refunded, replaced or refinanced (in each case, without limitation as to amount), in whole or in part, from time to time (including through one or more Debt Issuances) and any agreements and related documents governing Indebtedness or Obligations incurred to refinance amounts then outstanding or permitted to be outstanding, whether or not with the original administrative agent, lenders, investment banks, insurance companies, mutual funds, other lenders, investors or any of the foregoing and whether provided under the original agreement, indenture or other documentation relating thereto.

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“Custodian”means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto.

“Debt Issuances” means, with respect to TLLP or any of its Restricted Subsidiaries, one or more issuances after the Issue Date of Indebtedness evidenced by notes, debentures, bonds or other similar securities or instruments.

“Default”means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

“Definitive Note”means a certificated Note for each series of Notes registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A-1 and Exhibit A-2, as applicable, hereto except that such Note shall not bear the Global Note Legend and shall not have the “Schedule of Exchanges of Interests in the Global Note” attached thereto.

“Depositary”means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as Depositary hereunder and having become such pursuant to the applicable provision of this Indenture.

“Disqualified Equity”means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Equity Interest), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Equity Interest, in whole or in part, on or prior to the date that is 91 days after the date on which such series of Notes mature, except such Equity Interest that is solely redeemable with, or solely exchangeable for, any Equity Interest of such Person that is not Disqualified Equity. Notwithstanding the preceding sentence, any Equity Interest that would constitute Disqualified Equity solely because the holders of the Equity Interest have the right to require TLLP or any of its Restricted Subsidiaries to repurchase such Equity Interest upon the occurrence of a change of control or an asset sale will not constitute Disqualified Equity if the terms of such Equity Interest provide that TLLP or such Restricted Subsidiary may not repurchase or redeem any such Equity Interest pursuant to such provisions unless such repurchase or redemption complies with Section 4.07 hereof.

“Domestic Subsidiary”means any Restricted Subsidiary of TLLP that was formed under the laws of the United States or any state of the United States or the District of Columbia.

“Equity Interests”means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

“Equity Offering”means any public or private sale of Equity Interests (other than Disqualified Equity) made for cash on a primary basis by TLLP after the Issue Date.

“Escrow Agent” means U.S. Bank National Association in its capacity as escrow agent and securities intermediary under the Escrow Agreement.

“Escrow Agreement” means the Escrow Agreement dated as of October 29, 2014 among the Issuers, the Trustee and the Escrow Agent.

“Escrow End Date” means (x) February 28, 2015 or (y) such earlier date as the Issuers shall notify the Trustee in writing of the Issuers’ announcement that the Acquisition Agreement has been terminated or that it will not pursue the consummation of the Acquisition.

“Escrow Release Date” means the date of the Release.

“Escrowed Property” has the meaning set forth in Section 2(b)(iii) of the Escrow Agreement.

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“Euroclear”means Euroclear Bank, S.A./N.V., as operator of the Euroclear system, and its successors.

“Exchange Act”means the Securities Exchange Act of 1934, as amended.

“Exchange Notes” means the applicable series of Notes issued in the Exchange Offer pursuant to Section 2.06(f) hereof.

“Exchange Offer”has the meaning set forth in the Registration Rights Agreement.

“Exchange Offer Registration Statement”has the meaning set forth in the Registration Rights Agreement.

“Existing 5.875% Indenture” means the Indenture dated September 14, 2012, among the Issuers, the guarantors party thereto and U.S. Bank National Association, as trustee, as supplemented as of the Issue Date.

“Existing 6.125% Indenture” means the Indenture dated August 1, 2013, among the Issuers, the guarantors party thereto and U.S. Bank National Association, as trustee, as supplemented as of the Issue Date.

“Existing Credit Agreement” means that certain Amended and Restated Credit Agreement, dated as of January 4, 2013, as amended on May 22, 2013, by and among Tesoro Logistics LP, Bank of America, N.A., as administrative agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner, and the financial institutions party thereto, providing for revolving credit borrowings and letters of credit, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, and, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time.

“Existing Indebtedness”means the aggregate principal amount of Indebtedness of TLLP and its Subsidiaries (other than Indebtedness under the Credit Agreement and the Notes and the related Guarantees) in existence on the Issue Date, including the Existing Senior Notes.

“Existing Senior Notes” means the $600.0 million 5.875% senior notes of the Issuers due 2020 issued under the Existing 5.875% Indenture and the $550.0 million 6.125% senior notes of the Issuers due 2021 issued under the Existing 6.125% Indenture.

“Fair Market Value”means, with respect to consideration received or to be received, or given or to be given, pursuant to any transaction by TLLP or any Restricted Subsidiary, the fair market value of such consideration as determined in good faith by the Board of Directors of the General Partner in the case of transactions involving $50.0 million or more and otherwise by an officer of TLLP.

“Fixed Charge Coverage Ratio”means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness or issues, repurchases or redeems Disqualified Equity subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”),then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of Disqualified Equity, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable Reference Period.

In addition, for purposes of calculating the Fixed Charge Coverage Ratio:

(1)     acquisitions (including, without limitation, a single asset, a division or segment or an entire company) that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers, asset purchase transactions or consolidations and including any related financing transactions during the Reference Period or subsequent to such Reference Period and on or prior to the Calculation

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Date will be given pro forma effect as if they had occurred on the first day of the Reference Period, including any Consolidated Cash Flow and any pro forma expense and cost reductions and operating improvements that have occurred or are reasonably expected to occur, in the reasonable judgment of the chief financial or accounting officer of TLLP (regardless of whether those cost savings or operating improvements could then be reflected in pro forma financial statements in accordance with Regulation S-X promulgated under the Securities Act or any other regulation or policy of the SEC related thereto);

(2)     the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;

(3)     the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date;

(4)     if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the average rate in effect from the beginning of the applicable period to the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months); and

(5)    if any Indebtedness is incurred or repaid under a revolving credit facility and is being given pro forma effect, the interest on such indebtedness shall be calculated based on the average daily balance of such Indebtedness for the four fiscal quarters subject to the pro forma calculation.

“Fixed Charges”means,with respect to any specified Person for any period, (A) the sum, without duplication, of:

(1)     the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates and excluding (t) penalties and interest relating to taxes, (u) any “additional interest” relating to customary registration rights with respect to securities, (v) non-cash interest expense attributable to movement in mark-to-market valuation of Hedging Obligations or other derivatives (in each case permitted hereunder and under GAAP), (w) accretion or accrual of discounts with respect to liabilities not constituting Indebtedness, (x) any expense resulting from the discounting of Indebtedness in connection with the application of recapitalization or purchase accounting, (y) amortization of deferred financing fees, debt issuance costs, commissions, fees and expenses and, with respect to Indebtedness issued in connection with the Acquisition, original issue discount and (z) any expensing of bridge, commitment and other financing fees; plus

(2)     the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus

(3)     any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus

(4)     all dividends, whether paid or accrued and whether or not in cash, on any series of Disqualified Equity of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Inter

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ests payable (i) solely in Equity Interests of TLLP (other than Disqualified Equity) or (ii) to TLLP or a Restricted Subsidiary of TLLP; minus

(B) to the extent included in (A) above, write-off of nonrecurring deferred financing costs of such Person and its Restricted Subsidiaries during such period and any charge related to, or any premium or penalty paid in connection with, paying any such Indebtedness of such Person and its Restricted Subsidiaries prior to its Stated Maturity.

“GAAP”means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. If there occurs a change in generally accepted accounting principles relating to revenue recognition resulting from the joint revenue recognition standard of the Financial Accounting Standards Board and the International Accounting Standards Board, and such change would cause a change in the method of calculation of standards or terms as determined in good faith by TLLP (an “Accounting Change”), then TLLP may elect, as evidenced by a written notice of TLLP to the Trustee, that such standards or terms shall be calculated as if such Accounting Change had not occurred. Any such election with respect to such Accounting Change may not thereafter be changed.

“General Partner”means Tesoro Logistics GP, LLC, a Delaware limited liability company, and its successors and permitted assigns as general partner of TLLP or as the business entity with the ultimate authority to manage the business and operations of TLLP.

“Global Note Legend”means the legend set forth in Section 2.06(g)(2) hereof, which is required to be placed on all Global Notes issued under this Indenture.

“Global Notes”means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes for each series of Notes deposited with or on behalf of and registered in the name of the Depositary or its nominee, substantially in the form of Exhibit A-1 and Exhibit A-2 hereto, as applicable, and that bears the Global Note Legend and that has the “Schedule of Exchanges of Interests in the Global Note” attached thereto, issued in accordance with Sections 2.01 or 2.06 hereof.

“Government Securities”means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States of America is pledged.

“Guarantee”means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness.

“Guarantors”means each of:

(1)     the Subsidiaries of TLLP, other than Finance Corp., executing this Indenture as initial Guarantors;

(2)     each of TLLP’s Restricted Subsidiaries that becomes a guarantor of the Notes pursuant to Section 4.16 hereof; and

(3)    each other Person executing a supplemental indenture in which such Person agrees to be bound by the terms of this Indenture; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of this Indenture.

“Hedging Obligations”means, with respect to any specified Person, the obligations of such Person incurred not for speculative purposes under:

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(1)    interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;

(2)    other agreements or arrangements designed to manage interest rates or interest rate risk; and

(3)    other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices.

“Holder”means a Person in whose name a Note is registered.

“Indebtedness”means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent:

(1)    in respect of borrowed money;

(2)    evidenced by bonds, notes, debentures or similar instruments;

(3)    reimbursement obligations in respect of bankers’ acceptances or letters of credit;

(4)    representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions;

(5)    representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed, except any earn-out obligations until after becoming due and payable, has not been paid and such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP; or

(6)    representing any Hedging Obligations,

if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations), but excluding amounts recorded in accordance with Accounting Standards Codification No. 815, would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term “Indebtedness” includes all Indebtedness of others secured by a Lien on any asset (other than Liens on and pledges of the Equity Interests of any Unrestricted Subsidiary or any Joint Venture owned by TLLP or any Restricted Subsidiary of TLLP, in each case, securing Indebtedness of such Unrestricted Subsidiary or Joint Venture, as applicable) of the specified Person (whether or not such Indebtedness is assumed by the specified Person), but in an amount not to exceed the lesser of the amount of such Person’s obligation or indebtedness and the Fair Market Value of such assets, and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.

Notwithstanding the foregoing, the following shall not constitute “Indebtedness”:

(1)    accrued expenses and trade accounts payable arising in the ordinary course of business;

(2)    the incurrence by TLLP or any of its Restricted Subsidiaries of Indebtedness in respect of bid, performance, surety, appeal, payment, insurance contracts and similar bonds issued for the account of TLLP and any of its Restricted Subsidiaries in the ordinary course of business, including guarantees and obligations of TLLP or any of its Restricted Subsidiaries with respect to letters of credit supporting such obligations (in each case other than an obligation for money borrowed);

(3)    any Indebtedness which has been defeased in accordance with GAAP or defeased pursuant to the deposit of cash or Government Securities (in an amount sufficient to satisfy all such Indebtedness obligations at maturity or redemption, as applicable, and all payments of interest and Special Interest, if any, and premium, if any) in a trust or account created or pledged for the sole benefit of the holders of such

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indebtedness and subject to no other Liens, and the other applicable terms of the instrument governing such Indebtedness;

(4)    any obligation arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, however,that such obligation is extinguished within five Business Days of its incurrence; and

(5)    any obligation arising from any agreement providing for indemnities, guarantees, purchase price adjustments, holdbacks, contingency payment obligations based on the performance of the acquired or disposed assets or similar obligations (other than guarantees of Indebtedness) incurred by any Person in connection with the acquisition or disposition of assets.

“Indenture”means this Indenture, as amended or supplemented from time to time.

“Independent Financial Advisor” means a nationally recognized accounting, appraisal or investment banking firm that is, in the reasonable judgment of the Board of Directors of the General Partner, qualified to perform the task for which such firm has been engaged hereunder and disinterested and independent with respect to TLLP and its Affiliates; provided, that providing accounting, appraisal or investment banking services to TLLP or any of its Affiliates or having an employee, officer or other representative serving as a member of the Board of Directors of the General Partner or any of its Affiliates will not disqualify any firm from being an Independent Financial Advisor.

“Indirect Participant”means a Person who holds a beneficial interest in a Global Note through a Participant.

“Initial 2019 Notes”means the $500,000,000 aggregate principal amount of 2019 Notes issued under this Indenture on the date hereof.

“Initial 2022 Notes” means the $800,000,000 aggregate principal amount of 2022 Notes issued under this Indenture on the date hereof.

“Initial Notes” means, collectively, the Initial 2019 Notes and the Initial 2022 Notes.

“Initial Purchasers”means Merrill Lynch, Pierce, Fenner & Smith Incorporated, RBS Securities Inc., Barclays Capital Inc., Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Mitsubishi UFJ Securities (USA), Inc., RBC Capital Markets, LLC, UBS Securities LLC, Wells Fargo Securities, LLC, ABN AMRO Securities (USA) LLC, Mizuho Securities USA Inc. and SunTrust Robinson Humphrey, Inc.

“Interest Payment Date”means April 15 and October 15 of each year to stated maturity.

“Investment Grade Rating”of the Notes, means that the Notes shall have been assigned a Moody’s rating of Baa3 or higher and an S&P rating of BBB- or higher, or if one of such rating agencies shall not make a rating on the Notes publicly available for reasons outside the control of the Issuers, then “Investment Grade Rating” shall mean that the Notes shall have been assigned such a rating by one of such rating agencies and an equivalent investment grade credit rating from any other “nationally recognized statistical rating organization” registered under Section 15E of the Exchange Act selected by the Issuers.

“Investments”means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances (other than advances to customers in the ordinary course of business which are recorded as accounts receivable on the balance sheet of the lender and commissions, moving, travel and similar advances to employees and officers made in the ordinary course of business) or capital contributions, purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP.

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“Issue Date”means October 29, 2014.

“Joint Venture”means any Person that is not a direct or indirect Subsidiary of TLLP in which TLLP or any of its Restricted Subsidiaries makes any Investment.

“Legal Holiday”means a Saturday, a Sunday or a day on which commercial banking institutions are not required to be open in the City of New York or at the place of payment. If a payment date is on a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period.

“Letter of Transmittal”means the letter of transmittal to be prepared by the Issuers and sent to all Holders for use by such Holders in connection with the Exchange Offer.

“Lien”means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a precautionary financing statement respecting a lease not intended as a security agreement. In no event shall a right of first refusal be deemed to constitute a Lien.

“Moody’s”means Moody’s Investors Service, Inc., or any successor to the rating agency business thereof.

“Net Income”means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:

(1)    any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with:

(a)    any Asset Sale; or

(b)    the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and

(2)    any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).

“Net Proceeds” means the aggregate cash proceeds received by TLLP or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash receivedupon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of:

(1)    the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale and any related severance and associated costs, expenses and charges of personnel related to the sold assets and related operations,

(2)    taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements,

(3)    amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and all distributions and payments required to be made to minority interest holders in Restricted Subsidiaries as a result of such Asset Sale, and

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(4)    any amounts to be set aside in any reserve established in accordance with GAAP or any amount placed in escrow, in either case for adjustment in respect of the sale price of such properties or assets or for liabilities associated with such Asset Sale and retained by TLLP or any of its Restricted Subsidiaries until such time as such reserve is reversed or such escrow arrangement is terminated, in which case Net Proceeds shall include only the amount of the reserve so reversed or the amount returned to TLLP or its Restricted Subsidiaries from such escrow arrangement, as the case may be.

“New Credit Agreement” means that certain Amended and Restated Credit Agreement, to be dated on or about the Issue Date, or if the Acquisition is not consummated on the Issue Date, the Escrow Release Date, by and among Tesoro Logistics LP, Bank of America, N.A., as administrative agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner, and the financial institutions party thereto, providing for revolving credit borrowings and letters of credit, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, and, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time.

“Non-Recourse Debt”means Indebtedness:

(1)    as to which neither TLLP nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable as a guarantor or otherwise, in each case, other than a pledge of the Equity Interests of an Unrestricted Subsidiary that is an obligor on such Indebtedness; and

(2)    no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness of TLLP or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity.

For purposes of determining compliance with Section 4.09 hereof, in the event that any Non-Recourse Debt of any of TLLP’s Unrestricted Subsidiaries ceases to be Non-Recourse Debt of such Unrestricted Subsidiary, such event will be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of TLLP.

“Non-U.S. Person”means a Person who is not a U.S. Person.

“Note Guarantee”means the Guarantee by each Guarantor of the Issuers’ obligations under this Indenture and the Notes, executed pursuant to the provisions of this Indenture.

“Notes” has the meaning assigned to it in the preamble to this Indenture. The Initial Notes of a particular series and the Additional Notes of such series shall be treated as a single class for all purposes under this Indenture, and unless the context otherwise requires, all references to the Notes shall include the Initial Notes and any Additional Notes.

“Obligations”means any principal, interest and Special Interest, if any, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.

“Offering Memorandum”means the final Offering Memorandum of the Issuers, dated October 22, 2014 with respect to the Notes.

“Officer” means,with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice President of such Person (or, if such Person is a limited partnership, the general partner of such Person).

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“Officers’ Certificate” meansa certificate signed on behalf of a Person by two Officers of such Person that meets the requirements set forth in this Indenture. An Officers’ Certificate required to be delivered by the Issuers shall be signed by two Officers of each Issuer.

“Omnibus Agreement” means the Third Amended and Restated Omnibus Agreement, dated as of July 1, 2014, among Tesoro Corporation, Tesoro Refining and Marketing Company, Tesoro Companies, Inc., Tesoro Alaska Company, TLLP and the General Partner, as may be amended, supplemented or modified; provided such amendment, supplement or modification is not disadvantageous in any material respect to the holders of notes when taken as a whole as compared to the Omnibus Agreement as in effect on the Issue Date, as determined in good faith by TLLP.

“Operating Surplus”has the meaning assigned to such term in the Partnership Agreement, as in effect on the Issue Date.

“Opinion of Counsel”means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to TLLP, the General Partner, any Subsidiary of TLLP or the General Partner or the Trustee.

“Participant”means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream).

“Participating Broker-Dealer”has the meaning set forth in the Registration Rights Agreement.

“Partnership Agreement”means the First Amended and Restated Agreement of Limited Partnership of Tesoro Logistics LP, dated as of April 26, 2011, as such may be further amended, modified or supplemented from time to time.

“Permitted Acquisition Indebtedness” means Indebtedness or Disqualified Equity of TLLP or any of its Restricted Subsidiaries to the extent such Indebtedness or Disqualified Equity was Indebtedness or Disqualified Equity of (i) a Subsidiary prior to the date on which such Subsidiary became a Restricted Subsidiary or (ii) a Person that merged with or consolidated into TLLP or a Restricted Subsidiary; provided that on the date such Subsidiary became a Restricted Subsidiary or the date such Person was merged and amalgamated into us or a Restricted Subsidiary, as applicable, after giving pro forma effect thereto, (a) TLLP would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test described under Section 4.09(a) hereof or (b) the Fixed Charge Coverage Ratio for TLLP would be equal to or greater than the Fixed Charge Coverage Ratio for TLLP immediately prior to such transaction; provided that such Indebtedness was not incurred in contemplation of, or in connection with, such acquisition, merger or consolidation.

“Permitted Business” means either (1) marketing, gathering, transporting (by barge, pipeline, ship, truck or other modes of hydrocarbon transportation), terminalling, storing, producing, acquiring, developing, exploring for, exploiting, processing, fractionation, dehydrating and otherwise handling crude oil, gas, casinghead gas, drip gasoline, natural gasoline, condensates, distillates, liquid hydrocarbons, asphalt, gaseous hydrocarbons and all other constituents, elements, compounds or products refined or processed from any of the foregoing, which activities shall include, for the avoidance of doubt, constructing pipeline, platform, dehydration, processing, fractionation, storing and other energy-related facilities, and activities or services reasonably related or ancillary thereto, including entering into purchase and sale agreements, supply agreements and Hedging Obligations related to these businesses, (2) any other business that generates gross income at least 90% of which constitutes “qualifying income” under Section 7704(d) of the Code or (3) any activity that is ancillary, complementary or incidental to or necessary or appropriate for the activities described in clauses (1) or (2) of this definition.

“Permitted Business Investments”means Investments by TLLP or any of its Restricted Subsidiaries in any Unrestricted Subsidiary of TLLP or in any Joint Venture, provided that:

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(1)    either (a) at the time of such Investment and immediately thereafter, TLLP could incur $1.00 of additional Indebtedness under the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) hereof or (b) such Investment does not exceed the aggregate amount of Incremental Funds (as defined in Section 4.07 hereof) not previously expended at the time of making such Investment;

(2)    if such Unrestricted Subsidiary or Joint Venture has outstanding Indebtedness at the time of such Investment, either (a) all such Indebtedness is Non-Recourse Debt or (b) any such Indebtedness of such Unrestricted Subsidiaries or Joint Venture that is recourse to TLLP or any of its Restricted Subsidiaries could, at the time such Investment is made, be incurred at that time by TLLP and its Restricted Subsidiaries under Section 4.09 hereof; and

(3)    such Unrestricted Subsidiary’s or Joint Venture’s activities are not outside the scope of the Permitted Business.

“Permitted Investments” means:

(1)    any Investment in TLLP or in a Restricted Subsidiary of TLLP;

(2)    any Investment in cash and Cash Equivalents or deposit accounts;

(3)    any Investment by TLLP or any Restricted Subsidiary of TLLP in a Person, if as a result of such Investment:

(a)    such Person becomes a Restricted Subsidiary of TLLP; or

(b)    such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, TLLP or a Restricted Subsidiary of TLLP;

(4)    any security or other Investment received or Investment made as a result of the receipt of non-cash consideration from:

(a)    an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; or

(b)    a disposition of assets that does not constitute an Asset Sale;

(5)    any Investment in any Person solely in exchange for the issuance of Equity Interests (other than Disqualified Equity) of TLLP;

(6)    any Investments received in compromise, settlement or resolution of (A) obligations of trade creditors or customers that were incurred in the ordinary course of business of TLLP or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer, or as a result of a foreclosure, perfection or enforcement by TLLP or any of its Restricted Subsidiaries with respect to any secured Investment in default, (B) claims or disputes owed to TLLP or any Restricted Subsidiary of TLLP that arose out of transactions in the ordinary course of business or (C) litigation, arbitration or other disputes with Persons who are not Affiliates;

(7)    Investments in the form of intercompany Indebtedness or guarantees of Indebtedness of a Restricted Subsidiary of TLLP permitted under clauses (6) and (11) of Section 4.09(b) hereof;

(8)    Investments represented by Hedging Obligations permitted to be incurred in accordance with the provisions of this Indenture;

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(9)    loans or advances to employees made in the ordinary course of business of TLLP or any Restricted Subsidiary of TLLP in an aggregate principal amount not to exceed $5.0 million at any one time outstanding;

(10)    repurchases of the Notes;

(11)    any Investments in prepaid expenses, negotiable instruments held for collection and lease, utility, workers’ compensation and performance and other similar deposits and prepaid expenses made in the ordinary course of business;

(12)    Permitted Business Investments;

(13)    Investments pursuant to agreements and obligations of TLLP and any Restricted Subsidiary in effect on the Issue Date and any renewals or replacements thereof on terms and conditions not materially less favorable to TLLP or such Restricted Subsidiary, as the case may be, than the terms of the Investment being renewed or replaced;

(14)    other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (14) that are at the time outstanding not to exceed the greater of (a) $200.0 million and (b) 5.0% of TLLP’s Consolidated Net Tangible Assets; and

(15)    Investments made in Joint Ventures having an aggregate fair market value taken together with all other Investments made pursuant to this clause (15) that are at the time outstanding, not to exceed the greater of (a) $200.0 million and (b) 5.0% of TLLP’s Consolidated Net Tangible Assets at the time of such Investment (with the fair market value of each Investment being measured at that time made and without giving effect to subsequent changes in value); provided, however, that any Investment pursuant to this clause (15) made in any Person that is a Joint Venture at the date of the making of such Investment and such Person becomes a Restricted Subsidiary after such date, such Investment shall thereafter be deemed to have been made pursuant to clause (1) above and shall cease to have been made pursuant to this clause (15) for so long as such Person continues to be a Restricted Subsidiary;

provided, however, that with respect to any Investment, TLLP may, in its sole discretion, allocate all or any portion of any Investment and later re-allocate all or any portion of any Investment to one or more of the above clauses (1) through (15) so that the entire Investment would be a Permitted Investment.

“Permitted Liens” means:

(1)    Liens securing any Indebtedness under any Credit Facility and all Obligations and Hedging Obligations relating to such Indebtedness;

(2)    Liens in favor of TLLP or the Guarantors;

(3)    Liens on property of a Person existing at the time (a) such Person is merged with or into or consolidated with TLLP or any Subsidiary of TLLP, (b) such Person becomes a Restricted Subsidiary or (c) such property is otherwise acquired by TLLP or a Restricted Subsidiary; provided that such Liens were in existence prior to such merger, consolidation or other acquisition and do not extend to any assets other than those of the Person merged into or consolidated with TLLP or the Subsidiary in the case of a merger or consolidation pursuant to clause (a) or such property in the case of such other acquisition in the case of clause (b) or (c);

(4)    Liens and deposits to secure the performance of statutory obligations, surety or appeal bonds, workers compensation obligations, unemployment insurance, reimbursement obligations owed to insurers, bids, performance bonds, leases, statutory obligations, other types of social security or other obli

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gations of a like nature incurred in the ordinary course of business (including Liens to secure letters of credit issued to assure payment of such obligations);

(5)    Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) or (12) of Section 4.09(b) hereof covering only the assets acquired, constructed, improved or developed with, or secured by, such Indebtedness;

(6)    Liens existing on the Issue Date (other than Liens securing the Credit Facilities);

(7)    Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings diligently pursued; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;

(8)    Liens imposed by law, such as carriers’, warehousemen’s, landlord’s, repairman’s, materialmen’s, mechanics’ and other like Liens, in each case, incurred in the ordinary course of business;

(9)    defects, irregularities and deficiencies in title of any rights of way or other property, survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions and other similar encumbrances as to the use of real property that were not incurred in connection with Indebtedness and that do not in the aggregate materially interfere with the ordinary conduct of the business of TLLP or any of its Subsidiaries and defects, irregularities and deficiencies in title to any property of TLLP or any of its Subsidiaries, which defects, irregularities or deficiencies have been cured by possession under applicable statutes of limitation;

(10)    inchoate Liens arising under the Employee Retirement Income Security Act of 1974, and any amendments thereto;

(11)    Liens created for the benefit of (or to secure) the Notes (or the Note Guarantees);

(12)    Liens on any property or asset acquired, constructed or improved by TLLP or any of its Restricted Subsidiaries, which (a) are in favor of the seller of such property or assets, in favor of the Person developing, constructing, repairing or improving such asset or property, or in favor of the Person that provided the funding for the acquisition, development, construction, repair or improvement cost, as the case may be, of such asset or property, (b) are created within 360 days after the acquisition, development, construction, repair or improvement, (c) secure the purchase price or development, construction, repair or improvement cost, as the case may be, of such asset or property in an amount up to 100% of the Fair Market Value of such acquisition, construction or improvement of such asset or property, and (d) are limited to the asset or property so acquired, constructed or improved (including the proceeds thereof, accessions thereto and upgrades thereof);

(13)    Liens on and pledges of the Equity Interests of any Unrestricted Subsidiary or any Joint Venture owned by TLLP or any Restricted Subsidiary of TLLP to the extent securing Non-Recourse Debt or other Indebtedness of such Unrestricted Subsidiary or Joint Venture;

(14)    Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of TLLP or any of its Subsidiaries on deposit with or in possession of such bank;

(15)    Liens to secure performance of Hedging Obligations of TLLP or any of its Restricted Subsidiaries;

(16)    Liens on pipelines or pipeline facilities that arise by operation of law;

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(17)    Liens incurred in the ordinary course of business of TLLP or any Restricted Subsidiary of TLLP with respect to obligations that at any one time outstanding do not exceed the greater of (a) $200.0 million and (b) 5.0% of Consolidated Net Tangible Assets;

(18)    Liens resulting from the deposit of money or other Cash Equivalents or other evidence of Indebtedness in trust for the purpose of defeasing Indebtedness of TLLP or any of its Restricted Subsidiaries;

(19)    Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under this Indenture; provided, however,that:

(a)    the new Lien is limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to such property or proceeds or distributions thereof); and

(b)    the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged with such Permitted Refinancing Indebtedness and (y) an amount necessary to pay accrued interest on such Indebtedness and any fees and expenses, including premiums, related to such renewal, refunding, refinancing, replacement, defeasance or discharge;

(20)    Liens relating to future escrow arrangements securing Indebtedness incurred in accordance with this Indenture;

(21)     any interest or title of a lessor under any lease entered into by TLLP or any of its Subsidiaries in the ordinary course of its business and covering only the assets so leased;

(22)     any Lien securing Indebtedness, neither assumed nor guaranteed by TLLP or any of its Subsidiaries nor on which it customarily pays interest, existing upon real estate or rights in or relating to real estate acquired by TLLP for substation, metering station, pump station, storage, gathering line, transmission line, transportation line, distribution line or for right-of-way purposes, any Liens reserved in leases for rent and for compliance with the terms of the leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause (22) does not materially impair the use of the property covered by such Lien for the purposes of which such property is held by TLLP or any of its Subsidiaries;

(23)     any obligations or duties affecting any of the property of TLLP or its Subsidiaries to any municipality or public authority with respect to any franchise, grant, license or permit which do not materially impair the use of such property for the purposes for which it is held;

(24)     Liens upon specific items of inventory, accounts receivables or other goods and proceeds of TLLP or any Restricted Subsidiary securing such Person’s obligations in respect of bankers’ acceptances or receivables securitizations issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory, accounts receivables or other goods and proceeds;

(25)     any Liens securing industrial development, pollution control or similar bonds;

(26)    Liens renewing, extending, refinancing or refunding a Lien permitted by clauses (1) through (25) above; provided that (a) the principal amount of Indebtedness secured by such Lien does not exceed the principal amount of such Indebtedness outstanding immediately prior to the renewal, extension, refinance or refund of such Lien, plus all accrued interest on the Indebtedness secured thereby and the amount of all fees, expenses and premiums incurred in connection therewith, and (b) no assets encumbered by any such Lien other than the assets permitted to be encumbered immediately prior to such renewal, extension, refinance or refund are encumbered thereby; and

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(27)    Liens arising from the deposit of funds or securities in trust for the purpose of decreasing, defeasing or discharging Indebtedness so long as such deposit of funds or securities and such decreasing, defeasing or discharging of Indebtedness are permitted under Section 4.07.

“Permitted Refinancing Indebtedness”means any Indebtedness of TLLP or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge other Indebtedness of TLLP or any of its Restricted Subsidiaries (other than intercompany Indebtedness), including Indebtedness that extends, refinances, renews, replaces, defeases or refunds Permitted Refinancing Indebtedness; provided that:

(1)    the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued and unpaid interest on, the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith);

(2)    such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged;

(3)    if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is subordinated in right of payment to the Notes or the Note Guarantees, such Permitted Refinancing Indebtedness is subordinated in right of payment to, the Notes or the Note Guarantees, on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; and

(4)    such Indebtedness is incurred either by TLLP or by a Restricted Subsidiary who is an obligor on or guarantor of the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged.

“Person”means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.

“Private Placement Legend”means the legend set forth in Section 2.06(g)(1) hereof to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture.

“QEP Guarantors” means each Restricted Subsidiary (other than the Restricted Subsidiaries of the

Issuers prior to the consummation of the Acquisition) that guarantees any Indebtedness of the Issuers under the Credit Agreement.

“QIB”means a “qualified institutional buyer” as defined in Rule 144A.

“Qualified Owner”means, collectively (a) Tesoro Corporation, (b) each Person of which Tesoro Corporation is a direct or indirect Subsidiary and (c) each Person which is a direct or indirect Subsidiary of any Person described in clause (a) or (b) of this definition.

“Rating Agencies”means Moody’s and S&P.

“Rating Categories”means:

(1)    with respect to S&P, any of the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); and

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(2)    with respect to Moody’s, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories).

“Rating Decline”means a decrease in the rating of such series of Notes by either Moody’s or S&P by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). In determining whether the rating of such series of Notes has decreased by one or more gradations, gradations within Ratings Categories, namely + or - for S&P, and 1, 2, and 3 for Moody’s, will be taken into account; for example, in the case of S&P, a rating decline either from BB+ to BB or BB -to B+ will constitute a decrease of one gradation.

“Reference Period”means, with respect to any date of determination, the four most recent fiscal quarters of TLLP for which internal financial statements are available.

“Registration Rights Agreement”means the Registration Rights Agreement, dated as of October 29, 2014, among the Issuers, the Guarantors and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time and, with respect to any Additional Notes, one or more registration rights agreements among the Issuers, the Guarantors and the other parties thereto, as such agreement(s) may be amended, modified or supplemented from time to time, relating to rights given by the Issuers to the purchasers of Additional Notes to register such Additional Notes under the Securities Act.

“Regulation S” means Regulation S promulgated under the Securities Act.

“Regulation S Global Note”means a Global Note substantially in the form of Exhibit A-1 and Exhibit A-2, as applicable, hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Regulation S.

“Responsible Officer” when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.

“Restricted Definitive Note”means a Definitive Note bearing the Private Placement Legend.

“Restricted Global Note”means a Global Note bearing the Private Placement Legend.

“Restricted Investment” meansan Investment other than a Permitted Investment.

“Restricted Subsidiary”of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.

“Rule 144” means Rule 144 promulgated under the Securities Act.

“Rule 144A” means Rule 144A promulgated under the Securities Act.

“Rule 903”means Rule 903 promulgated under the Securities Act.

“Rule 904” means Rule 904 promulgated under the Securities Act.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor to the rating agency business thereof.

“SEC” means the Securities and Exchange Commission.

“Securities Act”means the Securities Act of 1933, as amended.

“Senior Indebtedness”means with respect to any Person, Indebtedness of such Person, unless the instrument creating or evidencing such Indebtedness provides that such Indebtedness is subordinate in right of payment to the Notes or the Note Guarantee of such Person, as the case may be.

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“Shelf Registration Statement”means the Shelf Registration Statement as defined in the Registration Rights Agreement.

“Significant Subsidiary”means any Subsidiary that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the Issue Date.

“Special Interest”has the meaning set forth in the Registration Rights Agreement.

“Stated Maturity”means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Issue Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.

“Subordinated Obligation” means any Indebtedness of TLLP (whether outstanding on the Issue Date or thereafter incurred) which pursuant to a written agreement is subordinate or junior in right of payment to the Notes and any Indebtedness of a Guarantor (whether outstanding on the Issue Date or thereafter incurred) which pursuant to a written agreement is subordinate or junior in right of payment to its Note Guarantee.

“Subsidiary”means, with respect to any specified Person:

(1)    any corporation, association or other business entity (other than a partnership or limited liability company) of which more than 50% of the total voting power of shares of the Voting Stock is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and

(2)    any partnership (whether general or limited) or limited liability company (a) the sole general partner or managing member of which is such Person or a Subsidiary of such Person, or (b) if there are more than a single general partner or member, either (x) the only general partners or managing members of which are such Person or one or more Subsidiaries of such Person (or any combination thereof) or (y) such Person owns or controls, directly or indirectly, a majority of the outstanding general partner interests, member interests or other Voting Stock of such partnership or limited liability company, respectively.

“Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including sale and leaseback transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally to such Person, would be characterized as the Indebtedness of such Person (without regard to accounting treatment).

“TIA” means the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb), as in effect on the date on which this Indenture is qualified under the TIA; provided, however, that in the event the TIA is amended after such date, “TIA” means, to the extent required by such amendment, the Trust Indenture Act of 1939, as so amended.

“Treasury Rate”means, (x) with respect to the 2019 Notes, as of any Redemption Date, the yield to maturity as of such Redemption Date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the Redemption Date to September 15, 2019; provided, however,that if the period from the Redemption Date to September 15, 2019, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity

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of one year will be used; and (y) with respect to the 2022 Notes, as of any Redemption Date, the yield to maturity as of such Redemption Date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to October 15, 2018; provided, however, that if the period from the redemption date to October 15, 2018 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

“Trustee”means U.S. Bank National Association, as trustee, until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.

“Unrestricted Definitive Note”means a Definitive Note that does not bear and is not required to bear the Private Placement Legend.

“Unrestricted Global Note”means a Global Note that does not bear and is not required to bear the Private Placement Legend.

“Unrestricted Subsidiary”means any Subsidiary of TLLP (other than Finance Corp. or any successor to it) that is designated by the Board of Directors of the General Partner as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary:

(1)    except to the extent permitted by subclause (2)(b) of the definition of “Permitted Business Investments,” has no Indebtedness other than Non-Recourse Debt;

(2)    except as permitted under clauses (b)(3) and (b)(4) of Section 4.11 hereof, is not party to any agreement, contract, arrangement or understanding with TLLP or any Restricted Subsidiary of TLLP unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to TLLP or such Restricted Subsidiary than those that might be obtained, in light of the circumstances, at the time from Persons who are not Affiliates of TLLP;

(3)    is a Person with respect to which neither TLLP nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and

(4)    has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of TLLP or any of its Restricted Subsidiaries.

All Subsidiaries of an Unrestricted Subsidiary shall be also Unrestricted Subsidiaries. Any designation of a Subsidiary of TLLP as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a board resolution giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of TLLP as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 hereof, TLLP will be in default of such covenant.

“U S. Person”means a U.S. Person as defined in Rule 902(k) promulgated under the Securities Act.

“Voting Stock”of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled (without regard to the occurrence of any contingency) to vote in the election of the Board of Directors of such Person.

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“Weighted Average Life to Maturity”means, when applied to any Indebtedness at any date, the number of years obtained by dividing:

(1)    the sum of the products obtained by multiplying (a) the amount of each then-remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by

(2)    the then-outstanding principal amount of such Indebtedness.

Section 1.02    Other Definitions.

Term	Defined in Section
“Affiliate Transaction”	4.11
“Asset Sale Offer”	3.09
“Authentication Order”	2.02
“Change of Control Offer”	4.15
“Change of Control Payment”	4.15
“Change of Control Payment Date”	4.15
“Covenant Defeasance”	8.03
“DTC”	2.03
“Event of Default”	6.01
“Excess Proceeds”	4.10
“Incremental Funds”	4.07
“incur”	4.09
“Legal Defeasance”	8.02
“Offer Amount”	3.09
“Offer Period”	3.09
“Paying Agent”	2.03
“Payment Default”	6.01
“Permitted Debt	4.09
“Purchase Date”	3.09
“Redemption Date”	3.07
“Registrar”	2.03
“Release”	13.02
“Restricted Payments”	4.07
“Special Mandatory Redemption”	3.10
“Termination Date”	4.18

Section 1.03    Incorporation by Reference of Trust Indenture Act.

At all times after the effectiveness of a registration statement under the Registration Rights Agreement, this Indenture will be subject to the mandatory provisions of the TIA, which unless otherwise indicated are incorporated by reference in and made a part of this Indenture effective upon the effectiveness of any such registration statement. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.

The following TIA terms if used in this Indenture have the following meanings:

“indenture securities” means the Notes and the Note Guarantees;

“indenture security Holder” means a Holder of a Note;

“indenture to be qualified” means this Indenture;

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“indenture trustee” or “institutional trustee” means the Trustee; and

“obligor” on the Notes and the Note Guarantees means the Issuers and the Guarantors, respectively, and any successor obligor upon the Notes and the Note Guarantees, respectively.

All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them.

Section 1.04    Rules of Construction.

Unless the context otherwise requires:

(1)    a term has the meaning assigned to it;

(2)    an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;

(3)    “or”is not exclusive;

(4)    words in the singular include the plural, and in the plural include the singular;

(5)    both “shall” and “will” shall be interpreted to express a command;

(6)    provisions apply to successive events and transactions;

(7)    references to sections of, or rules under, the Securities Act or the Exchange Act shall be deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time; and

(8)    references to a series of Notes means the 2019 Notes or the 2022 Notes, as applicable.

ARTICLE 2

THE NOTES

Section 2.01    Form and Dating.

(a)    General. The Notes and the Trustee’s certificate of authentication will be substantially in the form set forth in Exhibit A-1 hereto, in the case of the 2019 Notes, and Exhibit A-2 hereto, in the case of the 2022 Notes. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note will be dated the date of its authentication. The Notes shall be in minimum denominations of $2,000 and integral multiples of $ 1,000 in excess thereof.

The terms and provisions contained in the Notes of each series will constitute, and are hereby expressly made, a part of this Indenture and the Issuers, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note of such series conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.

(b)    Global Notes. Notes issued in global form will be substantially in the form set forth in Exhibit A-1 hereto, in the case of the 2019 Notes, and Exhibit A-2 hereto, in the case of the 2022 Notes (including the Global

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Note Legend thereon and the “Schedule of Exchanges of Interests in the Global Note” attached thereto). Notes issued in definitive form will be substantially in the form set forth in Exhibit A-1 hereto, in the case of the 2019 Notes, and Exhibit A-2 hereto, in the case of the 2022 Notes (but without the Global Note Legend thereon and without the “Schedule of Exchanges of Interests in the Global Note” attached thereto). Each Global Note will represent such of the outstanding Notes of such series as will be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes of such series from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes of such series represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes of such series represented thereby will be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof.

(c)    Euroclear and Clearstream Procedures Applicable. The provisions of the “Operating Procedures of the Euroclear System” and “Terms and Conditions Governing Use of Euroclear” and the ”General Terms and Conditions of Clearstream Banking” and “Customer Handbook” of Clearstream will be applicable to transfers of beneficial interests in the Regulation S Global Notes that are held by Participants through Euroclear or Clearstream.

Section 2.02    Execution and Authentication.

At least one Officer must sign the Notes for each of the Issuers by manual or facsimile signature.

If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note will nevertheless be valid,

A Note will not be valid until authenticated by the manual signature of the Trustee. The signature will be conclusive evidence that the Note has been authenticated under this Indenture.

The Trustee will, upon receipt of a written order of the Issuers signed by two Officers of each Issuer (an “Authentication Order”),authenticate Notes for original issue that may be validly issued under this Indenture, including any Additional Notes and Exchange Notes. The aggregate principal amount of Notes outstanding at any time may not exceed the aggregate principal amount of Notes authorized for issuance by the Issuers pursuant to one or more Authentication Orders, except as provided in Section 2.07 hereof.

The Trustee may appoint an authenticating agent acceptable to the Issuers to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Issuers.

Section 2.03    Registrar and Paying Agent.

The Issuers will maintain an office or agency where Notes may be presented for registration of transfer or for exchange (“Registrar”)and an office or agency where Notes may be presented for payment (“Paying Agent”). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term “Registrar” includes any co-registrar and the term “Paying Agent” includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Issuers will notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. TLLP, Finance Corp. or any of TLLP’s Subsidiaries may act as Paying Agent or Registrar.

The Issuers initially appoint The Depository Trust Company (“DTC”) to act as Depositary with respect to the Global Notes.

The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.

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Section 2.04    Paying Agent to Hold Money in Trust.

The Issuers will require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, or interest and Special Interest, if any, on the Notes, and will notify the Trustee of any default by the Issuers in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Issuers at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than TLLP or a Subsidiary) will have no further liability for the money. If TLLP or a Subsidiary acts as Paying Agent, it will segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to TLLP, the Trustee will serve as Paying Agent for the Notes.

Section 2.05    Holder Lists.

The Trustee will preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA § 312(a). If the Trustee is not the Registrar, the Issuers will furnish to the Trustee at least seven Business Days beforeeach Interest Payment Date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Issuers shall otherwise comply with TIA § 312(a).

Section 2.06    Transfer and Exchange.

(a)    Transfer and Exchange of Global Notes. A Global Note may not be transferred except as a whole by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Issuers for Definitive Notes in a minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof if:

(1)    the Issuers deliver to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Issuers within 90 days after the date of such notice from the Depositary;

(2)    the Issuers in their sole discretion determine that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; or

(3)    there has occurred and is continuing an Event of Default with respect to the Notes and the Depositary notifies the Trustee of its decision to exchange the Global Notes for Definitive Notes.

Upon the occurrence of either of the preceding events in (1) or (2) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Sections 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a); however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.

(b)    Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes will be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes will be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also will require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs of this Section 2.06, as applicable:

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(1)    Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend. Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(6)(1).

(2)    All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar either:

(A)    both:

(i)    a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and

(ii)    instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase; or

(B)    both:

(i)    a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged; and

(ii)    instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above.

Upon consummation of an Exchange Offer by the Issuers in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(2) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof.

(3)    Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following:

(A)    if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; and

(B)    if the transferee will take delivery in the form of a beneficial interest in the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof;

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(4)    Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(6)(2) above and:

(A)    such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal (or via the Depositary’s book-entry system) that it is not (i) a Participating Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Issuers;

(B)    such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;

(C)    such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or

(D)    the Registrar receives the following:

(i)    if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or

(ii)    if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Issuers shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above.

Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note.

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(c)    Transfer or Exchange of Beneficial Interests for Definitive Notes.

(1)     Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficialinterest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation:

(A)    if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder substantially in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof;

(B)    if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (1) thereof;

(C)    if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (2) thereof;

(D)    if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(a) thereof;

(E)    [Reserved].

(F)    if such beneficial interest is being transferred to TLLP or any of its Subsidiaries, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(b) thereof; or

(G)    if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(c) thereof,

the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Issuers shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(1) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.

(2)    Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if:

(A)    such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal (or via the Depositary’s book-entry system) that it is not (i) a Participating Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Issuers;

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(B)    such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;

(C)    such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or

(D)    the Registrar receives the following:

(i)    if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for an Unrestricted Definitive Note, a certificate from such holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or

(ii)    if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such holder substantially in the form of Exhibit B hereto, including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

(3)     Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(2) hereof, the Trustee will cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Issuers will execute and the Trustee will authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(3) will be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest requests through instructions to the Registrar from or through the Depositary and the Participant or Indirect Participant. The Trustee will deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(3) will not bear the Private Placement Legend.

(d)    Transfer and Exchange of Definitive Notes for Beneficial Interests.

(1)    Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation:

(A)    if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof;

(B)    if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (1) thereof;

(C)    if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (2) thereof;

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(D)    if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(a) thereof;

(E)    [Reserved].

(F)    if such Restricted Definitive Note is being transferred to TLLP or any of its Subsidiaries, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(b) thereof; or

(G)    if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(c) thereof,

the Trustee will cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note

(2)    Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if:

(A)    such exchange or transfer is effected pursuant to the Exchange Offerin accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal (or via the Depositary’s book-entry system) that it is not (i) a Participating Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Issuers;

(B)    such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;

(C)    such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or

(D)    the Registrar receives the following:

(i)    if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or

(ii)    if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder substantially in the form of Exhibit B hereto, including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(2), the Trustee will cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note.

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(3)    Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee will cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes.

If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (2)(B), (2)(D) or (3) above at a time when an Unrestricted Global Note has not yet been issued, the Issuers will issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred.

(e)    Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder’s compliance with the provisions of this Section 2.06(e), the Registrar will register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer or exchange in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e).

(1)    Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following:

(A)    if the transfer will be made pursuant to Rule 144A, then the transferor must deliver a certificate substantially in the form of Exhibit B hereto, including the certifications in item (1) thereof;

(B)    if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate substantially in the form of Exhibit B hereto, including the certifications in item (2) thereof; and

(C)    if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate substantially in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable.

(2)    Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if:

(A)    such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal (or via the Depositary’s book-entry system) that it is not (i) a Participating Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Issuers;

(B)    any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement;

(C)    any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or

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(D)    the Registrar receives the following:

(i)    if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or

(ii)    if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder substantially in the form of Exhibit B hereto, including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

(3)    Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof.

(f)    Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Issuers will issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will authenticate:

(1)    one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Participating Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Issuers; and

(2)    Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Participating Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Issuers.

Concurrently with the issuance of such Notes, the Trustee will cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Issuers will execute and the Trustee will authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount.

(g)    Legends. The following legends will appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture.

(1)    Private Placement Legend.

(A)    Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form:

“THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR

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PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE “RESALE RESTRICTION TERMINATION DATE”) THAT IS ONE YEAR (IN THE CASE OF RULE 144A SECURITIES) AFTER THE LATER OF THE ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUERS OR ANY AFFILIATE OF THE ISSUERS WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) OR 40 DAYS (IN THE CASE OF REGULATION S SECURITIES), ONLY (A) TO THE ISSUERS, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS’ AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.”

“IN THE CASE OF REGULATION S NOTES: BY ITS ACQUISITION HEREOF, THE HOLDER HEREOF REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT.”

(B)    Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(4), (c)(2), (c)(3), (d)(2), (d)(3), (e)(2), (e)(3) or (f) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) will not bear the Private Placement Legend.

(2)    Global Note Legend. Each Global Note will bear a legend in substantially the following form:

“THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION

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PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (“DTC”), TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.”

(h)    Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole but not in part, each such Global Note will be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interests in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interests in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note will be reduced accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interests in another Global Note, such other Global Note will be increased accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase.

(i)    General Provisions Relating to Transfers and Exchanges.

(1)    To permit registrations of transfers and exchanges, the Issuers will execute and the Trustee will authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 hereof or at the Registrar’s request.

(2)    No service charge will be made to a Holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Issuers may require payment of a sum sufficient to cover any transfer or exchange tax or similar governmental charge payable in connection therewith (other than any such transfer or exchange taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).

(3)    The Registrar will not be required to register the transfer of or exchange of any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part.

(4)    All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes will be the valid obligations of the Issuers, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.

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(5)    Neither the Registrar nor the Issuers will be required:

(A)    to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection;

(B)    to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or

(C)    to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date.

(6)    Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Issuers may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Issuers shall be affected by notice to the contrary.

(7)    The Trustee will authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof.

(8)    All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile.

Section 2.07    Replacement Notes.

If any mutilated Note is surrendered to the Trustee or the Issuers and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Issuers will issue and the Trustee, upon receipt of an Authentication Order, will authenticate a replacement Note if the Trustee’s requirements are met. If required by the Trustee or the Issuers, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Issuers to protect the Issuers, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Issuers may charge for their expenses in replacing a Note.

Every replacement Note is an additional obligation of each of the Issuers and will be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.

Section 2.08    Outstanding Notes.

The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section 2.08 as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Issuers or an Affiliate of the Issuers holds the Note; however, Notes held by TLLP or a Subsidiary of TLLP shall not be deemed to be outstanding for purposes of Section 3.07(b)(1) hereof.

If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser.

If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest and Special Interest, if any, on it ceases to accrue.

If the Paying Agent (other than TLLP, a Subsidiary or an Affiliate of any thereof) holds, on a Redemption Date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes will be deemed to be no longer outstanding and will cease to accrue interest.

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Section 2.09    Treasury Notes.

In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuers or any Guarantor, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuers or any Guarantor, will be considered as though not outstanding, except that for the purposes of determining whether the Trustee will be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned will be so disregarded.

Section 2.10    Temporary Notes.

Until certificates representing Notes are ready for delivery, the Issuers may prepare and the Trustee, upon receipt of an Authentication Order, will authenticate temporary Notes. Temporary Notes will be substantially in the form of certificated Notes but may have variations that the Issuers consider appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Issuers will prepare and the Trustee will authenticate definitive Notes in exchange for temporary Notes.

Holders of temporary Notes will be entitled to all of the benefits of this Indenture.

Section 2.11    Cancellation.

The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent will forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else will cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and will destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes will be delivered to the Issuers. The Issuers may not issue new Notes to replace Notes that they have paid or that have been delivered to the Trustee for cancellation.

Section 2.12    Defaulted Interest.

If the Issuers default in a payment of interest on the Notes, they will pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Issuers will notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Issuers will fix or cause to be fixed each such special record date and payment date; provided that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Issuers (or, upon the written request of the Issuers, the Trustee in the name and at the expense of the Issuers) will mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.

Section 2.13    Issuance of Additional Notes.

After the Issue Date, the Issuers shall be entitled, subject to their compliance with Section 4.09 hereof, to issue Additional Notes under this Indenture, which Notes shall have identical terms as the Notes issued on the Issue Date, other than with respect to the date of issuance and issue price. All the Notes issued under this Indenture shall be treated as a single class for all purposes of this Indenture including waivers, amendments, redemptions and offers to purchase.

With respect to any Additional Notes, each Issuer shall set forth in a board resolution and an Officers’ Certificate, a copy of each which shall be delivered to the Trustee, the aggregate principal amount of such Additional Notes to be issued, authenticated and delivered pursuant to this Indenture.

In authenticating such Additional Notes, and accepting the additional responsibilities under this Indenture in relation to such Additional Notes, the Trustee shall receive, and, subject to Section 7.01, shall be fully protected in relying upon:

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(i) an executed supplemental indenture, if any; and

(ii) an Officers’ Certificate and Opinion of Counsel delivered in accordance with Section 12.04.

ARTICLE 3

REDEMPTION AND PREPAYMENT

Section 3.01    Notices to Trustee.

If the Issuers elect to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at least 15 days but not more than 60 days before a Redemption Date, an Officers’ Certificate setting forth:

(1)    the clause of this Indenture pursuant to which the redemption shall occur;

(2)    the Redemption Date;

(3)    the principal amount of Notes to be redeemed; and

(4)    the redemption price.

Section 3.02    Selection of Notes To Be Redeemed or Purchased.

If less than all of the Notes of any series are to be redeemed or purchased in an offer to purchase at any time, the Trustee will select Notes of each such series for redemption or purchase as follows:

(1)     if the relevant series of Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which such Notes are listed; or

(2)    on a pro rata basis to the extent practicable; or

(3)     on a pro rata basis, by lot or such other similar method in accordance with the procedures of DTC.

No Notes of $2,000 or less can be redeemed in part. In the event of partial redemption or purchase by lot, the particular Notes to be redeemed or purchased will be selected, unless otherwise provided herein, not less than 15 nor more than 60 days prior to the redemption or purchase date by the Trustee from the outstanding Notes not previously called for redemption or purchase.

The Trustee will promptly notify the Issuers in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected will be in amounts of $2,000 or whole multiples of $1,000 in excess thereof; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase.

Section 3.03    Notice of Redemption.

Subject to the provisions of Section 3.09 hereof, at least 15 days (or such shorter period as is specified solely in respect of any Special Mandatory Redemption) but not more than 60 days before a Redemption Date, the Issuers will mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of

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this Indenture pursuant to Articles 8 or 11 hereof. Notice of any redemption of the Notes, (including upon an Equity Offering or in connection with a transaction (or series of related transactions) that constitute a Change of Control) may, at the Issuers’ discretion, be given prior to the completion thereof and be subject to one or more conditions precedent, including, but not limited to, completion of the related Equity Offering or Change of Control. In addition, if such redemption is subject to satisfaction of one or more conditions precedent, such notice shall state that, in the Issuers’ discretion, the Redemption Date may be delayed until such time (including more than 60 days after the date the notice of redemption was delivered) as any or all such conditions shall be satisfied, or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied by the Redemption Date, or by the Redemption Date so delayed, or such notice may be rescinded at any time in the Issuers’ discretion if in the good faith judgment of the Issuers any or all of such conditions will not be satisfied. In addition, the Issuers may provide in such notice that payment of the redemption price and performance of the Issuers’ obligations with respect to such redemption may be performed by another Person.

The notice will identify the Notes to be redeemed and will state:

(1)    the Redemption Date;

(2)    the redemption price, if then determinable, and, if not, then a method for determination;

(3)    if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued upon cancellation of the original Note;

(4)    the name and address of the Paying Agent;

(5)    that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;

(6)    that, unless the Issuers default in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date;

(7)    the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and

(8)    that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes.

At the Issuers’ request, the Trustee will give the notice of redemption in the Issuers’ names and at their expense; provided, however,that the Issuers have delivered to the Trustee, at least 20 days prior to the Redemption Date (or such shorter time period as the Trustee may agree), an Officers’ Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph.

Section 3.04    Effect of Notice of Redemption.

Once notice of redemption is delivered in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the Redemption Date at the redemption price, unless the redemption is subject to a condition precedent that is not satisfied or waived.

Section 3.05    Deposit of Redemption or Purchase Price.

On or prior to the redemption or purchase date, the Issuers will deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest and Special Interest, if any, on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent will promptly return to the Issuers any money deposited with the Trustee or the Paying Agent by the Issuers in excess of the amounts necessary

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to pay the redemption or purchase price of, and accrued interest and Special Interest, if any, on, all Notes to be redeemed or purchased.

If the Issuers comply with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest will cease to accrue on the Notes or the portions of Notes called for redemption or purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption or purchase is not so paid upon surrender for redemption or purchase because of the failure of the Issuers to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof.

Section 3.06    Notes Redeemed or Purchased in Part.

Upon surrender of a Note that is redeemed or purchased in part, the Issuers will issue and, upon receipt of an Authentication Order, the Trustee will authenticate for the Holder at the expense of the Issuers a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered.

Section 3.07    Optional Redemption.

(a)    

(1)    At any time prior to September 15, 2019, the Issuers may redeem all or part of the 2019 Notes at a redemption price equal to 100% of the principal amount of the 2019 Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, but excluding, the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date).

(2)    At any time on or after September 15, 2019, the Issuers may redeem the 2019 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2019 Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date).

(b)    

(1)    At any time prior to October 15, 2017, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of the outstanding 2022 Notes (including any Additional 2022 Notes) issued under this Indenture at a redemption price of 106.25% of the principal amount with an amount equal to or less than the net cash proceeds of one or more Equity Offerings, plus accrued and unpaid interest and Special Interest, if any, to, but excluding, the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date); provided that:

(A)    at least 65% of the aggregate principal amount of 2022 Notes originally issued under this Indenture (excluding 2022 Notes held by TLLP and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption; and

(B)    the redemption occurs within 180 days of the date of the closing of such Equity Offering.

(2)    On or after October 15, 2018, the Issuers may redeem all or a part of the 2022 Notes at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Special Interest, if any, on the 2022 Notes redeemed, to, but excluding, the applicable Re

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demption Date, if redeemed during the twelve-month period beginning on October 15 of each year indicated below, subject to the rights of Holders of 2022 Notes on the relevant record date to receive interest on the relevant Interest Payment Date:

Year	Percentage
2018	103.125%
2019	101.563%
2020 and thereafter	100.000%

(3)    At any time prior to October 15, 2018, the Issuers may also redeem all or a part of the 2022 Notes at a redemption price equal to 100% of the principal amount of 2022 Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest and Special Interest, if any, thereon to, but excluding, the redemption date (the “Redemption Date”),subject to the rights of Holders of 2022 Notes on the relevant record date to receive interest due on the relevant Interest Payment Date. The notice need not set forth the Applicable Premium but only the manner of calculation of the redemption price. With respect to any redemption pursuant to this Section 3.07(b)(3), the Issuers shall notify the Trustee of the Applicable Premium with respect to the 2022 Notes promptly after the calculation thereof and the Trustee shall not be responsible for such calculation.

(c)    Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof.

(d)    Unless the Issuers default in the payment of the redemption price, interest will cease to accrue on the Notes of such series or portions thereof called for redemption on the applicable Redemption Date.

Section 3.08    Mandatory Redemption.

Except as set forth under Section 3.10, neither of the Issuers is required to make mandatory redemption or sinking fund payments with respect to the Notes.

The Issuers are not prohibited from acquiring the Notes by means other than a redemption, whether pursuant to a tender offer, open market purchase or otherwise, so long as the acquisition does not violate the terms of this Indenture.

Section 3.09    Offer to Purchase by Application of Excess Proceeds.

In the event that, pursuant to Section 4.10 hereof, the Issuers are required to commence an offer to all Holders to purchase Notes (an “Asset Sale Offer”),it will follow the procedures specifiedbelow.

The Asset Sale Offer shall be made to all Holders and all holders of other Indebtedness that is pari passu,with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets. The Asset Sale Offer will remain open for a period of at least 20 Business Days following its commencement and not more than 30 Business Days, except to the extent that a longer period is required by applicable law (the “Offer Period”). No later than three Business Days after the termination of the Offer Period (the “Purchase Date”),the Issuers will apply all Excess Proceeds (the “Offer Amount”)to the purchase of Notes and such other pari passu Indebtedness (on a pro rata basis, if applicable) or, if less than the Offer Amount has been tendered, all Notes and other Indebtedness tendered in response to the Asset Sale Offer. Payment for any Notes so purchased will be made in the same manner as interest payments are made.

If the Purchase Date is on or after an interest record date and on or before the related Interest Payment Date, any accrued and unpaid interest and Special Interest, if any, will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Asset Sale Offer.

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Upon the commencement of an Asset Sale Offer, the Issuers will send, by first class mail, a notice to the Trustee and each of the Holders. The notice will contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The notice, which will govern the terms of the Asset Sale Offer, will state:

(1)    that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer will remain open;

(2)    the Offer Amount, the purchase price and the Purchase Date;

(3)    that any Note not tendered or accepted for payment will continue to accrue interest;

(4)    that, unless the Issuers default in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer will cease to accrue interest after the Purchase Date;

(5)    that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in denominations of $2,000 and integral multiples of $1,000 in excess thereof only;

(6)    that Holders electing to have Notes purchased pursuant to any Asset Sale Offer will be required to surrender the Note, with the form entitled “Option of Holder to Elect Purchase” attached to the Notes completed, or transfer by book-entry transfer, to the Issuers, a Depositary, if appointed by the Issuers, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date;

(7)    that Holders will be entitled to withdraw their election if the Issuers, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission, letter or other specified means of communication setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased;

(8)    that, if the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by holders thereof exceeds the Offer Amount, the Trustee will select the Notes and the representative of such other pari passu Indebtedness will select such other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness surrendered (with such adjustments in each case as may be deemed appropriate by the Issuers so that only Notes in denominations of $2,000, or integral multiples of $1,000 in excess thereof, will be purchased); and

(9)    that Holders whose Notes were purchased only in part will be issued new Notes of the applicable series equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer).

On or before the Purchase Date, the Issuers will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and will deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officers’ Certificate stating that such Notes or portions thereof were accepted for payment by the Issuers in accordance with the terms of this Section 3.09. The Issuers, the Depositary or the Paying Agent, as the case may be, will promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Issuers for purchase, and the Issuers will promptly issue a new Note, and the Trustee, upon written request from the Issuers, will authenticate and mail or deliver (or cause to be transferred by book entry) such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Issuers to the Holder thereof. The Issuers will publicly announce the results of the Asset Sale Offer on the Purchase Date.

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Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof.

Section 3.10    Special Mandatory Redemption.

(a)    If (i) the Release has not occurred on or prior to the Escrow End Date or (ii) if the Issuers shall notify the Trustee in writing of the Issuers’ announcement that the Acquisition Agreement has been terminated or that it will not pursue the consummation of the Acquisition, the Issuers will, on a day not more than three Business Days following the Escrow End Date or the date of such notice, as applicable (such date, the “Special Mandatory Redemption Date”), redeem all of the 2022 Notes (the “Special Mandatory Redemption”) at a price equal to 100% of the issue price of the 2022 Notes, plus accrued and unpaid interest from the Issue Date to, but not including, the Special Mandatory Redemption Date (the “Special Mandatory Redemption Price”). Notice of the Special Mandatory Redemption will be mailed promptly to each Holder of 2022 Notes at its registered address, the Trustee and the Escrow Agent. Upon receipt of the notice of Special Mandatory Redemption, the Escrow Agent will, to the extent necessary, liquidate a portion of the Escrowed Property held by it sufficient to pay the Special Mandatory Redemption Price no later than the Business Day prior to the Special Mandatory Redemption Date.

(b)    On the Special Mandatory Redemption Date, the Escrow Agent shall pay to a paying agent for payment to each Holder of 2022 Notes the Special Mandatory Redemption Price for such Holder’s 2022 Notes. After the Escrow End Date, all interest earned on the Escrowed Property and any other Escrowed Property that is not required to be applied towards a Special Mandatory Redemption shall be paid to the Issuers upon the Issuers’ request.

ARTICLE 4

COVENANTS

Section 4.01    Payment of Notes.

The Issuers will pay or cause to be paid the principal of, premium, if any, and interest and Special Interest, if any, on, the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest and Special Interest, if any, will be considered paid on the date due if the Paying Agent, if other than the TLLP or a Subsidiary thereof, holds as of 11:00 a.m. Eastern Time on the due date money deposited by the Issuers in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Issuers will pay all Special Interest, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement.

Section 4.02    Maintenance of Office or Agency.

The Issuers will maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Issuers in respect of the Notes and this Indenture may be served. The Issuers will giveprompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuers fail to maintain any such required office or agency or fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.

The Issuers may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however,that no such designation or rescission will in any manner relieve the Issuers of their obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Issuers will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

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The Issuers hereby designate the Corporate Trust Office of the Trustee as one such office or agency of the Issuers in accordance with Section 2.03 hereof.

Section 4.03    Reports.

(a)    Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, TLLP shall furnish (whether through hard copy or Internet access) to the Holders of Notes or cause the Trustee to furnish to the Holders of Notes, within the time periods specified in the SEC’s rules and regulations:

(1)    all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and 10-K if TLLP were required to file such reports, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; and

(2)    all current reports that would be required to be filed with the SEC on Form 8-K if TLLP were required to file such reports.

All such reports will be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K will include a report on TLLP’s consolidated financial statements by TLLP’s independent registered public accounting firm. In addition, TLLP will file a copy of each of the reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the SEC will not accept such a filing) and will post the reports on its website within those time periods.

If, at any time TLLP is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, TLLP will nevertheless continue filing the reports specified in the preceding paragraphs of this Section 4.03 with the SEC within the time periods specified above unless the SEC will not accept such a filing; provided that, for so long as TLLP is not subject to the periodic reporting requirements of the Exchange Act for any reason, the time period for filing reports on Form 8-K shall be five (5) Business Days after the event giving rise to the obligation to file such report. If the SEC will not accept TLLP’s filings for any reason, TLLP will post the reports referred to in the preceding paragraphs on its website within the time periods that would apply if TLLP were required to file those reports with the SEC.

If TLLP has designated any of its Subsidiaries as Unrestricted Subsidiaries, then, to the extent material, the quarterly and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, or in Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of TLLP and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of TLLP.

(b)    For so long as any Notes remain outstanding, if at any time they are not required to file with the SEC the reports required by Section 4.03(a), the Issuers and the Guarantors will furnish to the Holders of Notes and to securities analysts and prospective investors in the Notes, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

TLLP will be deemed to have furnished such reports required in clauses (a) and (b) above to the Trustee and the Holders of the Notes if it has filed such reports with the SEC using the EDGAR filing system (or any successor thereto) and such reports are publicly available.

Section 4.04    Compliance Certificate.

(a)    The Issuers and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers’ Certificate (at least one of the signatories of which shall be the principal executive officer, the principal financial officer, or the principal accounting officer of TLLP) stating that a review of the activities of the Issuers and TLLP’s Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining wheth

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er the Issuers have kept, observed, performed and fulfilled their obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Issuers have kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the tens, provisions and conditions of this Indenture (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Issuers are taking or propose to take with respect thereto).

(b)    So long as any of the Notes are outstanding, the Issuers will deliver to the Trustee, within ten Business Days of becoming aware of any Default or Event of Default, an Officers’ Certificate specifying such Default or Event of Default and what action the Issuers are taking or propose to take with respect thereto.

Section 4.05    Taxes.

The Issuers will pay or discharge, and will cause each of TLLP’s Subsidiaries to pay or discharge, prior to delinquency, all material taxes, lawful assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment or discharge is not adverse in any material respect to the Holders.

Section 4.06    Stay, Extension and Usury Laws.

The Issuers and each of the Guarantors covenant (to the extent that they may lawfully do so) that they will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture and the Notes; and the Issuers and each of the Guarantors (to the extent that they may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and covenants (to the extent that they may lawfully do so) that they will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted.

Section 4.07    Restricted Payments.

(a)    TLLP will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:

(1)    declare or pay any dividend or make any other payment or distribution on account of TLLP’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving TLLP or any of its Restricted Subsidiaries) or to the direct or indirect holders of TLLP’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than distributions or dividends payable solely in Equity Interests of TLLP (other than Disqualified Equity) and other than distributions or dividends payable solely to TLLP or a Restricted Subsidiary);

(2)    purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving TLLP) any Equity Interests of TLLP or any direct or indirect parent of TLLP;

(3)    make any payment to purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of TLLP or any Guarantor that is contractually subordinated to the Notes or to any Note Guarantee (excluding (a) any intercompany Indebtedness between or among TLLP and any of its Restricted Subsidiaries and (b) the payment of principal, purchase, repurchase or other acquisition of Indebtedness that is subordinated in right of payment to the Notes or the Note Guarantees acquired in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case, due within one year of the date of payment, purchase, repurchase or other acquisition); or

(4)    make any Restricted Investment

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(all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as “Restricted Payments”), unless, at the time of and after giving effect to such Restricted Payment, no Default or Event of Default has occurred and is continuing and either:

(1)    if the Fixed Charge Coverage Ratio for TLLP’s Reference Period is not less than 1.75 to 1.00, such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by TLLP and its Restricted Subsidiaries (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), (7), (9), (10) and (11) of Section 4.07(b) hereof) during the quarter in which such Restricted Payment is made, is less than the sum, without duplication, of:

(A)    Available Cash from Operating Surplus as of the end of the immediately preceding fiscal quarter; plus

(B)    100% of the aggregate net cash proceeds, or the Fair Market Value of assets or property, received by TLLP since September 14, 2012 as a contribution to its common equity capital or from the issue or sale of (i) Equity Interests of TLLP (other than Disqualified Equity) or (ii) convertible or exchangeable Disqualified Equity or convertible or exchangeable debt securities of TLLP that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Equity or debt securities) sold to a Subsidiary of TLLP); plus

(C)    to the extent that any Restricted Investment that was made after September 14, 2012 is sold for cash or Cash Equivalents or otherwise liquidated or repaid for cash or Cash Equivalents, the return of capital or similar payment made in cash or Cash Equivalents with respect to such Restricted Investment (less the cost of disposition, if any); plus

(D)    the net reduction in Restricted Investments made after September 14, 2012 resulting from dividends, repayments of loans or advances, or other transfers of assets in each case to TLLP or any of its Restricted Subsidiaries from any Person (including, without limitation, Unrestricted Subsidiaries) or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, to the extent such amounts have not been included in Available Cash from Operating Surplus for any period commencing on or after September 14, 2012 (items (B), (C) and (D) being referred to as “Incremental Funds”); minus

(E)    the aggregate amount of Incremental Funds previously expended pursuant to this clause (1) and clause (2) below; or

(2)    if the Fixed Charge Coverage Ratio for TLLP’s Reference Period^-is less than 1.75 to 1.00, such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by TLLP and its Restricted Subsidiaries (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), (7), (9), (10) and (11) of Section 4.07(b) hereof) during the quarter in which such Restricted Payment is made (such Restricted Payments for purposes of this clause (2) meaning only distributions on common units and subordinated units of TLLP, plus the related distribution on the general partner interest), is less than the sum, without duplication, of:

(A)    $400.0 million less the aggregate amount of all Restricted Payments made by TLLP and its Restricted Subsidiaries pursuant to this clause (2)(A) during the period ending on the last day of the fiscal quarter immediately preceding the date of such Restricted Payment and beginning on September 14, 2012; plus

(B)    Incremental Funds to the extent not previously expended pursuant to this clause (2) or clause (1) above.

(b)    The provisions of Section 4.07(a) hereof will not prohibit:

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(1)    the payment of any dividend or distribution or the consummation of an irrevocable redemption of Subordinated Obligations within 60 days after the date of the declaration of such dividend or the delivery of the irrevocable notice of redemption, as the case may be, if at the date of declaration or the date on which such irrevocable notice is delivered, such dividend or redemption would have complied with the provisions of this Indenture (assuming, in the case of a redemption payment, the giving of the notice of such redemption payment would have been deemed to be a Restricted Payment at such time and such deemed Restricted Payment would have been permitted at such time);

(2)    the making of any Restricted Payment in exchange for, or out of the net cash proceeds of, a substantially concurrent (a) capital contribution to TLLP from any Person (other than a Restricted Subsidiary of TLLP) or (b) sale or issuance (other than to a Restricted Subsidiary of TLLP) of Equity Interests (other than Disqualified Equity) of TLLP, with a sale or issuance being deemed substantially concurrent if such Restricted Payment occurs not more than 120 days after such sale; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will be excluded or deducted from the calculation of Available Cash from Operating Surplus and Incremental Funds;

(3)    the making of any principal payment on, or the defeasance, redemption, repurchase, retirement or other acquisition of, any Subordinated Obligation with the net cash proceeds from an incurrence of, or in exchange for, Permitted Refinancing Indebtedness;

(4)    the payment of any distribution or dividend by a Restricted Subsidiary of TLLP to the holders of such Restricted Subsidiary’s Equity Interests (other than Disqualified Equity) on a pro rata basis;

(5)    the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of TLLP or any Restricted Subsidiary of TLLP held by any current or former officer, director, consultant or employee of the General Partner, TLLP or any of their respective Subsidiaries pursuant to any equity subscription agreement or plan, stock or unit option agreement, shareholders’ agreement, employment agreement or similar agreement; provided,that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0 million in any calendar year (with unused amounts in any calendar year to be carried forward to successive calendar years and added to such amount); provided further that such amount in any calendar year may be increased by an amount not to exceed (a) the cash proceeds received by TLLP or any of its Restricted Subsidiaries from sales of Equity Interests of TLLP to members of management, employees or directors of the General Partner, TLLP or their respective Subsidiaries that occurs after September 14, 2012 (to the extent the cash proceeds from the sale of such Equity Interests have not otherwise been applied to the payment of Restricted Payments by virtue of clauses (1)(B) or (2)(B) of Section 4.07(a) hereof), plus (b)the cash proceeds of key man life insurance policies received by TLLP or any of its Restricted Subsidiaries after September 14, 2012;

(6)    payments or dividends of Disqualified Equity issued pursuant to Section 4.09 hereof;

(7)    repurchases of Equity Interests deemed to occur upon the cashless exercise of stock options, warrants or other convertible securities if such Equity Interests represent a portion of the exercise price of such options, warrants or other convertible securities;

(8)    cash payments in lieu of the issuance of fractional shares or units, or the purchase by TLLP of fractional shares or units, in connection with (a) the exercise of warrants, options or other securities convertible into or exchangeable for Capital Stock of TLLP or (b) stock or unit dividends, splits or combinations or business combinations;

(9)    in connection with an acquisition by TLLP or any of its Restricted Subsidiaries, the return to TLLP or any of its Restricted Subsidiaries of Equity Interests of TLLP or any of its Restricted Subsidiaries constituting a portion of the purchase consideration in settlement of indemnification claims or pursuant to purchase price adjustments under the acquisition agreement;

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(10)    the repurchase, redemption or other acquisition or retirement for value of any Subordinated Obligations pursuant to Sections 4.10 or 4.15; provided that all Notes tendered by Holders in connection with a Change of Control Offer or Asset Sale Offer, as applicable, have been repurchased, redeemed or acquired for value; and

(11)    the issuance of common Equity Interests upon the conversion of subordinated Equity Interests;

provided further, that, with respect to clauses (5), (6) and (10) of this Section 4.07(b), no Default shall have occurred and be continuing.

The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by TLLP or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. For the purposes of determining compliance with this Section 4.07, in the event that a Restricted Payment or Investment (or a portion thereof) meets the criteria of more than one of the categories of Restricted Payments described in the preceding clauses (1) through (11) and/or one or more of the exceptions contained in the definition of “Permitted Investments,” or is permitted pursuant to the first paragraph of this covenant, TLLP will be permitted to divide or classify (or later divide, classify or reclassify in whole or in part in its sole discretion) such Restricted Payment or Investment (or portion thereof) among such clauses (1) through (11) and such first paragraph and/or one or more of the exceptions contained in the definition of “Permitted Investments,” in any manner that complies with this Section 4.07.

Section 4.08    Dividend and Other Payment Restrictions Affecting Subsidiaries.

(a)    TLLP will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of TLLP (other than Finance Corp.) that is not a Guarantor to:

(1)    pay dividends or make any other distributions on its Equity Interests to TLLP or any of its Restricted Subsidiaries that is a Guarantor, or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to TLLP or any of its Restricted Subsidiaries that is a Guarantor; provided that the priority of any preferred equity or similar Equity Interest in receiving dividends or liquidating distributions prior to the payment of dividends or liquidating distributions on common equity shall not be deemed to be a restriction on the ability to make distributions on Capital Stock;

(2)    make loans or advances to TLLP or any of its Restricted Subsidiaries that is a Guarantor; or

(3)    sell, lease or transfer any of its properties or assets to TLLP or any of its Restricted Subsidiaries that is a Guarantor.

(b)    The restrictions in Section 4.08(a) hereof will not apply to encumbrances or restrictions existing under or by reason of:

(1)    agreements as in effect on the Issue Date, including the Existing 5.875% Indenture, the Existing 6.125% Indenture and the Credit Agreement and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements or the Indebtedness to which they relate; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend, distribution and other payment restrictions than those contained in those agreements on the Issue Date or, in the case of the Credit Agreement, on the Escrow Release Date (if applicable);

(2)    this Indenture, the Notes and the Note Guarantees;

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(3)    agreements governing other Indebtedness permitted to be incurred under the provisions of the covenant described above under Section 4.09 and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the restrictions therein are not materially more restrictive, taken as a whole, than those contained in this Indenture, the Notes and the Note Guarantees;

(4)    applicable law, rule, regulation or order;

(5)    any instrument governing Indebtedness or Equity Interest of a Person acquired by TLLP or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Equity Interest was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred;

(6)    customary non-assignment provisions in contracts, agreements, licenses and leases entered into in the ordinary course of business;

(7)    purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (3) of Section 4.08(a) hereof;

(8)    any agreement for the sale or other disposition of a Restricted Subsidiary or assets of such Restricted Subsidiary that contains any such restrictions on that Restricted Subsidiary pending such sale or other disposition;

(9)    Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;

(10)    Liens permitted to be incurred under the provisions of Section 4.12 hereof that limit the right of the debtor to dispose of the assets subject to such Liens;

(11)    provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements;

(12)    any agreement or instrument relating to any property or assets acquired after the Issue Date, so long as such encumbrance or restriction relates only to the property or assets so acquired and is not and was not created in anticipation of such acquisitions;

(13)    other Indebtedness, Disqualified Equity or preferred securities permitted to be incurred subsequent to the Issue Date pursuant to Section 4.09 hereof and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that, in the good faith judgment of TLLP determined at the time of the incurrence of such Indebtedness, Disqualified Equity or preferred securities, the encumbrances and restrictions contained therein will not materially impair TLLP’s ability to make payments under the Notes when due;

(14)    encumbrances or restrictions contained in, or in respect of, Hedging Obligations permitted under this Indenture from time to time;

(15)    restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and

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(16)    secured Indebtedness that limits the right of the debtor to dispose of the assets securing such Indebtedness and any related encumbrance or restriction contained in security agreements, mortgages or purchase money agreements.

Section 4.09    Incurrence of Indebtedness and Issuance of Disqualified Equity.

(a)    TLLP will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, “incur”)any Indebtedness (including Acquired Debt), and TLLP will not issue any Disqualified Equity and will not permit any of its Restricted Subsidiaries to issue any Disqualified Equity; provided, however,that TLLP and any Restricted Subsidiary may incur Indebtedness (including Acquired Debt) and TLLP and any Restricted Subsidiary may issue Disqualified Equity, if the Fixed ChargeCoverage Ratio for TLLP’s Reference Period immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Equity is issued, as the case may be, would have been at least 2.00 to 1.00, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Equity had been issued, as the case may be, at the beginning of such Reference Period.

(b)    The provisions of Section 4.09(a) hereof will not prohibit the incurrence of any of the following items of Indebtedness (collectively, “Permitted Debt”):

(1)    the incurrence by TLLP and any Restricted Subsidiary of Indebtedness pursuant to one or more Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of TLLP and its Restricted Subsidiaries thereunder) not to exceed the greater of (a) $900.0 million and (b) the sum of $600.0 million and 20.0% of Consolidated Net Tangible Assets (determined as of the date of incurrence and after giving effect to the use of proceeds therefrom);

(2)    the incurrence by TLLP, Finance Corp. and its Restricted Subsidiaries of Existing Indebtedness;

(3)    the incurrence by TLLP, Finance Corp. and the Guarantors of Indebtedness represented by the Notes and the related Note Guarantees to be issued on the Issue Date and the Exchange Notes and the related Note Guarantees to be issued pursuant to the Registration Rights Agreement in exchange therefor;

(4)    the incurrence by TLLP or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, Synthetic Lease Obligations, mortgage financings or purchase money obligations (including any Acquired Debt), in each case, incurred in connection with the purchase of, or for the purpose of financing all or any part of the purchase price or cost of construction, improvement or development of, property, plant or equipment used or useful in the business of TLLP or any of its Restricted Subsidiaries and related financing costs, and Attributable Debt in respect of sale and leaseback transactions, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (4), at any time outstanding not to exceed the greater of (a) $200.0 million and (b) 5.0% of TLLP’s Consolidated Net Tangible Assets (determined as of the date of incurrence and after giving effect to the use of proceeds therefrom);

(5)    the incurrence by TLLP or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace any Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under Section 4.09(a) hereof or clause (2), (3), (12) or (13) of this Section 4.09(b) or this clause (5);

(6)    the incurrence by TLLP or any of its Restricted Subsidiaries of intercompany Indebtedness between or among TLLP and any of its Restricted Subsidiaries; provided, however,that:

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(A)    if TLLP or any Guarantor is the obligor on such Indebtedness and the payee is not TLLP or a Guarantor, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all Obligations then due with respect to the Notes, in the case of TLLP, or the Note Guarantee, in the case of a Guarantor; and

(B)    (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than TLLP or a Restricted Subsidiary of TLLP and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either TLLP or a Restricted Subsidiary of TLLP, will be deemed, in each case, to constitute an incurrence of such Indebtedness by TLLP or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6);

(7)    the incurrence by TLLP or any of its Restricted Subsidiaries of Hedging Obligations;

(8)    the guarantee by TLLP or any of the Guarantors of Indebtedness of TLLP or a Restricted Subsidiary of TLLP or the Indebtedness incurred by Joint Ventures constituting Permitted Investments; provided that if the Indebtedness being guaranteed is subordinated to or pari passu with the Notes or Note Guarantees, then the Guarantee shall be subordinated or pari passu,as applicable, to the same extent as the Indebtedness guaranteed;

(9)    the incurrence by TLLP or any of its Restricted Subsidiaries of Indebtedness in respect of workers’ compensation or similar liabilities, health or other types of social security benefits, unemployment or other insurance or self-insurance obligations, insurance contracts, reclamation, statutory obligations, bankers’ acceptances, and bid, performance, advance, payment, deposit, appeal and surety bonds in the ordinary course of business, including guarantees and obligations respecting standby letters of credit supporting such obligations, to the extent not drawn (in each case other than an obligation for money borrowed) and replacements of any of the foregoing;

(10)    the incurrence by TLLP or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five Business Days;

(11)    the issuance by TLLP or any of its Restricted Subsidiaries of Disqualified Equity to TLLP or any of its Restricted Subsidiaries, as the case may be; provided, however,that:

(a)    any subsequent issuance or transfer of Equity Interests of a Restricted Subsidiary that results in any such Disqualified Equity being held, directly or indirectly, by a Person other than TLLP or a Restricted Subsidiary of TLLP; and

(b)    any sale or other transfer of any such Disqualified Equity to a Person that is not either TLLP or a Restricted Subsidiary of TLLP,

will be deemed, in each case, to constitute an issuance of such Disqualified Equity by TLLP or such Restricted Subsidiary that was not permitted by this clause;

(12)    the incurrence by TLLP or any of its Restricted Subsidiaries of Permitted Acquisition Indebtedness;

(13)    the incurrence by TLLP of Indebtedness in the ordinary course of business under documentary letters of credit, which are to be repaid in full not more than one year after the date on which such Indebtedness was originally incurred to finance the purchase of goods by TLLP or any of its Restricted Subsidiaries;

(14)    the incurrence of Indebtedness arising from agreements with TLLP or any of its Restricted Subsidiaries providing for indemnification, adjustment of purchase price, earn-outs, or similar obliga

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tions, in each case, incurred or assumed in connection with the disposition or acquisition of any business, assets or a Subsidiary in accordance with the terms of this Indenture, other than guarantees of Indebtedness incurred or assumed by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; and

(15)    the incurrence by TLLP or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount at any time outstanding, not to exceed the greater of (a) $200.0 million and (b) 5.0% of Consolidated Net Tangible Assets (determined as of the date of incurrence and after giving effect to the use of proceeds therefrom).

TLLP will not incur, and will not permit any Guarantor to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of TLLP or such Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the Notes and the applicable Note Guarantee on substantially identical terms; provided, however,that no Indebtedness shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of TLLP solely by virtue of being unsecured or by virtue of being secured on a first or junior Lien basis.

For purposes of determining compliance with this Section 4.09, in the event that an item of proposed Indebtedness (including Acquired Debt) meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (15) above, or is entitled to be incurred pursuant to Section 4.09(a) hereof, TLLP will be permitted to classify all or a portion of such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section 4.09; provided that Indebtedness under the Credit Agreement outstanding on each of the Issue Date and the Escrow Release Date will initially be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of the definition of “Permitted Debt.”

The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, the reclassification of preferred stock as Indebtedness due to a change in accounting principles, and the payment of dividends on Disqualified Equity in the form of additional shares of the same class of Disqualified Equity will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Equity for purposes of this Section 4.09. Notwithstanding any other provision of this Section 4.09, the maximum amount of Indebtedness that TLLP or any Restricted Subsidiary may incur pursuant to this Section 4.09 shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.

The amount of any Indebtedness outstanding as of any date will be:

(1)    the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;

(2)    the principal amount of the Indebtedness, in the case of any other Indebtedness; and

(3)    in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:

(A)    the Fair Market Value of such assets at the date of determination; and

(B)    the amount of the Indebtedness of the other Person.

For purposes of determining compliance with any U.S. dollar-denominated restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred, in the case of term debt, or first committed, in the case of revolving credit debt; provided that if such Indebtedness is incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in

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effect on the date of such refinancing, such U.S. dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed (i) the principal amount of such Indebtedness being refinanced plus (ii) the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing. The principal amount of any Indebtedness incurred to refinance other Indebtedness, if incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated that is in effect on the date of such refinancing.

Section 4.10    Asset Sales.

TLLP will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:

(1)    TLLP (or the Restricted Subsidiary, as the case may be) receives consideration at least equal to the Fair Market Value (such Fair Market Value to be determined on the date of contractually agreeing to such Asset Sale and which shall give effect to the assumption by another Person of any liabilities as provided for in clause (A) of the following paragraph) of the assets or Equity Interests issued or sold or otherwise disposed of; and

(2)    at least 75% of the consideration received in the Asset Sale by TLLP or such Restricted Subsidiary is in the form of cash or Cash Equivalents.

For purposes of the preceding clause (2) of this provision, each of the following shall be deemed to be cash:

(A)    any liabilities, as shown on TLLP’s most recent consolidated balance sheet, of TLLP or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Note Guarantees) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases TLLP or such Restricted Subsidiary from further liability;

(B)    any securities, notes or other obligations received by TLLP or any such Restricted Subsidiary in connection with such transaction that within 90 days after the Asset Sale (subject to ordinary settlement periods) are converted by TLLP or such Restricted Subsidiary into cash or Cash Equivalents, to the extent of the cash or Cash Equivalents received in that conversion;

(C)    any stock or assets of the kind referred to in clauses (2) or (4) of the next succeeding paragraph received by TLLP or any such Restricted Subsidiary in connection with such transaction; and

(D)    accounts receivable of a business retained by TLLP or any of its Restricted Subsidiaries, as the case may be, following the sale of such business, provided such accounts receivable (x) are not past due more than 60 days and (y) do not have a payment date greater than 90 days from the date of the invoices creating such accounts receivable;

provided that any Asset Sale pursuant to a condemnation, appropriation or other similar taking, including by deed in lieu of condemnation, or pursuant to the foreclosure or other enforcement of a Lien incurred not in violation of Section 4.12 or exercise by the related lienholder of rights with respect thereto, including by deed or assignment in lieu of foreclosure, shall not be required to satisfy the conditions set forth in clauses (1) and (2) of this paragraph.

Within 365 days after the receipt of any Net Proceeds from an Asset Sale, TLLP (or any Restricted Subsidiary) may apply such Net Proceeds at its option to any combination of the following:

(1)    to prepay, repay, redeem or repurchase Senior Indebtedness of TLLP and/or its Restricted Subsidiaries;

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(2)    to acquire a controlling interest in another business or all or substantially all of the assets of, or any Capital Stock or operating line of, another business, in each case engaged in a Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary of TLLP;

(3)    to make capital expenditures; or

(4)    to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business;

provided that, in the case of clauses (2), (3) and (4) above, a binding commitment shall be treated as a permitted application of the Net Proceeds from the date of such commitment so long as TLLP (or the applicable Restricted Subsidiary, as the case may be) enters into such commitment with the good faith expectation that such Net Proceeds will be applied to satisfy such commitment within 180 days of such commitment (an “Acceptable Commitment”); and such Net Proceeds are actually applied in such manner within the later of 365 days from the consummation of the Asset Sale and 180 days from the date of the Acceptable Commitment, and in the event any Acceptable Commitment is later cancelled or terminated for any reason before the Net Proceeds are applied in connection therewith, TLLP (or the applicable Restricted Subsidiary, as the case may be) enters into another Acceptable Commitment (a “Second Commitment”) within 180 days of such cancellation or termination and such Net Proceeds are actually applied in such manner within 180 days from the date of the Second Commitment, it being understood that if a Second Commitment is later cancelled or terminated for any reason before such Net Proceeds are applied then such Net Proceeds shall constitute Excess Proceeds.

Pending the final application of any Net Proceeds, TLLP or the applicable Restricted Subsidiary may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by this Indenture.

Any Net Proceeds from Asset Sales that are not applied or invested as provided in the second paragraph of this Section 4.10 will constitute “Excess Proceeds.”Within five days after the date on which the aggregate amount of Excess Proceeds exceeds $50.0 million (or, at the Issuers’ option, any earlier date), the Issuers will make an Asset Sale Offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount (or accreted value) thereof plus accrued and unpaid interest and Special Interest, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, TLLP or any Restricted Subsidiary may use those Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and the representative of such other pari passu Indebtedness will select such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.

TLLP will comply with the requirements of Rule 14e-l under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of Section 3.09 hereof or this Section 4.10, TLLP will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under Section 3.09 hereof or this Section 4.10 by virtue of such compliance.

Section 4.11    Transactions with Affiliates.

(a)    TLLP will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of TLLP (each, an “Affiliate Transaction”) if such Affiliate Transaction involves aggregate consideration in excess of $5.0 million,unless:

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(1)    the Affiliate Transaction is on terms that are no less favorable to TLLP or the relevant Restricted Subsidiary than those that could have been obtained in a comparable transaction by TLLP or such Restricted Subsidiary with an unrelated Person or, if no comparable transaction is available with which to compare such Affiliate Transaction, such Affiliate Transaction is otherwise fair to TLLP or the relevant Restricted Subsidiary from a financial point of view; and

(2)    TLLP delivers to the Trustee with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $75.0 million, a resolution of the Board of Directors of the General Partner set forth in an Officers’ Certificate certifying that such Affiliate Transaction complies with clause (1) of this Section 4.11(a) and that such Affiliate Transaction has been approved by either the Conflicts Committee of the Board of Directors of the General Partner (so long as the members of the Conflicts Committee approving the Affiliate Transaction are disinterested) or a majority of the disinterested members of the Board of Directors of the General Partner.

(b)    The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of Section 4.11(a) hereof:

(1)    reasonable fees and compensation paid to or for the benefit of any employee, officer or director of TLLP, any of its Restricted Subsidiaries or the General Partner, and any employment agreement, customary benefit program or arrangement (including vacation plans, health and life insurance plans, deferred compensation plans and retirement or savings and similar plans), equity award, equity option or equity appreciation agreement or plan, officer or director indemnification agreement or any similar arrangement entered into by TLLP, any of its Restricted Subsidiaries or the General Partner existing on the Issue Date, or entered into thereafter in the ordinary course of business, and any indemnities or other transactions permitted or required by bylaw, statutory provisions or any of the foregoing agreements, plans or arrangements;

(2)    transactions between or among TLLP and/or its Restricted Subsidiaries;

(3)    transactions with a Person (other than an Unrestricted Subsidiary of TLLP) that is an Affiliate of TLLP solely because TLLP owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person;

(4)    any issuance of Equity Interests (other than Disqualified Equity) of TLLP to Affiliates of TLLP;

(5)    Restricted Payments or Permitted Investments that do not violate Section 4.07 hereof;

(6)    customary compensation, indemnification and other benefits made available to officers, directors or employees of TLLP, a Restricted Subsidiary of TLLP or the General Partner, including reimbursement or advancement of out-of-pocket expenses and provisions of officers’ and directors’ liability insurance;

(7)    in the case of gathering, transportation, marketing, hedging, production handling, operating, construction, terminalling, processing, fractionation, storage, lease, platform use, or other operational contracts, any such contracts that are entered into in the ordinary course of business on terms substantially similar to those contained in similar contracts entered into by TLLP or any Restricted Subsidiary and third parties, or if neither TLLP nor any Restricted Subsidiary has entered into a similar contract with a third party, that the terms are no less favorable than those available from third parties on an arm’s-length basis, as determined by the Board of Directors of the General Partner;

(8)    loans or advances to employees in the ordinary course of business not to exceed $5.0 million in the aggregate at any one time outstanding;

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(9)    the existence of, or the performance by TLLP or any Restricted Subsidiary of its obligations under the terms of, any written agreement in effect on the Issue Date, as such agreement may be amended, modified or supplemented from time to time and any similar agreements which it may enter into thereafter; provided, however,that the existence of, or the performance by TLLP or any Restricted Subsidiary of its obligations under, any future amendment to such agreements or under any such similar agreements shall only be permitted by this clause (9) to the extent that the terms of any such amendment or new agreement, taken as a whole, are not less favorable to the Holders in any material respect as compared to the terms of the agreement in effect on the Issue Date;

(10)    any transaction in which TLLP or any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee a letter from an Independent Financial Advisor stating that such transaction is fair to TLLP or such Restricted Subsidiary from a financial point of view or that such transaction meets the requirements of clause (1) of Section 4.11(a);

(11)    guarantees of performance by TLLP or any of its Restricted Subsidiaries in the ordinary course of business, except for guarantees of Indebtedness in respect of borrowed money;

(12)    (A) guarantees by TLLP or any of its Restricted Subsidiaries of performance of obligations of Unrestricted Subsidiaries or Joint Ventures in the ordinary course of business, except for guarantees of Indebtedness in respect of borrowed money, and (B) pledges by TLLP or any Restricted Subsidiary of Capital Stock in Unrestricted Subsidiaries or Joint Ventures for the benefit of lenders or other creditors of Unrestricted Subsidiaries or Joint Ventures as contemplated by clause (13) of the definition of “Permitted Liens” with respect to clause (B) so long as any such transaction, if involving aggregate consideration in excess of $75.0 million, has been approved by a majority of the disinterested members of the Board of Directors of the General Partner;

(13)    any transactions between TLLP or any Restricted Subsidiary and any Person, a director of which is also a director of TLLP or a Restricted Subsidiary; provided that such director abstains from voting as a director of TLLP or the Restricted Subsidiary, as applicable, in connection with the approval of the transaction; and

(14)    any purchase or other acquisition or related transaction pursuant to the Omnibus Agreement.

Section 4.12    Liens.

TLLP will not and will not permit any Guarantor to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) securing Indebtedness upon any of their property or assets, now owned or hereafter acquired, unless:

(1)    in the case of Liens securing Subordinated Obligations of TLLP or a Guarantor, the Notes or Note Guarantees, as applicable, are contemporaneously secured by a Lien on such property or assets on a senior basis to the Subordinated Obligations so secured with the same priority that the Notes or Note Guarantees, as applicable, have to such Subordinated Obligations until such time as such Subordinated Obligations are no longer so secured by a Lien; and

(2)    in the case of Liens securing Senior Indebtedness of TLLP or a Guarantor, the Notes or Note Guarantees, as applicable, are contemporaneously secured by a Lien on such property or assets on an equal and ratable basis with the Senior Indebtedness so secured until such time as such Senior Indebtedness is no longer so secured by a Lien.

Any Lien on property or assets of TLLP or any Guarantor created for the benefit of Holders of the Notes pursuant to the preceding paragraph shall provide by its terms that such Lien shall be automatically and unconditionally released and discharged at such time as there are no other Liens of any kind (other than Permitted Liens) on such property or assets securing Indebtedness.

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Section 4.13    Limitations on Finance Corp. Activities.

Finance Corp. shall not incur Indebtedness unless (1) TLLP is a borrower, issuer, co-issuer or guarantor of such Indebtedness or (2) the net proceeds of such Indebtedness are loaned to TLLP, used to acquire outstanding debt securities issued by TLLP or used to repay Indebtedness of TLLP as permitted under Section 4.09 hereof. Finance Corp. may not engage in any business not related directly or indirectly to obtaining money or arranging financing for TLLP or its Restricted Subsidiaries.

Section 4.14    Corporate Existence.

Subject to Article 5 hereof, TLLP shall do or cause to be done all things necessary to preserve and keep in full force and effect:

(1)    its limited partnership existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of TLLP or any such Subsidiary; and

(2)    the rights (charter and statutory), licenses and franchises of TLLP and its Subsidiaries; provided, however,that TLLP shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of TLLP and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes.

Section 4.15    Offer to Repurchase Upon Change of ControlTriggering Event.

(a)    Upon the occurrence of a Change of Control Triggering Event with respect to a series of Notes, the Issuers will make an offer (a “Change of Control Offer”)to each Holder of such series of Notes to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000 in excess thereof) of that Holder’s Notes at a purchase price in cash equal to 101% of the aggregate principal amount of Notes repurchased, plus accrued and unpaid interest and Special Interest, if any, on the Notes repurchased to, but excluding, the date of purchase, subject to the rights of Holders of Notes on the relevant record date to receive interest due on the relevant Interest Payment Date (the “Change of Control Payment”). Within 30 days following any Change of Control Triggering Event, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control Triggering Event and stating:

(1)    that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes of the applicable series validly tendered will be accepted for payment;

(2)    the purchase price and the purchase date, which shall be no earlier than 20 Business Days and no later than 60 days from the date such notice is mailed (the“Change of Control Payment Date”);

(3)    that any Note of the applicable series not tendered will continue to accrue interest;

(4)    that, unless the Issuers Default in the payment of the Change of Control Payment, all Notes of the applicable series accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date;

(5)    that Holders electing to have any Notes of the applicable series purchased pursuant to a Change of Control Offer will be required to surrender such Notes, with the form entitled “Option of Holder to Elect Purchase” attached to such Notes completed, or transfer by book-entry transfer, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;

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(6)    that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes of the applicable series delivered for purchase, and a statement that such Holder is withdrawing his election to have such Notes purchased; and

(7)    that Holders whose Notes of the applicable series are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $2,000 in principal amount or an integral multiple of $1,000 in excess thereof.

The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control Triggering Event. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Indenture, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section 4.15 by virtue of such compliance.

(b)    On the Change of Control Payment Date, the Issuers will, to the extent lawful:

(1)    accept for payment all Notes of the applicable series or portions of Notes of the applicable series properly tendered pursuant to the Change of Control Offer;

(2)    deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes of the applicable series or portions of such Notes properly tendered pursuant to the Change of Control Offer; and

(3)    deliver or cause to be delivered to the Trustee the Notes accepted for purchase together with an Officers’ Certificate stating the aggregate principal amount of Notes of the applicable series or portions of such Notes being purchased by the Issuers.

The Paying Agent will promptly mail to each Holder properly tendered the Change of Control Payment for such Notes (or, if all the Notes of such series are then in global form, it will make such payment through the facilities of DTC), and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided,that eachnew Note will be in a principal amount of $2,000 or an integral multiple of $ 1,000 in excess thereof. The Issuers will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.

(c)    Notwithstanding anything to the contrary in this Section 4.15, the Issuers will not be required to make a Change of Control Offer upon a Change of Control Triggering Event if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.15 and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer or (2) notice of redemption has been given pursuant to Section 3.07 hereof, unless and until there is a default in payment of the applicable redemption price.

A Change of Control Offer may be made with respect to the Notes in advance of a Change of Control Triggering Event, and conditioned upon the occurrence of such Change of Control Triggering Event, if a definitive agreement for the Change of Control Triggering Event is in place at the time of making the Change of Control Offer.

With respect to a series of Notes, in the event that Holders of not less than 90% of the aggregate principal amount of the outstanding Notes of such series tender and do not withdraw such Notes in a Change of Control Offer and TLLP (or the third party making the Change of Control Offer as provided above) purchases all of the Notes validly tendered and not withdrawn by such Holders, TLLP or such third party shall have the right, upon not less than 15 nor more than 60 days’ prior notice, given not more than 30 days following the purchase pursuant to the Change

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of Control Offer described above, to redeem all of the Notes that remain outstanding following such purchase at a redemption price equal to 101% of the aggregate principal amount of such Notes, plus accrued and unpaid interest on the Notes that remain outstanding to the date of redemption (subject to the right of Holders of record on the relevant record date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date).

Section 4.16    Additional Guarantors.

If, after the Issue Date, any Domestic Subsidiary (other than Finance Corp.) of TLLP that is not already a Guarantor guarantees any other Indebtedness of either of the Issuers under a Credit Facility in an aggregate principal amount in excess of $50.0 million, then that Subsidiary will become a Guarantor by executing and delivering a supplemental indenture to the Trustee within 30 Business Days of the date on which it guaranteed or incurred such Indebtedness; provided that the preceding shall not apply to Subsidiaries of TLLP that have been properly designated as Unrestricted Subsidiaries in accordance with this Indenture for so long as they continue to constitute Unrestricted Subsidiaries. Notwithstanding the preceding, any Guarantee of a Restricted Subsidiary that was incurred pursuant to this Section 4.16 will be released in accordance with Section 10.05 hereof.

Section 4.17    Designation of Restricted and Unrestricted Subsidiaries.

The Board of Directors of the General Partner may designate any Subsidiary of TLLP to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by TLLP and its Restricted Subsidiaries in the Subsidiary designated as an Unrestricted Subsidiary will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under Section 4.07 hereof or under one or more clauses of the definition of “Permitted Investments”, as determined by TLLP; provided that any designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an “Unrestricted Subsidiary”.

Any designation of a Subsidiary of TLLP as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of a resolution of the Board of Directors of the General Partner giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of TLLP as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 hereof, TLLP will be in default of such covenant. The Board of Directors of the General Partner may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of TLLP; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of TLLP of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted under Section 4.09 hereof, calculated on a pro forma basis and (2) no Default or Event of Default would be in existence following such designation.

Section 4.18    Covenant Termination.

If at any time (a) the Notes are assigned an Investment Grade Rating from both Rating Agencies, (b) no Default or Event of Default has occurred and is continuing under this Indenture and (c) the Issuers have delivered to the Trustee an Officers’ Certificate certifying as to matters specified in clauses (a) and (b) of this sentence as of the date of such certificate (the “Termination Date”), TLLP and its Restricted Subsidiaries will no longer be subject to the provisions of Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.16 and 5.01(a)(4) of this Indenture.

No Subsidiary shall be designated as an Unrestricted Subsidiary after the Termination Date.

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ARTICLE 5

SUCCESSORS

Section 5.01    Merger, Consolidation or Sale of Assets.

(a)    Neither of the Issuers may, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not such Issuer is the surviving entity) or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of the Issuers and the Restricted Subsidiaries, taken as a whole, in one or more related transactions, to another Person, unless:

(1)    either:

(A)    such Issuer is the surviving entity; or

(B)    the Person formed by or surviving any such consolidation or merger (if other than such Issuer) or to which such sale, assignment, transfer, lease, conveyance or other disposition has been made is a Person organized or existing under the laws of the United States, any state of the United States or the District of Columbia; provided, however,that Finance Corp. may not consolidate or merge with or into any Person other than a corporation satisfying such requirement so long as TLLP (or any successor entity) is not a corporation;

(2)    the Person formed by or surviving any such consolidation or merger (if other than such Issuer) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition has been made assumes all the obligations of such Issuer under the Notes, this Indenture and, if then in effect, the Registration Rights Agreement, pursuant to agreements reasonably satisfactory to the Trustee;

(3)    immediately after such transaction, no Default or Event of Default exists; and

(4)    in the case of a transaction involving TLLP and not Finance Corp., TLLP or the Person formed by or surviving any such consolidation or merger (if other than TLLP), or to which such sale, assignment, transfer, lease, conveyance or other disposition has been made, will:

(A)    on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable Reference Period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a); or

(B)    have a Fixed Charge Coverage Ratio, on the date of such transaction and after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable Reference Period, not less than the Fixed Charge Coverage Ratio of TLLP immediately prior to such transaction; and

(5)    such Issuer has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger or disposition and such supplemental indenture (if any) comply with this Indenture.

(b)    This Section 5.01 will not apply to any sale, assignment, transfer, conveyance, lease or other disposition of assets between or among TLLP and its Restricted Subsidiaries, provided further that Sections 5.01(a)(3) and (4) will not apply to any merger or consolidation of either Issuer (A) with or into one of TLLP’s Restricted Subsidiaries for any purpose or (B) with or into an Affiliate solely for the purpose of reincorporating such Issuer in another jurisdiction.

(c)    Notwithstanding Section 5.01(a), TLLP is permitted to reorganize as any other form of entity in accordance with the procedures established in this Indenture; provided that:

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(1)    the reorganization involves the conversion (by merger, sale, contribution or exchange of assets or otherwise) of TLLP into a form of entity other than a limited partnership formed under Delaware law;

(2)    the entity so formed by or resulting from such reorganization is an entity organized or existing under the laws of the United States, any state thereof or the District of Columbia;

(3)    the entity so formed by or resulting from such reorganization assumes all the Obligations of TLLP under the Notes, this Indenture and, if then in effect, the Registration Rights Agreement, pursuant to agreements reasonably satisfactory to the Trustee;

(4)    immediately after such reorganization no Default or Event of Default exists; and

(5)    such reorganization is not adverse to the Holders of the Notes (for purposes of this clause (5) it is stipulated that such reorganization shall not be considered adverse to the Holders of the Notes solely because the successor or survivor of such reorganization (a) is subject to federal or state income taxation as an entity or (b) is considered to be an “includible corporation” of an affiliated group of corporations within the meaning of Section 1504(b) of the Code, or any similar state or local law).

(d)    A Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the resulting, transferee or surviving Person), another Person, other than TLLP or another Guarantor, unless:

(1)    immediately after giving effect to such transaction, no Default or Event of Default exists; and

(2)    either:

(A)    the Person acquiring the assets in any such sale or disposition or the Person formed by or surviving any such consolidation or merger(if other than TLLP or another Guarantor), assumes all obligations of that Guarantor under this Indenture and its Note Guarantee and, if then in effect, the Registration Rights Agreement, pursuant to an agreement reasonably satisfactory to the Trustee; or

(B)    the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.10 hereof.

Section 5.02    Successor Person Substituted.

Upon any transaction or series of related transactions that are of the type described in, and are effected in accordance with, Section 5.01(a) hereof, the surviving Person (if other than such Issuer) shall succeed to, and be substituted for, and may exercise every right and power of, such Issuer under Indenture and the Notes with the same effect as if such surviving Person had been named as such Issuer herein, and when a surviving Person duly assumes all of the obligations and covenants of such Issuer pursuant to this Indenture and the Notes, the predecessor Person shall be relieved of all such obligations.

ARTICLE 6

DEFAULTS AND REMEDIES

Section 6.01    Events of Default.

Each of the following is an “Event of Default” with respect to a particular series of Notes:

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(1)    default for 30 days in the payment when due of interest and Special Interest, if any, with respect to such series of Notes;

(2)    default in the payment when due (at maturity, upon redemption (including Special Mandatory Redemption) or otherwise) of the principal of, or premium, if any, on, such series of Notes;

(3)    failure by TLLP or any of its Restricted Subsidiaries for 30 days after written notice to TLLP by the Trustee or Holders of at least 25% in aggregate principal amount of such series of Notes then outstanding voting as a single class to make a Change of Control Offer within the time periods set forth, or consummate a purchase of such series of Notes when required pursuant to the terms described, in Section 4.15 or comply with the provisions of Section 5.01 hereof;

(4)    failure by TLLP for 120 days after written notice to TLLP by the Trustee or the Holders of at least 25% in aggregate principal amount of such series of Notes then-outstanding voting as a single class to comply with Section 4.03;

(5)    failure by TLLP or any of its Restricted Subsidiaries for 60 days after written notice to TLLP by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then-outstanding voting as a single class to comply with any of the other agreements herein; or

(6)    default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by TLLP or any of its Restricted Subsidiaries (or the payment of which is guaranteed by TLLP or any of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists, or is created after the Issue Date, if that default:

(A)    is caused by a failure to pay principal on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness (a “Payment Default”);or

(B)    results in the acceleration of such Indebtedness prior to its express maturity,

and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates, without duplication, $100.0 million or more;

(7)    failure by an Issuer or any of TLLP’s Restricted Subsidiaries that is a Significant Subsidiary to pay final judgments entered by a court or courts of competent jurisdiction aggregating in excess of $100.0 million (excluding amounts covered by insurance policies issued by reputable and credit worthy insurance companies for which coverage has not been disclaimed), which judgments are not paid, discharged or stayed for a period of 60 days;

(8)    an Issuer or any of TLLP’s Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of TLLP that, taken together, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law:

(A)    commences a voluntary case,

(B)    consents to the entry of an order for relief against it in an involuntary case,

(C)    consents to the appointment of a custodian of it or for all or substantially all of its property,

(D)    makes a general assignment for the benefit of its creditors, or

(E)    generally is not paying its debts as they become due;

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(9)    a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

(A)    is for relief against an Issuer or any of TLLP’s Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of the TLLP that, taken together, would constitute a Significant Subsidiary in an involuntary case;

(B)    appoints a custodian of an Issuer or any of TLLP’s Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of TLLP that, taken together, would constitute a Significant Subsidiary or for all or substantially all of the property of an Issuer or any of TLLP’s Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of TLLP that, taken together, would constitute a Significant Subsidiary; or

(C)    orders the liquidation of an Issuer or any of TLLP’s Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of TLLP that, taken together, would constitute a Significant Subsidiary;

and the order or decree remains unstayed and in effect for 60 consecutive days; and

(10)    except as permitted by this Indenture, any Note Guarantee from a Guarantor that is a Significant Subsidiary is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or any Guarantor that is a Significant Subsidiary, or any Person acting on behalf of any Guarantor that is a Significant Subsidiary, denies or disaffirms its Obligations under its Note Guarantee.

In the case of an Event of Default specified in clause (6) of the first paragraph of this Section 6.01 and all consequences thereof (excluding, however, any resulting payment default) will be annulled, waived and rescinded with respect to the Notes, automatically and without any action by the Trustee or the Holders of such Notes, if within 60 days after such Event of Default first arose TLLP delivers an Officers’ Certificate to the Trustee stating that (a) the Indebtedness or guarantee that is the basis for such Event of Default has been discharged, (b) the Holders of the Indebtedness have rescinded or waived the acceleration, notice or action (as the case may be) giving rise to such Event of Default or (c) the default that is the basis for such Event of Default has been cured.

Section 6.02    Acceleration.

In the case of an Event of Default specified in clause (8) or (9) of Section 6.01 hereof, with respect to Finance Corp., TLLP or any Restricted Subsidiary of TLLP that is a Significant Subsidiary or any group of Restricted Subsidiaries of TLLP that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default with respect to a particular series of Notes occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then-outstanding Notes of such series may declare all the Notes of such series to be due and payable immediately.

Upon any such declaration, the Notes of such series shall become due and payable immediately.

The Holders of not less than a majority in aggregate principal amount of the then-outstanding Notes of a particular series by notice to the Trustee may, on behalf of the Holders of all of the Notes of such series, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest, and Special Interest, if any, or premium, if any, on, or the principal of, the Notes of such series.

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Section 6.03    Other Remedies.

If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium and interest and Special Interest, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture.

The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.

Section 6.04    Waiver of Past Defaults.

Holders of not less than a majority in aggregate principal amount of the then-outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium or interest and Special Interest, if any, on, the Notes (including in connection with an offer to purchase); provided, however,that the Holders of at least a majority in aggregate principal amount of the then-outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.

Section 6.05    Control by Majority.

Holders of at least a majority in aggregate principal amount of the then-outstanding Notes of such series may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability.

Section 6.06    Limitation on Suits.

A Holder may pursue a remedy with respect to this Indenture or the Notes only if:

(1)    such Holder gives to the Trustee written notice that an Event of Default is continuing;

(2)    Holders of at least 25% in aggregate principal amount of the then-outstanding Notes of such series make a written request to the Trustee to pursue the remedy;

(3)    such Holder or Holders offer and, if requested, provide to the Trustee reasonable security or indemnity reasonably satisfactory to the Trustee against any loss, liability or expense;

(4)    the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and

(5)    during such 60-day period, Holders of at least a majority in aggregate principal amount of the then-outstanding Notes of such series do not give the Trustee a direction inconsistent with such request.

A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note.

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Section 6.07    Rights of Holders of Notes to Receive Payment.

Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receivepayment of principal, premium and interest and Special Interest, if any, on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respectivedates, shall not be impaired or affected without the consent of such Holder.

Section 6.08    Collection Suit by Trustee.

If an Event of Default specified in Section 6.01(1) or (2) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trusteeof an express trust against the Issuers for the whole amount of principal of, premium and interest and Special Interest, if any, remaining unpaid on, the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

Section 6.09    Trustee May File Proofs of Claim.

The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Issuers (or any other obligor upon the Notes), their creditors or their property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

Section 6.10    Priorities.

If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order:

First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expenses and liabilities incurred, and all advances made, by the Trustee and the Trustee’s costs and expenses of collection;

Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and interest and Special Interest, if any, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any, and interest and Special Interest, if any, respectively; and

Third: to the Issuers or to such party as a court of competent jurisdiction shall direct.

The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10.

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Section 6.11    Undertaking for Costs.

In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in aggregate principal amount of the then-outstanding Notes.

ARTICLE 7

TRUSTEE

Section 7.01    Duties of Trustee.

(a)    If an Event of Default with respect to a series of Notes has occurred and is continuing, the Trustee will exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.

(b)    Except during the continuance of an Event of Default:

(1)    the duties of the Trustee will be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee. To the extent of any conflict between the duties of the Trustee hereunder and under the TIA, the TIA shall control; and

(2)    in the absence of willful misconduct or bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee will examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).

()    The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:

(1)    this paragraph does not limit the effect of paragraph (b) of this Section 7.01;

(2)     the Trustee will not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and

(3)    the Trustee will not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof.

(d)    Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01.

(e)    No provision of this Indenture will require the Trustee to expend or risk its own funds or incur any liability. The Trustee will be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.

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(f)    The Trustee will not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuers. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

Section 7.02    Rights of Trustee.

(a)    The Trustee may conclusively rely upon any document (whether in its original or facsimile form) believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document.

(b)    Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate or an Opinion of Counsel or both. The Trustee will not be liable for any action it takes or omits to take in good faith in reliance on such Officers’ Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel will be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.

(c)    The Trustee may act through its attorneys and agents and will not be responsible for the misconduct or negligence of any agent appointed with due care.

(d)    The Trustee will not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.

(e)    Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Issuers will be sufficient if signed by an Officer of each of the Issuers.

(f)    The Trustee will be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee indemnity or security satisfactory to it against the losses, liabilities and expenses that might be incurred by it in compliance with such request or direction.

(g)    The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuers, personally or by agent or attorney at the sole cost of the Issuers and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.

(h)    The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture.

(i)    The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.

(j)    The Trustee may request that the Company deliver an Officers’ Certificate setting forth the names of individuals and/or titles of Officers authorized at such time to take specified actions pursuant to this Indenture, which Officers’ Certificate may be signed by any person authorized to sign an Officers’ Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded.

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Section 7.03    Individual Rights of Trustee.

The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuers or any Affiliate of the Issuers with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest (as defined in the TIA) it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee (if this Indenture has been qualified under the TIA) or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.

Section 7.04    Trustee’s Disclaimer.

TheTrustee will not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Issuers’ use of the proceeds from the Notes or any money paid to the Issuers or upon the Issuers’ direction under any provision of this Indenture, it will not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it will not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.

Section 7.05    Notice of Defaults.

If a Default or Event of Default occurs and is continuing and if it is actually known to a Responsible Officer of the Trustee, the Trustee will mail to Holders of Notes a notice of the Default or Event of Default within 90 days after the later of (a) the date of the Default or Event of Default shall have occurred and (b) the date such Responsible Officer first had such actual knowledge. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest and Special Interest, if any, on, any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes.

Section 7.06    Reports by Trustee to Holders of the Notes.

(a)    Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee will mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA § 313(a) (but if no event described in TIA § 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also will comply with TIA § 313(b)(2). The Trustee will also transmit by mail all reports as required by TIA § 313(c).

(b)    A copy of each report at the time of its mailing to the Holders of Notes will be mailed by the Trustee to the Issuers and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA § 313(d). The Issuers will promptly notify the Trustee when the Notes are listed on any stock exchange.

Section 7.07    Compensation and Indemnity.

(a)    The Issuers will pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder as such parties shall agree in writing from time to time. The Trustee’s compensation will not be limited by any law on compensation of a trustee of an express trust. The Issuers will reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses will include the reasonable compensation, disbursements and expenses of the Trustee’s agents and counsel.

(b)    The Issuers and the Guarantors will indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Issuers and the Guarantors (including this Section 7.07) and defending itself against any claim (whether asserted by the Issuers, the Guarantors, any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or

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duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee will notify the Issuers promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Issuers will not relieve the Issuers or any of the Guarantors of their obligations hereunder, except to the extent that the Issuers are materially prejudiced by such failure to promptly provide notice. The Issuers or such Guarantor will defend the claim and the Trustee will cooperate in the defense. The Trustee may have separate counsel and the Issuers will pay the reasonable fees and expenses of such counsel. Neither the Issuers nor any Guarantor need pay for any settlement made without its consent, which consent will not be unreasonably withheld.

(c)    The obligations of the Issuers and the Guarantors under this Section 7.07 will survive the satisfaction and discharge of this Indenture.

(d)    To secure the Issuers’ and the Guarantors’ payment obligations in this Section 7.07, the Trustee will have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien will survive the satisfaction and discharge of this Indenture.

(e)    When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(8) or (9) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.

(f)    The Trustee will comply with the provisions of TIA § 313(b)(2) to the extent applicable.

Section 7.08    Replacement of Trustee.

(a)    A resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon the successor Trustee’s acceptance of appointment as provided in this Section 7.08.

(b)    The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Issuers. The Holders of at least a majority in aggregate principal amount of the then-outstanding Notes may remove the Trustee by so notifying the Trustee and the Issuers in writing. The Issuers may remove the Trustee if:

(1)    the Trustee fails to comply with Section 7.10 hereof;

(2)    the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;

(3)    a custodian or public officer takes charge of the Trustee or its property; or

(4)    the Trustee becomes incapable of acting.

(c)    If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Issuers will promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of at least a majority in aggregate principal amount of the then-outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Issuers.

(d)    If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee (at the Issuers’ expense), the Issuers, or the Holders of at least 10% in aggregate principal amount of the then-outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.

(e)    If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10 hereof, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

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(f)    A successor Trustee will deliver a written acceptance of its appointment to the retiring Trustee and to the Issuers. Thereupon, the resignation or removal of the retiring Trustee will become effective, and the successor Trustee will have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee will mail a notice of its succession to Holders. The retiring Trustee will promptly transfer all property held by it as Trustee to the successor Trustee; provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Issuers’ obligations under Section 7.07 hereof will continue for the benefit of the retiring Trustee.

Section 7.09    Successor Trustee by Merger, etc.

If the Trustee consolidates, merges or converts into, or sells or otherwise transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act will be the successor Trustee. As soon as practicable, the successor Trustee shall mail a notice of its succession to the Issuers and the Holders of the Notes.

Section 7.10    Eligibility; Disqualification.

There will at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition.

This Indenture will always have a Trustee who satisfies the requirements of TIA § 310(a)(1), (2) and (5). The Trustee is subject to TIA § 310(b).

Section 7.11    Preferential Collection of Claims Against the Issuers.

The Trustee is subject to TIA § 311(a), excluding any creditor relationship listed in TIA § 311(b). A Trustee who has resigned or been removed shall be subject to TIA § 311(a) to the extent indicated therein.

ARTICLE 8

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01    Option to Effect Legal Defeasance or Covenant Defeasance.

The Issuers may at their option and at any time, elect to have eitherSection 8.02 or 8.03 hereof be applied to all outstanding Notes of a series and all obligations of the Guarantors with respect to the Note Guarantees of such series upon compliance with the conditions set forth below in this Article 8.

Section 8.02    Legal Defeasance and Discharge.

Upon the Issuers’ exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Issuers and each of the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes of a series (including the Note Guarantees) and all Events of Default cured on the date the conditions set forth below are satisfied (hereinafter, “Legal Defeasance”). For this purpose, Legal Defeasance means that the Issuers and the Guarantors will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes of a series (including the Note Guarantees of such series), which will thereafter be deemed to be “outstanding” only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all their other obligations under such series of Notes, the Note Guarantees of such series and this Indenture (and the Trustee, on demand of and at the expense of the Issuers, shall execute proper instruments acknowledging the same) and to have cured all then existing Events of Default, except for the following provisions which will survive until otherwise terminated or discharged hereunder:

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(1)    the rights of Holders of outstanding Notes of such series to receive payments in respect of the principal of, or interest and Special Interest, if any, or premium, if any, on, such Notes when such payments are due from the trust referred to in Section 8.04 hereof;

(2)    the Issuers’ obligations with respect to the Notes of such series concerning issuing temporary Notes of such series, registration of Notes of such series, mutilated, destroyed, lost or stolen Notes of such series and the maintenance of an office or agency for payment and money for security payments held in trust;

(3)    the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Issuers’ and the Guarantors’ Obligations in connection therewith; and

(4)    this Article 8.

Subject to compliance with this Article 8, the Issuers may exercise their option under this Section 8.02 notwithstanding the prior exercise of their option under Section 8.03 hereof.

Section 8.03    Covenant Defeasance.

Upon the Issuers’ exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Issuers and each of the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from each of their obligations under the covenants contained in Sections 4.03, 4.04, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17 and 4.18 hereof and clause (a)(4) of Section 5.01 hereof with respect to the outstanding Notes of a particular series, and the Guarantors will be released from their obligations with respect to the Note Guarantees of such series, on and after the date the conditions set forth in Section 8.04 hereof are satisfied (hereinafter, “Covenant Defeasance”),and the Notes of such series will thereafter be deemed not “outstanding” for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but will continue to be deemed “outstanding” for all other purposes hereunder (it being understood that such Notes will not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes and Note Guarantees of a particular series, the Issuers and the Guarantors may omit to comply with and will have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply will not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes and Note Guarantees will be unaffected thereby. In addition, upon the Issuers’ exercise under Section 8.01 hereof of the option applicable to this Section 8.03, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(7) inclusive and 6.01(10) hereof will not constitute Events of Default.

Section 8.04    Conditions to Legal or Covenant Defeasance.

In order to exercise either Legal Defeasance or Covenant Defeasance as to a particular series of Notes under either Section 8.02 or 8.03 hereof:

(1)    the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the applicable series of Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest and premium, if any, on the outstanding Notes of such series on the stated date for payment thereof or on the applicable Redemption Date, as the case may be, and the Issuers must specify whether the Notes of such series are being defeased to such stated date for payment or to a particular Redemption Date;

(2)    in the case of an election under Section 8.02 hereof, the Issuers must deliver to the Trustee an Opinion of Counsel confirming that, subject to customary assumptions and exclusions:

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(A)    the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling; or

(B)    since the Issue Date, there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes of such series will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

(3)    in the case of an election under Section 8.03 hereof, the Issuers must deliver to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes of such series will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;

(4)    no Default or Event of Default with respect to such series of Notes shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness or other borrowing of funds or the grant of Liens securing such Indebtedness or other borrowing, all or a portion of the proceeds of which will be applied to such deposit);

(5)    such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which TLLP or any of its Subsidiaries is a party or by which TLLP or any of its Subsidiaries is bound, or if such breach, violation or default would occur, which is not waived as of, and for all purposes, on and after, the date of such deposit;

(6)    the Issuers must deliver to the Trustee an Officers’ Certificate stating that the deposit was not made by the Issuers with the intent of preferring the Holders of Notes of such series over the other creditors of the Issuers with the intent of defeating, hindering, delaying or defrauding any creditors of the Issuers or others; and

(7)     the Issuers must deliver to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

Section 8.05    Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.

Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the “Trustee”)pursuant to Section 8.04 hereof in respect of the outstanding Notes of the applicable series will be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including either Issuer acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest and Special Interest, if any, but such money need not be segregated from other funds except to the extent required by law.

The Issuers will pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes.

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Notwithstanding anything in this Article 8 to the contrary, the Trustee will deliver or pay to the Issuers from time to time upon the request of the Issuers any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.

Section 8.06    Repayment to the Issuers.

Any money deposited with the Trustee or any Paying Agent, or then held by the Issuers, in trust for the payment of the principal of, premium, if any, or interest and Special Interest, if any, on, any Note and remaining unclaimed for two years after such principal, premium, if any, or interest and Special Interest, if any, has become due and payable shall be paid to the Issuers on their request or (if then held by the Issuers) will be discharged from such trust; and the Holder of such Note will thereafter be permitted to look only to the Issuers for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Issuers as trustee thereof, will thereupon cease; provided, however,that if any of the Notes then outstanding are in definitive form the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Issuers cause to be published once, in TheNew York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which will not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Issuers.

Section 8.07    Reinstatement.

If the Trustee or Paying Agent is unable to apply any U.S. dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Issuers’ and the Guarantors’ obligations under this Indenture and the applicable series of Notes and the applicable Note Guarantees will be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however,that, if the Issuers make any payment of principal of, premium, if any, or interest and Special Interest, if any, on, any Note following the reinstatement of its obligations, the Issuers will be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent.

ARTICLE 9

AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01    Without Consent of Holders of Notes.

Notwithstanding Section 9.02 of this Indenture, the Issuers and the Trustee may amend or supplement this Indenture, the Escrow Agreement, the Notes of any series or the Note Guarantees without the consent of any Holder of Note:

(1)    to cure any ambiguity, defect or inconsistency;

(2)    to provide for uncertificated Notes in addition to or in place of certificated Notes;

(3)    to provide for the assumption of the Issuers’ or a Guarantor’s obligations to the Holders of the Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Issuers’ or such Guarantor’s assets, as applicable;

(4)    to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any such Holder;

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(5)    to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA;

(6)    to conform the text of this Indenture, the Escrow Agreement or the Note Guarantees to any provision of the “Description of Notes” section of the Offering Memorandum to the extent that such provision was intended to be a verbatim recitation of a provision of this Indenture, the Escrow Agreement or the Note Guarantees;

(7)    to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture;

(8)    to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect to the Notes or to reflect the release of a Note Guarantee in accordance with this Indenture;

(9)    to secure the Notes and/or the Note Guarantees;

(10)    to comply with the rules of any applicable securities depository;

(1)    to provide for the reorganization of TLLP as any other form of entity, in accordance with Section 5.01(a); or

(12)    to evidence and provide for the acceptance and appointment under this Indenture of a successor Trustee pursuant to the requirements hereof.

Upon the request of the Issuers accompanied by a resolution of their Boards of Directors authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee will join with the Issuers and the Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee will not be obligated to enter into such amended or supplemental indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Notwithstanding the foregoing, neither an Opinion of Counsel nor an Officers’ Certificate, nor a board resolution, shall be required in connection with the addition of a Guarantor under this Indenture upon execution and delivery by such Guarantor, the Issuers and the Trustee of a supplemental indenture to this Indenture, the form of which is attached as Exhibit D hereto.

Section 9.02    With Consent of Holders of Notes.

Except as provided below in this Section 9.02, the Issuers and the Trustee may amend or supplement this Indenture (including, without limitation, Sections 3.09, 4.10 and 4.15 hereof), the Escrow Agreement, the Notes of any series and the Note Guarantees with the consent of the Holders of at least a majority in aggregate principal amount of the then-outstanding Notes of such series (including, without limitation, Additional Notes, if any) voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes of such series), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium or interest and Special Interest, if any, on, the Notes of such series, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Escrow Agreement, the Notes or the Note Guarantees may be waived with the consent of the Holders of at least a majority in aggregate principal amount of the then-outstanding Notes of such series (including, without limitation, Additional Notes of such series, if any) voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, such Notes). Section 2.08 hereof shall determine which Notes are considered to be “outstanding” for purposes of this Section 9.02.

Upon the request of the Issuers accompanied by a resolution of their Boards of Directors authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the docu

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ments described in Section 7.02 hereof, the Trustee will join with the Issuers in the execution of such amended or supplemental indenture unless such amended or supplemental indenture directly affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but will not be obligated to, enter into such amended or supplemental Indenture.

It is not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it is sufficient if such consent approves the substance thereof.

After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Issuers will mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Issuers to mail such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver. Subjectto Sections 6.04 and 6.07 hereof, the Holders of at least a majority in aggregate principal amount of the Notes of such series then-outstanding voting as a single class may waive compliance in a particular instance by the Issuers with any provision of this Indenture or the Notes or the Note Guarantees. However, without the consent of each Holder affected, an amendment, supplement or waiver under this Section 9.02 may not (with respect to any Notes of a particular series held by a non-consenting Holder):

(1)    reduce the principal amount of Notes of such series whose Holders must consent to an amendment, supplement or waiver;

(2)    reduce the principal of or change the fixed maturity of any Note of such series or alter the provisions with respect to the redemption of the Notes of such series; provided, however,that any purchase or repurchase of Notes of such series, including pursuant to Sections 4.10 or 4.15 hereof, shall not be deemed a redemption of the Notes of such series;

(3)    reduce the rate of or change the time for payment of interest or Special Interest, if any, on any Note of such series;

(4)    waive a Default or Event of Default in the payment of principal of, or interest, and Special Interest, if any, or premium on the Notes of such series (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then-outstanding Notes of such series and a waiver of the payment default that resulted from such acceleration);

(5)    make any Note of such series payable in currency other than that stated in the Notes of such series;

(6)    make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes of such series to receive payments of principal of, or interest and Special Interest, if any, or premium, if any, on, the Notes of such series (other than as permitted by clause (7) below);

(7)    waive a redemption payment with respect to any Note (other than a payment required by Sections 4.10 or 4.15 hereof);

(8)    release any Guarantor with respect to its Note Guarantee of such series of Notes from any of its obligations under its Note Guarantee or this Indenture, except in accordance with the terms of this Indenture; or

(9)    make any change in the preceding amendment and waiver provisions.

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Section 9.03    Compliance with Trust Indenture Act.

Everyamendment or supplementto this Indenture or the Notes will be set forth in an amended or supplemental indenture that complies with the TIA as then in effect.

Section 9.04    Revocation and Effect of Consents.

Until an amendment, supplementor waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder’s Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms (except as provided in the second succeeding paragraph) and thereafter binds everyHolder.

The Issuers may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then notwithstanding the second to last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies) and only those Persons, shall be entitled to consent to such amendment or waiver or revoke any consent previously given, whether or not such Persons continue to be Holders after such record date.

After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of the clauses (1) through (9) of Section 9.02, in which case, the amendment, supplement or waiver shall bind only each Holder of a note who has consented to it and every subsequent Holder of a Note or portion of a Note that evidences the same indebtedness as the consenting Holder’s Note.

Section 9.05    Notation on or Exchange of Notes.

The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Issuers in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver.

Failure to make the appropriate notation or issue a new Note will not affect the validity and effect of such amendment, supplement or waiver.

Section 9.06    Trustee to Sign Amendments, etc.

The Trustee will sign any amended or supplemental indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Issuers may not sign an amended or supplemental indenture until the Boards of Directors of each of the Issuers approves it. In executing any amended or supplemental indenture, the Trustee will be entitled to receive and (subject to Section 7.01 hereof) will be fully protected in relying upon, in addition to the documents required by Section 12.04 hereof, an Officers’ Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. Notwithstanding the foregoing, neither an Opinion of Counsel nor an Officers’ Certificate, nor a board resolution, shall be required for the Trustee to execute any supplemental indenture to this Indenture, the form of which is attached as Exhibit D hereto, adding a new Guarantor under this Indenture.

ARTICLE 10

NOTE GUARANTEES

Section 10.01    Guarantee.

(a)    Subject to this Article 10, each of the Guarantors hereby, jointly and severally, unconditionally guarantees, in an unsecured senior basis, to each Holder of a Note authenticated and delivered by the Trustee and to

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the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Issuers hereunder or thereunder, that:

(1)    the principal of, premium, if any, and interest and Special Interest, if any, on, the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Issuers to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and

(2)    in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.

Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors will be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.

(b)    The Guarantors hereby agree that their obligations hereunder are unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment against the Issuers, any action to enforce the same or any other circumstance (other than complete performance) which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor further, to the extent permitted by law, hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of an Issuer, any right to require a proceeding first against an Issuer, protest, notice and all demands whatsoever and covenants that its Note Guarantee will not be discharged except by complete performance of the obligations contained in the Notes and this Indenture.

(c)    If any Holder or the Trustee is required by any court or otherwise to return to an Issuer, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to any of the Issuers or the Guarantors, any amount paid by an Issuer or any Guarantor to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, will be reinstated in full force and effect.

(d)    Each Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (1) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of its Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed thereby, and (2) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) will forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee. The Guarantors will have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Note Guarantee.

Section 10.02    Limitation on Guarantor Liability.

Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Note Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Note Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after givingeffect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 10, result in the obligations of such Guarantor under its Note Guarantee not constituting a fraudulent transfer or conveyance.

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Section 10.03    Note Guarantee

The Note Guarantee of any Guarantor shall be evidenced solely by its execution and delivery of this Indenture (or, in the case of any Guarantor that is not party to this Indenture on the date of this Indenture, a supplemental indenture hereto) and not by an endorsement on, or attachment to, any Note of any Note Guarantee or notation thereof. To effect any Note Guarantee of any Guarantor not party to this Indenture on the date of this Indenture, such future Guarantor shall execute and deliver a supplemental indenture substantially in the form attached as Exhibit D hereto, which supplemental indenture shall be executed and delivered on behalf of such Guarantor by an Officer of such Guarantor.

Section 10.04    Evidenced by Indenture; No Notation of Subsidiary Guarantee.

Each Guarantor hereby agrees that its Note Guarantee set forth in Section 10.01 hereof will remain in full force and effect notwithstanding any failure to endorse on any Note a notation of such Note Guarantee.

The delivery of any Note by the Trustee, after the authentication thereof hereunder, will constitute due delivery of the Note Guarantee set forth in this Indenture on behalf of each of the Guarantors.

Section 10.05    Guarantors May Consolidate, etc., on Certain Terms.

Except as otherwise provided in Section 10.05 hereof, no Guarantor may sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person, other than the Issuers or another Guarantor, unless:

(1)    immediately after giving effect to such transaction, no Default or Event of Default exists; and

(2)    either:

(a)    subject to Section 10.05 hereof, the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger is a Guarantor, or unconditionally assumes all the obligations of that Guarantor under this Indenture, its Note Guarantee and the Registration Rights Agreement on the terms set forth herein or therein, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee; or

(b)    the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation, Section 4.10 hereof.

In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person will succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Note Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Issuers and delivered to the Trustee. All the Note Guarantees so issued will in all respects have the same legal rank and benefit under this Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof.

Except as set forth in Articles 4 and 5 hereof, and notwithstanding clauses 2(a) and (b) above, nothing contained in this Indenture or in any of the Notes will prevent any consolidation or merger of a Guarantor with or into the Issuers or another Guarantor, or will prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Issuers or another Guarantor.

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Section 10.06    Releases.

The Note Guarantee of a Guarantor will be released:

(1)    in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) TLLP or a Restricted Subsidiary of TLLP, if the sale or other disposition does not violate Section 4.10 hereof;

(2)    in connection with any sale or other disposition of the Capital Stock of that Guarantor after which the applicable Guarantor is no longer a Restricted Subsidiary of TLLP, if the sale or other disposition does not violate Section 4.10 hereof;

(3)    if TLLP designates any Restricted Subsidiary that is a Guarantor to be an Unrestricted Subsidiary in accordance with Section 4.17 hereof;

(4)    upon the release or discharge of the guarantee by such Guarantor with respect to the Indebtedness under the Credit Agreement or the guarantee that resulted in the creation of such Guarantee; provided, however, that release or discharge of the guarantee by such Guarantor with respect to Indebtedness under the Existing Notes occurs prior to or contemporaneously therewith; provided, further, however, that if, at any time following such release, that Guarantor later guarantees Indebtedness of any Issuer under the Credit Agreement, then such Guarantor shall provide a Note Guarantee at such time if required in accordance with Section 4.16 hereof;

(5)    upon the merger, amalgamation or consolidation of such Guarantor with and into an Issuer or another Guarantor that is the surviving Person in such merger, amalgamation or consolidation, or upon the liquidation or dissolution of such Guarantor;

(6)    upon Legal Defeasance or Covenant Defeasance in accordance with Article 8 hereof or upon satisfaction and discharge in accordance with Article 11 hereof; or

(7)    in accordance with Article 9 hereof.

Any Guarantor not released from its obligations under its Note Guarantee as provided in this Section 10.05 will remain liable for the full amount of principal of and interest and Special Interest, if any, and premium, if any, on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 10.

ARTICLE 11

SATISFACTION AND DISCHARGE

Section 11.01    Satisfaction and Discharge.

This Indenture will be discharged and will cease to be of further effect as to all Notes of a series issued hereunder, when:

(1)    either:

(a)    all Notes of such series that have been authenticated, except lost, stolen or destroyed Notes of such series that have been replaced or paid and Notes of such series for whose payment money has theretofore been deposited in trust and thereafter repaid to the Issuers, have been delivered to the Trustee for cancellation; or

(b)    all Notes of such series that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise

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or will become due and payable within one year and the Issuers or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the applicable Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof in such amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes of such series not delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest and Special Interest, if any, to the date of maturity or redemption;

(2)    no Default or Event of Default with respect to such series of Notes has occurred and is continuing on the date of the deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) and such deposit will not result in a breach or violation of, or constitute a default under, any other material instrument to which any Issuer or any Guarantor is a party or by which any Issuer or any Guarantor is bound;

(3)    the Issuers or any Guarantor has paid or caused to be paid all sums payable by it with respect to such series of Notes under this Indenture; and

(4)    the Issuers have delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of such Notes at maturity or on the Redemption Date, as the case may be.

In addition, the Issuers must deliver (a) an Officers’ Certificate stating that all conditions precedent set forth in clauses (1) through (4) above have been satisfied and (b) an Opinion of Counsel to the Trustee (which Opinion of Counsel may be subject to customary assumptions and qualifications), stating that all conditions precedent to satisfaction and discharge set forth in Section 11.01(2) and (4) have been satisfied; provided that the Opinion of Counsel with respect to 11.01(2) above may be to the knowledge of such counsel.

Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section 11.01, the provisions of Sections 11.02 and 8.06 hereof will survive. In addition, nothing in this Section 11.01 will be deemed to discharge those provisions of Section 7.07 hereof, that, by their terms, survive the satisfaction and discharge of this Indenture.

Section 11.02    Application of Trust Money.

Subject to the provisions of Section 8.06 hereof, all money deposited with the Trustee pursuant to Section 11.01 hereof shall be held in trust and applied by it, in accordance with the provisions of the applicable series of Notes and this Indenture, to the payment, either directly or through any Paying Agent (including either Issuer acting as Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium and Special Interest, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.

If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 11.01 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuers’ and any Guarantor’s obligations under this Indenture and the applicable series of Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.01 hereof; provided that if the Issuers have made any payment of principal of, premium, if any, or interest and Special Interest, if any, on, any such Notes because of the reinstatement of its obligations, the Issuers shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent.

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ARTICLE 12

MISCELLANEOUS

Section 12.01    Trust Indenture Act Controls.

If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA §318(c), the imposed duties will control.

Section 12.02    Notices.

Any notice or communication by the Issuers, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or by first class mail (registered or certified, return receipt requested), facsimile transmission or overnight air courier guaranteeing next day delivery, to the others’ address:

If to the Issuers and/or any Guarantor:

Tesoro Logistics LP

Tesoro Logistics Finance Corp.

1900 Ridgewood Parkway

San Antonio, Texas 75259-1828

Facsimile No.: 844-711-9189

Attention: Chief Financial Officer

With a copy to:

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Facsimile No.: 212-455-2000

Attention: Kenneth B. Wallach

If to the Trustee:

U.S. Bank National Association

535 Griswold Street

Suite 550

Detroit, Michigan 48226

Facsimile No.: 313-963-9428

Attention: Global Corporate Trust Services

The Issuers, any Guarantor or the Trustee, by notice to the others, may designate additional or different addresses for subsequent notices or communications.

All notices and communications (other than those sent to Holders) will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five calendar days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if transmitted by facsimile; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.

Any notice or communication to a Holder will be electronically delivered, mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication will also be so delivered or mailed to any Person described in TIA § 313(c), to the extent required by the TIA. Failure to deliver a notice or communication to a Holder or any defect in it will not affect its sufficiency with respect to other Holders.

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If a notice or communication is mailed or otherwise delivered in the manner provided above within the time prescribed, such notice or communication shall be deemed duly given, whether or not the addressee receives it.

If the Issuers deliver or mail a notice or communication to Holders, they will deliver or mail a copy to the Trustee and each Agent at the same time.

Section 12.03    Communication by Holders of Notes with Other Holders of Notes.

Holders may communicate pursuant to TIA § 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Issuers, the Trustee, the Registrar and anyone else shall have the protection of TIA § 312(c).

Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

Where this Indenture provides for notice of any event to a Holder of a Global Note, such notice shall be sufficiently given if given to the Depository for such Note (or its designee), pursuant to its Applicable Procedures, not later than the latest date, if any, and not earlier than the earliest date, if any, prescribed for the giving of such notice.

Section 12.04    Certificate and Opinion as to Conditions Precedent.

Upon any request or application by the Issuers to the Trustee to take any action under this Indenture, the Issuers shall furnish to the Trustee:

(1)    an Officers’ Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and

(2)    an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.

Section 12.05    Statements Required in Certificate or Opinion.

Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA § 314(a)(4)) must comply with the provisions of TIA § 314(e) and must include:

(1)    a statement that the Person making such certificate or opinion has read such covenant or condition;

(2)    a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(3)    a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and

(4)    a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied.

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Section 12.06    Rules by Trustee and Agents.

The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.

Section 12.07    No Personal Liability of Directors, Officers, Employees and Unitholders.

No past, present or future director, officer, partner, member, employee,incorporator, manager or unitholder or other owner of Equity Interest of the Issuers, the General Partner or any of their Subsidiaries, as such, will have any liability for any obligations of the Issuers or any Guarantor under the Notes, this Indenture, the Note Guarantees 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 and the Note Guarantees.

Section 12.08    Governing Law.

THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

Section 12.09    No Adverse Interpretation of Other Agreements.

This Indenture may not be used to interpret any other indenture, loan or debt agreement of TLLP or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.

Section 12.10    Successors.

All agreements of the Issuers and the Guarantors in this Indenture and the Notes will bind their successors. All agreements of the Trustee in this Indenture will bind its successors. All agreements of each Guarantor in this Indenture will bind its successors, except as otherwise provided in Section 10.05 hereof.

Section 12.11    Severability.

In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby.

Section 12.12    Counterpart Originals.

The parties may sign any number of copies of this Indenture. Each signed copy will be an original, but all of them together represent the same agreement. This Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Indenture as to the parties hereto and may be used in lieu of the original Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.

Section 12.13    Table of Contents, Headings, etc.

The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and will in no way modify or restrict any of the terms or provisions hereof.

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ARTICLE 13

ESCROW MATTERS

Section 13.01    Escrow Account.

Concurrently with the Issue Date, the Issuers, the Trustee and U.S. Bank National Association, as escrow agent (in such capacity, together with its successors, the “Escrow Agent”), will enter into the Escrow Agreement. In accordance with the Escrow Agreement, the Issuers will deposit (or cause to be deposited) into a segregated escrow account (the “Escrow Account”) with the Escrow Agent the gross proceeds of the offering of the 2022 Notes sold on the Issue Date by wire transfer in immediately available funds, and the Issuers will also deposit (or caused to be deposited) to the Escrow Account an amount that, when taken together with the gross proceeds of the offering of the 2022 Notes deposited into the Escrow Account, will be sufficient to fund a Special Mandatory Redemption of the 2022 Notes through but not including December 31, 2014 (collectively, and together with any other property from time to time held by the Escrow Agent in the Escrow Accounts, the “Escrowed Property”). On the date that is three (3) Business Days prior to the last day of each month beginning on December 31, 2014, and ending on January 31, 2015 (in each case, unless the Escrow Release Date has occurred) in accordance with the Escrow Agreement, the Issuers will deposit (or cause to be deposited) to the Escrow Account an amount in cash equal to one month of interest on the 2022 Notes (as calculated in accordance with the terms of this Indenture including without limitation on the basis of a 360 day year comprised of twelve 30-day months) to extend the Special Mandatory Redemption Date, as applicable. The Escrowed Property will be held in the Escrow Account until the earliest of (i) the date on which the Issuers deliver to the Escrow Agent the Officer’s Certificate referred to in Section 13.02 and (ii) the Special Mandatory Redemption Date. The Escrow Agent shall invest the Escrowed Property in accordance with the terms of the Escrow Agreement.

Section 13.02    Release of Escrowed Property.

The Issuers shall only be entitled to direct the Escrow Agent to release Escrowed Property (in which case the Escrowed Property will be paid to or as directed by the Issuers) (the “Release”) upon delivery to the Escrow Agent, on or prior to the Escrow End Date, of an Officer’s Certificate certifying that the following conditions have been or substantially concurrently with the release of the Escrowed Property will be satisfied (the date of such release, the “Escrow Release Date”):

(a) (i) all conditions precedent to the consummation of the Acquisition will have been satisfied or waived in accordance with the terms of the Acquisition Agreement (other than those conditions that by their terms are to be satisfied substantially concurrently with the consummation of the Acquisition, but subject to the satisfaction or waiver of such conditions) and (ii) the Escrowed Property will be used to consummate, or in connection with the financing of, the Acquisition;

(b) all conditions precedent to the effectiveness of, and borrowings under, the New Credit Agreement (other than the release of the Escrowed Property) have been satisfied or waived, and prior to or substantially concurrently with the release of the funds from the Escrow Account, the borrowings under theNew Credit Agreement to be drawn in connection with the Acquisition will be available to the Issuers on the Escrow Release Date; and

(c) the QEP Guarantors shall have entered into and delivered a supplemental indenture to this Indenture substantially concurrently with the Release.

The Release shall occur promptly upon receipt by the Escrow Agent of an Officer’s Certificate certifying to the foregoing. Upon the occurrence of the Release, the Escrow Account shall be reduced to zero and the Escrowed Property and interest (if any) thereon shall be paid out to the Issuers accordance with the Escrow Agreement.

Section 13.03    Trustee Direction to Execute Escrow Agreement.

The Trustee is hereby authorized and directed to execute and deliver the Escrow Agreement.

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[Signatures on following page]

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SIGNATURES

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

TESORO LOGISTICS LP

By:Tesoro Logistics GP, LLC its general partner

By: /s/ Phillip M. Anderson
Name: Phillip M. Anderson
Title: President

TESORO LOGISTICS FINANCE CORP.

TESORO HIGH PLAINS PIPELINE COMPANY LLC

TESORO LOGISTICS OPERATIONS LLC

TESORO LOGISTICS PIPELINES LLC

TESORO LOGISTICS NORTHWEST PIPELINES LLC

TESORO SOCAL PIPELINE COMPANY LLC

TESORO ALASKA PIPELINE COMPANY LLC

By: /s/ Phillip M. Anderson    
Name: Phillip M. Anderson
Title: President

[SIGNATURE PAGE TO THE INDENTURE]

CG&R Draft    Last Saved:     

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U.S. BANK NATIONAL ASSOCIATION

By: /s/ James Kowalski    
Name: James Kowalski    
Title: Vice President

[SIGNATURE PAGE TO THE INDENTURE]

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EXHIBIT A-1

[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (“DTC”), TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]

[THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.

THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTIONS IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE “RESALE RESTRICTION TERMINATION DATE”) THAT IS ONE YEAR (IN THE CASE OF RULE 144A SECURITIES) AFTER THE LATER OF THE ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUERS OR ANY AFFILIATE OF THE ISSUERS WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) OR 40 DAYS (IN THE CASE OF REGULATION S SECURITIES), ONLY (A) TO THE ISSUERS, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS’ AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH

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OF THEM AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.

IN THE CASE OF REGULATION S NOTES: BY ITS ACQUISITION HEREOF, THE HOLDER HEREOF REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT.]

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[RULE 144A][REGULATION S][GLOBAL] NOTE

CUSIP [TO BE INSERTED]

5.50% Senior Notes due 2019

No. ______________    $____________

TESORO LOGISTICS LPandTESORO LOGISTICS FINANCE CORP.

promise to pay to [Cede & Co.]¹, or its registered assigns,

the principal sum of ______________ DOLLARS[, as revised by the Schedule of Increases or Decreases in the Global Note attached hereto]¹, on October 15, 2019.

Interest Payment Dates: April 15 and October 15, commencing on April 15, 2015

Record Dates: April 1 and October 1

Additional provisions of this Note are set forth on the other side of this Note.

Dated: ____________________, 20_

TESORO LOGISTICS LP

By:Tesoro Logistics GP, LLC, its general partner

By:
Name:
Title:

TESORO LOGISTICS FINANCE CORP.

By:
Name:
Title:

This is one of the Notes referred to in the within-mentioned Indenture:

U.S. BANK NATIONAL ASSOCIATION,
as Trustee

By:
Authorized Signatory

________________________________

¹ Include if a global note.

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[REVERSE OF NOTE]

Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.

(1)     INTEREST. Tesoro Logistics LP, a Delaware limited partnership (“TLLP”) and Tesoro Logistics Finance Corp., a Delaware corporation (“Finance Corp.” and, together with TLLP, the “Issuers”), promise to pay interest on the principal amount of this Note at 5.50% per annum from October 29, 2014 until maturity and shall pay the Special Interest, if any, payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Issuers will pay interest and Special Interest, if any, semi-annually in arrears on April 15 and October 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an “Interest Payment Date”). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further that the first Interest Payment Date shall be April 15, 2015. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

(2)     METHOD OF PAYMENT. The Issuers will pay interest on the Notes (except defaulted interest) and Special Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the April 1 or October 1 next preceding the Interest Payment Date, evenif such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Special Interest, if any, and interest at the office or agency of the Issuers maintained for such purpose within or without the City and State of New York, or, at the option of the Issuers, payment of interest and Special Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Special Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Issuers or the Paying Agent to an account in the United States. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

(3)     PAYING AGENT AND REGISTRAR. Initially, U.S. Bank National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to any Holder. TLLP or any of its Subsidiaries may act in any such capacity.

(4)     INDENTURE. The Issuers issued the Notes under an Indenture dated as of October 29, 2014 (as amended, supplemented or otherwise modified from time to time, the “Indenture”)among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA. The Notes are subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are unsecured obligations of the Issuers. The Indenture does not limit the aggregate principal amount of Notes that may be issued thereunder.

(5)     GUARANTEE. To guarantee the due and punctual payment of the principal, premium, if any, and interest (including post-petition interest in any proceeding under any Bankruptcy Law) on the Notes and all other amounts payable by the Issuers under the Indenture and the Notes when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Notes and the Indenture, the Guarantors have unconditionally guaranteed (and future guarantors, together with the Guarantors, shall unconditionally Guarantee), jointly and severally, such obligations on an unsecured senior basis pursuant to the terms of the Indenture.

(6)     OPTIONAL REDEMPTION.

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(a)    At any time prior to September 15, 2019, the Issuers may redeem all or a part of the Notes at a redemption price equal to 100% of the principal amount of Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest and Special Interest, if any, thereon to, but excluding, the Redemption Date, subject to the rights of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date.

At any time on or after September 15, 2019, the Issuers may redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes being redeemed, plus accrued and unpaid interest and Special Interest, if any, to, but excluding, the Redemption Date, subject to the right of Holders on the relevant record date to receive interest due on an Interest Payment Date.

For purposes of this Paragraph 6,“Applicable Premium”means, with respect to any Note on any Redemption Date, the excess of: (a) the present value at such Redemption Date of (i) the principal amount of the Notes plus (ii) all required interest payments due on the Note (excluding accrued and unpaid interest to, but excluding, the Redemption Date) through September 15, 2019, computed using a discount rate equal to the Treasury Rate as of such Redemption Date plus 50 basis points; over (b) the principal amount of the Note. “Treasury Rate”means, as of any Redemption Date, the yield to maturity as of such Redemption Date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the Redemption Date to September 15, 2019; provided, however,that if the period from the Redemption Date to September 15, 2019, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

(7)     MANDATORY REDEMPTION.

Neither of the Issuers is required to make mandatory redemption or sinking fund payments with respect to the Notes.

(8)     REPURCHASE AT THE OPTION OF HOLDER.

(a)    If there is a Change of Control Triggering Event, the Issuers will be required to make an offer (a“Change of Control Offer”)to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000 in excess thereof) of each Holder’s Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest and Special Interest, if any, on the Notes repurchased to, but excluding, the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date (the “Change of Control Payment”). Within 30 days following any Change of Control Triggering Event, the Issuers will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture.

(b)    If the Issuers or a Restricted Subsidiary of TLLP consummates any Asset Sales, within five days after the date on which the aggregate amount of Excess Proceeds exceeds $50.0 million (or, at the Issuers’ option, any earlier date), the Issuers will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an “Asset Sale Offer”)pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount (or accreted value) thereof plus accrued and unpaid interest and Special Interest, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the TLLP (or such Restricted Subsidiary) may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and the representative of such other pari passu Indebtedness will select such other pari passu Indebtedness to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Issuers prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled “Option of Holder to Elect Purchase”attached to the Notes.

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(9)     NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 15 days but not more than 60 days before the Redemption Date to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with a defeasance of the Notes or a satisfaction or discharge of the Indenture. Notes in denominations larger than $2,000 may be redeemed in part but only in whole multiples of $1,000 and in excess of $2,000, unless all of the Notes held by a Holder are to be redeemed.

(10)     DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $2,000 and integral multiples of $1,000 in excess thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuers may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuers need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Issuers need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.

(11)     PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. Only registered Holders shall have rights hereunder.

(12)     AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Notes and the Note Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the then-outstanding Notes including Additional Notes, if any, voting as a single class, and any existing Default or Event of Default or compliance with any provision of the Indenture or the Notes or the Note Guarantees may be waived with the consent of the Holders of at least a majority in aggregate principal amount of the then-outstanding Notes including Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture or the Notes or the Note Guarantees may be amended or supplemented to: cure any ambiguity, defect or inconsistency; to provide for uncertificated Notes in addition to or in place of certificated Notes; to provide for the assumption of the Issuers’ or a Guarantor’s obligations to Holders of the Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Issuers’ or such Guarantor’s assets, as applicable; to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder; to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA; to conform the text of the Indenture or the Note Guarantees to any provision of the “Description of Notes” section of the Offering Memorandum to the extent that such provision was intended to be a verbatim recitation of a provision of the Indenture or Note Guarantees; to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture; to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect to the Notes or to reflect the release of a Note Guarantee in accordance with this Indenture; to secure the Notes and/or the Note Guarantees; to comply with the rules of any applicable securities depository; to provide for the reorganization of TLLP as any other form of entity, in accordance with Section 5.01(a) of the Indenture; or to evidence and provide for the acceptance and appointment under the Indenture of a successor Trustee thereunder pursuant to the requirements thereof.

(13)     DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on, and Special Interest, if any, with respect to the Notes; (ii) default in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on the Notes; (iii) failure by TLLP or any of its Restricted Subsidiaries for 30 days after written notice to TLLP by the Trustee or Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class make a Change of Control Offer within the time periods set forth, or consummate a purchase of Notes when required pursuant to Sections 4.15 or 4.10 of the Indenture or to comply with Section 5.01 of the Indenture; (iv) failure by TLLP for 120 days after written notice to TLLP by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then-outstanding voting as a single class to comply with Section 4.03 of the Indenture, (v) failure by TLLP or any of its Restricted Subsidiaries for 60 days after written notice to TLLP by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then-outstanding voting as a single class to comply with any of the other agreements in the Indenture; (vi) default under certain other agreements relating to Indebtedness of the Issuers which default (A) is caused by a failure to pay principal on such Indebtedness prior to the expiration of the grace

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period provided in such Indebtedness (a “Payment Default”) or (B) results in the acceleration of such Indebtedness prior to its express maturity, in each case subject to a minimum threshold and cure period; (vii) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (viii) certain events of bankruptcy or insolvency with respect to the Issuers or any of TLLP’s Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; and (ix) except as permitted by the Indenture, any Note Guarantee from a Guarantor that is a Significant Subsidiary is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect or any Guarantor that is a Significant Subsidiary or any Person acting on its behalf denies or disaffirms its obligations under such Guarantor’s Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then-outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to Finance Corp., TLLP or any Restricted Subsidiary of TLLP that is a Significant Subsidiary or any group of Restricted Subsidiaries of TLLP that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of at least a majority in aggregate principal amount of the then-outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest and Special Interest, if any, or premium, if any. The Holders of at least a majority in aggregate principal amount of the then-outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest and Special Interest, if any, or premium, if any, on, or the principal of, the Notes. The Issuers and the Guarantors are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers and the Guarantors are required, within ten Business Days becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.

(14)     TRUSTEE DEALINGS WITH THE ISSUERS. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers or their Affiliates, and may otherwise deal with the Issuers or their Affiliates, as if it were not the Trustee.

(15)     NO RECOURSE AGAINST OTHERS. A director, officer, partner, member, employee, incorporator, manager or unitholder or other owner of Equity Interest of the Issuers, the General Partner or any of their Subsidiaries, as such, will not have any liability for any obligations of the Issuers or any Guarantor under the Notes, the Indenture, the Note Guarantees 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 the issuance of the Notes and the Note Guarantees.

(16)    AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.

(17)     ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=Uniform Gifts to Minors Act).

(18)     ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement dated as of October 29, 2014, among the Issuers, the Guarantors and the other parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes will have the rights set forth in one or more registration rights agreements, if any, among the Issuers, the Guarantors and the other parties thereto, relating to rights given by the Issuers and the Guarantors to the purchasers of any Additional Notes (collectively, the “Registration Rights Agreement”).

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(19)     CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP numbers to be printed on the Notes, and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption, and reliance may be placed only on the other identification numbers placed thereon.

(20)     GOVERNING LAW. THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

The Issuers will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to the Issuers at the following address:

TESORO LOGISTICS LP

TESORO LOGISTICS FINANCE CORP.

19100 Ridgewood Parkway

San Antonio, Texas 75259-1828

Attention: Chief Financial Officer

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ASSIGNMENT FORM

To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to:

(Insert assignee(s) legal name)

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

and irrevocably appoint

to transfer this Note on the books of the Issuers. The agent may substitute another to act for him.

Date:

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

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OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:

o Section 4.10o Section 4.15

If you want to elect to have only part of the Note purchased by the Issuers pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount (in minimum denominations of $2,000 or integral multiples of $1,000 in excess thereof) you elect to have purchased:

Date:    $____________________

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Tax Identification No.:

Signature Guarantee*:

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

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SCHEDULE OF INCREASES OR DECREASES IN THE GLOBAL NOTE*

The initial principal amount of this Global Note is $[ ]. The following increases or decreases in this Global Note have been made:

Date of Increase/Decrease Amount of decrease in Principal Amount of this Global Note Amount of increase in Principal Amount of this Global Note Principal Amount of this Global Note following such decrease (or increase) Signature of authorized officer of Trustee or Custodian

*     This schedule should be included only if the Note is issued in global form.

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EXHIBIT A-2

[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (“DTC”), TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]

[THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.

THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTIONS IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE “RESALE RESTRICTION TERMINATION DATE”) THAT IS ONE YEAR (IN THE CASE OF RULE 144A SECURITIES) AFTER THE LATER OF THE ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUERS OR ANY AFFILIATE OF THE ISSUERS WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) OR 40 DAYS (IN THE CASE OF REGULATION S SECURITIES), ONLY (A) TO THE ISSUERS, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS’ AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH

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OF THEM AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.

IN THE CASE OF REGULATION S NOTES: BY ITS ACQUISITION HEREOF, THE HOLDER HEREOF REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT.]

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[RULE 144A][REGULATION S][GLOBAL] NOTE

CUSIP [TO BE INSERTED]

6.25% Senior Notes due 2022

No. ______________    $____________

TESORO LOGISTICS LPandTESORO LOGISTICS FINANCE CORP.

promise to pay to [Cede & Co.]², or its registered assigns,

the principal sum of ______________ DOLLARS[, as revised by the Schedule of Increases or Decreases in the Global Note attached hereto]¹, on October 15, 2022.

Interest Payment Dates: April 15 and October 15, commencing on April 15, 2015

Record Dates: April 1 and October 1

Additional provisions of this Note are set forth on the other side of this Note.

Dated: ____________________, 20_

TESORO LOGISTICS LP

By:Tesoro Logistics GP, LLC, its general partner

By:
Name:
Title:

TESORO LOGISTICS FINANCE CORP.

By:
Name:
Title:

This is one of the Notes referred to in the within-mentioned Indenture:

U.S. BANK NATIONAL ASSOCIATION,
as Trustee

By:
Authorized Signatory

_____________________________

² Include if a global note.

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[REVERSE OF NOTE]

Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.

(1)     INTEREST. Tesoro Logistics LP, a Delaware limited partnership (“TLLP”) and Tesoro Logistics Finance Corp., a Delaware corporation (“Finance Corp.” and, together with TLLP, the “Issuers”), promise to pay interest on the principal amount of this Note at 6.25% per annum from October 29, 2014 until maturity and shall pay the Special Interest, if any, payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Issuers will pay interest and Special Interest, if any, semi-annually in arrears on April 15 and October 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an “Interest Payment Date”). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further that the first Interest Payment Date shall be April 15, 2015. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

(2)     METHOD OF PAYMENT. The Issuers will pay interest on the Notes (except defaulted interest) and Special Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the April 1 or October 1 next preceding the Interest Payment Date, evenif such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Special Interest, if any, and interest at the office or agency of the Issuers maintained for such purpose within or without the City and State of New York, or, at the option of the Issuers, payment of interest and Special Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Special Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Issuers or the Paying Agent to an account in the United States. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

(3)     PAYING AGENT AND REGISTRAR. Initially, U.S. Bank National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to any Holder. TLLP or any of its Subsidiaries may act in any such capacity.

(4)     INDENTURE. The Issuers issued the Notes under an Indenture dated as of October 29, 2014 (as amended, supplemented or otherwise modified from time to time, the “Indenture”)among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA. The Notes are subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are unsecured obligations of the Issuers. The Indenture does not limit the aggregate principal amount of Notes that may be issued thereunder.

(5)     GUARANTEE. To guarantee the due and punctual payment of the principal, premium, if any, and interest (including post-petition interest in any proceeding under any Bankruptcy Law) on the Notes and all other amounts payable by the Issuers under the Indenture and the Notes when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Notes and the Indenture, the Guarantors have unconditionally guaranteed (and future guarantors, together with the Guarantors, shall unconditionally Guarantee), jointly and severally, such obligations on an unsecured senior basis pursuant to the terms of the Indenture.

(6)     OPTIONAL REDEMPTION.

(a)    On or after October 15, 2018,the Issuers may redeem all or a part of the Notes, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Special

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Interest, if any, on the Notes redeemed to, but excluding, the applicable Redemption Date, if redeemed during the twelve-month period beginning on October 15 of each year indicated below, subject to the rights of Holders of Notes on the relevant record date to receive interest on the relevant Interest Payment Date:

YearPercentage

2018    103.125%

2019    101.563%

2020 and thereafter    100.000%

(b)    Notwithstanding the provisions of subparagraph (a) of this Paragraph 6, at any time prior to October 15, 2017, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of the outstanding Notes (including any Additional Notes) issued under the Indenture at a redemption price of 106.25% of the principal amount with an amount equal to or less than the net cash proceeds of one or more Equity Offerings, plus accrued and unpaid interest and Special Interest, if any, to, but excluding, the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date); provided that at least 65% of the aggregate principal amount of Notes originally issued under this Indenture (excluding Notes held by TLLP and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption; and the redemption occurs within 180 days of the date of the closing of such Equity Offering.

(c)    Notwithstanding the provisions of subparagraph (a) of this Paragraph 6, at any time prior to October 15, 2018, the Issuers may also redeem all or a part of the Notes, at a redemption price equal to 100% of the principal amount of Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest and Special Interest, if any, thereon to, but excluding, the Redemption Date, subject to the rights of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date.

For purposes of this Paragraph 6(c),“Applicable Premium”means, with respect to any Note on any Redemption Date, the greater of: (1) 1.0% of the principal amount of the Note; and (2) the excess of: (a) the present value at such Redemption Date of (i) the redemption price of the Note at October 15, 2018 (such redemption price being set forth in the table appearing in Section 3.07(b)(2) of the Indenture) plus (ii) all required interest payments due on the Note through October 15, 2018 (excluding accrued but unpaid interest to, but excluding, the Redemption Date), computed using a discount rate equal to the Treasury Rate as of such Redemption Date plus 50 basis points; over (b) the principal amount of the Note. “Treasury Rate”means, as of any Redemption Date, the yield to maturity as of such Redemption Date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the Redemption Date to October 15, 2018; provided, however,that if the period from the Redemption Date to October 15, 2018, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

(d)    Unless the Issuers default in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable Redemption Date.

(7)    MANDATORY REDEMPTION.

Except as set forth under paragraph 8 below, neither of the Issuers is required to make mandatory redemption or sinking fund payments with respect to the Notes.

(8)    ESCROW PROCEEDS; SPECIAL MANDATORY REDEMPTION.

If (i) the Release has not occurred on or prior to the Escrow End Date or (ii) if the Issuers shall notify the Trustee in writing of the Issuers’ announcement that the Acquisition Agreement has been terminated or that it will not pursue the consummation of the Acquisition, the Issuers will, on a day not more than three Business Days following the Escrow End Date or the date of such notice, as applicable (such date, the “Special Mandatory Redemption Date”), redeem all of the Notes (the “Special Mandatory Redemption”) at a price equal to 100% of the issue

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price of the Notes, plus accrued and unpaid interest from the Issue Date to, but not including, the Special Mandatory Redemption Date (the “Special Mandatory Redemption Price”).  Notice of the Special Mandatory Redemption will be mailed promptly to each Holder of Notes at its registered address, the Trustee and the Escrow Agent. 

(9)     REPURCHASE AT THE OPTION OF HOLDER.

(a)    If there is a Change of Control Triggering Event, the Issuers will be required to make an offer (a“Change of Control Offer”)to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000 in excess thereof) of each Holder’s Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest and Special Interest, if any, on the Notes repurchased to, but excluding, the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date (the “Change of Control Payment”). Within 30 days following any Change of Control Triggering Event, the Issuers will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture.

(b)    If the Issuers or a Restricted Subsidiary of TLLP consummates any Asset Sales, within five days after the date on which the aggregate amount of Excess Proceeds exceeds $50.0 million (or, at the Issuers’ option, any earlier date), the Issuers will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an “Asset Sale Offer”)pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount (or accreted value) thereof plus accrued and unpaid interest and Special Interest, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the TLLP (or such Restricted Subsidiary) may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and the representative of such other pari passu Indebtedness will select such other pari passu Indebtedness to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Issuers prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled “Option of Holder to Elect Purchase”attached to the Notes.

(10)     NOTICE OF REDEMPTION. Except with respect to a redemption pursuant to paragraph (8) above, notice of redemption will be mailed at least 15 days but not more than 60 days before the Redemption Date to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with a defeasance of the Notes or a satisfaction or discharge of the Indenture. Notes in denominations larger than $2,000 may be redeemed in part but only in whole multiples of $1,000 and in excess of $2,000, unless all of the Notes held by a Holder are to be redeemed.

(11)     DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $2,000 and integral multiples of $1,000 in excess thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuers may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuers need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Issuers need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.

(12)     PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. Only registered Holders shall have rights hereunder.

(13)     AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Escrow Agreement, the Notes and the Note Guarantees may be amended or supplemented with the consent of the Holders of

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at least a majority in aggregate principal amount of the then-outstanding Notes including Additional Notes, if any, voting as a single class, and any existing Default or Event of Default or compliance with any provision of the Indenture, the Escrow Agreement or the Notes or the Note Guarantees may be waived with the consent of the Holders of at least a majority in aggregate principal amount of the then-outstanding Notes including Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Escrow Agreement or the Notes or the Note Guarantees may be amended or supplemented to: cure any ambiguity, defect or inconsistency; to provide for uncertificated Notes in addition to or in place of certificated Notes; to provide for the assumption of the Issuers’ or a Guarantor’s obligations to Holders of the Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Issuers’ or such Guarantor’s assets, as applicable; to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder; to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA; to conform the text of the Indenture, the Escrow Agreement or the Note Guarantees to any provision of the “Description of Notes” section of the Offering Memorandum to the extent that such provision was intended to be a verbatim recitation of a provision of the Indenture, the Escrow Agreement or Note Guarantees; to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture; to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect to the Notes or to reflect the release of a Note Guarantee in accordance with this Indenture; to secure the Notes and/or the Note Guarantees; to comply with the rules of any applicable securities depository; to provide for the reorganization of TLLP as any other form of entity, in accordance with Section 5.01(a) of the Indenture; or to evidence and provide for the acceptance and appointment under the Indenture of a successor Trustee thereunder pursuant to the requirements thereof.

(14)     DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on, and Special Interest, if any, with respect to the Notes; (ii) default in the payment when due (at maturity, upon redemption (including Special Mandatory Redemption) or otherwise) of the principal of, or premium, if any, on the Notes; (iii) failure by TLLP or any of its Restricted Subsidiaries for 30 days after written notice to TLLP by the Trustee or Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class make a Change of Control Offer within the time periods set forth, or consummate a purchase of Notes when required pursuant to Sections 4.15 or 4.10 of the Indenture or to comply with Section 5.01 of the Indenture; (iv) failure by TLLP for 120 days after written notice to TLLP by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then-outstanding voting as a single class to comply with Section 4.03 of the Indenture, (v) failure by TLLP or any of its Restricted Subsidiaries for 60 days after written notice to TLLP by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then-outstanding voting as a single class to comply with any of the other agreements in the Indenture; (vi) default under certain other agreements relating to Indebtedness of the Issuers which default (A) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness (a “Payment Default”) or (B) results in the acceleration of such Indebtedness prior to its express maturity, in each case subject to a minimum threshold and cure period; (vii) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (viii) certain events of bankruptcy or insolvency with respect to the Issuers or any of TLLP’s Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; and (ix) except as permitted by the Indenture, any Note Guarantee from a Guarantor that is a Significant Subsidiary is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect or any Guarantor that is a Significant Subsidiary or any Person acting on its behalf denies or disaffirms its obligations under such Guarantor’s Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then-outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to Finance Corp., TLLP or any Restricted Subsidiary of TLLP that is a Significant Subsidiary or any group of Restricted Subsidiaries of TLLP that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of at least a majority in aggregate principal amount of the then-outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest and Special Interest, if any, or premium, if any. The Holders of at least a majority in aggregate principal amount of the then-outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, re

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scind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest and Special Interest, if any, or premium, if any, on, or the principal of, the Notes. The Issuers and the Guarantors are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers and the Guarantors are required, within ten Business Days becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.

(15)     TRUSTEE DEALINGS WITH THE ISSUERS. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers or their Affiliates, and may otherwise deal with the Issuers or their Affiliates, as if it were not the Trustee.

(16)     NO RECOURSE AGAINST OTHERS. A director, officer, partner, member, employee, incorporator, manager or unitholder or other owner of Equity Interest of the Issuers, the General Partner or any of their Subsidiaries, as such, will not have any liability for any obligations of the Issuers or any Guarantor under the Notes, the Indenture, the Note Guarantees 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 the issuance of the Notes and the Note Guarantees.

(17)    AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.

(18)     ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=Uniform Gifts to Minors Act).

(19)     ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement dated as of October 29, 2014, among the Issuers, the Guarantors and the other parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes will have the rights set forth in one or more registration rights agreements, if any, among the Issuers, the Guarantors and the other parties thereto, relating to rights given by the Issuers and the Guarantors to the purchasers of any Additional Notes (collectively, the “Registration Rights Agreement”).

(20)     CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP numbers to be printed on the Notes, and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption, and reliance may be placed only on the other identification numbers placed thereon.

(21)     GOVERNING LAW. THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

The Issuers will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to the Issuers at the following address:

TESORO LOGISTICS LP

TESORO LOGISTICS FINANCE CORP.

19100 Ridgewood Parkway

San Antonio, Texas 75259-1828

Attention: Chief Financial Officer

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ASSIGNMENT FORM

To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to:

(Insert assignee(s) legal name)

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

and irrevocably appoint

to transfer this Note on the books of the Issuers. The agent may substitute another to act for him.

Date:

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

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OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:

o Section 4.10o Section 4.15

If you want to elect to have only part of the Note purchased by the Issuers pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount (in minimum denominations of $2,000 or integral multiples of $1,000 in excess thereof) you elect to have purchased:

Date:    $____________________

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Tax Identification No.:

Signature Guarantee*:

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

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SCHEDULE OF INCREASES OR DECREASES IN THE GLOBAL NOTE*

The initial principal amount of this Global Note is $[ ]. The following increases or decreases in this Global Note have been made:

Date of Increase/Decrease Amount of decrease in Principal Amount of this Global Note Amount of increase in Principal Amount of this Global Note Principal Amount of this Global Note following such decrease (or increase) Signature of authorized officer of Trustee or Custodian

*     This schedule should be included only if the Note is issued in global form.

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EXHIBIT B

FORM OF CERTIFICATE OF TRANSFER

Tesoro Logistics LP

Tesoro Logistics Finance Corp.

19100 Ridgewood Parkway

San Antonio, Texas 75259-1828

U.S. Bank National Association

535 Griswold Street

Suite 550

Detroit, Michigan 48226

Re: [5.50% Senior Notes due 2019] [6.25% Senior Notes due 2022]

Reference is hereby made to the Indenture, dated as of October 29, 2014 (the “Indenture”),among Tesoro Logistics LP, a Delaware limited partnership (“TLLP”),and Tesoro Logistics Finance Corp., a Delaware corporation (“Finance Corp.” and, together with TLLP, the “Issuers”),the Guarantors party thereto and U.S. Bank National Association, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.

_______________ (the “Transferor”)owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $____ in such Note[s] or interests (the “Transfer”),to ___________ (the “Transferee”),as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that:

[CHECK ALL THAT APPLY]

1.     oCheck if Transferee will take delivery of a beneficial interest in the 144A Global Note or a Restricted Definitive Note Pursuant to Rule 144A. The Transfer is being effectedpursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”),and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a “qualified institutional buyer” within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A, and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Restricted Definitive Note and in the Indenture and the Securities Act.

2.     oCheck if Transferee will take delivery of a beneficial interest in the Regulation S Global Note or a Restricted Definitive Note pursuant to Regulation S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act and (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the

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transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note and/or the Restricted Definitive Note and in the Indenture and the Securities Act.

3.     oCheck if Transferee will take delivery of a beneficial interest in an Unrestricted Global Note or of an Unrestricted Definitive Note.

(a) oCheck if Transfer is pursuant to Rule 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture.

(b) oCheck if Transfer is Pursuant to Regulation S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture.

(c) oCheck if Transfer is Pursuant to Other Exemption. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.

This certificate and the statements contained herein are made for your benefit and the benefit of the Issuers.

[Insert Name of Transferor]

By:
Name:
Title:

Dated:

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ANNEX A TO CERTIFICATE OF TRANSFER

1.     The Transferor owns and proposes to transfer the following:

[CHECK ONE OF (a) OR (b)]

(a) o     a beneficial interest in the:

(i)    o    144A Global Note (CUSIP ______), or

(ii)    o    Regulation S Global Note (CUSIP    _______); or

(b) o    a Restricted Definitive Note.    

2.    After the Transfer the Transferee will hold:    

[CHECK ONE]

(a) o    a beneficial interest in the:

(i)    o    144A Global Note (CUSIP ______), or

(ii)    o    Regulation S Global Note (CUSIP    _______); or

(b) o    a Restricted Definitive Note; or

(c) o    an Unrestricted Definitive Note,

in accordance with the terms of the Indenture.

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EXHIBIT C

FORM OF CERTIFICATE OF EXCHANGE

Tesoro Logistics LP

Tesoro Logistics Finance Corp.

19100 Ridgewood Parkway

San Antonio, Texas 75259-1828

U.S. Bank National Association

535 Griswold Street

Suite 550

Detroit, Michigan 48226

Re: [5.50% Senior Notes due 2019] [6.25% Senior Notes due 2022]

[(2019 Notes CUSIP 88160Q AG8³)]
[(2022 Notes CUSIP 88160Q AH6⁴)]

Reference is hereby made to the Indenture, dated as of October 29, 2014 (the “Indenture”),among Tesoro Logistics LP, a Delaware limited partnership (“TLLP”),and Tesoro Logistics Finance Corp., a Delaware corporation (“Finance Corp.” and, together with TLLP, the “Issuers”),the Guarantors party thereto and U.S. Bank National Association, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.

______________, (the “Owner”)owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $_ in such Note[s] or interests (the “Exchange”). In connection with the Exchange, the Owner hereby certifies that:

1.     Exchange of Restricted Definitive Notes or Beneficial Interests in a Restricted Global Note for Unrestricted Definitive Notes or Beneficial Interests in an Unrestricted Global Note

(a) oCheck if Exchange is from beneficial interest in a Restricted Global Note to beneficial interest in an Unrestricted Global Note. In connection with the Exchange of the Owner’s beneficial interestin a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the Securities Act of 1933, as amended (the “Securities Act”),(iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.

(b) oCheck if Exchange is from beneficial interest in a Restricted Global Note to Unrestricted Definitive Note. In connection with the Exchange of the Owner’s beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to main

__________________________

³ The CUSIP No. is U88109 AD2 for the Regulation S Note.

⁴The CUSIP No. is U88109 AE0 for the Regulation S Note.

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tain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.

(c) oCheck if Exchange is from Restricted Definitive Note to beneficial interest in an Unrestricted Global Note. In connection with the Owner’s Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.

(d) oCheck if Exchange is from Restricted Definitive Note to Unrestricted Definitive Note. In connection with the Owner’s Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.

2. Exchange of Restricted Definitive Notes or Beneficial Interests in Restricted Global Notes for Restricted Definitive Notes or Beneficial Interests in Restricted Global Notes

(a) oCheck if Exchange is from beneficial interest in a Restricted Global Note to Restricted Definitive Note. In connection with the Exchange of the Owner’s beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner’s own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legendprinted on the Restricted Definitive Note and in the Indenture and the Securities Act.

(b)     Check if Exchange is from Restricted Definitive Note to beneficial interest in a Restricted Global Note. In connection with the Exchange of the Owner’s Restricted Definitive Note for a beneficial interest in the [CHECK ONE] o144A Global Note, o Regulation S Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner’s own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act.

This certificate and the statements contained herein are made for your benefit and the benefit of the Issuers.

[Insert Name of Transferor]

By:
Name:
Title:

Dated:

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EXHIBIT D

FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS

SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”),dated as of _ 20__, among [ ](the “Guaranteeing Subsidiary”),Tesoro Logistics LP, a Delawarelimited partnership (“TLLP”),Tesoro Logistics Finance Corp., a Delaware corporation (together with TLLP, the “Issuers”),and U.S. Bank National Association, as trustee under the Indenture referred to below (the “Trustee”).

WITNESSETH

WHEREAS, the Issuers have heretofore executed and delivered to the Trustee an indenture (the “Indenture”),dated as of October 29, 2014 providing for the issuance of 5.50% Senior Notes due 2019 (the “2019 Notes”) and the 6.25 % Senior Notes due 2022 (the “2022 Notes” and, together with the 2019 Notes, the “Notes”);

WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers’ Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”);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 Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

l.     CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2.     AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Note Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.

3.     EXECUTION AND DELIVERY. The Guaranteeing Subsidiary agrees that the Note Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Note Guarantee on the Notes.

4.     NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Issuers or any Guaranteeing Subsidiary under the Notes, any Note 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.

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

6.     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. This Supplemental

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Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.

7.     EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.

8.     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 recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Issuers.

9.     BENEFITS ACKNOWLEDGED. The Guaranteeing Subsidiary’s Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.

10.     SUCCESSORS. All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its Successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.

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

Dated: _________________, 20_

GUARANTEEING SUBSIDIARY:

[GUARANTEEING SUBSIDIARY]

By:
Name:
Title:

ISSUERS:

TESORO LOGISTICS LP

By:Tesoro Logistics GP, LLP, its general partner

By:
Name:
Title:

TESORO LOGISTICS FINANCE CORP.

By:
Name:
Title:

TRUSTEE:

U.S. BANK NATIONAL ASSOCIATION, as Trustee

By:
Authorized Signatory

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001214-0006-16616731.1

EX-4.4

Exhibit 4.4

EXECUTION VERSION

REGISTRATION RIGHTS AGREEMENT

Dated as of October 29, 2014

Among

TESORO LOGISTICS LP,

TESORO LOGISTICS FINANCE CORP.,

THE GUARANTORS LISTED ON SCHEDULE I HERETO

and

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

As Representative for the Initial Purchasers

5.50% Senior Notes due 2019

6.25% Senior Notes due 2022

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is dated as of October 29, 2014, among TESORO LOGISTICS LP, a limited partnership organized under the laws of Delaware (the “Partnership”), TESORO LOGISTICS FINANCE CORP., a Delaware corporation (together with the Partnership, the “Issuers”), the guarantors of the Senior Notes (as defined below) and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED as the representative (the “Representative”) of the several initial purchasers (the “Initial Purchasers”) named on Schedule I to the Purchase Agreement (as defined below).

This Agreement is entered into in connection with the Purchase Agreement, dated October 22, 2014 (the “PurchaseAgreement”), by and among the Issuers, the Initial Guarantors (as defined below) and the Representative, which provides for, among other things, the sale by the Issuers to the Initial Purchasers of $500,000,000 aggregate principal amount of their 5.50% Senior Notes due 2019 (the “2019 Notes”) and $800,000,000 aggregate principal amount of their 6.25% Senior Notes due 2022 (the “2022 Notes”, together with the 2019 Notes, the “Senior Notes”), which will be fully and unconditionally guaranteed by the subsidiaries of the Partnership named in Schedule II hereto (the “Initial Guarantors”). On the Acquisition Date (as defined in the Purchase Agreement), if it occurs, the QEP Guarantors (as defined in the Purchase Agreement) will (i) become guarantors of the Senior Notes pursuant to a supplemental indenture to the Indenture and (ii) execute and deliver a joinder agreement substantially in the form attached as Exhibit A hereto (the “Joinder Agreement”) and shall thereby become parties to this Agreement. Upon due execution and delivery of the Joinder Agreement, the Initial Guarantors and the QEP Guarantors are herein collectively referred to as the “Guarantors”. Until the execution of the Joinder Agreement, all references in this Agreement to the Guarantors shall refer to the Initial Guarantors. Pursuant to the Purchase Agreement and the Indenture (as defined below), the Guarantors are required to guarantee (collectively, the “Guarantees”) the Issuers’ obligations under the Senior Notes and the Indenture. References to the “Securities” shall mean one or more Senior Notes of the applicable series and the Guarantees thereof. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Issuers have agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchasers and any subsequent holder or holders of the Securities. The execution and delivery of this Agreement is a condition to the Initial Purchasers’ obligations under the Purchase Agreement.

The parties hereby agree as follows:

1. Definitions

As used in this Agreement, the following terms shall have the following meanings:

Additional Interest: See Section 5(a) hereof.

Advice: See the last paragraph of Section 6 hereof. Agreement: See the introductory paragraphs hereto.

Applicable Period: See Section 2(b) hereof.

Business Day: Shall have the meaning ascribed to such term in Rule 14d-1 under the Exchange Act.

Effectiveness Date: With respect to any Shelf Registration Statement, the 90th day after the Filing Date with respect thereto; provided, however, that if the Effectiveness Date would otherwise fall on a day that is not a Business Day, then the Effectiveness Date shall be the next succeeding Business Day.

Effectiveness Period: See Section 3(a) hereof. Event Date: See Section 5(b) hereof.

Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

Exchange Notes: See Section 2(a) hereof.

Exchange Offer: See Section 2(a) hereof.

Exchange Offer Registration Statement: See Section 2(a) hereof. Exchange Securities: See Section 2(a) hereof.

Filing Date:The 90th day after the delivery of a Shelf Notice as required pursuant to Section 2(c) hereof; provided, however, that if the Filing Date would otherwise fall on a day that is not a Business Day, then the Filing Date shall be the next succeeding Business Day.

FINRA: See Section 6(r) hereof.

Guarantees:See the introductory paragraphs hereto. Guarantors: See the introductory paragraphs hereto.

Holder:Any holder of a Registrable Security or Registrable Securities.

Indenture: The indenture, dated as of October 29, 2014, as supplemented or modified from time to time, among the Issuers, the Initial Guarantors and U.S. Bank National Association, as trustee, pursuant to which the Senior Notes, as amended or supplemented from time to time in accordance with the terms thereof.

Information: See Section 6(n) hereof.

Initial Purchasers: See the introductory paragraphs hereto.

Initial Shelf Registration: See Section 3(a) hereof. Inspectors: See Section 6(n) hereof.

Issue Date:October 29, 2014, the date of original issuance of the Senior Notes. Issuers: See the introductory paragraphs hereto.

Joinder Agreement: See the introductory paragraphs hereto. New Guarantees: See Section 2(a) hereof.

Participant: See Section 8(a) hereof.

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Participating Broker-Dealer: See Section 2(b) hereof.

Person: An individual, trustee, corporation, partnership, limited liability company, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity.

Private Exchange: See Section 2(b) hereof.

Private Exchange Notes: See Section 2(b) hereof.

Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A and Rule 430C under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

Purchase Agreement: See the introductory paragraphs hereof.

Records: See Section 6(n) hereof.

Registrable Securities: Each Security upon its original issuance and at all times subsequent thereto, each Exchange Security as to which Section 2(d)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note (and the related Guarantees) upon original issuance thereof and at all times subsequent thereto, until, in each case, the earliest to occur of (i) a Registration Statement (other than, with respect to any Exchange Securities as to which Section 2(d)(iv) hereof is applicable, the Exchange Offer Registration Statement) covering such Security, Exchange Security or Private Exchange Note (and the related Guarantees) has been declared effective by the SEC and such Security, Exchange Security or such Private Exchange Note (and the related Guarantees), as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Security has been exchanged pursuant to the Exchange Offer for an Exchange Security or Exchange Securities that may be resold without restriction under state and federal securities laws or (iii) such Security, Exchange Security or Private Exchange Note (and the related Guarantees), as the case may be, ceases to be outstanding for purposes of the Indenture.

Registration Statement: Any registration statement of the Issuers that covers any of the Securities, the Exchange Securities or the Private Exchange Notes (and the related Guarantees) filed with the SEC under the Securities Act, including, in each case, the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

Rule 144: Rule 144 under the Securities Act.

Rule 144A: Rule 144A under the Securities Act.

Rule 405: Rule 405 under the Securities Act.

Rule 415: Rule 415 under the Securities Act.

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Rule 424: Rule 424 under the Securities Act.

SEC: The U.S. Securities and Exchange Commission.

Securities: See the introductory paragraphs hereto.

Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.

Senior Notes: See the introductory paragraphs hereto.

Shelf Notice: See Section 2(c) hereof.

Shelf Registration: See Section 3(b) hereof.

Shelf Registration Statement: Any Registration Statement relating to a Shelf Registration.

Shelf Suspension Period: See Section 3(a) hereof.

Subsequent Shelf Registration: See Section 3(b) hereof.

TIA: The Trust Indenture Act of 1939, as amended.

Trustee: (i) The trustee under the Indenture and (ii) the trustee under any indenture(s) (if different) governing the Exchange Securities and Private Exchange Notes (and the related Guarantees).

Underwritten registration or underwritten offering: A registration in which securities of the Issuers are sold to an underwriter for reoffering to the public.

Except as otherwise specifically provided, all references in this Agreement to acts, laws, statutes, rules, regulations, releases, forms, no-action letters and other regulatory requirements (collectively, “Regulatory Requirements”) shall be deemed to refer also to any amendments thereto and all subsequent Regulatory Requirements adopted as a replacement thereto having substantially the same effect therewith; provided that Rule 144 shall not be deemed to amend or replace Rule 144A.

2. Exchange Offer

(a) Unless the Exchange Offer would violate applicable law or any applicable interpretation of the staff of the SEC, the Issuers and the Guarantors shall use commercially reasonable efforts to file with the SEC a Registration Statement (the “Exchange Offer Registration Statement”) on an appropriate registration form with respect to a registered offer (the “ExchangeOffer”) to exchange any and all of the applicable series of Registrable Securities for a like aggregate principal amount of debt securities of the Issuers (the “Exchange Notes”), guaranteed, to the extent applicable, on an unsecured senior basis by the Guarantors (the “New Guarantees” and, together with the Exchange Notes, the “Exchange Securities”), that are identical in all material respects to the applicable series of Senior Notes except that (i) the Exchange Notes shall contain no restrictive legend thereon, (ii) interest thereon shall accrue from the last date on which interest was paid on the Senior Notes and (iii) the Exchange Securities shall be entitled to

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the benefits of the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with the TIA) and which, in either case, has been qualified under the TIA. The Exchange Offer shall comply with all applicable tender offer rules and regulations under the Exchange Act and other applicable laws. The Issuers and the Guarantors shall use commercially reasonable efforts to (x) prepare and file with the SEC the Exchange Offer Registration Statement with respect to the Exchange Offer; (y) keep the Exchange Offer open for at least 20 Business Days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; and (z) consummate the Exchange Offer on or prior to the 575th day following the Issue Date.

Each Holder (including, without limitation, each Participating Broker-Dealer) that participates in the Exchange Offer, as a condition to participation in the Exchange Offer, will be required to represent to the Issuers in writing (which may be contained in the applicable letter of transmittal) that: (i) any Exchange Securities acquired in exchange for Registrable Securities tendered are being acquired in the ordinary course of business of the Person receiving such Exchange Securities, whether or not such recipient is such Holder itself; (ii) at the time of the commencement or consummation of the Exchange Offer neither such Holder nor, to the actual knowledge of such Holder, any other Person receiving Exchange Securities from such Holder has an arrangement or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities in violation of the provisions of the Securities Act; (iii) neither the Holder nor, to the actual knowledge of such Holder, any other Person receiving Exchange Securities from such Holder is an “affiliate” (as defined in Rule 405) of an Issuer or, if it is an affiliate of an Issuer, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable and will provide information to be included in the Shelf Registration Statement in accordance with Section 6 hereof in order to have their Securities included in the Shelf Registration Statement and benefit from the provisions regarding Additional Interest in Section 5 hereof; (iv) if such Holder is not a broker-dealer, neither such Holder nor, to the actual knowledge of such Holder, any other Person receiving Exchange Securities from such Holder is engaging in or intends to engage in a distribution of the Exchange Securities; and (v) if such Holder is a Participating Broker-Dealer, such Holder has acquired the Registrable Securities for its own account in exchange for Securities that were acquired as a result of market-making activities or other trading activities and that it will comply with the applicable provisions of the Securities Act (including, but not limited to, the prospectus delivery requirements thereunder).

Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatismutandis, solely with respect to Registrable Securities that are Private Exchange Notes (and the related Guarantees), Exchange Securities as to which Section 2(c)(iv) is applicable and Exchange Securities held by Participating Broker-Dealers, and the Issuers shall have no further obligation to register Registrable Securities (other than Private Exchange Notes (and the related Guarantees) and Exchange Securities as to which clause 2(d)(iv) hereof applies) pursuant to Section 3 hereof.

(b) The Issuers shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled “Plan of Distribution,” which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential “underwriter” status of any broker-dealer that is the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer (a “Participating Broker-Dealer”), whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies represent the

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prevailing views of the staff of the SEC. Such “Plan of Distribution” section shall also expressly permit, to the extent permitted by applicable policies and regulations of the SEC, the use of the Prospectus by all Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Securities in compliance with the Securities Act.

The Issuers and the Guarantors shall use commercially reasonable efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as is necessary to comply with applicable law in connection with any resale of the Exchange Securities; provided, however, that such period shall not be required to exceed 90 days, such longer period if extended pursuant to the last paragraph of Section 6 hereof (the “Applicable Period”).

If, prior to consummation of the Exchange Offer, the Initial Purchasers hold any Senior Notes acquired by them that have the status of an unsold allotment in the initial distribution, the Issuers, upon the request of the Initial Purchasers, shall simultaneously with the delivery of the Exchange Notes issue and deliver to the Initial Purchasers, in exchange (the “Private Exchange”) for such Senior Notes held by any such Holder, a like principal amount of the applicable series of notes (the “Private Exchange Notes”) of the Issuers, guaranteed by the Guarantors, that are identical in all material respects to the Exchange Notes except for the placement of a restrictive legend on such Private Exchange Notes. The Private Exchange Notes shall be issued pursuant to the same indenture as the Exchange Notes and bear the same CUSIP number as the Exchange Notes if permitted by the CUSIP Service Bureau.

In connection with the Exchange Offer, the Issuers shall:

(1) mail, or cause to be mailed, to each Holder of record entitled to participate in the Exchange Offer a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents;

(2) use their respective reasonable best efforts to keep the Exchange Offer open for at least 20 Business Days from the date that notice of the Exchange Offer is mailed to Holders (or longer if required by applicable law);

(3) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York or in Wilmington, Delaware;

(4) permit Holders to withdraw tendered Senior Notes at any time prior to the close of business, New York time, on the last Business Day on which the Exchange Offer remains open; and

(5) otherwise comply in all material respects with all laws, rules and regulations applicable to the Exchange Offer.

As soon as practicable after the close of the Exchange Offer and any Private Exchange, the Issuers shall:

(1) accept for exchange all Registrable Securities validly tendered and not validly withdrawn pursuant to the Exchange Offer and any Private Exchange;

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(2) deliver to the applicable Trustee for cancellation all Registrable Securities so accepted for exchange; and

(3) cause the applicable Trustee to authenticate and deliver promptly to each Holder of Senior Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the applicable series of Senior Notes of such Holder so accepted for exchange; provided that, in the case of any Senior Notes held in global form by a depositary, authentication and delivery to such depositary of one or more replacement Senior Notes of the applicable series in global form in an equivalent principal amount thereto for the account of such Holders in accordance with the Indenture shall satisfy such authentication and delivery requirement.

The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than that (i) the Exchange Offer or Private Exchange, as the case may be, does not violate applicable law or any applicable interpretation of the staff of the SEC; (ii) no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair the ability of the Issuers to proceed with the Exchange Offer or the Private Exchange, and no material adverse development shall have occurred in any existing action or proceeding with respect to the Issuers; and (iii) all governmental approvals shall have been obtained, which approvals the Issuers deem necessary for the consummation of the Exchange Offer or Private Exchange.

(c) The Exchange Securities and the Private Exchange Notes (and related guarantees) shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the TIA or is exempt from such qualification and shall provide that the Exchange Securities shall not be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Senior Notes of the applicable series outstanding shall vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Senior Notes outstanding of the applicable series will have the right to vote or consent as a separate class on any matter.

(d) If, (i) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the Issuers are not permitted to effect the Exchange Offer, (ii) the Exchange Offer is not consummated within 575 days of the Issue Date, (iii) any holder of Private Exchange Notes so requests in writing to the Issuers at any time within 30 days after the consummation of the Exchange Offer, or (iv) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange Securities on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Issuers within the meaning of the Securities Act) and so notifies the Issuers within 30 days after such Holder first becomes aware of such restrictions, in the case of each of clauses (i) to and including (iv) of this sentence, then the Issuers shall promptly deliver to the applicable Trustee (to deliver to the Holders) written notice thereof (the “Shelf Notice”) and shall file a Shelf Registration pursuant to Section 3 hereof.

3. Shelf Registration

If at any time a Shelf Notice is delivered as contemplated by Section 2(d) hereof, then:

(a) Shelf Registration. The Issuers shall promptly file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities (the “Initial Shelf Registration”). The Issuers

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and the Guarantors shall use reasonable best efforts to file with the SEC the Initial Shelf Registration on or prior to the Filing Date. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Securities for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings).

The Issuers and the Guarantors shall use commercially reasonable efforts to cause the Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date and to keep the Initial Shelf Registration continuously effective under the Securities Act until the earliest of (i) two years after the Issue Date, (ii) such shorter period ending when all Registrable Securities covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or, if applicable, a Subsequent Shelf Registration or (iii) the date upon which all Registrable Securities are resold to the public pursuant to Rule 144 (the “Effectiveness Period”); provided, however, that the Effectiveness Period in respect of the Initial Shelf Registration shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the Securities Act and as otherwise provided herein. Notwithstanding anything to the contrary in this Agreement, at any time, the Issuers may delay the filing of any Initial Shelf Registration Statement or delay or suspend the effectiveness thereof, for a reasonable period of time, but not in excess of 60 consecutive days or more than three (3) times during any calendar year (each, a “Shelf Suspension Period”), if the Boards of Directors of the Issuers determine reasonably and in good faith that the filing of any such Initial Shelf Registration Statement or the continuing effectiveness thereof would require the disclosure of non-public material information that, in the reasonable judgment of the Boards of Directors of the Issuers, would be detrimental to the Issuers if so disclosed or would otherwise materially adversely affect a financing, acquisition, disposition, merger or other material transaction or such action is required by applicable law.

(b) Withdrawal of Stop Orders; Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the Securities registered thereunder), the Issuers and the Guarantors shall use commercially reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall file an additional Shelf Registration Statement pursuant to Rule 415 covering all of the Registrable Securities covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration (each, a “Subsequent Shelf Registration”). If a Subsequent Shelf Registration is filed, the Issuers shall use commercially reasonable efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein the term “Shelf Registration” means the Initial Shelf Registration and any Subsequent Shelf Registration.

(c) Supplements and Amendments. The Issuers shall promptly supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Securities (or their counsel) covered by such Registration

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Statement with respect to the information included therein with respect to one or more of such Holders, or, if reasonably requested by any underwriter of such Registrable Securities, with respect to the information included therein with respect to such underwriter.

4. [Reserved].

5. Additional Interest

(a) The Issuers, the Guarantors and the Initial Purchasers agree that the Holders will suffer damages if the Issuers or the Guarantors fail to fulfill their respective obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Issuers and the Guarantors agree to pay, jointly and severally, as liquidated damages, additional interest on the applicable series of Senior Notes (“Additional Interest”) if (A) the Issuers have neither (i) exchanged Exchange Securities for all Securities of such series validly tendered in accordance with the terms of the Exchange Offer nor (ii) had a Shelf Registration Statement declared effective, in either case on or prior to the 575th day after the Issue Date, (B) notwithstanding clause (A), the Issuers are required to file a Shelf Registration Statement and such Shelf Registration Statement is not declared effective on or prior to the 365th day after the date such Shelf Registration Statement filing was requested or required or (C), if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period (other than because of the sale of all of the Securities registered thereunder), then Additional Interest shall accrue on the principal amount of the applicable series of Senior Notes at a rate of 0.25% per annum (which rate will be increased by an additional 0.25% per annum for each subsequent 90-day period that elapses, provided that the aggregate increase in such annual interest rate may in no event exceed 1.00% per annum) (such Additional Interest to be calculated by the Issuers) commencing on the (x) 576th day after the Issue Date, in the case of (A) above, (y) the 366th day after the date such Shelf Registration Statement filing was requested or required in the case of (B) above or (z) the day such Shelf Registration ceases to be effective in the case of (C) above; provided, however, that upon the exchange of the Exchange Securities for all Securities of such series tendered (in the case of clause (A) of this Section 5), upon the effectiveness of the applicable Shelf Registration Statement (in the case of (B) of this Section 5), or upon the effectiveness of the applicable Shelf Registration Statement which had ceased to remain effective (in the case of (C) of this Section 5), Additional Interest on the Senior Notes of such series in respect of which such events relate as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. Notwithstanding any other provisions of this Section 5, the Issuers shall not be obligated to pay Additional Interest provided in Section 5(a)(B) during a Shelf Suspension Period permitted by Section 3(a) hereof; provided, that no Additional Interest shall accrue on the Senior Notes following the second anniversary of the Issue Date.

(b) The Issuers shall notify the applicable Trustee within one business day after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an “Event Date”). Any amounts of Additional Interest due pursuant to (a) of this Section 5 will be payable in cash semiannually on the payment dates stated in the Indenture (to the holders of record on the record dates stated in the Indenture immediately preceding such dates), commencing with the first such date occurring after any such Additional Interest commences to accrue. The amount of Additional Interest will be determined by the Issuers by multiplying the applicable Additional Interest rate by the principal amount of the applicable series of Registrable Securities, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360 day year comprised of twelve 30 day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360.

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6. Registration Procedures

In connection with the filing of any Registration Statement pursuant to Section 2 or 3 hereof, the Issuers shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Issuers hereunder the Issuers and the Guarantors shall:

(a) Prepare and file with the SEC (prior to the applicable Filing Date in the case of a Shelf Registration), a Registration Statement or Registration Statements as prescribed by Section 2 or 3 hereof, and use reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that if (1) such filing is pursuant to Section 3 hereof or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period relating thereto from whom the Issuers have received prior written notice that it will be a Participating Broker-Dealer in the Exchange Offer, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers shall furnish to and afford counsel for the Holders of the Registrable Securities covered by such Registration Statement (with respect to a Registration Statement filed pursuant to Section 3 hereof) or counsel for such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, and counsel to the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least three business days prior to such filing). The Issuers shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Registrable Securities covered by such Registration Statement, their counsel, or the managing underwriters, if any, shall reasonably object.

(b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period, the Applicable Period or until consummation of the Exchange Offer, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by an Participating Broker-Dealer covered by any such Prospectus in all material respects. The Issuers and the Guarantors shall be deemed not to have used reasonable best efforts to keep a Registration Statement effective if they voluntarily take any action that is reasonably expected to result in selling Holders of the Registrable Securities covered thereby or Participating Broker-Dealers seeking to sell Exchange Securities not being able to sell such Registrable Securities or such Exchange Securities during that period unless such action is required by applicable law or permitted by this Agreement.

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(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period relating thereto from whom the Issuers have received written notice that it will be a Participating Broker-Dealer in the Exchange Offer, notify the selling Holders of Registrable Securities (with respect to a Registration Statement filed pursuant to Section 3 hereof), or each such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, their counsel and the managing underwriters, if any, promptly (but in any event within three Business Days), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Issuers, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Securities or resales of Exchange Securities by Participating Broker-Dealers the representations and warranties of the Issuers contained in any agreement (including any underwriting agreement) contemplated by Section 6(m) hereof cease to be true and correct, (iv) of the receipt by the Issuers of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Securities or the Exchange Securities to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (vi) of the Issuers’ determination that a post-effective amendment to a Registration Statement would be appropriate.

(d) Use reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Securities or the Exchange Securities to be sold by any Participating Broker- Dealer, for sale in any jurisdiction.

(e) If a Shelf Registration is filed pursuant to Section 3 and if requested during the Effectiveness Period by the managing underwriter or underwriters (if any) or the Holders of a majority in aggregate principal amount of the Registrable Securities

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being sold in connection with an underwritten offering, (i) as promptly as practicable incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders or counsel for either of them reasonably request to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Issuers have received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement.

(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, furnish to each selling Holder of Registrable Securities (with respect to a Registration Statement filed pursuant to Section 3 hereof) and to each such Participating Broker-Dealer who so requests (with respect to any such Registration Statement) and to their respective counsel and each managing underwriter, if any, at the sole expense of the Issuers, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits.

(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, deliver to each selling Holder of Registrable Securities (with respect to a Registration Statement filed pursuant to Section 3 hereof), or each such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, their respective counsel, and the underwriters, if any, at the sole expense of the Issuers, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 6, the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers, if any, in connection with the offering and sale of the Registrable Securities covered by, or the sale by Participating Broker-Dealers of the Exchange Securities pursuant to, such Prospectus and any amendment or supplement thereto.

(h) Prior to any public offering of Registrable Securities or any delivery of a Prospectus contained in the Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, use reasonable best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Securities or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request in writing; provided, however, that where Exchange Securities held by

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Participating Broker-Dealers or Registrable Securities are offered other than through an underwritten offering, the Issuers agree to cause their counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 6(h), keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Exchange Securities held by Participating Broker-Dealers or the Registrable Securities covered by the applicable Registration Statement; provided, however, that the Issuers shall not be required to (A) qualify generally to do business in any jurisdiction where they are not then so qualified, (B) take any action that would subject them to general service of process in any such jurisdiction where they are not then so subject or (C) subject themselves to taxation in excess of a nominal dollar amount in any such jurisdiction where they are not then so subject.

(i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Registrable Securities and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Securities to be in such denominations (subject to applicable requirements contained in the Indenture) and registered in such names as the managing underwriter or underwriters, if any, or Holders may request.

(j) Use reasonable best efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other U.S. governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Securities, except as may be required solely as a consequence of the nature of such selling Holder’s business, in which case the Issuers will cooperate in all respects with the filing of such Registration Statement and the granting of such approvals.

(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, upon the occurrence of any event contemplated by paragraph 6(c)(v) or 6(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 6(a) hereof) file with the SEC, at the sole expense of the Issuers, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder (with respect to a Registration Statement filed pursuant to Section 3 hereof) or to the purchasers of the Exchange Securities to whom such Prospectus will be delivered by a Participating Broker-Dealer (with respect to any such Registration Statement), any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(l) Prior to the effective date of the first Registration Statement relating to the Registrable Securities, (i) provide the applicable Trustee with certificates for the Registrable Securities in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the applicable series of Registrable Securities.

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(m) In connection with any underwritten offering of Registrable Securities pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Securities (including, without limitation, a customary condition to the obligations of the underwriters that the underwriters shall have received “cold comfort” letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Issuers (and, if necessary, any other independent certified public accountants of the Issuers, or of any business acquired by the Issuers, for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with underwritten offerings of debt securities similar to the Securities), and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Securities and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Issuers (including any acquired business, properties or entity, if applicable), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by Issuers to underwriters in underwritten offerings of debt securities similar to the Securities, and confirm the same in writing if and when requested; (ii) obtain the written opinions of counsel to the Issuers, and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions reasonably requested in underwritten offerings; and (iii) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the sellers and underwriters, if any, than those set forth in Section 8 hereof (or such other provisions and procedures reasonably acceptable to Holders of a majority in aggregate principal amount of the applicable series of Registrable Securities covered by such Registration Statement and the managing underwriter or underwriters or agents, if any). The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder.

(n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, make available for inspection by any Initial Purchaser, any selling Holder of such Registrable Securities being sold (with respect to a Registration Statement filed pursuant to Section 3 hereof), or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, or underwriter (any such Initial Purchasers, Holders, Participating Broker-Dealers, underwriters, attorneys, accountants or agents, collectively, the “Inspectors”), upon written request, at the offices where normally kept, during reasonable business hours, all pertinent financial and other records, pertinent corporate documents and instruments of the Issuers and subsidiaries of the Issuers (collectively, the “Records”), as shall be

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reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Issuers and any of its subsidiaries to supply all information (“Information”) reasonably requested by any such Inspector in connection with such due diligence responsibilities. Each Inspector shall agree in writing that it will keep the Records and Information confidential, to use the Information only for due diligence purposes, to abstain from using the Information as the basis for any market transactions in securities of the Issuers and that it will not disclose any of the Records or Information that the Issuers determine, in good faith, to be confidential and notifies the Inspectors in writing are confidential unless (i) the disclosure of such Records or Information is necessary to avoid or correct a misstatement or omission in such Registration Statement or Prospectus, (ii) the release of such Records or Information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) disclosure of such Records or Information is necessary or advisable, in the opinion of counsel for any Inspector, in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, relating to, or involving this Agreement or the Purchase Agreement, or any transactions contemplated hereby or thereby or arising hereunder or thereunder, or (iv) the information in such Records or Information has been made generally available to the public other than by an Inspector or an “affiliate” (as defined in Rule 405) thereof; provided, however, that prior notice shall be provided as soon as practicable to the Issuers of the potential disclosure of any information by such Inspector pursuant to clauses (i) or (ii) of this sentence to permit the Issuers to obtain a protective order (or waive the provisions of this paragraph (n)) and that such Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information (if practicable) to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of the Holder or any Inspector.

(o) Provide an indenture trustee for the Registrable Securities or the Exchange Securities, as the case may be, and cause the Indenture or the trust indentures provided for in Section 2(a) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Securities; and in connection therewith, cooperate with the trustee under any such indentures and the Holders of the Registrable Securities, to effect such changes (if any) to such indentures as may be required for such indentures to be so qualified in accordance with the terms of the TIA; and execute, and use its commercially reasonable best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner.

(p) Comply in all material respects with all applicable rules and regulations of the SEC and make generally available to its securityholders with regard to any applicable Registration Statement, a consolidated earning statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any fiscal quarter (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Partnership, after the effective date of a Registration Statement, which statements shall cover said 12-month periods; provided that this requirement shall be deemed satisfied by the Issuers complying with Section 4.03 of the Indenture.

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(q) Upon consummation of the Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Issuers, in a form customary for underwritten transactions, addressed to the applicable Trustee for the benefit of all Holders of Registrable Securities participating in the Exchange Offer or the Private Exchange, as the case may be, that the Exchange Securities or Private Exchange Notes (and the related Guarantees), as the case may be, the related guarantee and the related indenture constitute legal, valid and binding obligations of the Issuers and the Guarantors, as applicable, enforceable against the Issuers and the Guarantors, as applicable, in accordance with their respective terms, subject to customary exceptions and qualifications. If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Securities by Holders to the Issuers (or to such other Person as directed by the Issuers), in exchange for the applicable series of Exchange Securities or the Private Exchange Notes (and the related Guarantees), as the case may be, the Issuers shall mark, or cause to be marked, on such Registrable Securities that such Registrable Securities are being cancelled in exchange for the applicable series of Exchange Securities or the Private Exchange Notes (and the related Guarantees), as the case may be; in no event shall such Registrable Securities be marked as paid or otherwise satisfied.

(r) Use reasonable efforts to cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the Financial Industry Regulatory Authority Inc. (“FINRA”).

(s) Use reasonable best efforts to take all other steps reasonably necessary to effect the registration of the Exchange Securities and/or Registrable Securities covered by a Registration Statement contemplated hereby.

The Issuers may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Issuers such information regarding such seller and the distribution of such Registrable Securities as the Issuers may, from time to time, reasonably request. The Issuers may exclude from such registration the Registrable Securities of any seller so long as such seller fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such seller not materially misleading.

If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Issuers, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Issuers, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required.

Each Holder of Registrable Securities and each Participating Broker-Dealer agrees by its acquisition of such Registrable Securities or Exchange Securities to be sold

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by such Participating Broker-Dealer, as the case may be, that, upon actual receipt of any notice from the Issuers of the happening of any event of the kind described in Section 6(c)(ii), 6(c)(iv), 6(c)(v), or 6(c)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus or Exchange Securities to be sold by such Holder or Participating Broker-Dealer, as the case may be, until such Holder’s or Participating Broker-Dealer’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6 (k) hereof, or until it is advised in writing (the “Advice”) by the Issuers that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event that the Issuers shall give any such notice, each of the Applicable Period and the Effectiveness Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 6(k) hereof or (y) the Advice.

7. Registration Expenses

All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers or the Guarantors of their respective obligations under Sections 2, 3, 4, 6 and 9 shall be borne by the Issuers and the Guarantors, whether or not the Exchange Offer Registration Statement or any Shelf Registration Statement is filed or becomes effective or the Exchange Offer is consummated, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the FINRA in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities or Exchange Securities and determination of the eligibility of the Registrable Securities or Exchange Securities for investment under the laws of such jurisdictions in the United States (x) where the holders of Registrable Securities are located, in the case of the Exchange Securities, or (y) as provided in Section 6 (h) hereof, in the case of Registrable Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount of the Registrable Securities included in any Registration Statement or in respect of Registrable Securities or Exchange Securities to be sold by any Participating Broker-Dealer during the Applicable Period, as the case may be, (iii) fees and expenses of the applicable Trustee, any exchange agent and their counsel, (iv) fees and disbursements of counsel for the Issuers and, in the case of a Shelf Registration, reasonable fees and disbursements of one special counsel for all of the sellers of Registrable Securities selected by the Holder of a majority in aggregate principal amount of Registrable Securities covered by such Shelf Registration (which counsel shall be reasonably satisfactory to the Issuers) exclusive of any counsel retained pursuant to Section 8 hereof), (v) fees and disbursements of all independent certified public accountants referred to in Section 6(m) hereof (including, without limitation, the expenses of any “cold comfort” letters required by or incident to such performance), (vi) rating agency fees, if any, and any fees associated with making the Registrable Securities or Exchange Securities eligible for trading through The Depository Trust Company, (vii) Securities Act liability insurance, if the Issuers desire such insurance, (viii) fees and expenses of all other Persons retained by the Issuers, (ix) internal expenses of the Issuers and the Guarantors (including, without limitation, all salaries and expenses of officers and employees of the Issuers and the Guarantors performing legal or

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accounting duties), (x) the expense of any annual audit, (xi) any fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, and the obtaining of a rating of the securities, in each case, if applicable and (xii) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, indentures and any other documents necessary in order to comply with this Agreement.

8. Indemnification and Contribution

(a) The Issuers and the Guarantors, jointly and severally, agree to indemnify and hold harmless each Holder of Registrable Securities and each Participating Broker-Dealer selling Exchange Securities during the Applicable Period, and each Person, if any, who controls such Person or its affiliates within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (each, a “Participant”) against any losses, claims, damages or liabilities, joint or several, to which any Participant may become subject under the Securities Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon:

(i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Issuers shall have furnished any amendments or supplements thereto) or any preliminary prospectus; or

(ii) the omission or alleged omission to state, in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Issuers shall have furnished any amendments or supplements thereto) or any preliminary prospectus or any other document or any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein not misleading,

except, in each case, insofar as such losses, claims, damages or liabilities are arising out of or based upon any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Initial Purchaser or any Holder furnished to the Issuers in writing through the Initial Purchasers or any selling Holder expressly for use therein;

and agree (subject to the limitations set forth in the proviso to this sentence) to reimburse, as incurred, the Participant for any reasonable legal or other expenses incurred by the Participant in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; provided, however, neither the Issuers nor the Guarantors will be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Issuers shall have furnished any amendments or supplements thereto) or any preliminary prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information relating to any Participant furnished to the Issuers by such Participant specifically for use therein. The indemnity provided for in this Section 8 will be in addition to any liability that the Issuers may otherwise have to the indemnified parties. The Issuers and the Guarantors shall not be liable under this Section 8 to any indemnified party regarding any settlement or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent is consented to by the Issuers and the Guarantors, which consent shall not be unreasonably withheld.

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(b) Each Participant, severally and not jointly, agrees to indemnify and hold harmless the Issuers, the Guarantors, their respective directors (or equivalent), their respective officers who sign any Registration Statement and each person, if any, who controls the Issuers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which the Issuers, the Guarantors or any such director, officer or controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus, or (ii) the omission or the alleged omission to state therein a material fact necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Participant, furnished to the Issuers by or on behalf of such Participant, specifically for use therein; and subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any reasonable legal or other expenses incurred by the Issuers, the Guarantors or any such director, officer or controlling person in connection with investigating or defending against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action in respect thereof. The indemnity provided for in this Section 8 will be in addition to any liability that the Participants may otherwise have to the indemnified parties. The Participants shall not be liable under this Section 8 to any indemnified party regarding any settlement or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent is consented to by the Participants, which consent shall not be unreasonably withheld. The Issuers and the Guarantors shall not, without the prior written consent of such Participant, effect any settlement or compromise of any pending or threatened proceeding in respect of which such Participant is or could have been a party, or indemnity could have been sought hereunder by such Participant, unless such settlement (A) includes an unconditional written release of such Participant, in form and substance reasonably satisfactory to such Participant, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of such Participant.

(c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party of the commencement thereof in writing; but the omission to so notify the indemnifying party (i) will not relieve it from any liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraphs (a) and (b) above. The indemnifying party shall be entitled to appoint counsel (including local counsel) of the indemnifying party’s choice at the indemnifying party’s expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel, other than local counsel if not appointed by the indemnifying party, retained by the indemnified party or parties except as set forth below); provided, however, that such counsel

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shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party’s election to appoint counsel (including local counsel) to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest (based on the advice of counsel to the indemnified person); (ii) such action includes both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded (based on the advice of counsel to the indemnified person) that there may be legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party; (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action; or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. It is understood and agreed that the indemnifying person shall not, in connection with any proceeding or separate but related or substantially similar proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm (in addition to any local counsel) representing the indemnified parties under paragraph (a) or paragraph (b) of this Section 8, as the case may be, who are parties to such action or actions. Any such separate firm for any Participants shall be designated in writing by Participants who sold a majority in interest of the Registrable Securities and Exchange Securities sold by all such Participants in the case of paragraph (a) of this Section 8 or the Issuers in the case of paragraph (b) of this Section 8. In the event that any Participants are indemnified persons collectively entitled, in connection with a proceeding or separate but related or substantially similar proceedings in a single jurisdiction, to the payment of fees and expenses of a single separate firm under this Section 8(c), and any such Participants cannot agree to a mutually acceptable separate firm to act as counsel thereto, then such separate firm for all such Indemnified Persons shall be designated in writing by Participants who sold a majority in interest of the Registrable Securities and Exchange Securities sold by all such Participants. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding and does not include any statement as to, or any admission of, fault, culpability or failure to act by or on behalf of any indemnified party. All fees and expenses reimbursed pursuant to this paragraph (c) shall be reimbursed as they are incurred.

(d) After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the third sentence of paragraph (c) of this Section 8 or (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld), unless such indemnified party waived in writing its rights under this Section 8, in which case the indemnified party may effect such a settlement without such consent.

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(e) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 8 is unavailable to, or insufficient to hold harmless, an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) (other than by virtue of the failure of an indemnified party to notify the indemnifying party of its right to indemnification pursuant to paragraph (a) or (b) of this Section 8, where such failure materially prejudices the indemnifying party (through the forfeiture of substantial rights or defenses)), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Issuers and the Guarantors on the one hand and such Participant on the other shall be deemed to be in the same proportion that the total net proceeds from the offering (before deducting expenses) of the Securities received by the Issuers bear to the total discounts and commissions received by such Participant in connection with the sale of the Securities (or if such Participant did not receive discounts or commissions, the value or receiving the Securities). The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers and the Guarantors on the one hand, or the Participants on the other, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or alleged statement or omission, and any other equitable considerations appropriate in the circumstances. The parties agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (e). Notwithstanding any other provision of this paragraph (e), no Participant shall be obligated to make contributions hereunder that in the aggregate exceed the total discounts, commissions and other compensation or net proceeds on the sale of Securities received by such Participant in connection with the sale of the Securities, less the aggregate amount of any damages that such Participant has otherwise been required to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls a Participant within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Participants, and each director of the Issuers and the Guarantors, each officer of the Issuers and the Guarantors and each person, if any, who controls any of the Issuers and the Guarantors within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same rights to contribution as the Issuers.

9. Rule 144A

The Issuers covenant and agree that they will use reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and

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regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time the Issuers are not required to file such reports, the Issuers will, upon the request of any Holder or beneficial owner of Registrable Securities, make available such information necessary to permit sales pursuant to Rule 144A. The Issuers further covenant and agree, for so long as any Registrable Securities remain outstanding that it will take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions

provided by Rule 144A unless the Issuers are then subject to Section 13 or 15(d) of the Exchange Act and reports filed thereunder satisfy the information requirements of Rule 144A then in effect.

10. Underwritten Registrations

The Issuers shall not be required to assist in an underwritten offering unless requested by the Holders of a majority in aggregate principal amount of the Registrable Securities. If any of the Registrable Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Securities included in such offering and shall be reasonably acceptable to the Issuers.

No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder’s Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.

11. Miscellaneous

(a) No Inconsistent Agreements. Neither the Issuers nor any Guarantor has, as of the date hereof, and the Issuers and the Guarantors shall not, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Issuers other issued and outstanding securities under any such agreements. The Issuers and the Guarantors shall not enter into any agreement with respect to any of its securities which will grant to any Person piggy-back registration rights with respect to any Registration Statement.

(b) Adjustments Affecting Registrable Securities. The Issuers and the Guarantors shall not, directly or indirectly, take any action with respect to the Registrable Securities as a class that would adversely affect the ability of the Holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement.

(c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (I) the Issuers, and (II) (A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Securities of the applicable series of Senior Notes and (B) in circumstances that would adversely affect the Participating Broker-Dealers, the Participating Broker-Dealers holding

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not less than a majority in aggregate principal amount of the applicable series of Exchange Notes held by all Participating Broker-Dealers; provided, however, that Section 8 and this Section 11(c) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker-Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Securities or Exchange Securities, as the case may be, disposed of pursuant to any Registration Statement) affected by any such amendment, modification or supplement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities of the applicable series of Senior Notes whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities of such series may be given by Holders of at least a majority in aggregate principal amount of the Registrable Securities of the applicable series of Senior Notes being sold pursuant to such Registration Statement.

(d) Notices. All notices and other communications (including, without limitation, any notices or other communications to the applicable Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile:

(i) if to a Holder of the Registrable Securities or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer set forth on the records of the registrar under the Indenture, with a copy in like manner to the Initial Purchasers as follows:

Merrill Lynch, Pierce, Fenner & Smith Incorporated

One Bryant Park

New York, New York 10036

Attention: High Yield Legal Department

with a copy to:

Cahill Gordon & Reindel LLP

80 Pine Street

New York, New York 10005

Facsimile No.: (212) 269-5420

Attention: Douglas Horowitz, Esq.

(ii) if to the Initial Purchasers, at the address specified in Section 11(d)(i);

(iii) if to the Issuers, at the address as follows:

Tesoro Logistics LP

19100 Ridgewood Parkway

San Antonio, Texas 75259-1828

Facsimile No.: (844) 711-9189

Attention: General Counsel

with a copy to:

Simpson Thacher & Bartlett LLP

425 Lexington Ave.

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New York, New York 10017

Facsimile No.: (212) 455-2502

Attention: Kenneth B. Wallach, Esq.

All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; one Business Day after being timely delivered to a next-day air courier; and upon written confirmation, if sent by facsimile.

Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in such Indenture.

(e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, the Holders and the Participating Broker-Dealers; provided, however, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture.

(f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

(g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.

(i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(j) Notes Held by the Issuers or their Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Issuers or their affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

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(k) Third-Party Beneficiaries. Holders of Registrable Securities and Participating Broker-Dealers are intended third-party beneficiaries of this Agreement, and this Agreement may be enforced by such Persons.

(l) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders on the one hand and the Issuers and the Guarantors on the other, or between or among any agents, representative, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby.

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

Very truly yours,

TESORO LOGISTICS LP

By: Tesoro Logistics GP, LLC, its general partner

By:/s/ Phillip M. Anderson___________________

Name: Phillip M. Anderson

Title: President

TESORO LOGISTICS FINANCE CORP. TESORO HIGH PLAINS PIPELINE COMPANY LLC

TESORO LOGISTICS OPERATIONS LLC TESORO LOGISTICS PIPELINES LLC

TESORO LOGISTICS NORTHWEST PIPELINE LLC

TESORO SOCAL PIPELINE COMPANY LLC

TESORO ALASKA PIPELINE COMPANY LLC

By:/s/ Phillip M. Anderson__________________

Name: Phillip M. Anderson

Title: President

Signature Page to Registration Rights Agreement

The foregoing Agreement is hereby confirmed and accepted as of the date first above written.

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED Acting as Representative of the several Initial Purchasers.

By:/s/ John Pantalena__________________________

Name: John Pantalena

Title: Director

Signature Page to Registration Rights Agreement

SCHEDULE I

THE GUARANTORS

TESORO HIGH PLAINS PIPELINE COMPANY LLC

TESORO LOGISTICS OPERATIONS LLC

TESORO LOGISTICS PIPELINES LLC

TESORO LOGISTICS NORTHWEST PIPELINE LLC

TESORO SOCAL PIPELINE COMPANY LLC

TESORO ALASKA PIPELINE COMPANY LLC

Exhibit A

JOINDER AGREEMENT TO REGISTRATION RIGHTS AGREEMENT

[ ], 2014

Reference is hereby made to the Registration Rights Agreement, dated as of October 29, 2014 (the “Registration Rights Agreement”), by and among TESORO LOGISTICS LP, a limited partnership organized under the laws of Delaware (the “Partnership”), TESORO LOGISTICS FINANCE CORP., a Delaware corporation (together with the Partnership, the “Issuers”), the guarantors party thereto and the Representatives on behalf of the several Initial Purchasers concerning registration rights relating to the Issuer’s 5.50% Senior Notes due 2019 (the “2019 Notes”) and 6.25% Senior Notes due 2022 (together with the 2019 Notes, the “Notes”). Unless otherwise defined herein, terms defined in the Registration Rights Agreement and used herein shall have the meanings given them in the Registration Rights Agreement.

1. Joinder. [Each of] the undersigned hereby acknowledges that it has received a copy of the Registration Rights Agreement and absolutely, unconditionally and irrevocably acknowledges and agrees with the Initial Purchasers that by its execution and delivery hereof it shall (i) join and become a party to the Registration Rights Agreement and be deemed to be a Guarantor under the Registration Rights Agreement; (ii) be bound by all covenants, agreements and acknowledgements applicable to such party as set forth in and in accordance with the terms of the Registration Rights Agreement; and (iii) perform all obligations and duties as required of it as a Guarantor in accordance with the Registration Rights Agreement.

2. Governing Law. THIS JOINDER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS JOINDER AGREEMENT.

3. Counterparts. This Joinder Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

4. Amendments. No amendment or waiver of any provision of this Joinder Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.

5. Headings. The headings in this Joinder Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

[Signature Page Follows]

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IN WITNESS WHEREOF, the undersigned have executed this Joinder Agreement as of the date first written above.

[QEP GUARANTORS]

By:_________________________________________

Name:

Title:

EX-4.5

Exhibit 4.5

SECOND SUPPLEMENTAL INDENTURE

SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of October 8, 2014, among Tesoro Alaska Pipeline Company LLC (the “Guaranteeing Subsidiary”), Tesoro Logistics LP, a Delaware limited partnership (“TLLP”), Tesoro Logistics Finance Corp., a Delaware corporation (together with TLLP, the “Issuers”), and U.S. Bank National Association, as trustee under the Indenture referred to below (the “Trustee”).

W I T N E S S E T H

WHEREAS, the Issuers have heretofore executed and delivered to the Trustee an indenture (the “Indenture”), dated as of August 1, 2013 providing for the issuance of 6.125% Senior Notes due 2021 (the “Notes”);

WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers’ Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); 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 Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

l. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.

3. EXECUTION AND DELIVERY. The Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.

4. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Issuers or any Guaranteeing Subsidiary under the Notes, any Note 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.

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

6. 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. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.

7. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.

8. 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 recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Issuers.

9. BENEFITS ACKNOWLEDGED. The Guaranteeing Subsidiary’s Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.

10. SUCCESSORS. All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its Successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.

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

GUARANTEEING SUBSIDIARY:

TESORO ALASKA PIPELINE COMPANY LLC

By: Tesoro Logistics Pipelines LLC, its sole member

By: Tesoro Logistics Operations LLC, its sole member

By: Tesoro Logistics LP, its sole member

By: Tesoro Logistics GP, LLC, its general partner

By:    /s/ PHILLIP M. ANDERSON

Name: Phillip M. Anderson

Title: President

ISSUERS:

TESORO LOGISTICS LP

By: Tesoro Logistics GP, LLP, its general partner

By: /s/ PHILLIP M. ANDERSON

Name: Phillip M. Anderson

Title: President

TESORO LOGISTICS FINANCE CORP.

By: /s/ PHILLIP M. ANDERSON

Name: Phillip M. Anderson

Title: President

TRUSTEE:

U.S. BANK NATIONAL ASSOCIATION, as Trustee

By:/s/ JAMES KOWALSKI

Authorized Signatory

EX-4.6

Exhibit 4.6

FOURTH SUPPLEMENTAL INDENTURE

SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of October 8, 2014 among Tesoro Alaska Pipeline Company LLC (the “Guaranteeing Subsidiary”), Tesoro Logistics LP, a Delaware limited partnership (“TLLP”), Tesoro Logistics Finance Corp., a Delaware corporation (together with TLLP, the “Issuers”), and U.S. Bank National Association, as trustee under the Indenture referred to below (the “Trustee”).

WITNESSETH

WHEREAS, the Issuers have heretofore executed and delivered to the Trustee an indenture (the “Indenture”), dated as of September 14, 2012 providing for the issuance of 5.875% Senior Notes due 2020 (the “Notes”);

WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers’ Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); 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 Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

l. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.

3. EXECUTION AND DELIVERY. The Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.

4. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Issuers or any Guaranteeing Subsidiary under the Notes,

any Note 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.

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

6. 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. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.

7. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.

8. 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 recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Issuers.

9. BENEFITS ACKNOWLEDGED. The Guaranteeing Subsidiary’s Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.

10. SUCCESSORS. All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its Successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.

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

GUARANTEEING SUBSIDIARY:

TESORO ALASKA PIPELINE COMPANY LLC

By: Tesoro Logistics Pipelines LLC, its sole member

By: Tesoro Logistics Operations LLC, its sole member

By: Tesoro Logistics LP, its sole member

By: Tesoro Logistics GP, LLC, its general partner

By:/s/ PHILLIP M. ANDERSON

Name: Phillip M. Anderson

Title: President

ISSUERS:

TESORO LOGISTICS LP

By: Tesoro Logistics GP, LLP, its general partner

By: /s/ PHILLIP M. ANDERSON

Name: Phillip M. Anderson

Title: President

TESORO LOGISTICS FINANCE CORP.

By: /s/ PHILLIP M. ANDERSON

Name: Phillip M. Anderson

Title: President

TRUSTEE:

U.S. BANK NATIONAL ASSOCIATION, as Trustee

By:/s/ JAMES KOWALSKI

Authorized Signatory

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:	October 31, 2014	/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, Steven M. Sterin, 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:	October 31, 2014	/s/ STEVEN M. STERIN
		Steven M. Sterin
		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 September 30, 2014 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

October 31, 2014

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 September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven M. Sterin, 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/ STEVEN M. STERIN

Steven M. Sterin

Chief Financial Officer

October 31, 2014

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

Condensed Consolidating Financial Information (Tables)

9 Months Ended

Sep. 30, 2014

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Consolidating Statement of Operations

Condensed Consolidating Statement of Operations

for the Three Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	12,528		$	1,671		$	(3,048	)	$	11,151
COSTS AND EXPENSES:
Cost of sales	—			11,076			1,504			(2,986		)	9,594
Operating, selling, general and administrative expenses	2			692			78			(62		)	710
Depreciation and amortization expense	—			125			19			—			144
Loss on asset disposals and impairments	—			1			—			—			1
OPERATING INCOME (LOSS)	(2		)	634			70			—			702
Equity in earnings of subsidiaries	405			11			—			(416		)	—
Interest and financing costs, net	(10		)	(23		)	(28		)	10			(51		)
Other income, net	—			12			10			(10		)	12
EARNINGS BEFORE INCOME TAXES	393			634			52			(416		)	663
Income tax expense (benefit) (a)	(3		)	241			11			—			249
NET EARNINGS FROM CONTINUING OPERATIONS	396			393			41			(416		)	414
Loss from discontinued operations, net of tax	—			(1		)	—			—			(1		)
NET EARNINGS	396			392			41			(416		)	413
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			17			—			17
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	396		$	392		$	24		$	(416	)	$	396
COMPREHENSIVE INCOME
Total comprehensive income	$	396		$	392		$	41		$	(416	)	$	413
Less: Noncontrolling interest in comprehensive income	—			—			17			—			17
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	396		$	392		$	24		$	(416	)	$	396

_________________

(a) The income tax expense (benefit) 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

for the Three Months EndedSeptember 30, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	13,233		$	1,514		$	(3,506	)	$	11,241
COSTS AND EXPENSES:
Cost of sales	—			12,436			1,424			(3,505		)	10,355
Operating, selling, general and administrative expenses	1			544			52			(1		)	596
Depreciation and amortization expense	—			126			14			—			140
Loss on asset disposals and impairments	—			4			—			—			4
OPERATING INCOME (LOSS)	(1		)	123			24			—			146
Equity in earnings of subsidiaries (a)	56			10			—			(66		)	—
Interest and financing costs, net	(7		)	(34		)	(12		)	6			(47		)
Other income, net	—			22			6			(6		)	22
EARNINGS BEFORE INCOME TAXES	48			121			18			(66		)	121
Income tax expense (benefit) (b)	(2		)	50			(1		)	—			47
NET EARNINGS FROM CONTINUING OPERATIONS	50			71			19			(66		)	74
Earnings (loss) from discontinued operations, net of tax	49			(14		)	—			—			35
NET EARNINGS	99			57			19			(66		)	109
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			10			—			10
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	99		$	57		$	9		$	(66	)	$	99
COMPREHENSIVE INCOME
Total comprehensive income	$	99		$	57		$	19		$	(66	)	$	109
Less: Noncontrolling interest in comprehensive income	—			—			10			—			10
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	99		$	57		$	9		$	(66	)	$	99

_________________

(a) Revised to conform to current period presentation of equity in earnings of subsidiaries that reflects equity in earnings of subsidiaries within the guarantor and non-guarantor columns net of intercompany amounts.

(b) The income tax expense (benefit) 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

for the Nine Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	36,821		$	5,110		$	(9,743	)	$	32,188
COSTS AND EXPENSES:
Cost of sales	—			33,312			4,668			(9,571		)	28,409
Operating, selling, general and administrative expenses	6			1,981			207			(172		)	2,022
Depreciation and amortization expense	—			355			54			—			409
(Gain) loss on asset disposals and impairments	—			3			(5		)	—			(2		)
OPERATING INCOME (LOSS)	(6		)	1,170			186			—			1,350
Equity in earnings of subsidiaries	722			38			—			(760		)	—
Interest and financing costs, net	(27		)	(106		)	(63		)	27			(169		)
Other income, net	2			12			27			(27		)	14
EARNINGS BEFORE INCOME TAXES	691			1,114			150			(760		)	1,195
Income tax expense (benefit) (a)	(7		)	419			25			—			437
NET EARNINGS FROM CONTINUING OPERATIONS	698			695			125			(760		)	758
Loss from discontinued operations, net of tax	—			(2		)	—			—			(2		)
NET EARNINGS	698			693			125			(760		)	756
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			58			—			58
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	698		$	693		$	67		$	(760	)	$	698
COMPREHENSIVE INCOME
Total comprehensive income	$	698		$	693		$	125		$	(760	)	$	756
Less: Noncontrolling interest in comprehensive income	—			—			58			—			58
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	698		$	693		$	67		$	(760	)	$	698

_________________

(a) The income tax expense (benefit) 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

for the Nine Months EndedSeptember 30, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	32,776		$	3,417		$	(8,708	)	$	27,485
COSTS AND EXPENSES:
Cost of sales	—			30,330			3,204			(8,707		)	24,827
Operating, selling, general and administrative expenses	8			1,460			113			(1		)	1,580
Depreciation and amortization expense	—			329			27			—			356
Loss on asset disposals and impairments	—			16			3			—			19
OPERATING INCOME (LOSS)	(8		)	641			70			—			703
Equity in earnings of subsidiaries (a)	386			21			—			(407		)	—
Interest and financing costs, net	(13		)	(85		)	(24		)	12			(110		)
Other income, net	—			78			12			(12		)	78
EARNINGS BEFORE INCOME TAXES	365			655			58			(407		)	671
Income tax expense (benefit) (b)	(5		)	246			2			—			243
NET EARNINGS FROM CONTINUING OPERATIONS	370			409			56			(407		)	428
Earnings (loss) from discontinued operations, net of tax	49			(26		)	—			—			23
NET EARNINGS	419			383			56			(407		)	451
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			32			—			32
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	419		$	383		$	24		$	(407	)	$	419
COMPREHENSIVE INCOME
Total comprehensive income	$	492		$	383		$	56		$	(407	)	$	524
Less: Noncontrolling interest in comprehensive income	—			—			32			—			32
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	492		$	383		$	24		$	(407	)	$	492

_________________

(a) Revised to conform to current period presentation of equity in earnings of subsidiaries that reflects equity in earnings of subsidiaries within the guarantor and non-guarantor columns net of intercompany amounts.

(b) The income tax expense (benefit) 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 September 30, 2014

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,438	$	92	$	—		$	1,530
Receivables, less allowance for doubtful accounts	—		1,286		292		—			1,578
Short-term receivables from affiliates	—		166		—		(166		)	—
Inventories	—		2,392		282		—			2,674
Prepayments and other current assets	42		128		13		(1		)	182
Total Current Assets	42		5,410		679		(167		)	5,964
Net Property, Plant and Equipment	—		5,531		1,557		—			7,088
Investment in Subsidiaries	5,973		404		—		(6,377		)	—
Long-Term Receivables from Affiliates	3,146		—		—		(3,146		)	—
Long-Term Intercompany Note Receivable	—		—		1,377		(1,377		)	—
Other Noncurrent Assets, Net	48		1,089		36		—			1,173
Total Assets	$	9,209	$	12,434	$	3,649	$	(11,067	)	$	14,225
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	1	$	2,376	$	360	$	—		$	2,737
Short-term payables to affiliates	—		—		166		(166		)	—
Other current liabilities	219		638		75		(1		)	931
Total Current Liabilities	220		3,014		601		(167		)	3,668
Long-Term Payables to Affiliates	—		3,138		8		(3,146		)	—
Deferred Income Taxes	1,167		—		—		—			1,167
Other Noncurrent Liabilities	252		293		15		—			560
Debt	1,622		40		1,276		—			2,938
Long-Term Intercompany Note Payable	1,377		—		—		(1,377		)	—
Equity-Tesoro Corporation	4,571		5,949		460		(6,377		)	4,603
Equity-Noncontrolling Interest	—		—		1,289		—			1,289
Total Liabilities and Equity	$	9,209	$	12,434	$	3,649	$	(11,067	)	$	14,225

Condensed Consolidating Balance Sheet as of December 31, 2013

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,161	$	77	$	—		$	1,238
Receivables, less allowance for doubtful accounts	12		1,182		119		—			1,313
Short-term receivables from affiliates	—		—		43		(43		)	—
Inventories	—		2,041		524		—			2,565
Prepayments and other current assets	109		89		14		(2		)	210
Total Current Assets	121		4,473		777		(45		)	5,326
Net Property, Plant and Equipment	—		5,428		1,447		—			6,875
Investment in Subsidiaries (a)	5,242		342		—		(5,584		)	—
Long-Term Receivables from Affiliates	3,080		—		—		(3,080		)	—
Long-Term Intercompany Note Receivable	—		—		1,134		(1,134		)	—
Other Noncurrent Assets, Net	58		1,092		38		—			1,188
Total Assets	$	8,501	$	11,335	$	3,396	$	(9,843	)	$	13,389
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	1	$	2,110	$	485	$	—		$	2,596
Short-term payables to affiliates	—		43		—		(43		)	—
Other current liabilities	112		636		66		(2		)	812
Total Current Liabilities	113		2,789		551		(45		)	3,408
Long-Term Payables to Affiliates	—		2,939		141		(3,080		)	—
Deferred Income Taxes	1,018		—		—		—			1,018
Other Noncurrent Liabilities	320		327		8		—			655
Debt	1,614		45		1,164		—			2,823
Long-Term Intercompany Note Payable	1,134		—		—		(1,134		)	—
Equity-Tesoro Corporation (a)	4,302		5,235		349		(5,584		)	4,302
Equity-Noncontrolling Interest	—		—		1,183		—			1,183
Total Liabilities and Equity	$	8,501	$	11,335	$	3,396	$	(9,843	)	$	13,389

________________

(a) Revised to conform to current period presentation that reflects investment in subsidiary and equity amounts within the guarantor and non-guarantor columns net of intercompany amounts.

Condensed Consolidating Statement of Cash Flows

Condensed Consolidating Statement of Cash Flows for the Nine Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	(31	)	$	926		$	152		$	—		$	1,047
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(341		)	(136		)	—			(477		)
Acquisitions	—			(17		)	—			—			(17		)
Intercompany notes, net	261			—			—			(261		)	—
Other investing activities	—			1			10			—			11
Net cash from (used in) investing activities	261			(357		)	(126		)	(261		)	(483		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	—			—			295			—			295
Proceeds from debt offering	300			—			—			—			300
Repayments on revolving credit agreements	—			—			(52		)	—			(52		)
Repayments of debt	(300		)	(2		)	(131		)	—			(433		)
Dividend payments	(104		)	—			—			—			(104		)
Proceeds from stock options exercised	14			—			—			—			14
Net proceeds from issuance of Tesoro Logistics LP common units	—			—			156			—			156
Distributions to noncontrolling interest	—			—			(63		)	—			(63		)
Purchases of common stock	(350		)	—			—			—			(350		)
Taxes paid related to net share settlement of equity awards	(22		)	—			—			—			(22		)
Net intercompany borrowings (repayments)	—			(324		)	63			261			—
Borrowings from general partner	243			—			(243		)	—			—
Distributions to TLLP unitholders and general partner	13			15			(28		)	—			—
Other financing activities	(24		)	19			(8		)	—			(13		)
Net cash used in financing activities	(230		)	(292		)	(11		)	261			(272		)
INCREASE IN CASH AND CASH EQUIVALENTS	—			277			15			—			292
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			1,161			77			—			1,238
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	1,438		$	92		$	—		$	1,530

Condensed Consolidating Statement of Cash Flows for the Nine Months EndedSeptember 30, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	(17	)	$	702		$	(15	)	$	—		$	670
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(397		)	(50		)	—			(447		)
Acquisitions	—			(1,901		)	(714		)	—			(2,615		)
Proceeds from sale of Hawaii Business	539			—			—			—			539
Intercompany notes, net	(2,117		)	—			—			2,117			—
Other investing activities	—			(2		)	2			—			—
Net cash used in investing activities	(1,578		)	(2,300		)	(762		)	2,117			(2,523		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	1,524			—			544			—			2,068
Borrowings under term loan credit agreements	500			—			—			—			500
Proceeds from debt offering	—			—			550			—			550
Repayments on revolving credit agreements	(824		)	—			(544		)	—			(1,368		)
Repayments of debt	(3		)	(3		)	—			—			(6		)
Dividend payments	(88		)	—			—			—			(88		)
Proceeds from stock options exercised	69			—			—			—			69
Net proceeds from issuance of Tesoro Logistics LP common units	—			—			392			—			392
Distributions to noncontrolling interest	—			—			(43		)	—			(43		)
Purchases of common stock	(341		)	—			—			—			(341		)
Taxes paid related to net share settlement of equity awards	(5		)	—			—			—			(5		)
Net intercompany borrowings (repayments)	—			1,695			422			(2,117		)	—
Borrowings from general partner	774			—			(774		)	—			—
Distributions to TLLP unitholders and general partner	10			12			(22		)	—			—
Other financing activities	(21		)	11			(12		)	—			(22		)
Net cash from financing activities	1,595			1,715			513			(2,117		)	1,706
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	—			117			(264		)	—			(147		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			1,244			395			—			1,639
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	1,361		$	131		$	—		$	1,492

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Derivative Instruments, Derivative Assets and Liabilities (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
Derivatives, Fair Value
Gross derivative assets	$ 374		$ 140
Gross derivative liabilities	326		159
Derivative asset amount offset against collateral and netting arrangements	(302)	[1],[2]	(72)	[1],[2]
Derivative liability amount offset against collateral and netting arrangements	(324)	[1],[2]	(137)	[1],[2]
Net derivative assets	72		68
Net derivative liabilities	2		22
Derivative, Collateral
Cash collateral outstanding	22		65
Commodity Futures Contracts | Prepayments and other current assets
Derivatives, Fair Value
Gross derivative assets	373	[3]	140	[3]
Gross derivative liabilities	324	[3]	158	[3]
Commodity Forward Contracts | Receivables
Derivatives, Fair Value
Gross derivative assets	1		0
Gross derivative liabilities	0		0
Commodity Forward Contracts | Accounts payable
Derivatives, Fair Value
Gross derivative assets	0		0
Gross derivative liabilities	1		1
Foreign Currency Forward Contracts | Accounts payable
Derivatives, Fair Value
Gross derivative assets	0		0
Gross derivative liabilities	1		0
Commodity Contract, Corn Futures
Derivatives, Fair Value
Gross derivative assets	7		3
Gross derivative liabilities	$ 3		$ 1

[1] Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We 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. As of September 30, 2014 and December 31, 2013, cash collateral amounts of $22 million and $65 million, respectively, are netted with mark-to-market derivative assets.

[2] As of September 30, 2014 and December 31, 2013, cash collateral amounts of $22 million and $65 million, respectively, are netted with mark-to-market derivative assets.

[3] We had derivative assets totaling $7 million and $3 million at September 30, 2014 and December 31, 2013, respectively, related to corn futures used to manage our biofuel exposure. Additionally, we had derivative liabilities totaling $3 million and $1 million at September 30, 2014 and December 31, 2013, respectively, related to corn futures.

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Earnings Per Share (Details) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Earnings Per Share [Abstract]
Weighted average common shares outstanding	127.9	134.6	129.5	135.8
Common stock equivalents	1.8	2.2	2.2	2.3
Total diluted shares	129.7	136.8	131.7	138.1

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Operating Segments, Results (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Segment Reporting Information
Total Revenues	$ 11,151		$ 11,241		$ 32,188		$ 27,485
OPERATING INCOME	702		146		1,350		703
Reconciliation of Operating Income from Segments to Consolidated
Total Segment Operating Income	777		197		1,535		915
Corporate and unallocated costs	(75)	[1]	(51)	[1]	(185)	[1]	(212)	[1]
Segment Reporting Information, Income before Income Taxes
Interest and financing costs, net	(51)	[2]	(47)	[2]	(169)	[2]	(110)	[2]
Other income, net	12	[3]	22	[3]	14	[3]	78	[3]
EARNINGS BEFORE INCOME TAXES	663		121		1,195		671
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense	144		140		409		356
Total Capital Expenditures	194		123		464		412
Segment Reporting Table Footnotes
Federal and state motor fuel taxes on sales by the retail segment	148		151		441		423
Stock-based compensation expense (benefit)	12		(13)		20		34
Debt redemption charges	(10)				(41)		0
Refunds from settlement of rate proceedings							54
Reversal of previously established accrual			16				16
Refining
Segment Reporting Information
OPERATING INCOME	578	[4]	128	[4]	1,137	[4]	766	[4]
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense	112		109		317		286
Total Capital Expenditures	118		88		280		317
Refining | Refined products
Segment Reporting Information
Total Revenues	10,409		10,674		30,429		25,564
Refining | Crude oil resales and other
Segment Reporting Information
Total Revenues	434		358		1,060		1,425
TLLP
Segment Reporting Information
OPERATING INCOME	61	[5]	13	[5]	169	[5]	53	[5]
Reconciliation of Operating Income from Segments to Consolidated
Corporate and unallocated costs	(6)		(4)		(14)		(12)
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense	18		16		51		28
Total Capital Expenditures	63		23		137		59
TLLP | Crude oil gathering
Segment Reporting Information
Total Revenues	32		24		84		66
TLLP | Terminalling and transportation
Segment Reporting Information
Total Revenues	118		73		326		146
Retail
Segment Reporting Information
OPERATING INCOME	138		56		229		96
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense	10		9		30		26
Total Capital Expenditures	9		10		27		26
Retail | Fuel
Segment Reporting Information
Total Revenues	3,382	[6]	3,362	[6]	9,929	[6]	7,087	[6]
Retail | Merchandise and other
Segment Reporting Information
Total Revenues	73		70		203		177
Intersegment sales
Segment Reporting Information
Total Revenues	(3,297)		(3,320)		(9,843)		(6,980)
Corporate
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense	4		6		11		16
Total Capital Expenditures	4		2		20		10
Segment Reporting Table Footnotes
Stock-based compensation expense (benefit)	12		(12)		20		33
Washington Refinery Fire
Segment Reporting Table Footnotes
Business interruption insurance recoveries			$ 16				$ 16

[1] Includes stock-based compensation expense of $12 million and benefit of $12 million for the three months ended September 30, 2014 and 2013, respectively, and expense of $20 million and $33 million for the nine months ended September 30, 2014 and 2013, respectively. The significant impact to stock-based compensation expense during the three and nine months ended September 30, 2014 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

[2] Includes charges totaling $10 million and $41 million for premiums and unamortized debt issuance costs associated with the redemption of the 2019 Notes and 2020 Notes during the three and nine months ended September 30, 2014.

[3] Includes $54 million in refunds from a settlement of a rate proceeding from the California Public Utilities Commission for the nine months ended September 30, 2013 and the release of a $16 million legal reserve as a result of the favorable settlement of litigation for the three and nine months ended September 30, 2013.

[4] Includes $16 million in business interruption insurance recoveries for the three and nine months ended September 30, 2013.

[5] We present TLLP’s segment operating income net of general and administrative expenses totaling $6 million and $4 million representing TLLP’s corporate costs for the three months ended September 30, 2014 and 2013, respectively, and $14 million and $12 million for the nine months ended September 30, 2014 and 2013, respectively that are not allocated to TLLP’s operating segments.

[6] 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 $148 million and $151 million for the three months ended September 30, 2014 and 2013, respectively, and $441 million and $423 million for the nine months ended September 30, 2014 and 2013, respectively.

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Derivative Instruments, Derivative Gains and Losses (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	$ 163	$ (66)	$ 87	$ (90)
Commodity Futures Contracts
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	167	(73)	90	(89)
Commodity OTC Swap Contracts
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	(2)	0	(5)	0
Commodity Forward Contracts
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	1	7	5	3
Foreign Currency Forward Contracts
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	(3)	0	(3)	(4)
Revenues
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	6	(10)	7	0
Cost of sales
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	160	(45)	83	(65)
Other income, net
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	(3)	0	(3)	(4)
Net loss from discontinued operations
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	$ 0	$ (11)	$ 0	$ (21)

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Tesoro Logistics LP Transactions to Purchase Terminalling and Pipeline Assets (Details) (USD $)	3 Months Ended	9 Months Ended			9 Months Ended	0 Months Ended					0 Months Ended		3 Months Ended
	Sep. 30, 2014	Sep. 30, 2014	Sep. 30, 2013	Jun. 25, 2014	Sep. 30, 2014 West Coast Logistics Assets	Jul. 01, 2014 First Phase West Coast Logistics Assets	Sep. 30, 2014 Second Phase West Coast Logistics Assets	Jul. 01, 2014 Marketing Terminals First Phase West Coast Logistics Assets terminals	Jul. 01, 2014 Storage Facility First Phase West Coast Logistics Assets terminals	Sep. 30, 2014 Refined Products Pipeline Second Phase West Coast Logistics Assets pipelines	Aug. 22, 2014 Limited Partner	Aug. 22, 2014 5.875% Senior Notes Due 2020	Sep. 30, 2014 5.875% Senior Notes Due 2020	Aug. 22, 2014 5.875% Senior Notes Due 2020
Significant Acquisitions and Disposals [Line Items]
Purchase price					$ 270,000,000	$ 241,000,000
Date of acquisition						Jul. 01, 2014	Sep. 30, 2014
Number Of Assets								3	1	1
Cash payment						214,000,000	29,000,000
Equity fair value						27,000,000
Public offering, common units											2,100,000
Net proceeds from the issuance of TLLP Common units		156,000,000	392,000,000								142,000,000
Debt instrument, aggregate principal													250,000,000	130,000,000
Debt instrument interest rate														5.875%
Debt Instrument, Maturity Date												Oct. 01, 2020
Debt redemption charges	(10,000,000)	(41,000,000)	0										10,000,000
Debt Instrument, premium paid														8,000,000
Common Units Aggregate Value, for continuous issuance				200,000,000
Units issued under the ATM Program	193,900
Proceeds from sale of units issued under the ATM Program	$ 14,000,000

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Schedule of fair value, assets and liabilities measured on recurring basis

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

	September 30, 2014
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	360	$	13	$	—	$	(302	)	$	71
Commodity Forward Contracts	—		1		—		—			1
Total Assets	$	360	$	14	$	—	$	(302	)	$	72
Liabilities:
Commodity Futures Contracts	$	316	$	8	$	—	$	(324	)	$	—
Commodity Forward Contracts	—		1		—		—			1
Foreign Currency Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		18		—		—			18
Total Liabilities	$	316	$	28	$	—	$	(324	)	$	20

	December 31, 2013
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	136	$	4	$	—	$	(72	)	$	68
Total Assets	$	136	$	4	$	—	$	(72	)	$	68
Liabilities:
Commodity Futures Contracts	$	156	$	2	$	—	$	(137	)	$	21
Commodity Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		5		—		—			5
Total Liabilities	$	156	$	8	$	—	$	(137	)	$	27

________________

(a) Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We 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. As of September 30, 2014 and December 31, 2013, cash collateral amounts of $22 million and $65 million, respectively, are netted with mark-to-market derivative assets.

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Condensed Consolidating Financial Information, Balance Sheet (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013		Sep. 30, 2013	Dec. 31, 2012
Current Assets
Cash and cash equivalents	$ 1,530	$ 1,238		$ 1,492	$ 1,639
Receivables, less allowance for doubtful accounts	1,578	1,313
Short-term receivables from affiliates	0	0
Inventories	2,674	2,565
Prepayments and other current assets	182	210
Total Current Assets	5,964	5,326
Net Property, Plant and Equipment	7,088	6,875
Investment in Subsidiaries	0	0
Long-Term Receivables from Affiliates	0	0
Long-Term Intercompany Note Receivable	0	0
Other Noncurrent Assets, Net	1,173	1,188
Total Assets	14,225	13,389
Current Liabilities:
Accounts payable	2,737	2,596
Short-term payables to affiliates	0	0
Other current liabilities	931	812
Total Current Liabilities	3,668	3,408
Long-Term Payables to Affiliates	0	0
Deferred Income Taxes	1,167	1,018
Other Noncurrent Liabilities	560	655
Debt	2,938	2,823
Long-Term Intercompany Note Payable	0	0
Equity-Tesoro Corporation	4,603	4,302
Equity-Noncontrolling Interest	1,289	1,183
Total Liabilities and Equity	14,225	13,389
Parent
Current Assets
Cash and cash equivalents	0	0		0	0
Receivables, less allowance for doubtful accounts	0	12
Short-term receivables from affiliates	0	0
Inventories	0	0
Prepayments and other current assets	42	109
Total Current Assets	42	121
Net Property, Plant and Equipment	0	0
Investment in Subsidiaries	5,973	5,242	[1]
Long-Term Receivables from Affiliates	3,146	3,080
Long-Term Intercompany Note Receivable	0	0
Other Noncurrent Assets, Net	48	58
Total Assets	9,209	8,501
Current Liabilities:
Accounts payable	1	1
Short-term payables to affiliates	0	0
Other current liabilities	219	112
Total Current Liabilities	220	113
Long-Term Payables to Affiliates	0	0
Deferred Income Taxes	1,167	1,018
Other Noncurrent Liabilities	252	320
Debt	1,622	1,614
Long-Term Intercompany Note Payable	1,377	1,134
Equity-Tesoro Corporation	4,571	4,302	[1]
Equity-Noncontrolling Interest	0	0
Total Liabilities and Equity	9,209	8,501
Guarantor Subsidiaries
Current Assets
Cash and cash equivalents	1,438	1,161		1,361	1,244
Receivables, less allowance for doubtful accounts	1,286	1,182
Short-term receivables from affiliates	166	0
Inventories	2,392	2,041
Prepayments and other current assets	128	89
Total Current Assets	5,410	4,473
Net Property, Plant and Equipment	5,531	5,428
Investment in Subsidiaries	404	342	[1]
Long-Term Receivables from Affiliates	0	0
Long-Term Intercompany Note Receivable	0	0
Other Noncurrent Assets, Net	1,089	1,092
Total Assets	12,434	11,335
Current Liabilities:
Accounts payable	2,376	2,110
Short-term payables to affiliates	0	43
Other current liabilities	638	636
Total Current Liabilities	3,014	2,789
Long-Term Payables to Affiliates	3,138	2,939
Deferred Income Taxes	0	0
Other Noncurrent Liabilities	293	327
Debt	40	45
Long-Term Intercompany Note Payable	0	0
Equity-Tesoro Corporation	5,949	5,235	[1]
Equity-Noncontrolling Interest	0	0
Total Liabilities and Equity	12,434	11,335
Non- Guarantors
Current Assets
Cash and cash equivalents	92	77		131	395
Receivables, less allowance for doubtful accounts	292	119
Short-term receivables from affiliates	0	43
Inventories	282	524
Prepayments and other current assets	13	14
Total Current Assets	679	777
Net Property, Plant and Equipment	1,557	1,447
Investment in Subsidiaries	0	0	[1]
Long-Term Receivables from Affiliates	0	0
Long-Term Intercompany Note Receivable	1,377	1,134
Other Noncurrent Assets, Net	36	38
Total Assets	3,649	3,396
Current Liabilities:
Accounts payable	360	485
Short-term payables to affiliates	166	0
Other current liabilities	75	66
Total Current Liabilities	601	551
Long-Term Payables to Affiliates	8	141
Deferred Income Taxes	0	0
Other Noncurrent Liabilities	15	8
Debt	1,276	1,164
Long-Term Intercompany Note Payable	0	0
Equity-Tesoro Corporation	460	349	[1]
Equity-Noncontrolling Interest	1,289	1,183
Total Liabilities and Equity	3,649	3,396
Eliminations
Current Assets
Cash and cash equivalents	0	0		0	0
Receivables, less allowance for doubtful accounts	0	0
Short-term receivables from affiliates	(166)	(43)
Inventories	0	0
Prepayments and other current assets	(1)	(2)
Total Current Assets	(167)	(45)
Net Property, Plant and Equipment	0	0
Investment in Subsidiaries	(6,377)	(5,584)	[1]
Long-Term Receivables from Affiliates	(3,146)	(3,080)
Long-Term Intercompany Note Receivable	(1,377)	(1,134)
Other Noncurrent Assets, Net	0	0
Total Assets	(11,067)	(9,843)
Current Liabilities:
Accounts payable	0	0
Short-term payables to affiliates	(166)	(43)
Other current liabilities	(1)	(2)
Total Current Liabilities	(167)	(45)
Long-Term Payables to Affiliates	(3,146)	(3,080)
Deferred Income Taxes	0	0
Other Noncurrent Liabilities	0	0
Debt	0	0
Long-Term Intercompany Note Payable	(1,377)	(1,134)
Equity-Tesoro Corporation	(6,377)	(5,584)	[1]
Equity-Noncontrolling Interest	0	0
Total Liabilities and Equity	$ (11,067)	$ (9,843)

[1] Revised to conform to current period presentation that reflects investment in subsidiary and equity amounts within the guarantor and non-guarantor columns net of intercompany amounts.

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Fair Value Measurements (Details) (USD $) In Millions, unless otherwise specified																																															9 Months Ended
	Sep. 30, 2014		Dec. 31, 2013		Sep. 30, 2014 Commodity Futures Contracts		Dec. 31, 2013 Commodity Futures Contracts		Sep. 30, 2014 Commodity Forward Contracts		Dec. 31, 2013 Commodity Forward Contracts		Sep. 30, 2014 Foreign Currency Forward Contracts		Sep. 30, 2014 Environmental Credit Obligations		Dec. 31, 2013 Environmental Credit Obligations		Sep. 30, 2014 Level 1	Dec. 31, 2013 Level 1	Sep. 30, 2014 Level 1 Commodity Futures Contracts	Dec. 31, 2013 Level 1 Commodity Futures Contracts	Sep. 30, 2014 Level 1 Commodity Forward Contracts	Dec. 31, 2013 Level 1 Commodity Forward Contracts	Sep. 30, 2014 Level 1 Foreign Currency Forward Contracts	Sep. 30, 2014 Level 1 Environmental Credit Obligations	Dec. 31, 2013 Level 1 Environmental Credit Obligations	Sep. 30, 2014 Level 2	Dec. 31, 2013 Level 2	Sep. 30, 2014 Level 2 Commodity Futures Contracts	Dec. 31, 2013 Level 2 Commodity Futures Contracts	Sep. 30, 2014 Level 2 Commodity Forward Contracts	Dec. 31, 2013 Level 2 Commodity Forward Contracts	Sep. 30, 2014 Level 2 Foreign Currency Forward Contracts	Sep. 30, 2014 Level 2 Environmental Credit Obligations	Dec. 31, 2013 Level 2 Environmental Credit Obligations	Sep. 30, 2014 Level 3	Dec. 31, 2013 Level 3	Sep. 30, 2014 Level 3 Commodity Futures Contracts	Dec. 31, 2013 Level 3 Commodity Futures Contracts	Sep. 30, 2014 Level 3 Commodity Forward Contracts	Dec. 31, 2013 Level 3 Commodity Forward Contracts	Sep. 30, 2014 Level 3 Foreign Currency Forward Contracts	Sep. 30, 2014 Level 3 Environmental Credit Obligations	Dec. 31, 2013 Level 3 Environmental Credit Obligations	Sep. 30, 2014 Maximum	Sep. 30, 2014 Minimum
Fair Value Measurements
Gross derivative assets	$ 374		$ 140																$ 360	$ 136	$ 360	$ 136	$ 0					$ 14	$ 4	$ 13	$ 4	$ 1					$ 0	$ 0	$ 0	$ 0	$ 0
Derivative asset amount offset against collateral and netting arrangements	(302)	[1],[2]	(72)	[1],[2]	(302)	[1]	(72)	[1]	0	[1]
Net derivative assets	72		68		71		68		1
Gross derivative liabilities	326		159																316	156	316	156	0	0	0	0	0	28	8	8	2	1	1	1	18	5	0	0	0	0	0	0	0	0	0
Derivative liability amount offset against collateral and netting arrangements	(324)	[1],[2]	(137)	[1],[2]	(324)	[1]	(137)	[1]	0	[1]	0	[1]	0	[1]	0	[1]	0	[1]
Net derivative liabilities	20		27		0		21		1		1		1		18		5
Cash collateral posted	22		65
Percent of trade receivables with balances outstanding greater than 90 days																																														1.00%
Percent of trade payables with balances outstanding greater than 90 days																																														1.00%
Days Outstanding On Acccounts Payable and Receivable																																															90 days
Debt carrying value	2,938		2,823
Debt fair value	$ 2,900		$ 2,900

[1] Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We 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. As of September 30, 2014 and December 31, 2013, cash collateral amounts of $22 million and $65 million, respectively, are netted with mark-to-market derivative assets.

[2] As of September 30, 2014 and December 31, 2013, cash collateral amounts of $22 million and $65 million, respectively, are netted with mark-to-market derivative assets.

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Condensed Consolidating Financial Information, Narrative (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Guarantor Information
Percentage ownership of Tesoro Logistics LP	35.00%	36.00%
Percentage ownership of subsidiary guarantors	100.00%
4.250% Senior Notes Due 2017
Guarantor Information
Debt instrument interest rate	4.25%
Debt Instrument, Maturity Date	Oct. 01, 2017
5.375% Senior Notes Due 2022
Guarantor Information
Debt instrument interest rate	5.375%
Debt Instrument, Maturity Date	Oct. 01, 2022

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

9 Months Ended

Sep. 30, 2014

Property, Plant and Equipment [Abstract]

Interest capitalization policy

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

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Inventories (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Inventory Disclosure [Abstract]
Domestic crude oil and refined products	$ 2,200	$ 1,847
Foreign subsidiary crude oil	282	523
Other inventories	192	195
Total Inventories	$ 2,674	$ 2,565

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Acquisitions, Los Angeles Narrative (Details) (USD $)	9 Months Ended
	Sep. 30, 2014 stores	Sep. 30, 2013
Los Angeles Acquisition
Business Acquisition
Effective date of acquisition	Jun. 01, 2013
Number of stations (stations)	835
Watson cogeneration facility ownership percentage	51.00%
Purchase price	$ 2,330,000,000
Los Angeles Pro Forma Information
Pro forma revenue		33,400,000,000
Pro forma net earnings		$ 515,000,000
California Region
Business Acquisition
Number of refineries (refineries)	2
Carson refinery | Los Angeles Acquisition
Business Acquisition
Capacity (Mbpd)	266

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2014

Share-based Compensation [Abstract]

Summary of stock-based compensation expense (benefit)

Stock-based compensation expense (benefit), including discontinued operations, was as follows (in millions):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014			2013
Stock appreciation rights (a)	$	4	$	(18	)	$	(2	)	$	6
Performance share awards (b)	3		—			7			10
Market stock units (c)	4		5			12			13
Other stock-based awards (d)	1		—			3			5
Total Stock-Based Compensation Expense (Benefit)	$	12	$	(13	)	$	20		$	34

________________

(a) We paid cash of $22 million and $32 million to settle 0.8 million and 1.4 million SARs that were exercised during the nine months ended September 30, 2014 and 2013, respectively. We had $53 million and $76 million recorded in accrued liabilities associated with our SARs awards at September 30, 2014 and December 31, 2013, respectively.

(b) We granted 0.2 million performance share awards, including awards with performance and market conditions, at a weighted average grant date fair value of $53.89 per share under the amended and restated 2011 Long-Term Incentive Plan (“2011 Plan”) during the nine months ended September 30, 2014.

(c) We granted 0.5 million market stock units at a weighted average grant date fair value of $59.83 per unit under the 2011 Plan during the nine months ended September 30, 2014.

(d) We have aggregated expenses for certain award types as they are not considered significant.

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Property, Plant and Equipment (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	$ 9,584	$ 9,123
Accumulated depreciation	(2,496)	(2,248)
Net property, plant and equipment	7,088	6,875
Refining
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	6,820	6,546
TLLP
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	1,710	1,569
Retail
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	812	778
Corporate
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	$ 242	$ 230

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Stock-Based Compensation (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense (benefit)	$ 12		$ (13)		$ 20		$ 34
Income tax benefit (expense) for stock-based compensation arrangements	7		(5)		9		12
Tax benefit realized from exercise of stock-based compensation arrangements	7		1		41		39
Stock appreciation rights
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense (benefit)	4	[1]	(18)	[1]	(2)	[1]	6	[1]
Performance share awards
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense (benefit)	3	[2]	0	[2]	7	[2]	10	[2]
Market stock units
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense (benefit)	4	[3]	5	[3]	12	[3]	13	[3]
Other stock-based awards
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense (benefit)	$ 1	[4]	$ 0	[4]	$ 3	[4]	$ 5	[4]

[1] We paid cash of $22 million and $32 million to settle 0.8 million and 1.4 million SARs that were exercised during the nine months ended September 30, 2014 and 2013, respectively. We had $53 million and $76 million recorded in accrued liabilities associated with our SARs awards at September 30, 2014 and December 31, 2013, respectively.

[2] We granted 0.2 million performance share awards, including awards with performance and market conditions, at a weighted average grant date fair value of $53.89 per share under the amended and restated 2011 Long-Term Incentive Plan (“2011 Plan”) during the nine months ended September 30, 2014.

[3] We granted 0.5 million market stock units at a weighted average grant date fair value of $59.83 per unit under the 2011 Plan during the nine months ended September 30, 2014.

[4] We have aggregated expenses for certain award types as they are not considered significant.

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Commitments and Contingencies, Environmental Liabilities (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Environmental Liabilities
Environmental liability accrual	$ 261	$ 262
Martinez Refinery and Los Angeles Acquisition
Environmental Liabilities
Environmental liability accrual	218	216
Remediation activities measurement period	We cannot reasonably determine the full extent of remedial activities that may be required at the Martinez refinery and for assets acquired in the Los Angeles Acquisition, and it is possible that we will identify additional investigation and remediation costs for site cleanup activities as more information becomes available.
Martinez refinery
Environmental Liabilities
Environmental insurance coverage ceiling	190
Self-insurance deductible	50
Number of previous owners (owners)	2
Tesoro Logistics LP
Environmental Liabilities
Environmental liability accrual	$ 21	$ 24

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Discontinued Operations Discontinued Operations (Details) (USD $) In Millions, unless otherwise specified	0 Months Ended	3 Months Ended		9 Months Ended
	Sep. 25, 2013	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenues and earnings from discontinued operations
Earnings (loss) from discontinued operations, net of tax		$ (1)	$ 35	$ (2)	$ 23
Gain on sale of Hawaii Business				0	80
Hawaii Operations
Discontinued Operations
Sales price	539
Sales price, assets	75
Sales price, inventory and other net working capital	464
Earnout arrangement period (years)	3 years
Earnout arrangement maximum	40
Indemnification for environmental remediation	15
Revenues and earnings from discontinued operations
Revenues		0	585	0	2,036
Loss from discontinued operations, before tax		(2)	56	(3)	39
Earnings (loss) from discontinued operations, net of tax		(1)	35	(2)	23
Gain on sale of Hawaii Business					80
Cash flows related to discontinued operations
Net Cash Provided by (Used in) Discontinued Operations				(2)
Operating activities					74
Investing activities					$ 537

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Acquisitions (Notes)

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

ACQUISITIONS

ACQUISITIONS

Los Angeles Acquisition

We acquired BP’s integrated Southern California refining, marketing and logistics business on June 1, 2013 from BP West Coast Products, LLC and other affiliated sellers (the “Los Angeles Acquisition”) consistent with our business strategy and providing us with an opportunity to combine two West Coast refining, marketing and logistics businesses resulting in a more efficient integrated refining, marketing and logistics system. The acquired assets include the 266 Mbpd Carson refinery located adjacent to our Wilmington refinery, related marine terminals, land terminals and pipelines. The assets also 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 835 branded dealer-operated and branded wholesale stations in central and southern California, Nevada and Arizona. Additionally, we acquired an anode coke calcining operation and a 51% ownership in the Watson cogeneration facility, both located at the Carson refinery. We also assumed certain environmental liabilities, primarily remediation obligations. For additional information regarding the assumed environmental liabilities, see Note L.

Our allocation of the Los Angeles Acquisition's $2.33 billion purchase price was finalas of June 30, 2014. The table below presents the final acquisition date purchase price allocation (in millions):

Receivables	$	197
Inventories	1,096
Prepayments and other current assets	14
Property, plant and equipment	1,088
Acquired intangibles, net	63
Other noncurrent assets, net	112
Other current liabilities	(25		)
Other noncurrent liabilities	(182		)
Debt	(36		)
Total purchase price	$	2,327

If the Los Angeles Acquisition had occurred prior to 2013, our pro forma revenues and net earnings would have been $33.4 billion and $515 million for the nine months ended September 30, 2013, respectively.

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Commitments and Contingencies, Washington Refinery Fire (Details) (Washington Refinery Fire, USD $) In Millions, unless otherwise specified	1 Months Ended		9 Months Ended
	Oct. 31, 2010	Apr. 30, 2010 employees	Sep. 30, 2014
Washington Refinery Fire
Loss Contingencies
Loss contingency, period of occurrence		April 2010
Number of fatally injured employees in the refinery incident (employees)		7
Fines and penalties assessed	$ 2.4
Notice of Violation (NOV) disclosure			We received a notice of violation (“NOV”) from the EPA alleging 46 violations of the Clean Air Act Risk Management Plan requirements at our Washington refinery on November 20, 2013. The EPA conducted an investigation of the refinery in 2011, following the April 2010 fire in the naphtha hydrotreater unit.

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Acquisitions Acquisitions, Los Angeles (Details) (Los Angeles Acquisition, USD $) In Millions, unless otherwise specified	Jun. 30, 2014
Los Angeles Acquisition
Los Angeles Purchase Price Allocation
Receivables	$ 197
Inventories	1,096
Prepayments and other current assets	14
Property, plant and equipment	1,088
Acquired intangibles, net	63
Other noncurrent assets, net	112
Other current liabilities	(25)
Other noncurrent liabilities	(182)
Debt	(36)
Total purchase price	$ 2,327

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Schedule of Basic and Diluted Shares Outstanding

Our share calculations are presented below (in millions):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2014	2013	2014	2013
Weighted average common shares outstanding	127.9	134.6	129.5	135.8
Common stock equivalents	1.8	2.2	2.2	2.3
Total diluted shares	129.7	136.8	131.7	138.1

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Acquisitions Acquisitions (Tables)

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Acquisition date purchase price allocation

The table below presents the final acquisition date purchase price allocation (in millions):

Receivables	$	197
Inventories	1,096
Prepayments and other current assets	14
Property, plant and equipment	1,088
Acquired intangibles, net	63
Other noncurrent assets, net	112
Other current liabilities	(25		)
Other noncurrent liabilities	(182		)
Debt	(36		)
Total purchase price	$	2,327

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Derivative Instruments, Open Long (Short) Positions (Details) (CAD) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2014
Forwards | 2014
Derivative
Derivative, Notional Amount	66
Maturity of Foreign Currency Derivatives	Oct. 24, 2014
Crude Oil Refined Products And Blending Products (in barrels) | Futures | Short | 2014
Derivative
Contract volumes	(8,625,000)
Crude Oil Refined Products And Blending Products (in barrels) | Futures | Short | 2015
Derivative
Contract volumes	(116,000)
Crude Oil Refined Products And Blending Products (in barrels) | Futures | Short | 2016
Derivative
Contract volumes	0
Crude Oil Refined Products And Blending Products (in barrels) | Futures | Short | 2017
Derivative
Contract volumes	0
Crude Oil Refined Products And Blending Products (in barrels) | OTC Swaps | Long | 2014
Derivative
Contract volumes	200,000
Crude Oil Refined Products And Blending Products (in barrels) | OTC Swaps | Long | 2015
Derivative
Contract volumes	0
Crude Oil Refined Products And Blending Products (in barrels) | OTC Swaps | Long | 2016
Derivative
Contract volumes	0
Crude Oil Refined Products And Blending Products (in barrels) | OTC Swaps | Long | 2017
Derivative
Contract volumes	0
Crude Oil Refined Products And Blending Products (in barrels) | Forwards | Short | 2014
Derivative
Contract volumes	(272,000)
Crude Oil Refined Products And Blending Products (in barrels) | Forwards | Short | 2015
Derivative
Contract volumes	0
Crude Oil Refined Products And Blending Products (in barrels) | Forwards | Short | 2016
Derivative
Contract volumes	0
Crude Oil Refined Products And Blending Products (in barrels) | Forwards | Short | 2017
Derivative
Contract volumes	0
Carbon Credit (in tons) | Futures | Long | 2014
Derivative
Contract, mass	0
Carbon Credit (in tons) | Futures | Long | 2015
Derivative
Contract, mass	0
Carbon Credit (in tons) | Futures | Long | 2016
Derivative
Contract, mass	1,000,000
Carbon Credit (in tons) | Futures | Long | 2017
Derivative
Contract, mass	1,000,000
Renewable Identification Numbers (in gallons) | Futures | Short | 2014
Derivative
Contract volumes	(500,000)
Renewable Identification Numbers (in gallons) | Futures | Short | 2015
Derivative
Contract volumes	0
Renewable Identification Numbers (in gallons) | Futures | Short | 2016
Derivative
Contract volumes	0
Renewable Identification Numbers (in gallons) | Futures | Short | 2017
Derivative
Contract volumes	0
Corn (in bushels) | Futures | Short | 2014
Derivative
Contract volumes	(2,720,000)
Corn (in bushels) | Futures | Short | 2015
Derivative
Contract volumes	0
Corn (in bushels) | Futures | Short | 2016
Derivative
Contract volumes	0
Corn (in bushels) | Futures | Short | 2017
Derivative
Contract volumes	0

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Tesoro Logistics LP Tesoro Logistics LP, Ownership Interest (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Variable Interest Entity
Percentage ownership of Tesoro Logistics LP	35.00%	36.00%
Limited partner common units outstanding (units)	19,481,557
TLGP
Variable Interest Entity
General partner units outstanding (units)	1,163,138

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Inventories (Tables)

9 Months Ended

Sep. 30, 2014

Inventory Disclosure [Abstract]

Schedule of inventory, current

Components of inventories were as follows (in millions):

	September 30, 2014		December 31, 2013
Domestic crude oil and refined products	$	2,200	$	1,847
Foreign subsidiary crude oil	282		523
Other inventories	192		195
Total Inventories	$	2,674	$	2,565

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Property, Plant and Equipment (Tables)

9 Months Ended

Sep. 30, 2014

Property, Plant and Equipment [Abstract]

Property, plant and equipment

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

	September 30, 2014			December 31, 2013
Refining	$	6,820		$	6,546
TLLP	1,710			1,569
Retail	812			778
Corporate	242			230
Property, plant and equipment, at cost	9,584			9,123
Accumulated depreciation	(2,496		)	(2,248		)
Net property, plant and equipment	$	7,088		$	6,875

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Basis of Presentation (Notes)

9 Months Ended

Sep. 30, 2014

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, 2013 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, 2013.

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. 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 various long-term, fee-based commercial agreements with TLLP, transactions with us accounted for 86% and 87% of TLLP’s total revenues for the three and nine months ended September 30, 2014, respectively. TLLP does not derive a significant amount of revenue from third parties. However, in the event TLLP incurs a loss, our operating results will reflect TLLP’s loss, net of intercompany eliminations. See Note C for additional information relating to TLLP.

On September 25, 2013, we completed the sale of all of our interest in Tesoro Hawaii, LLC, which operated a 94 thousand barrel per day (“Mbpd”) Hawaii refinery, retail stations and associated logistics assets (the “Hawaii Business”). Unless otherwise noted, the information in the notes to the condensed consolidated financial statements relates to our continuing operations.

New Accounting Standards and Disclosures

Revenue Recognition

The Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) in May 2014, which provides accounting guidance for all revenue arising from contracts to provide goods or services to customers. The requirements from the new ASU are effective for interim and annual periods beginning after December 15, 2016, and early adoption is not permitted. The standard allows for either full retrospective adoption or modified retrospective adoption. At this time, we are evaluating the guidance to determine the method of adoption and the impact of this ASU on our financial statements and related disclosures.

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Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 2014

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Schedule of derivative instruments in Balance Sheet, fair value

The following table presents the fair value (in millions) of our derivative instruments as of September 30, 2014 and December 31, 2013. 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 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	September 30, 2014			December 31, 2013			September 30, 2014			December 31, 2013
Commodity Futures Contracts (a)	Prepayments and other current assets	$	373		$	140		$	324		$	158
Commodity Forward Contracts	Receivables	1			—			—			—
Commodity Forward Contracts	Accounts payable	—			—			1			1
Foreign Currency Forward    Contracts	Accounts payable	—			—			1			—
Total Gross Mark-to-Market    Derivatives		374			140			326			159
Less: Counterparty Netting and    Cash Collateral (b)		(302		)	(72		)	(324		)	(137		)
Total Net Fair Value of Derivatives		$	72		$	68		$	2		$	22

________________

(a) We had derivative assets totaling $7 million and $3 million at September 30, 2014 and December 31, 2013, respectively, related to corn futures used to manage our biofuel exposure. Additionally, we had derivative liabilities totaling $3 million and $1 million at September 30, 2014 and December 31, 2013, respectively, related to corn futures.

(b) As of September 30, 2014 and December 31, 2013, cash collateral amounts of $22 million and $65 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 and nine months ended September 30, 2014 and 2013 were as follows (in millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Commodity Futures Contracts	$	167		$	(73	)	$	90		$	(89	)
Commodity OTC Swap Contracts	(2		)	—			(5		)	—
Commodity Forward Contracts	1			7			5			3
Foreign Currency Forward Contracts	(3		)	—			(3		)	(4		)
Total Gain (Loss) on Mark-to-Market Derivatives	$	163		$	(66	)	$	87		$	(90	)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenues	$	6		$	(10	)	$	7		$	—
Cost of sales	160			(45		)	83			(65		)
Other income, net	(3		)	—			(3		)	(4		)
Net loss from discontinued operations	—			(11		)	—			(21		)
Total Gain (Loss) on Mark-to-Market Derivatives	$	163		$	(66	)	$	87		$	(90	)

Schedule of open long (short) positions

The information below presents the net volume of outstanding commodity and other contracts by type of instrument, year of maturity and unit of measure as of September 30, 2014 (units in thousands):

	Contract Volumes by Year of Maturity
Mark-to-Market Derivative Instrument	2014	2015	2016	2017	Unit of Measure
Crude oil, refined products and blending products:
Futures - short	(8,625)	(116)	—	—	Barrels
OTC Swaps - long	200	—	—	—	Barrels
Forwards - short	(272)	—	—	—	Barrels
Carbon credits:
Futures - long	—	—	1,000	1,000	Tons
Renewable identification numbers:
Futures - short	(500)	—	—	—	Gallons
Corn:
Futures - short	(2,720)	—	—	—	Bushels

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Basis of Presentation Basis of Presentation (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Percentage of TLLP's revenues from Tesoro	86.00%	87.00%

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Property, Plant and Equipment Property, Plant and Equipment Narrative (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Property, Plant and Equipment [Abstract]
Capitalized interest	$ 7	$ 3	$ 17	$ 12

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Condensed Consolidating Financial Information, Statement of Operations (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Condensed Financial Statements, captions
REVENUES	$ 11,151		$ 11,241		$ 32,188		$ 27,485
COSTS AND EXPENSES:
Cost of sales	9,594		10,355		28,409		24,827
Operating, selling, general and administrative expenses	710		596		2,022		1,580
Depreciation and amortization expense	144		140		409		356
(Gain) loss on asset disposals and impairments	1		4		(2)		19
OPERATING INCOME (LOSS)	702		146		1,350		703
Equity in earnings of subsidiaries	0		0		0		0
Interest and financing costs, net	(51)	[1]	(47)	[1]	(169)	[1]	(110)	[1]
Other income, net	12	[2]	22	[2]	14	[2]	78	[2]
EARNINGS BEFORE INCOME TAXES	663		121		1,195		671
Income tax expense (benefit)	249		47		437		243
Net earnings from continuing operations	414		74		758		428
Earnings (loss) from discontinued operations, net of tax	(1)		35		(2)		23
Net earnings	413		109		756		451
Less: Net earnings from continuing operations attributable to noncontrolling interest	17		10		58		32
Net earnings attributable to Tesoro Corporation	396		99		698		419
COMPREHENSIVE INCOME
Total comprehensive income	413		109		756		524
Less: Noncontrolling interest in comprehensive income	17		10		58		32
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	396		99		698		492
Parent
Condensed Financial Statements, captions
REVENUES	0		0		0		0
COSTS AND EXPENSES:
Cost of sales	0		0		0		0
Operating, selling, general and administrative expenses	2		1		6		8
Depreciation and amortization expense	0		0		0		0
(Gain) loss on asset disposals and impairments	0		0		0		0
OPERATING INCOME (LOSS)	(2)		(1)		(6)		(8)
Equity in earnings of subsidiaries	405		56	[3]	722		386	[3]
Interest and financing costs, net	(10)		(7)		(27)		(13)
Other income, net	0		0		2		0
EARNINGS BEFORE INCOME TAXES	393		48		691		365
Income tax expense (benefit)	(3)	[4]	(2)	[4]	(7)	[4]	(5)	[4]
Net earnings from continuing operations	396		50		698		370
Earnings (loss) from discontinued operations, net of tax	0		49		0		49
Net earnings	396		99		698		419
Less: Net earnings from continuing operations attributable to noncontrolling interest	0		0		0		0
Net earnings attributable to Tesoro Corporation	396		99		698		419
COMPREHENSIVE INCOME
Total comprehensive income	396		99		698		492
Less: Noncontrolling interest in comprehensive income	0		0		0		0
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	396		99		698		492
Guarantor Subsidiaries
Condensed Financial Statements, captions
REVENUES	12,528		13,233		36,821		32,776
COSTS AND EXPENSES:
Cost of sales	11,076		12,436		33,312		30,330
Operating, selling, general and administrative expenses	692		544		1,981		1,460
Depreciation and amortization expense	125		126		355		329
(Gain) loss on asset disposals and impairments	1		4		3		16
OPERATING INCOME (LOSS)	634		123		1,170		641
Equity in earnings of subsidiaries	11		10	[3]	38		21	[3]
Interest and financing costs, net	(23)		(34)		(106)		(85)
Other income, net	12		22		12		78
EARNINGS BEFORE INCOME TAXES	634		121		1,114		655
Income tax expense (benefit)	241	[4]	50	[4]	419	[4]	246	[4]
Net earnings from continuing operations	393		71		695		409
Earnings (loss) from discontinued operations, net of tax	(1)		(14)		(2)		(26)
Net earnings	392		57		693		383
Less: Net earnings from continuing operations attributable to noncontrolling interest	0		0		0		0
Net earnings attributable to Tesoro Corporation	392		57		693		383
COMPREHENSIVE INCOME
Total comprehensive income	392		57		693		383
Less: Noncontrolling interest in comprehensive income	0		0		0		0
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	392		57		693		383
Non- Guarantors
Condensed Financial Statements, captions
REVENUES	1,671		1,514		5,110		3,417
COSTS AND EXPENSES:
Cost of sales	1,504		1,424		4,668		3,204
Operating, selling, general and administrative expenses	78		52		207		113
Depreciation and amortization expense	19		14		54		27
(Gain) loss on asset disposals and impairments	0		0		(5)		3
OPERATING INCOME (LOSS)	70		24		186		70
Equity in earnings of subsidiaries	0		0	[3]	0		0	[3]
Interest and financing costs, net	(28)		(12)		(63)		(24)
Other income, net	10		6		27		12
EARNINGS BEFORE INCOME TAXES	52		18		150		58
Income tax expense (benefit)	11	[4]	(1)	[4]	25	[4]	2	[4]
Net earnings from continuing operations	41		19		125		56
Earnings (loss) from discontinued operations, net of tax	0		0		0		0
Net earnings	41		19		125		56
Less: Net earnings from continuing operations attributable to noncontrolling interest	17		10		58		32
Net earnings attributable to Tesoro Corporation	24		9		67		24
COMPREHENSIVE INCOME
Total comprehensive income	41		19		125		56
Less: Noncontrolling interest in comprehensive income	17		10		58		32
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	24		9		67		24
Eliminations
Condensed Financial Statements, captions
REVENUES	(3,048)		(3,506)		(9,743)		(8,708)
COSTS AND EXPENSES:
Cost of sales	(2,986)		(3,505)		(9,571)		(8,707)
Operating, selling, general and administrative expenses	(62)		(1)		(172)		(1)
Depreciation and amortization expense	0		0		0		0
(Gain) loss on asset disposals and impairments	0		0		0		0
OPERATING INCOME (LOSS)	0		0		0		0
Equity in earnings of subsidiaries	(416)		(66)	[3]	(760)		(407)	[3]
Interest and financing costs, net	10		6		27		12
Other income, net	(10)		(6)		(27)		(12)
EARNINGS BEFORE INCOME TAXES	(416)		(66)		(760)		(407)
Income tax expense (benefit)	0	[4]	0	[4]	0	[4]	0	[4]
Net earnings from continuing operations	(416)		(66)		(760)		(407)
Earnings (loss) from discontinued operations, net of tax	0		0		0		0
Net earnings	(416)		(66)		(760)		(407)
Less: Net earnings from continuing operations attributable to noncontrolling interest	0		0		0		0
Net earnings attributable to Tesoro Corporation	(416)		(66)		(760)		(407)
COMPREHENSIVE INCOME
Total comprehensive income	(416)		(66)		(760)		(407)
Less: Noncontrolling interest in comprehensive income	0		0		0		0
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	$ (416)		$ (66)		$ (760)		$ (407)

[1] Includes charges totaling $10 million and $41 million for premiums and unamortized debt issuance costs associated with the redemption of the 2019 Notes and 2020 Notes during the three and nine months ended September 30, 2014.

[2] Includes $54 million in refunds from a settlement of a rate proceeding from the California Public Utilities Commission for the nine months ended September 30, 2013 and the release of a $16 million legal reserve as a result of the favorable settlement of litigation for the three and nine months ended September 30, 2013.

[3] Revised to conform to current period presentation of equity in earnings of subsidiaries that reflects equity in earnings of subsidiaries within the guarantor and non-guarantor columns net of intercompany amounts.

[4] The income tax expense (benefit) 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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Condensed Statements of Consolidated Operations (Unaudited) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Income Statement [Abstract]
REVENUES (a)	$ 11,151		$ 11,241		$ 32,188		$ 27,485
COSTS AND EXPENSES:
Cost of sales (a)	9,594		10,355		28,409		24,827
Operating expenses	624		542		1,813		1,351
Selling, general and administrative expenses	86		54		209		229
Depreciation and amortization expense	144		140		409		356
(Gain) loss on asset disposals and impairments	1		4		(2)		19
OPERATING INCOME	702		146		1,350		703
Interest and financing costs, net	(51)	[1]	(47)	[1]	(169)	[1]	(110)	[1]
Other income, net	12	[2]	22	[2]	14	[2]	78	[2]
EARNINGS BEFORE INCOME TAXES	663		121		1,195		671
Income tax expense	249		47		437		243
NET EARNINGS FROM CONTINUING OPERATIONS	414		74		758		428
Earnings (loss) from discontinued operations, net of tax	(1)		35		(2)		23
NET EARNINGS	413		109		756		451
Less: Net earnings from continuing operations attributable to noncontrolling interest	17		10		58		32
NET EARNINGS ATTRIBUTABLE TO TESORO CORPORATION	396		99		698		419
NET EARNINGS (LOSS) ATTRIBUTABLE TO TESORO CORPORATION
Continuing operations	397		64		700		396
Discontinued operations	(1)		35		(2)		23
Total	396		99		698		419
NET EARNINGS (LOSS) PER SHARE - BASIC:
Continuing operations	$ 3.11		$ 0.48		$ 5.41		$ 2.92
Discontinued operations	$ (0.01)		$ 0.26		$ (0.02)		$ 0.17
Total	$ 3.10		$ 0.74		$ 5.39		$ 3.09
Weighted average common shares outstanding - Basic	127.9		134.6		129.5		135.8
NET EARNINGS (LOSS) PER SHARE - DILUTED:
Continuing operations	$ 3.06		$ 0.46		$ 5.32		$ 2.86
Discontinued operations	$ (0.01)		$ 0.26		$ (0.02)		$ 0.17
Total	$ 3.05		$ 0.72		$ 5.30		$ 3.03
Weighted average common shares outstanding - Diluted	129.7		136.8		131.7		138.1
DIVIDENDS PER SHARE	$ 0.30		$ 0.25		$ 0.80		$ 0.65
SUPPLEMENTAL INFORMATION:
(a) Includes excise taxes collected by our retail segment (excluding credits)	$ 148		$ 151		$ 441		$ 423

[1] Includes charges totaling $10 million and $41 million for premiums and unamortized debt issuance costs associated with the redemption of the 2019 Notes and 2020 Notes during the three and nine months ended September 30, 2014.

[2] Includes $54 million in refunds from a settlement of a rate proceeding from the California Public Utilities Commission for the nine months ended September 30, 2013 and the release of a $16 million legal reserve as a result of the favorable settlement of litigation for the three and nine months ended September 30, 2013.

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Tesoro Logistics LP Tesoro Logistics LP, QEPFS Acquisition (Details) (USD $) Share data in Millions, unless otherwise specified	3 Months Ended	9 Months Ended		0 Months Ended				0 Months Ended		0 Months Ended							0 Months Ended
	Sep. 30, 2014	Sep. 30, 2014	Sep. 30, 2013	Oct. 29, 2014 Subsequent Event	Oct. 24, 2014 Subsequent Event	Oct. 19, 2014 Subsequent Event	Oct. 29, 2014 Subsequent Event	Oct. 19, 2014 QEP Midstream Partners LP Subsequent Event	Oct. 19, 2014 QEP Midstream Partners LP Subsequent Event	Aug. 22, 2014 Limited Partner	Oct. 24, 2014 Limited Partner Subsequent Event	Oct. 24, 2014 Over-allotment Option Subsequent Event	Oct. 24, 2014 Affiliated Entity Subsequent Event	Oct. 24, 2014 TLGP Subsequent Event	Oct. 29, 2014 5.5% Senior Notes due 2019 Subsequent Event	Oct. 29, 2014 5.5% Senior Notes due 2019 Subsequent Event	Oct. 29, 2014 6.25% Senior Notes Due 2022 Subsequent Event	Oct. 29, 2014 6.25% Senior Notes Due 2022 Subsequent Event
Subsequent Event
Purchase agreement date						Oct. 19, 2014
Limited Partner, Ownership Interest								56.00%
General Partner, Ownership Interest								2.00%						2.00%
Incentive distribution rights, percentage								100.00%
Purchase price								$ 2,500,000,000
Debt to be refinanced after acquisition									230,000,000
Break-up fee								150,000,000
Public offering, common units										2.1	23.0
Additional common units purchased												3
Net proceeds from the issuance of TLLP Common units		156,000,000	392,000,000		1,300,000,000					142,000,000			500,000,000
Proceeds from Issuance or Sale of Equity	14,000,000													27,000,000
Debt Instrument, Offering Date				Oct. 29, 2014
Debt instrument, aggregate principal							$ 1,300,000,000.0000									$ 500,000,000.0000		$ 800,000,000.0000
Debt instrument interest rate																5.50%		6.25%
Debt Instrument, Maturity Date															Oct. 15, 2019		Oct. 15, 2022

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Condensed Consolidated Balance Sheets (Unaudited) Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $) In Millions, except Share data, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
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)	156,447,233	154,712,627
Treasury stock, common shares (shares)	29,525,051	22,907,890
Current Assets
Cash and cash equivalents	$ 1,530	$ 1,238
Property, Plant and Equipment, Net
NET PROPERTY, PLANT AND EQUIPMENT	7,088	6,875
Debt
Debt	2,938	2,823
Tesoro Logistics LP
Current Assets
Cash and cash equivalents	3	23
Property, Plant and Equipment, Net
NET PROPERTY, PLANT AND EQUIPMENT	1,489	1,398
Debt
Debt	$ 1,276	$ 1,164

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Debt, Credit Facilities (Details) (USD $)		9 Months Ended			0 Months Ended	9 Months Ended		9 Months Ended		0 Months Ended
	Sep. 30, 2014	Sep. 30, 2014 Tesoro Corporation Revolving Credit Facility		Sep. 30, 2014 TLLP Revolving Credit Facility	May 30, 2013 Term Loan Credit Facility	Sep. 30, 2014 Term Loan Credit Facility	Sep. 30, 2014 Letter of Credit Facilities	Sep. 30, 2014 1st repayment provision	Sep. 30, 2014 2nd repayment provision	Oct. 29, 2014 Subsequent Event TLLP Amended Revolving Credit Facility	Oct. 29, 2014 Subsequent Event TLLP Amended Revolving Credit Facility
Line of Credit Facility
Adjusted Borrowing Base		$ 4,400,000,000
Total capacity	5,810,000,000	3,000,000,000	[1]	575,000,000		398,000,000	1,837,000,000
Maximum available capacity		4,000,000,000		650,000,000		500,000,000					900,000,000
Debt Instrument, Term										5 years
Required decrease in commitments								500,000,000	500,000,000
Commitment reduction date (on or prior to)								Nov. 21, 2014	May 21, 2015
Line of credit facility, remaining borrowing capacity percentage		73.00%
Line of credit facility, amount outstanding	641,000,000	0	[1]	243,000,000		398,000,000	0
Borrowings on Term Loan Facility					500,000,000
Weighted average interest rate				2.65%
Interest rate						2.40%
Maturity date		Jan. 04, 2018	[1]	Dec. 31, 2017		May 30, 2016
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.		The obligations under the Term Loan Credit Facility are secured by all equity interests of Tesoro Refining & Marketing Company LLC and Tesoro Alaska Company LLC, the Tesoro and USA Gasoline trademarks and those trademarks containing the name “ARCO” acquired in the Los Angeles Acquisition and junior liens on certain assets.
Letters of credit, amount outstanding	$ 1,608,000,000	$ 824,000,000	[1]	$ 0		$ 0	$ 784,000,000

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

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Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2014

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) for the three and nine months ended September 30, 2014 and 2013 were (in millions):

	Pension Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Service cost	$	12		$	13		$	38		$	27
Interest cost	7			9			24			22
Expected return on plan assets	(6		)	(6		)	(21		)	(18		)
Amortization of prior service cost	—			1			1			1
Recognized net actuarial loss	3			3			10			16
Net Periodic Benefit Expense	$	16		$	20		$	52		$	48
	Other Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Service cost	$	—		$	—		$	2		$	3
Interest cost	1			1			2			2
Amortization of prior service credit	(8		)	(8		)	(25		)	(27		)
Recognized net actuarial loss	1			1			4			6
Recognized curtailment gain	—			(17		)	—			(17		)
Net Periodic Benefit Income	$	(6	)	$	(23	)	$	(17	)	$	(33	)

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Stockholders' Equity, Changes to Equity (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013	Sep. 30, 2014		Sep. 30, 2013	Dec. 31, 2013
Total Equity
Balance at December 31, 2013				$ 5,485	[1]
Net earnings	413		109	756		451
Dividend payments				(104)
Shares issued for equity-based compensation awards				14	[2]	69
Amortization of equity settled awards				21
Excess tax benefits from stock-based compensation arrangements, net				18
Taxes paid related to net share settlement of equity awards				(22)
Net proceeds from issuance of Tesoro Logistics LP common units				156
Distributions to noncontrolling interest				(63)
Other				(19)
Balance at September 30, 2014	5,892	[1]		5,892	[1]
Preferred Stock, Shares Authorized	5,000,000			5,000,000			5,000,000
Preferred Stock, Par or Stated Value Per Share	$ 0			$ 0			$ 0
Preferred Stock, Shares Issued	0			0			0
Shares issued for equity-based compensation plans (shares)				500,000		2,000,000
Tesoro Corporation Stockholders’ Equity
Total Equity
Balance at December 31, 2013				4,302	[1]
Net earnings				698
Purchases of common stock				(350)
Dividend payments				(104)
Shares issued for equity-based compensation awards				14	[2]
Amortization of equity settled awards				20
Excess tax benefits from stock-based compensation arrangements, net				18
Taxes paid related to net share settlement of equity awards				(22)
Net proceeds from issuance of Tesoro Logistics LP common units				0
Distributions to noncontrolling interest				0
Other				27
Balance at September 30, 2014	4,603	[1]		4,603	[1]
Noncontrolling Interest
Total Equity
Balance at December 31, 2013				1,183	[1]
Net earnings				58
Purchases of common stock				0
Dividend payments				0
Shares issued for equity-based compensation awards				0	[2]
Amortization of equity settled awards				1
Excess tax benefits from stock-based compensation arrangements, net				0
Taxes paid related to net share settlement of equity awards				0
Net proceeds from issuance of Tesoro Logistics LP common units				156
Distributions to noncontrolling interest				(63)
Other				(46)
Balance at September 30, 2014	1,289	[1]		1,289	[1]
2013 Share repurchase program
Total Equity
Purchases of common stock				$ (350)		$ (336)

[1] We have 5.0 million shares of preferred stock authorized with no par value per share. No shares of preferred stock were outstanding as of September 30, 2014 and December 31, 2013.

[2] We issued approximately 0.5 million shares and 2.0 million shares for proceeds of $14 million and $69 million primarily for stock option exercises under our equity-based compensation plans during the nine months ended September 30, 2014 and 2013, respectively.

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Operating Segments (Notes)

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

OPERATING SEGMENTS

OPERATING SEGMENTS

The Company’s revenues are derived from three operating segments: refining, TLLP and retail. We own and operate six petroleum refineries located in California, Washington, Alaska, North Dakota and Utah that 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 and opportunistically export refined products to foreign markets. TLLP’s assets and operations include certain crude oil gathering assets and crude oil and refined products terminalling and transportation assets acquired from Tesoro and other third parties. Revenues from the TLLP segment are generated by charging fees for gathering crude oil and for terminalling, transporting and storing crude oil and refined products. Our retail segment sells gasoline, diesel fuel and convenience store items through company-operated retail stations and branded jobber/dealers in 16 states. Since we do not have significant operations in foreign countries, 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 prices which approximate market. TLLP revenues include intersegment transactions with our refining segment at prices which we believe are no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. Income taxes, other income, net, interest and financing costs, net, corporate depreciation and corporate general and administrative expenses are excluded from segment operating income.

Segment information related to continuing operations is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(In millions)
Revenues
Refining:
Refined products	$	10,409		$	10,674		$	30,429		$	25,564
Crude oil resales and other	434			358			1,060			1,425
TLLP:
Crude oil gathering	32			24			84			66
Terminalling and transportation	118			73			326			146
Retail:
Fuel (a)	3,382			3,362			9,929			7,087
Merchandise and other	73			70			203			177
Intersegment sales	(3,297		)	(3,320		)	(9,843		)	(6,980		)
Total Revenues	$	11,151		$	11,241		$	32,188		$	27,485
Segment Operating Income
Refining (b)	$	578		$	128		$	1,137		$	766
TLLP (c)	61			13			169			53
Retail	138			56			229			96
Total Segment Operating Income	777			197			1,535			915
Corporate and unallocated costs (d)	(75		)	(51		)	(185		)	(212		)
Operating Income	702			146			1,350			703
Interest and financing costs, net (e)	(51		)	(47		)	(169		)	(110		)
Other income, net (f)	12			22			14			78
Earnings Before Income Taxes	$	663		$	121		$	1,195		$	671
Depreciation and Amortization Expense
Refining	$	112		$	109		$	317		$	286
TLLP	18			16			51			28
Retail	10			9			30			26
Corporate	4			6			11			16
Total Depreciation and Amortization Expense	$	144		$	140		$	409		$	356
Capital Expenditures
Refining	$	118		$	88		$	280		$	317
TLLP	63			23			137			59
Retail	9			10			27			26
Corporate	4			2			20			10
Total Capital Expenditures	$	194		$	123		$	464		$	412

___________________________

(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 $148 million and $151 million for the three months ended September 30, 2014 and 2013, respectively, and $441 million and $423 million for the nine months ended September 30, 2014 and 2013, respectively.

(b) Includes $16 million in business interruption insurance recoveries for the three and nine months ended September 30, 2013.

(c) We present TLLP’s segment operating income net of general and administrative expenses totaling $6 million and $4 million representing TLLP’s corporate costs for the three months ended September 30, 2014 and 2013, respectively, and $14 million and $12 million for the nine months ended September 30, 2014 and 2013, respectively that are not allocated to TLLP’s operating segments.

(d) Includes stock-based compensation expense of $12 million and benefit of $12 million for the three months ended September 30, 2014 and 2013, respectively, and expense of $20 million and $33 million for the nine months ended September 30, 2014 and 2013, respectively. The significant impact to stock-based compensation expense during the three and nine months ended September 30, 2014 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

(e) Includes charges totaling $10 million and $41 million for premiums and unamortized debt issuance costs associated with the redemption of the 2019 Notes and 2020 Notes during the three and nine months ended September 30, 2014.

(f) Includes $54 million in refunds from a settlement of a rate proceeding from the California Public Utilities Commission for the nine months ended September 30, 2013 and the release of a $16 million legal reserve as a result of the favorable settlement of litigation for the three and nine months ended September 30, 2013.

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2014

Stockholders' Equity Attributable to Parent [Abstract]

Stockholders' equity and noncontrolling interest

Changes to equity during the nine months ended September 30, 2014 are presented below (in millions):

	Tesoro Corporation Stockholders’ Equity			Noncontrolling  Interest			Total Equity
Balance at December 31, 2013 (a)	$	4,302		$	1,183		$	5,485
Net earnings	698			58			756
Purchases of common stock	(350		)	—			(350		)
Dividend payments	(104		)	—			(104		)
Shares issued for equity-based compensation awards (b)	14			—			14
Amortization of equity settled awards	20			1			21
Excess tax benefits from stock-based compensation arrangements, net	18			—			18
Taxes paid related to net share settlement of equity awards	(22		)	—			(22		)
Net proceeds from issuance of Tesoro Logistics LP common units	—			156			156
Distributions to noncontrolling interest	—			(63		)	(63		)
Other	27			(46		)	(19		)
Balance at September 30, 2014 (a)	$	4,603		$	1,289		$	5,892

________________

(a) We have 5.0 million shares of preferred stock authorized with no par value per share. No shares of preferred stock were outstanding as of September 30, 2014 and December 31, 2013.

(b) We issued approximately 0.5 million shares and 2.0 million shares for proceeds of $14 million and $69 million primarily for stock option exercises under our equity-based compensation plans during the nine months ended September 30, 2014 and 2013, respectively.

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Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2014

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. 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 of 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.

Discontinued operations policy

On September 25, 2013, we completed the sale of all of our interest in Tesoro Hawaii, LLC, which operated a 94 thousand barrel per day (“Mbpd”) Hawaii refinery, retail stations and associated logistics assets (the “Hawaii Business”). Unless otherwise noted, the information in the notes to the condensed consolidated financial statements relates to our continuing operations.

New accounting pronouncements, policy

Revenue Recognition

The Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) in May 2014, which provides accounting guidance for all revenue arising from contracts to provide goods or services to customers. The requirements from the new ASU are effective for interim and annual periods beginning after December 15, 2016, and early adoption is not permitted. The standard allows for either full retrospective adoption or modified retrospective adoption. At this time, we are evaluating the guidance to determine the method of adoption and the impact of this ASU on our financial statements and related disclosures.

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Stock-Based Compensation Stock-Based Compensation, Stock Appreciation Rights, Performance Share Awards and Market Stock Units(Details) (USD $) In Millions, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Stock appreciation rights
Stock-Based Compensation Arrangement by Stock-based Payment Award
Cash paid to settle awards	$ 22	$ 32
Exercised stock appreciation rights (shares)	0.8	1.4
Accrued stock appreciation rights	$ 53		$ 76
Performance share awards
Stock-Based Compensation Arrangement by Stock-based Payment Award
Awards granted (shares)	0.2
Weighted average grant date fair value (dollars per share)	$ 53.89
Market stock units
Stock-Based Compensation Arrangement by Stock-based Payment Award
Awards granted (shares)	0.5
Weighted average grant date fair value (dollars per share)	$ 59.83

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Condensed Statements of Consolidated Cash Flows (Unaudited) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings	$ 756	$ 451
Adjustments to reconcile net earnings to net cash from (used in) operating activities:
Depreciation and amortization expense	409	357
Debt redemption charges	41	0
Gain on sale of Hawaii Business	0	(80)
Stock-based compensation expense	20	34
Deferred income taxes	227	222
Deferred charges	(119)	(333)
Other non-cash operating activities	(59)	(46)
Changes in current assets and current liabilities	(228)	65
Net cash from operating activities	1,047	670
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	(477)	(447)
Acquisitions	(17)	(2,615)
Proceeds from sale of Hawaii Business	0	539
Other investing activities	11	0
Net cash used in investing activities	(483)	(2,523)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	295	2,068
Borrowings under term loan credit agreement	0	500
Proceeds from debt offering	300	550
Repayments on revolving credit agreements	(52)	(1,368)
Repayments of debt	(433)	(6)
Dividend payments	(104)	(88)
Proceeds from stock options exercised	14	69
Net proceeds from issuance of Tesoro Logistics LP common units	156	392
Distributions to noncontrolling interest	(63)	(43)
Purchases of common stock	(350)	(341)
Taxes paid related to net share settlement of equity awards	(22)	(5)
Other financing activities	(13)	(22)
Net cash from (used in) financing activities	(272)	1,706
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	292	(147)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,238	1,639
CASH AND CASH EQUIVALENTS, END OF PERIOD	$ 1,530	$ 1,492

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Condensed Statements of Consolidated Comprehensive Income (Unaudited) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
COMPREHENSIVE INCOME
Net Earnings	$ 413	$ 109	$ 756	$ 451
Pension and other post retirement benefit liability adjustments, net of tax	0	0	0	73
Total comprehensive income	413	109	756	524
Less: Noncontrolling interest in comprehensive income	17	10	58	32
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	$ 396	$ 99	$ 698	$ 492

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Debt (Notes)

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

DEBT

DEBT

Our total debt balance at September 30, 2014 and December 31, 2013 was as follows (in millions):

	September 30, 2014		December 31, 2013
Total debt (a)	$	2,944	$	2,829
Less: Current maturities	6		6
Debt, less current maturities	$	2,938	$	2,823

________________

(a) Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was $1.3 billion and $1.2 billion at September 30, 2014 and December 31, 2013, respectively.

TLLP Senior Notes due 2019 and 2022

On October 29, 2014, TLLP completed the Senior Notes Offering with tranches of $500 million of 5.50% senior notes due in 2019 (the “TLLP 2019 Notes”) and $800 million of 6.25% senior notes due in 2022 (the “TLLP 2022 Notes”). Interest on each series of notes will be payable semi-annually on each April 15 and October 15, beginning April 15, 2015. The proceeds from the TLLP 2019 Notes were used to repay amounts outstanding under the TLLP Revolving Credit Facility related to its recent acquisition of logistics assets from Tesoro during the third quarter of 2014. The TLLP 2022 Notes closed into escrow to fund the QEPFS Acquisition. The remaining net proceeds from the TLLP 2019 Notes, the TLLP 2022 Notes and borrowings under the revolving credit facility will be a source of funding for the QEPFS Acquisition. The escrowed proceeds from the TLLP 2022 Notes will be released to fund the QEPFS Acquisition upon TLLP’s closing of the acquisition and other customary conditions outlined in the debt agreement. If these conditions are not satisfied by December 31, 2014 (subject to monthly extensions until February 28, 2015), the TLLP 2022 Notes can be redeemed at 100% of their initial issue price, plus accrued and unpaid interest.

TLLP Senior Note Redemption

During the three months ended September 30, 2014, using the proceeds from its August 2014 offering, TLLP redeemed an aggregate principal amount of $130 million of the 2020 Notes at a premium. TLLP recorded charges totaling $10 million as net interest and financing costs in our condensed statement of consolidated operations for premiums paid due to the early redemption and expensing of unamortized debt issuance costs. Refer to Note C for additional information on TLLP’s senior note redemption.

Exchange Offer

TLLP entered into a registration rights agreement in connection with the December 2013 private offering of $250 million of unregistered 2020 Notes (the “Unregistered Notes”). On July 25, 2014, TLLP completed an offer to exchange the Unregistered Notes for notes registered under the Securities Act of 1933, as amended (the “Exchange Notes”). In accordance with the terms of the Exchange Notes, each holder of the Unregistered Notes were entitled to receive Exchange Notes, which are identical in all material respects to the Unregistered Notes (including principal amount, interest rate, maturity and redemption rights), except that the Exchange Notes generally are not subject to transfer restrictions.

5.125% Senior Notes due 2024

Effective March 18, 2014, we issued $300 million aggregate principal amount of 5.125% Senior Notes due 2024 (the “2024 Notes”).  The 2024 Notes have a ten-year maturity and are subject to optional redemption by Tesoro beginning April 1, 2019 at premiums of 2.563% through March 31, 2020; 1.708% from April 1, 2020 through March 31, 2021; 0.854% from April 1, 2021 through March 31, 2022; and at par thereafter, or at a make-whole plus accrued and unpaid interest before April 1, 2019. In addition, at any time prior to April 1, 2017, we may redeem up to 35% of the aggregate principal amount at 105.125% of face value with proceeds from certain equity issuances. The terms of the 2024 Notes are generally less restrictive than those contained in our senior notes due in 2017 and 2022, and exclude some limitations on restricted payments, asset sales and other transactions that are included in those senior notes. These notes are unsecured obligations and guaranteed by certain of our domestic subsidiaries, excluding TLGP and TLLP and its subsidiaries. The proceeds from the issuance of the 2024 Notes, together with cash on hand, were used to pay for fees and expenses related to the note issuance and to redeem all outstanding 9.750% Senior Notes due 2019 (the “2019 Notes”) for an aggregate purchase price of $329 million, including accrued interest and premiums. In connection with the redemption of the 2019 Notes, we incurred charges totaling $31 million comprised of premiums paid on the 2019 Notes of $19 million and non-cash charges associated with the expensing of $8 million and $4 million of unamortized debt discount and issuance costs, respectively. Our debt redemption charges for the 2019 Notes are recorded in net interest and financing costs in our condensed statements of consolidated operations.

Credit Facilities Overview

We had available capacity under our credit facilities as follows at September 30, 2014 (in millions):

	Total Capacity		Amount Borrowed as of September 30, 2014		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (a)	$	3,000	$	—	$	824	$	2,176	January 4, 2018
TLLP Revolving Credit Facility	575		243		—		332		December 31, 2017
Term Loan Credit Facility	398		398		—		—		May 30, 2016
Letter of Credit Facilities	1,837		—		784		1,053
Total credit facilities	$	5,810	$	641	$	1,608	$	3,561

________________

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

As of September 30, 2014, 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    ($3.0 billion) (b)	0.16%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($575 million) (c)	0.16%	2.50%	3.25%	1.50%	0.50%
Term Loan Credit Facility ($398 million) (b)	0.16%	2.25%	3.25%	1.25%	—%

________________

(b) We can elect the interest rate to apply to the 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 on the Revolving Credit Facility varies primarily based upon our credit ratings. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate.

(c) TLLP has the option to elect if the borrowings will bear interest at either, a base rate plus the base rate margin or a Eurodollar rate, for the applicable period, 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. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate.

Tesoro Corporation Revolving Credit Facility

At September 30, 2014, 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 $4.4 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 $3.0 billion. The total available capacity can be increased up to an aggregate amount 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 November 21, 2014, and by an additional $500 million on or prior to May 21, 2015. We had unused credit availability of approximately 73% of the eligible borrowing base at September 30, 2014.

TLLP Revolving Credit Facility

The TLLP Revolving Credit Facility provided for total loan availability of $575 million as of September 30, 2014, and TLLP may 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 $243 million in borrowings outstanding under the TLLP Revolving Credit Facility, which incurred interest at a weighted average interest rate of 2.65% at September 30, 2014. In conjunction with the announcement of the QEPFS Acquisition, TLLP executed a commitment letter to amend and restate the TLLP Revolving Credit Facility to increase the total loan availability to $900 million and extend the maturity date five years from the date the facility is amended and restated.

Term Loan Credit Facility

We entered into the Term Loan Credit Facility in January 2013, which allowed us to borrow up to an aggregate of $500 million. We borrowed $500 million on May 30, 2013 to fund a portion of the Los Angeles Acquisition. The obligations under the Term Loan Credit Facility are secured by all equity interests of Tesoro Refining & Marketing Company LLC and Tesoro Alaska Company LLC, the Tesoro and USA Gasoline trademarks and those trademarks containing the name “ARCO” acquired in the Los Angeles Acquisition and junior liens on certain assets. The Term Loan Credit Facility may be repaid at any time but amounts may not be re-borrowed. The borrowings under our Term Loan Credit Facility incurred interest at a rate of 2.40% as of September 30, 2014.

Our Revolving Credit Facility, senior notes and Term Loan Credit Facility each limit our ability to make certain 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.

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. Our uncommitted letter of credit agreements had $784 million outstanding as of September 30, 2014. Capacity under these letter of credit agreements is available on an uncommitted basis and can be terminated by either party at any time.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Oct. 28, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	TESORO CORP /NEW/
Entity Central Index Key	0000050104
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
Amendment Flag	false
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
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		126,245,340

XML

Benefit Plans (Notes)

9 Months Ended

Sep. 30, 2014

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

BENEFIT PLANS

BENEFIT PLANS

Tesoro sponsors four defined benefit pension plans, including one funded qualified employee retirement plan and three unfunded nonqualified executive plans. Although our funded employee retirement plan fully meets all funding requirements under applicable laws and regulations, we voluntarily contributed $60 million during the nine months ended September 30, 2014 to improve the funded status of the plan. Tesoro also provides other postretirement health care benefits to retirees who met certain service requirements and were participating in our group health insurance program at retirement.

The components of pension and other postretirement benefit expense (income) for the three and nine months ended September 30, 2014 and 2013 were (in millions):

	Pension Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Service cost	$	12		$	13		$	38		$	27
Interest cost	7			9			24			22
Expected return on plan assets	(6		)	(6		)	(21		)	(18		)
Amortization of prior service cost	—			1			1			1
Recognized net actuarial loss	3			3			10			16
Net Periodic Benefit Expense	$	16		$	20		$	52		$	48
	Other Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Service cost	$	—		$	—		$	2		$	3
Interest cost	1			1			2			2
Amortization of prior service credit	(8		)	(8		)	(25		)	(27		)
Recognized net actuarial loss	1			1			4			6
Recognized curtailment gain	—			(17		)	—			(17		)
Net Periodic Benefit Income	$	(6	)	$	(23	)	$	(17	)	$	(33	)

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Condensed Statements of Consolidated Comprehensive Income (Unaudited) Condensed Statements of Consolidated Comprehensive Income (Parentheticals) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
COMPREHENSIVE INCOME
Tax expense related to pension and other benefit liability adjustments	$ 0	$ 0	$ 0	$ 48

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Earnings Per Share (Notes)

9 Months Ended

Sep. 30, 2014

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. Our share calculations are presented below (in millions):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2014	2013	2014	2013
Weighted average common shares outstanding	127.9	134.6	129.5	135.8
Common stock equivalents	1.8	2.2	2.2	2.3
Total diluted shares	129.7	136.8	131.7	138.1

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 0.1 millionand 0.2 million for the three months ended September 30, 2014 and 2013, respectively, and0.1 million for both the nine months ended September 30, 2014 and 2013, respectively.

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Discontinued Operations Discontinued Operations (Notes)

9 Months Ended

Sep. 30, 2014

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

On September 25, 2013, we completed the sale of our Hawaii Business and received gross proceeds of $539 million, including $75 million from the sale of assets and $464 million from the sale of inventory and other net working capital. Additional contingent consideration includes an earnout arrangement payable over three years for an aggregate amount of up to $40 million based on consolidated gross margins. Any income related to the earnout arrangement will not be recorded until it is considered realizable. We have also agreed to indemnify the purchaser for up to $15 million of environmental remediation costs related to the Hawaii Business, subject to limitations described in the purchase agreement, and retained responsibility for the resolution of certain Clean Air Act allegations as described in Note L. The asset retirement obligations were assumed by the purchaser upon close of the transaction; therefore, we will not incur any removal or other closure costs for this business.

The results of operations for this business have been presented as discontinued operations in the condensed statements of consolidated operations for the three and nine months ended September 30, 2014 and 2013. There were no revenues for the three and nine months ended September 30, 2014. Revenues from the discontinued Hawaii Business for the three and nine months ended September 30, 2013 were $585 million and $2.0 billion, respectively. We recorded losses, before and after tax, of $2 million and $1 million, respectively, for the three months ended September 30, 2014 and $3 million and $2 million, respectively, for the nine months ended September 30, 2014 related to the Hawaii Business. We recorded income, before and after tax of $56 million and $35 million, respectively, including a pre-tax gain on sale of $80 million, for the three months ended September 30, 2013 and $39 million and $23 million, respectively, for the nine months ended September 30, 2013 related to the Hawaii Business.

Cash flows related to the discontinued Hawaii Business have been combined with the cash flows from continuing operations in the condensed statements of consolidated cash flows for both periods presented. Cash flows used in operating activities were $2 million for the nine months ended September 30, 2014. Cash flows provided by operating activities were $74 million and cash flows used in investing activities were $537 million for the nine months ended September 30, 2013.

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Condensed Consolidating Financial Information (Notes)

9 Months Ended

Sep. 30, 2014

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 is presented below. At September 30, 2014, Tesoro and certain subsidiary guarantors have fully and unconditionally guaranteed our 4.250% Senior Notes due 2017, 5.375% Senior Notes due 2022, and 2024 Notes. TLLP, in which we had a 35% ownership interest as of September 30, 2014, 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. This 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. Intercompany transactions between subsidiaries are presented gross and eliminated in the eliminations column. Additionally, the results of operations of the Hawaii Business have been reported as discontinued operations in these condensed consolidating statements of operations and comprehensive income for the three and nine months ended September 30, 2014 and 2013.

Condensed Consolidating Statement of Operations

for the Three Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	12,528		$	1,671		$	(3,048	)	$	11,151
COSTS AND EXPENSES:
Cost of sales	—			11,076			1,504			(2,986		)	9,594
Operating, selling, general and administrative expenses	2			692			78			(62		)	710
Depreciation and amortization expense	—			125			19			—			144
Loss on asset disposals and impairments	—			1			—			—			1
OPERATING INCOME (LOSS)	(2		)	634			70			—			702
Equity in earnings of subsidiaries	405			11			—			(416		)	—
Interest and financing costs, net	(10		)	(23		)	(28		)	10			(51		)
Other income, net	—			12			10			(10		)	12
EARNINGS BEFORE INCOME TAXES	393			634			52			(416		)	663
Income tax expense (benefit) (a)	(3		)	241			11			—			249
NET EARNINGS FROM CONTINUING OPERATIONS	396			393			41			(416		)	414
Loss from discontinued operations, net of tax	—			(1		)	—			—			(1		)
NET EARNINGS	396			392			41			(416		)	413
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			17			—			17
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	396		$	392		$	24		$	(416	)	$	396
COMPREHENSIVE INCOME
Total comprehensive income	$	396		$	392		$	41		$	(416	)	$	413
Less: Noncontrolling interest in comprehensive income	—			—			17			—			17
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	396		$	392		$	24		$	(416	)	$	396

_________________

(a) The income tax expense (benefit) 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

for the Three Months EndedSeptember 30, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	13,233		$	1,514		$	(3,506	)	$	11,241
COSTS AND EXPENSES:
Cost of sales	—			12,436			1,424			(3,505		)	10,355
Operating, selling, general and administrative expenses	1			544			52			(1		)	596
Depreciation and amortization expense	—			126			14			—			140
Loss on asset disposals and impairments	—			4			—			—			4
OPERATING INCOME (LOSS)	(1		)	123			24			—			146
Equity in earnings of subsidiaries (a)	56			10			—			(66		)	—
Interest and financing costs, net	(7		)	(34		)	(12		)	6			(47		)
Other income, net	—			22			6			(6		)	22
EARNINGS BEFORE INCOME TAXES	48			121			18			(66		)	121
Income tax expense (benefit) (b)	(2		)	50			(1		)	—			47
NET EARNINGS FROM CONTINUING OPERATIONS	50			71			19			(66		)	74
Earnings (loss) from discontinued operations, net of tax	49			(14		)	—			—			35
NET EARNINGS	99			57			19			(66		)	109
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			10			—			10
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	99		$	57		$	9		$	(66	)	$	99
COMPREHENSIVE INCOME
Total comprehensive income	$	99		$	57		$	19		$	(66	)	$	109
Less: Noncontrolling interest in comprehensive income	—			—			10			—			10
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	99		$	57		$	9		$	(66	)	$	99

_________________

(a) Revised to conform to current period presentation of equity in earnings of subsidiaries that reflects equity in earnings of subsidiaries within the guarantor and non-guarantor columns net of intercompany amounts.

(b) The income tax expense (benefit) 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

for the Nine Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	36,821		$	5,110		$	(9,743	)	$	32,188
COSTS AND EXPENSES:
Cost of sales	—			33,312			4,668			(9,571		)	28,409
Operating, selling, general and administrative expenses	6			1,981			207			(172		)	2,022
Depreciation and amortization expense	—			355			54			—			409
(Gain) loss on asset disposals and impairments	—			3			(5		)	—			(2		)
OPERATING INCOME (LOSS)	(6		)	1,170			186			—			1,350
Equity in earnings of subsidiaries	722			38			—			(760		)	—
Interest and financing costs, net	(27		)	(106		)	(63		)	27			(169		)
Other income, net	2			12			27			(27		)	14
EARNINGS BEFORE INCOME TAXES	691			1,114			150			(760		)	1,195
Income tax expense (benefit) (a)	(7		)	419			25			—			437
NET EARNINGS FROM CONTINUING OPERATIONS	698			695			125			(760		)	758
Loss from discontinued operations, net of tax	—			(2		)	—			—			(2		)
NET EARNINGS	698			693			125			(760		)	756
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			58			—			58
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	698		$	693		$	67		$	(760	)	$	698
COMPREHENSIVE INCOME
Total comprehensive income	$	698		$	693		$	125		$	(760	)	$	756
Less: Noncontrolling interest in comprehensive income	—			—			58			—			58
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	698		$	693		$	67		$	(760	)	$	698

_________________

(a) The income tax expense (benefit) 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

for the Nine Months EndedSeptember 30, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	32,776		$	3,417		$	(8,708	)	$	27,485
COSTS AND EXPENSES:
Cost of sales	—			30,330			3,204			(8,707		)	24,827
Operating, selling, general and administrative expenses	8			1,460			113			(1		)	1,580
Depreciation and amortization expense	—			329			27			—			356
Loss on asset disposals and impairments	—			16			3			—			19
OPERATING INCOME (LOSS)	(8		)	641			70			—			703
Equity in earnings of subsidiaries (a)	386			21			—			(407		)	—
Interest and financing costs, net	(13		)	(85		)	(24		)	12			(110		)
Other income, net	—			78			12			(12		)	78
EARNINGS BEFORE INCOME TAXES	365			655			58			(407		)	671
Income tax expense (benefit) (b)	(5		)	246			2			—			243
NET EARNINGS FROM CONTINUING OPERATIONS	370			409			56			(407		)	428
Earnings (loss) from discontinued operations, net of tax	49			(26		)	—			—			23
NET EARNINGS	419			383			56			(407		)	451
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			32			—			32
NET EARNINGS ATTRIBUTABLE TO TESORO    CORPORATION	$	419		$	383		$	24		$	(407	)	$	419
COMPREHENSIVE INCOME
Total comprehensive income	$	492		$	383		$	56		$	(407	)	$	524
Less: Noncontrolling interest in comprehensive income	—			—			32			—			32
COMPREHENSIVE INCOME ATTRIBUTABLE TO    TESORO CORPORATION	$	492		$	383		$	24		$	(407	)	$	492

_________________

(a) Revised to conform to current period presentation of equity in earnings of subsidiaries that reflects equity in earnings of subsidiaries within the guarantor and non-guarantor columns net of intercompany amounts.

(b) The income tax expense (benefit) 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 September 30, 2014

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,438	$	92	$	—		$	1,530
Receivables, less allowance for doubtful accounts	—		1,286		292		—			1,578
Short-term receivables from affiliates	—		166		—		(166		)	—
Inventories	—		2,392		282		—			2,674
Prepayments and other current assets	42		128		13		(1		)	182
Total Current Assets	42		5,410		679		(167		)	5,964
Net Property, Plant and Equipment	—		5,531		1,557		—			7,088
Investment in Subsidiaries	5,973		404		—		(6,377		)	—
Long-Term Receivables from Affiliates	3,146		—		—		(3,146		)	—
Long-Term Intercompany Note Receivable	—		—		1,377		(1,377		)	—
Other Noncurrent Assets, Net	48		1,089		36		—			1,173
Total Assets	$	9,209	$	12,434	$	3,649	$	(11,067	)	$	14,225
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	1	$	2,376	$	360	$	—		$	2,737
Short-term payables to affiliates	—		—		166		(166		)	—
Other current liabilities	219		638		75		(1		)	931
Total Current Liabilities	220		3,014		601		(167		)	3,668
Long-Term Payables to Affiliates	—		3,138		8		(3,146		)	—
Deferred Income Taxes	1,167		—		—		—			1,167
Other Noncurrent Liabilities	252		293		15		—			560
Debt	1,622		40		1,276		—			2,938
Long-Term Intercompany Note Payable	1,377		—		—		(1,377		)	—
Equity-Tesoro Corporation	4,571		5,949		460		(6,377		)	4,603
Equity-Noncontrolling Interest	—		—		1,289		—			1,289
Total Liabilities and Equity	$	9,209	$	12,434	$	3,649	$	(11,067	)	$	14,225

Condensed Consolidating Balance Sheet as of December 31, 2013

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	1,161	$	77	$	—		$	1,238
Receivables, less allowance for doubtful accounts	12		1,182		119		—			1,313
Short-term receivables from affiliates	—		—		43		(43		)	—
Inventories	—		2,041		524		—			2,565
Prepayments and other current assets	109		89		14		(2		)	210
Total Current Assets	121		4,473		777		(45		)	5,326
Net Property, Plant and Equipment	—		5,428		1,447		—			6,875
Investment in Subsidiaries (a)	5,242		342		—		(5,584		)	—
Long-Term Receivables from Affiliates	3,080		—		—		(3,080		)	—
Long-Term Intercompany Note Receivable	—		—		1,134		(1,134		)	—
Other Noncurrent Assets, Net	58		1,092		38		—			1,188
Total Assets	$	8,501	$	11,335	$	3,396	$	(9,843	)	$	13,389
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	1	$	2,110	$	485	$	—		$	2,596
Short-term payables to affiliates	—		43		—		(43		)	—
Other current liabilities	112		636		66		(2		)	812
Total Current Liabilities	113		2,789		551		(45		)	3,408
Long-Term Payables to Affiliates	—		2,939		141		(3,080		)	—
Deferred Income Taxes	1,018		—		—		—			1,018
Other Noncurrent Liabilities	320		327		8		—			655
Debt	1,614		45		1,164		—			2,823
Long-Term Intercompany Note Payable	1,134		—		—		(1,134		)	—
Equity-Tesoro Corporation (a)	4,302		5,235		349		(5,584		)	4,302
Equity-Noncontrolling Interest	—		—		1,183		—			1,183
Total Liabilities and Equity	$	8,501	$	11,335	$	3,396	$	(9,843	)	$	13,389

________________

(a) Revised to conform to current period presentation that reflects investment in subsidiary and equity amounts within the guarantor and non-guarantor columns net of intercompany amounts.

Condensed Consolidating Statement of Cash Flows for the Nine Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	(31	)	$	926		$	152		$	—		$	1,047
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(341		)	(136		)	—			(477		)
Acquisitions	—			(17		)	—			—			(17		)
Intercompany notes, net	261			—			—			(261		)	—
Other investing activities	—			1			10			—			11
Net cash from (used in) investing activities	261			(357		)	(126		)	(261		)	(483		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	—			—			295			—			295
Proceeds from debt offering	300			—			—			—			300
Repayments on revolving credit agreements	—			—			(52		)	—			(52		)
Repayments of debt	(300		)	(2		)	(131		)	—			(433		)
Dividend payments	(104		)	—			—			—			(104		)
Proceeds from stock options exercised	14			—			—			—			14
Net proceeds from issuance of Tesoro Logistics LP common units	—			—			156			—			156
Distributions to noncontrolling interest	—			—			(63		)	—			(63		)
Purchases of common stock	(350		)	—			—			—			(350		)
Taxes paid related to net share settlement of equity awards	(22		)	—			—			—			(22		)
Net intercompany borrowings (repayments)	—			(324		)	63			261			—
Borrowings from general partner	243			—			(243		)	—			—
Distributions to TLLP unitholders and general partner	13			15			(28		)	—			—
Other financing activities	(24		)	19			(8		)	—			(13		)
Net cash used in financing activities	(230		)	(292		)	(11		)	261			(272		)
INCREASE IN CASH AND CASH EQUIVALENTS	—			277			15			—			292
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			1,161			77			—			1,238
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	1,438		$	92		$	—		$	1,530

Condensed Consolidating Statement of Cash Flows for the Nine Months EndedSeptember 30, 2013

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	(17	)	$	702		$	(15	)	$	—		$	670
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(397		)	(50		)	—			(447		)
Acquisitions	—			(1,901		)	(714		)	—			(2,615		)
Proceeds from sale of Hawaii Business	539			—			—			—			539
Intercompany notes, net	(2,117		)	—			—			2,117			—
Other investing activities	—			(2		)	2			—			—
Net cash used in investing activities	(1,578		)	(2,300		)	(762		)	2,117			(2,523		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	1,524			—			544			—			2,068
Borrowings under term loan credit agreements	500			—			—			—			500
Proceeds from debt offering	—			—			550			—			550
Repayments on revolving credit agreements	(824		)	—			(544		)	—			(1,368		)
Repayments of debt	(3		)	(3		)	—			—			(6		)
Dividend payments	(88		)	—			—			—			(88		)
Proceeds from stock options exercised	69			—			—			—			69
Net proceeds from issuance of Tesoro Logistics LP common units	—			—			392			—			392
Distributions to noncontrolling interest	—			—			(43		)	—			(43		)
Purchases of common stock	(341		)	—			—			—			(341		)
Taxes paid related to net share settlement of equity awards	(5		)	—			—			—			(5		)
Net intercompany borrowings (repayments)	—			1,695			422			(2,117		)	—
Borrowings from general partner	774			—			(774		)	—			—
Distributions to TLLP unitholders and general partner	10			12			(22		)	—			—
Other financing activities	(21		)	11			(12		)	—			(22		)
Net cash from financing activities	1,595			1,715			513			(2,117		)	1,706
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	—			117			(264		)	—			(147		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			1,244			395			—			1,639
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	1,361		$	131		$	—		$	1,492

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Commitments and Contingencies (Notes)

9 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Environmental Matters

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 incurring and expect to continue to incur expenses for environmental remediation 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. Additionally, we have recognized environmental remediation liabilities assumed in past acquisitions from the prior owners that include amounts estimated for site cleanup and monitoring activities arising from operations at refineries, certain terminals and pipelines, and retail stations prior to the dates of our acquisitions. 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 $261 million and $262 million at September 30, 2014 and December 31, 2013, respectively, including $21 million and $24 million for TLLP, respectively. These accruals include $218 million and $216 million at September 30, 2014 and December 31, 2013, respectively, related to amounts estimated for site cleanup activities arising from operations at our Martinez refinery prior to August 2000 and operations of assets acquired in the Los Angeles Acquisition prior to June 1, 2013. We cannot reasonably determine the full extent of remedial activities that may be required at the Martinez refinery and for assets acquired in the Los Angeles Acquisition, and it is possible that we will identify additional investigation and remediation costs for site cleanup activities as more information becomes available. Our estimates for site cleanup activities reflect amounts for which we are responsible under applicable cost-sharing arrangements. We also have insurance policiesrelated to certain matters at our Martinez refinery that provide coverage up to $190 million for expenditures in excess of $50 million in self-insurance. We have not recognized possible insurance recoveries and the insurer has challenged coverage and filed a declaratory relief action in federal court.

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 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. In separate September 2013 and November 2013 orders, the Board of Industrial Insurance Appeals granted partial summary judgment in our favor and dismissed most of the citations. We have established an accrual for this matter although we cannot currently estimate the final amount or timing of its resolution. The outcome of this matter will not have a material impact on our liquidity, financial position, or results of operations.

On May 1, 2014, the CSB finalized its investigation report on the April 2010 naphtha hydrotreater unit fire at our Washington refinery. In the report, the CSB made recommendations to federal and state agencies, the American Petroleum Industry and us. In response to the recommendations made to us, we have communicated to the CSB the actions we are and will be taking. Our completion of those actions will not have a material impact on our liquidity, financial position, or results of operations.

On August 15, 2014, the U.S. Department of Justice (“DOJ”) announced the closure of its investigation of the Washington naphtha hydrotreater fire. In the announcement, the DOJ, who conducted the investigation in conjunction with EPA, stated it declined to bring criminal charges.

We received a notice of violation (“NOV”) from the EPA alleging 46 violations of the Clean Air Act Risk Management Plan requirements at our Washington refinery on November 20, 2013. The EPA conducted an investigation of the refinery in 2011, following the April 2010 fire in the naphtha hydrotreater unit. While we have submitted a response to the EPA and requested clarification of certain allegations, we cannot currently estimate the amount or timing of the resolution of this matter. We believe the outcome will not have a material impact on our liquidity, financial position, or results of operations.

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.

Legal

We are a defendant, along with other manufacturing, supply and marketing defendants, in a lawsuit brought by the Orange County Water District, alleging methyl tertiary butyl ether (“MTBE”) contamination in groundwater. The lawsuit is proceeding in the United States District Court of the Southern District of New York and the defendants are being sued for having manufactured MTBE and having manufactured, supplied and distributed gasoline containing MTBE. The plaintiff alleges, in part, that the defendants are liable for manufacturing or distributing a defective product. The suit generally seeks individual, unquantified compensatory and punitive damages and attorney’s fees. We intend to vigorously assert our defenses against this claim. While we cannot currently estimate the final amount or timing of the resolution of this matter, we have established an accrual and believe that the outcome will not have a material impact on our liquidity, financial position, or results of operations.

Environmental

The EPA has alleged that we have violated certain Clean Air Act regulations at our Alaska, Washington, Martinez, North Dakota and Utah refineries. We also retained the responsibility for resolving similar allegations relating to our former Hawaii refinery, which we sold in September 2013. We previously received a NOV in March 2011 from the EPA alleging violations of Title V of the Clean Air Act at our Alaska refinery, which arose 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 continuing discussions of all EPA claims with the EPA and the DOJ. The ultimate resolution of these matters could have a material impact on our future interim or annual results of operations, as we may be required to incur material capital expenditures and/or civil penalties. However, we do not believe that the outcome will have a material impact on our liquidity or financial position.

We have investigated conditions at certain active wastewater treatment units at our Martinez refinery pursuant to an order received in 2004 from the San Francisco Bay Regional Water Quality Control Board that 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 liquidity, financial position, or results of operations.

Tax

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. However, we believe that resolution of any such claim(s) would not have a material impact on our liquidity, financial position, or results of operations. It is reasonably possible that unrecognized tax benefits may decrease by as much as $8 million in the next twelve months, related primarily to state apportionment matters. However, since the tax was fully paid in prior years, the unrecognized tax benefit would be eliminated without impacting expense.

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Derivative Instruments (Notes)

9 Months Ended

Sep. 30, 2014

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

In the ordinary course of business, our profit margins, earnings and cash flows are impacted by the timing, direction and overall change in pricing for commodities used throughout our operations. We use non-trading derivative instruments to manage our exposure to the following:

• price risks associated with the purchase or sale of feedstocks, refined products and energy supplies to or from our refineries, terminals, retail operations and customers;

• price risks associated with inventories above or below our target levels;

• future emission credit requirements; and

• exchange rate fluctuations on our purchases of Canadian crude oil.

Our accounting for derivative instruments depends on whether the underlying commodity will be used or sold in the normal course of business. For contracts where the crude oil or refined products are expected to be used or sold in the normal course of business, we apply the normal purchase normal sale exception and follow the accrual method of accounting. All other derivative instruments are recorded at fair value using mark-to-market accounting.

Our derivative instruments include forward purchase and sale contracts (“Forward Contracts”), exchange-traded futures (“Futures Contracts”), over-the-counter swaps (“OTC Swap Contracts”), options (“Options”), and over-the-counter options (“OTC Option Contracts”). Forward Contracts are agreements to buy or sell the commodity at a predetermined price at a specified future date. Futures Contracts are standardized agreements, traded on a futures exchange, to buy or sell the commodity at a predetermined price at a specified future date. Options provide the right, but not the obligation to buy or sell the commodity at a specified price in the future. OTC Swap Contracts and OTC Option 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. We believe that we have minimal credit risk with respect to our counterparties.

The following table presents the fair value (in millions) of our derivative instruments as of September 30, 2014 and December 31, 2013. 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 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	September 30, 2014			December 31, 2013			September 30, 2014			December 31, 2013
Commodity Futures Contracts (a)	Prepayments and other current assets	$	373		$	140		$	324		$	158
Commodity Forward Contracts	Receivables	1			—			—			—
Commodity Forward Contracts	Accounts payable	—			—			1			1
Foreign Currency Forward    Contracts	Accounts payable	—			—			1			—
Total Gross Mark-to-Market    Derivatives		374			140			326			159
Less: Counterparty Netting and    Cash Collateral (b)		(302		)	(72		)	(324		)	(137		)
Total Net Fair Value of Derivatives		$	72		$	68		$	2		$	22

________________

(a) We had derivative assets totaling $7 million and $3 million at September 30, 2014 and December 31, 2013, respectively, related to corn futures used to manage our biofuel exposure. Additionally, we had derivative liabilities totaling $3 million and $1 million at September 30, 2014 and December 31, 2013, respectively, related to corn futures.

(b) As of September 30, 2014 and December 31, 2013, cash collateral amounts of $22 million and $65 million, respectively, are netted with mark-to-market derivative assets.

Gains (losses) for our mark-to market derivatives for the three and nine months ended September 30, 2014 and 2013 were as follows (in millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Commodity Futures Contracts	$	167		$	(73	)	$	90		$	(89	)
Commodity OTC Swap Contracts	(2		)	—			(5		)	—
Commodity Forward Contracts	1			7			5			3
Foreign Currency Forward Contracts	(3		)	—			(3		)	(4		)
Total Gain (Loss) on Mark-to-Market Derivatives	$	163		$	(66	)	$	87		$	(90	)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenues	$	6		$	(10	)	$	7		$	—
Cost of sales	160			(45		)	83			(65		)
Other income, net	(3		)	—			(3		)	(4		)
Net loss from discontinued operations	—			(11		)	—			(21		)
Total Gain (Loss) on Mark-to-Market Derivatives	$	163		$	(66	)	$	87		$	(90	)

Open Long (Short) Positions

The information below presents the net volume of outstanding commodity and other contracts by type of instrument, year of maturity and unit of measure as of September 30, 2014 (units in thousands):

	Contract Volumes by Year of Maturity
Mark-to-Market Derivative Instrument	2014	2015	2016	2017	Unit of Measure
Crude oil, refined products and blending products:
Futures - short	(8,625)	(116)	—	—	Barrels
OTC Swaps - long	200	—	—	—	Barrels
Forwards - short	(272)	—	—	—	Barrels
Carbon credits:
Futures - long	—	—	1,000	1,000	Tons
Renewable identification numbers:
Futures - short	(500)	—	—	—	Gallons
Corn:
Futures - short	(2,720)	—	—	—	Bushels

At September 30, 2014, we had open Forward Contracts to purchase CAD $66 million that matured on October 24, 2014.

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Benefit Plans (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014 plans	Sep. 30, 2013	Sep. 30, 2014 plans	Sep. 30, 2013
Pension Benefits
General Discussion of Pension Plan
Number of defined benefit plans sponsored (plans)	4		4
Pension Contributions
Employer contributions to employee retirement plan			$ 60
Components of Net Periodic Benefit Expense and Other Postretirement Expense (Income):
Service cost	12	13	38	27
Interest cost	7	9	24	22
Expected return on plan assets	(6)	(6)	(21)	(18)
Amortization of prior service cost (credit)	0	1	1	1
Recognized net actuarial loss	3	3	10	16
Net Periodic Benefit Expense (Income)	16	20	52	48
Other Postretirement Benefits
Components of Net Periodic Benefit Expense and Other Postretirement Expense (Income):
Service cost	0	0	2	3
Interest cost	1	1	2	2
Amortization of prior service cost (credit)	(8)	(8)	(25)	(27)
Recognized net actuarial loss	1	1	4	6
Recognized curtailment gain	0	(17)	0	(17)
Net Periodic Benefit Expense (Income)	$ (6)	$ (23)	$ (17)	$ (33)
Funded Qualified Employee Retirement Plan
General Discussion of Pension Plan
Number of defined benefit plans sponsored (plans)	1		1
Unfunded Nonqualified Executive Plan
General Discussion of Pension Plan
Number of defined benefit plans sponsored (plans)	3		3

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Inventories (Notes)

9 Months Ended

Sep. 30, 2014

Inventory Disclosure [Abstract]

INVENTORIES

INVENTORIES

Components of inventories were as follows (in millions):

	September 30, 2014		December 31, 2013
Domestic crude oil and refined products	$	2,200	$	1,847
Foreign subsidiary crude oil	282		523
Other inventories	192		195
Total Inventories	$	2,674	$	2,565

The total carrying value of our crude oil and refined product inventories was less than replacement cost by approximately$1.6 billion and $1.7 billion at September 30, 2014 and December 31, 2013, respectively.

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Property, Plant and Equipment (Notes)

9 Months Ended

Sep. 30, 2014

Property, Plant and Equipment [Abstract]

PROPERTY, PLANT AND EQUIPMENT

PROPERTY, PLANT AND EQUIPMENT

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

	September 30, 2014			December 31, 2013
Refining	$	6,820		$	6,546
TLLP	1,710			1,569
Retail	812			778
Corporate	242			230
Property, plant and equipment, at cost	9,584			9,123
Accumulated depreciation	(2,496		)	(2,248		)
Net property, plant and equipment	$	7,088		$	6,875

We capitalize interest as part of the cost of major projects during the construction period. Capitalized interest totaled $7 million and $3 million for the three months ended September 30, 2014 and 2013, respectively, and $17 million and $12 million for the nine months ended September 30, 2014 and 2013, respectively, and is recorded as a reduction to net interest and financing costs in our condensed statements of consolidated operations.

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Fair Value Measurements (Notes)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

We classify financial assets and liabilities according to the fair value hierarchy. Financial assets and liabilities classified as level 1 instruments are valued based on quoted prices in active markets for identical assets and liabilities. Level 2 instruments are valued based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices, such as liquidity, that are observable for the asset or liability. These instruments include derivative instruments that are valued using market quotations from independent price reporting agencies, third-party broker quotes and price curves derived from commodity exchange postings that are corroborated with market data. Level 3 instruments are 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 do not have any financial assets or liabilities classified as level 3 at September 30, 2014 or December 31, 2013.

Our financial assets and liabilities measured at fair value on a recurring basis include derivative instruments along with obligations for Renewable Identification Numbers (“RINs”) and cap and trade emission credits for the state of California (together with RINs, our “Environmental Credit Obligations”). See Note H for further information on our derivative instruments. Our Environmental Credit Obligations represent the fair value of our deficit at each balance sheet date for RINs and California cap and trade credits needed to satisfy requirements mandated by the U.S. Environmental Protection Agency (“EPA”) and the state of California, respectively. RINs are assigned to biofuels produced or imported into the U.S. as required by the EPA, which sets annual quotas for the percentage of biofuels that must be blended into transportation fuels consumed in the U.S. As a producer of petroleum transportation fuels, we are required to blend biofuels into the products we produce at a rate that will meet the EPA’s quota. If we are unable to blend at that rate, we must purchase RINs in the open market to satisfy the requirement. Our liability for cap and trade emission credits for the state of California represent our deficit of credits to satisfy emission reduction requirements mandated in California’s Assembly Bill 32 in each period for which our carbon emissions exceed the level allowed by the regulation.

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

	September 30, 2014
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	360	$	13	$	—	$	(302	)	$	71
Commodity Forward Contracts	—		1		—		—			1
Total Assets	$	360	$	14	$	—	$	(302	)	$	72
Liabilities:
Commodity Futures Contracts	$	316	$	8	$	—	$	(324	)	$	—
Commodity Forward Contracts	—		1		—		—			1
Foreign Currency Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		18		—		—			18
Total Liabilities	$	316	$	28	$	—	$	(324	)	$	20

	December 31, 2013
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	136	$	4	$	—	$	(72	)	$	68
Total Assets	$	136	$	4	$	—	$	(72	)	$	68
Liabilities:
Commodity Futures Contracts	$	156	$	2	$	—	$	(137	)	$	21
Commodity Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		5		—		—			5
Total Liabilities	$	156	$	8	$	—	$	(137	)	$	27

________________

(a) Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We 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. As of September 30, 2014 and December 31, 2013, cash collateral amounts of $22 million and $65 million, respectively, are netted with mark-to-market derivative assets.

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 borrowings under the Tesoro Corporation revolving credit facility (the “Revolving Credit Facility”), the TLLP senior secured revolving credit agreement (the “TLLP Revolving Credit Facility”) and our term loan credit facility agreement (the “Term Loan Credit Facility”), which include variable interest rates, approximate fair value. The fair value of our fixed rate debt is based on prices from recent trade activity and is categorized in level 2 of the fair value hierarchy. The carrying and fair value of our debt were both approximately $2.9 billion at September 30, 2014. The carrying value and fair value of our debt were approximately $2.8 billion and $2.9 billion, respectively, at December 31, 2013.

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Commitments and Contingencies, Tax Matters (Details)	3 Months Ended
	Sep. 30, 2014
Commitments and Contingencies Disclosure [Abstract]
Significant Change in Unrecognized Tax Benefits is Reasonably Possible	It is reasonably possible that unrecognized tax benefits may decrease by as much as $8 million in the next twelve months, related primarily to state apportionment matters. However, since the tax was fully paid in prior years, the unrecognized tax benefit would be eliminated without impacting expense.

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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	3 Months Ended						9 Months Ended		0 Months Ended	9 Months Ended
	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Sep. 30, 2014	Sep. 30, 2013	Oct. 30, 2014 Subsequent Event	Sep. 30, 2014 2013 Share repurchase program	Sep. 30, 2013 2013 Share repurchase program	Nov. 06, 2013 2013 Share repurchase program	Jul. 30, 2014 2014 Share repurchase program
Number of shares purchased (shares)										6.2	6.4
Share repurchases, value										$ 350,000,000	$ 336,000,000
Stock Repurchase Program, Authorized Amount												1,000,000,000	1,000,000,000
Dividend payments	$ 39,000,000			$ 33,000,000			$ 104,000,000	$ 88,000,000
Dividends declared (dollars per share)	$ 0.30	$ 0.25	$ 0.25	$ 0.25	$ 0.20	$ 0.20	$ 0.80	$ 0.65	$ 0.30
Dividends payable, date declared									Oct. 30, 2014
Dividends, date to be paid									Dec. 15, 2014
Dividends, date of record									Nov. 28, 2014

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Commitments and Contingencies, Legal (Details) (MTBE Contaimination Litigation)	Sep. 30, 2014 lawsuits
MTBE Contaimination Litigation
Other Matters
Remaining lawsuits (lawsuits)	1

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Debt (Tables)

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Schedule of Debt

Our total debt balance at September 30, 2014 and December 31, 2013 was as follows (in millions):

	September 30, 2014		December 31, 2013
Total debt (a)	$	2,944	$	2,829
Less: Current maturities	6		6
Debt, less current maturities	$	2,938	$	2,823

________________

(a) Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was $1.3 billion and $1.2 billion at September 30, 2014 and December 31, 2013, respectively.

Schedule of Line of Credit Facilities

	Total Capacity		Amount Borrowed as of September 30, 2014		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (a)	$	3,000	$	—	$	824	$	2,176	January 4, 2018
TLLP Revolving Credit Facility	575		243		—		332		December 31, 2017
Term Loan Credit Facility	398		398		—		—		May 30, 2016
Letter of Credit Facilities	1,837		—		784		1,053
Total credit facilities	$	5,810	$	641	$	1,608	$	3,561

________________

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

As of September 30, 2014, 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    ($3.0 billion) (b)	0.16%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($575 million) (c)	0.16%	2.50%	3.25%	1.50%	0.50%
Term Loan Credit Facility ($398 million) (b)	0.16%	2.25%	3.25%	1.25%	—%

________________

(b) We can elect the interest rate to apply to the 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 on the Revolving Credit Facility varies primarily based upon our credit ratings. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate.

(c) TLLP has the option to elect if the borrowings will bear interest at either, a base rate plus the base rate margin or a Eurodollar rate, for the applicable period, 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. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate.

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Inventories Inventories Narrative (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Inventory Disclosure [Abstract]
Excess of Replacement or Current Costs over Stated LIFO Value	$ 1,600	$ 1,700

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Stock-Based Compensation (Notes)

9 Months Ended

Sep. 30, 2014

Share-based Compensation [Abstract]

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

Stock-based compensation expense (benefit), including discontinued operations, was as follows (in millions):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014			2013
Stock appreciation rights (a)	$	4	$	(18	)	$	(2	)	$	6
Performance share awards (b)	3		—			7			10
Market stock units (c)	4		5			12			13
Other stock-based awards (d)	1		—			3			5
Total Stock-Based Compensation Expense (Benefit)	$	12	$	(13	)	$	20		$	34

________________

(a) We paid cash of $22 million and $32 million to settle 0.8 million and 1.4 million SARs that were exercised during the nine months ended September 30, 2014 and 2013, respectively. We had $53 million and $76 million recorded in accrued liabilities associated with our SARs awards at September 30, 2014 and December 31, 2013, respectively.

(b) We granted 0.2 million performance share awards, including awards with performance and market conditions, at a weighted average grant date fair value of $53.89 per share under the amended and restated 2011 Long-Term Incentive Plan (“2011 Plan”) during the nine months ended September 30, 2014.

(c) We granted 0.5 million market stock units at a weighted average grant date fair value of $59.83 per unit under the 2011 Plan during the nine months ended September 30, 2014.

(d) We have aggregated expenses for certain award types as they are not considered significant.

The income tax effect recognized in the income statement for stock-based compensation was a benefit of $7 million and an expense of $5 million for the three months ended September 30, 2014 and 2013, respectively, and a benefit of $9 million and $12 million for the nine months ended September 30, 2014 and 2013, 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 $7 million and $1 million for the three months ended September 30, 2014 and 2013, respectively, and $41 million and $39 million for the nine months ended September 30, 2014 and 2013, respectively.

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Derivative Instruments (Policies)

9 Months Ended

Sep. 30, 2014

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Derivatives, policy

Our accounting for derivative instruments depends on whether the underlying commodity will be used or sold in the normal course of business. For contracts where the crude oil or refined products are expected to be used or sold in the normal course of business, we apply the normal purchase normal sale exception and follow the accrual method of accounting. All other derivative instruments are recorded at fair value using mark-to-market accounting.

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Earnings Per Share Earnings Per Share Narrative (Details) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Earnings Per Share [Abstract]
Anti-dilutive securities (shares)	0.1	0.2	0.1	0.1

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Basis of Presentation Basis of Presentation, Discontinued Operations (Details) (Hawaii Operations)	Sep. 25, 2013
Hawaii Operations
Discontinued Operations
Capacity (bpd)	94,000

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Millions, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
CURRENT ASSETS
Cash and cash equivalents	$ 1,530		$ 1,238
Receivables, less allowance for doubtful accounts	1,578		1,313
Inventories	2,674		2,565
Prepayments and other current assets	182		210
Total Current Assets	5,964		5,326
NET PROPERTY, PLANT AND EQUIPMENT	7,088		6,875
OTHER NONCURRENT ASSETS, NET	1,173		1,188
Total Assets	14,225		13,389
CURRENT LIABILITIES
Accounts payable	2,737		2,596
Other current liabilities	931		812
Total Current Liabilities	3,668		3,408
DEFERRED INCOME TAXES	1,167		1,018
OTHER NONCURRENT LIABILITIES	560		655
Debt	2,938		2,823
COMMITMENTS AND CONTINGENCIES (Note L)
TESORO CORPORATION STOCKHOLDERS’ EQUITY
Common stock, par value $0.162/3; authorized 200,000,000 shares; 156,447,233 shares issued (154,712,627 in 2013)	26		26
Additional paid-in capital	1,265		1,186
Retained earnings	4,534		3,940
Treasury stock, 29,525,051 common shares (22,907,890 in 2013), at cost	(1,170)		(798)
Accumulated other comprehensive loss	(52)		(52)
Total Tesoro Corporation Stockholders’ Equity	4,603		4,302
NONCONTROLLING INTEREST	1,289		1,183
Total Equity	5,892	[1]	5,485	[1]
Total Liabilities and Equity	$ 14,225		$ 13,389

[1] We have 5.0 million shares of preferred stock authorized with no par value per share. No shares of preferred stock were outstanding as of September 30, 2014 and December 31, 2013.

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Tesoro Logistics LP (Notes)

9 Months Ended

Sep. 30, 2014

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 generate revenue by charging fees for gathering crude oil using its High Plains System and for terminalling, transporting and storing crude oil and refined products using terminal facilities and pipelines in the western United States. Tesoro Logistics GP, LLC (“TLGP”), a fully consolidated subsidiary, serves as the general partner of TLLP. We held an approximate 35% and 36% interest in TLLP at September 30, 2014 and December 31, 2013, respectively, including the general partner interest. This interest at September 30, 2014 includes 19,481,557 common units and 1,163,138 general partner units. During the second quarter of 2014, all subordinated units converted to common units. All intercompany transactions with TLLP are eliminated upon consolidation.

TLLP provides us with various pipeline transportation, trucking, terminal distribution, storage and coke-handling services under long-term, fee-based commercial agreements. Each of these agreements, with the exception of the storage and transportation services agreement, contain minimum volume commitments. We do not provide financial or equity support through any liquidity arrangements or financial guarantees to TLLP.

QEPFS Acquisition

On October 19, 2014, TLLP reached a definitive agreement (“QEPFS Purchase Agreement”) to acquire the natural gas gathering, processing, treating and transportation and crude oil gathering business of QEP Resources, Inc.’s wholly-owned subsidiary, QEP Field Services Company, LLC (“QEPFS”), with operations in Wyoming, Colorado, Utah and the Williston Basin in North Dakota (the “QEPFS Acquisition”). QEPFS also provides natural gas liquids fractionation and transportation services for its producer customers through QEPFS’ direct ownership and operation of two gathering systems and two processing complexes. The acquisition transforms TLLP into a full-service logistics company with assets allowing geographic diversification in support of our strategic initiatives. As part of the transaction, TLLP will acquire 56% of the limited partner interests in QEP Midstream Partners, LP (“QEP Midstream”). Additionally, TLLP is acquiring the general partner of QEP Midstream including its 2% general partner interest and 100% of the incentive distribution rights. TLLP expects to pay total consideration of approximately $2.5 billion, including $230 million to refinance QEP Midstream’s outstanding debt. The transaction is subject to regulatory approval and other closing conditions. The QEPFS Purchase Agreement provides for us to pay a break-up fee of $150 millionin the event that we terminate the agreement, except for termination for specified reasons.

On October 24, 2014, in connection with the QEPFS Acquisition, TLLP closed a registered public offering of 23 million common units, including an over-allotment option that was exercised allowing the underwriters to purchase an additional 3 million common units, representing limited partner interests in TLLP (the “October Equity Offering”) to raise $1.3 billion, including the purchase of common units by Tesoro of an amount equal to $500 million and TLGP’s $27 million contribution to maintain its 2% general partner interest in TLLP. Additionally, on October 29, 2014, TLLP completed a private offering of $1.3 billion aggregate principal amount of senior notes (the “Senior Notes Offering”) pursuant to a private placement transaction conducted under Rule 144A and Regulation S of the Securities Act of 1933, as amended. The Senior Notes Offering consists of tranches for 5.50% senior notes due in 2019 and 6.25% senior notes due in 2022. TLLP intends to use the proceeds from the October Equity Offering, Senior Notes Offering, and the general partner contribution to repay amounts outstanding under its existing revolving credit facility with the remainder, including amounts to be borrowed under TLLP’s expanded revolving credit facility, to be used primarily to fund the QEPFS acquisition and payment of related fees and expenses. Refer to Note J for further information on the Senior Notes Offering and expansion of TLLP’s revolving credit facility.

Other Transactions

During the three months ended September 30, 2014, TLLP purchased certain terminalling and pipeline assets owned by Tesoro and two of our subsidiaries for total consideration of $270 million. On July 1, 2014, TLLP closed on the purchase of the first portion consisting of three marketing terminals and a storage facility in exchange for consideration of $241 million, comprised of approximately $214 million in cash financed with borrowings under TLLP’s revolving credit facility, and the issuance of equity to us with a fair value of $27 million.  On September 30, 2014, TLLP completed the second portion by acquiring Tesoro Alaska Pipeline Company LLC, which owns a refined products pipeline located in Alaska, for total cash consideration of $29 million, financed with borrowings under TLLP’s revolving credit facility.

On August 22, 2014, TLLP completed a public offering of 2.1 million common units for net proceeds of $142 million. Using the proceeds from the offering, TLLP redeemed an aggregate principal amount of $130 million of its 5.875% Senior Notes due 2020 (the “2020 Notes”) at a premium. TLLP recorded charges for premiums paid due to the early redemption and expensing of unamortized debt issuance costs totaling $10 million. We reimbursed TLLP through a capital contribution of $8 million related to the early debt redemption premiums.

On June 25, 2014, TLLP filed a prospectus supplement to its shelf registration statement filed with the SEC in 2012, authorizing the continuous issuance of up to an aggregate of $200 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of its offerings. During the three months ended September 30, 2014, TLLP issued 193,900 common units under this program for net proceeds of $14 million.

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Debt, Overview (Details) (USD $)	3 Months Ended		9 Months Ended					9 Months Ended																			9 Months Ended							0 Months Ended	3 Months Ended				0 Months Ended		0 Months Ended		0 Months Ended
	Sep. 30, 2014		Sep. 30, 2014		Sep. 30, 2013	Dec. 31, 2013		Sep. 30, 2014 Tesoro Corporation Revolving Credit Facility		Sep. 30, 2014 Tesoro Corporation Revolving Credit Facility 30 day Eurodollar (LIBOR) Rate		Sep. 30, 2014 Tesoro Corporation Revolving Credit Facility Base Rate		Sep. 30, 2014 TLLP Revolving Credit Facility		Sep. 30, 2014 TLLP Revolving Credit Facility 30 day Eurodollar (LIBOR) Rate		Sep. 30, 2014 TLLP Revolving Credit Facility Base Rate		Sep. 30, 2014 Term Loan Credit Facility		Sep. 30, 2014 Term Loan Credit Facility 30 day Eurodollar (LIBOR) Rate		Sep. 30, 2014 Term Loan Credit Facility Base Rate		Sep. 30, 2014 Letter of Credit Facilities	Sep. 30, 2014 5.125% Senior Notes Due 2024	Sep. 30, 2014 5.125% Senior Notes Due 2024 April 1, 2019 through March 31, 2020	Sep. 30, 2014 5.125% Senior Notes Due 2024 April 1, 2020 through March 31, 2021	Sep. 30, 2014 5.125% Senior Notes Due 2024 April 1, 2021 through March 31, 2022	Sep. 30, 2014 4.250% Senior Notes Due 2017	Sep. 30, 2014 5.375% Senior Notes Due 2022	Sep. 30, 2014 9.750% Senior Notes Due 2019	Aug. 22, 2014 5.875% Senior Notes Due 2020	Sep. 30, 2014 5.875% Senior Notes Due 2020	Aug. 22, 2014 5.875% Senior Notes Due 2020	Sep. 30, 2014 TLLP	Dec. 31, 2013 TLLP	Oct. 29, 2014 Subsequent Event	Oct. 29, 2014 Subsequent Event	Oct. 29, 2014 Subsequent Event 5.5% Senior Notes due 2019	Oct. 29, 2014 Subsequent Event 5.5% Senior Notes due 2019	Oct. 29, 2014 Subsequent Event 6.25% Senior Notes Due 2022	Oct. 29, 2014 Subsequent Event 6.25% Senior Notes Due 2022
Debt Instrument
Total Debt	$ 2,944,000,000	[1]	$ 2,944,000,000	[1]		$ 2,829,000,000	[1]																														$ 1,276,000,000	$ 1,164,000,000
Less: Current maturities	6,000,000		6,000,000			6,000,000
Debt, less current maturities	2,938,000,000		2,938,000,000			2,823,000,000
Debt Instrument, Offering Date																																							Oct. 29, 2014
Debt instrument, aggregate principal																											300,000,000								250,000,000	130,000,000				1,300,000,000		500,000,000.0000		800,000,000.0000
Debt instrument interest rate																											5.125%				4.25%	5.375%	9.75%			5.875%						5.50%		6.25%
Debt Instrument, Maturity Date																											Apr. 01, 2024				Oct. 01, 2017	Oct. 01, 2022	Jun. 01, 2019	Oct. 01, 2020							Oct. 15, 2019		Oct. 15, 2022
Debt Conversion, Converted Instrument, Expiration or Due Date																																											Dec. 31, 2014
Debt Instrument, Call Date, Latest																																											Feb. 28, 2015
Redemption price, percentage																											105.125%																100.00%
Debt Instrument, Maturity Date, Description																											ten-year
Debt Instrument Redemption Premium Percentage																												2.563%	1.708%	0.854%
Debt Instrument Redemption With Equity Proceeds																											35.00%
Debt Instrument, aggregate purchase price																																	329,000,000
Debt redemption charges	(10,000,000)		(41,000,000)		0																												31,000,000		10,000,000
Debt Instrument, premium paid																																	19,000,000			8,000,000
Unamortized debt discount																																	8,000,000
Unamortized debt Issuance costs																																	4,000,000
Collateral																											These notes are unsecured obligations and guaranteed by certain of our domestic subsidiaries, excluding TLGP and TLLP and its subsidiaries. The proceeds from the issuance of the 2024 Notes, together with cash on hand, were used to pay for fees and expenses related to the note issuance and to redeem all outstanding 9.750% Senior Notes due 2019 (the “2019 Notes”) for an aggregate purchase price of $329 million, including accrued interest and premiums.
Credit agreements
Total Capacity	5,810,000,000		5,810,000,000					3,000,000,000	[2]					575,000,000						398,000,000						1,837,000,000
Amount Borrowed as of September 30, 2014	641,000,000		641,000,000					0	[2]					243,000,000						398,000,000						0
Outstanding Letters of Credit	1,608,000,000		1,608,000,000					824,000,000	[2]					0						0						784,000,000
Available Capacity	$ 3,561,000,000		$ 3,561,000,000					$ 2,176,000,000	[2]					$ 332,000,000						$ 0						$ 1,053,000,000
Expiration								Jan. 04, 2018	[2]					Dec. 31, 2017						May 30, 2016
Expenses and Fees
Eurodollar or Base Rate										0.16%	[3]	3.25%	[3]			0.16%	[4]	3.25%	[4]			0.16%	[3]	3.25%	[3]
Eurodollar or Base Rate Margin										1.50%	[3]	0.50%	[3]			2.50%	[4]	1.50%	[4]			2.25%	[3]	1.25%	[3]
Commitment Fee (unused portion)								0.375%	[3]					0.50%	[4]					0.00%	[3]

[1] Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was $1.3 billion and $1.2 billion at September 30, 2014 and December 31, 2013, respectively.

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

[3] We can elect the interest rate to apply to the 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 on the Revolving Credit Facility varies primarily based upon our credit ratings. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate.

[4] TLLP has the option to elect if the borrowings will bear interest at either, a base rate plus the base rate margin or a Eurodollar rate, for the applicable period, 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. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate.

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Operating Segments (Details)	9 Months Ended
	Sep. 30, 2014 segments
Segment Reporting Information
Number of operating segments (segments)	3
Foreign operations	Since we do not have significant operations in foreign countries, revenue generated in and long-lived assets located in foreign countries are not material to our operations.
Refining
Segment Reporting Information
Number of refineries (refineries)	6
Segment reporting description	We own and operate six petroleum refineries located in California, Washington, Alaska, North Dakota and Utah that 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 and opportunistically export refined products to foreign markets.
TLLP
Segment Reporting Information
Segment reporting description	TLLP’s assets and operations include certain crude oil gathering assets and crude oil and refined products terminalling and transportation assets acquired from Tesoro and other third parties. Revenues from the TLLP segment are generated by charging fees for gathering crude oil and for terminalling, transporting and storing crude oil and refined products.
Retail
Segment Reporting Information
Number of states with retail sites (states)	16
Segment reporting description	Our retail segment sells gasoline, diesel fuel and convenience store items through company-operated retail stations and branded jobber/dealers in 16 states.

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Fair Value Measurements (Policies)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair value of financial instruments policy

We classify financial assets and liabilities according to the fair value hierarchy. Financial assets and liabilities classified as level 1 instruments are valued based on quoted prices in active markets for identical assets and liabilities. Level 2 instruments are valued based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices, such as liquidity, that are observable for the asset or liability. These instruments include derivative instruments that are valued using market quotations from independent price reporting agencies, third-party broker quotes and price curves derived from commodity exchange postings that are corroborated with market data. Level 3 instruments are 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 do not have any financial assets or liabilities classified as level 3 at September 30, 2014 or December 31, 2013.

Our financial assets and liabilities measured at fair value on a recurring basis include derivative instruments along with obligations for Renewable Identification Numbers (“RINs”) and cap and trade emission credits for the state of California (together with RINs, our “Environmental Credit Obligations”). See Note H for further information on our derivative instruments.

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Condensed Consolidating Financial Information, Cash Flows (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities			$ 1,047	$ 670
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures			(477)	(447)
Acquisitions			(17)	(2,615)
Proceeds from sale of Hawaii Business			0	539
Intercompany notes, net			0	0
Other investing activities			11	0
Net cash from (used in) investing activities			(483)	(2,523)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements			295	2,068
Borrowings under term loan credit agreements			0	500
Proceeds from debt offering			300	550
Repayments on revolving credit agreements			(52)	(1,368)
Repayments of debt			(433)	(6)
Dividend payments	(39)	(33)	(104)	(88)
Proceeds from stock options exercised			14	69
Net proceeds from issuance of Tesoro Logistics LP common units			156	392
Distributions to noncontrolling interest			(63)	(43)
Purchases of common stock			(350)	(341)
Taxes paid related to net share settlement of equity awards			(22)	(5)
Net intercompany borrowings (repayments)			0	0
Borrowings from general partner			0	0
Distributions to TLLP unitholders and general partner			0	0
Other financing activities			(13)	(22)
Net cash from (used in) financing activities			(272)	1,706
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			292	(147)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			1,238	1,639
CASH AND CASH EQUIVALENTS, END OF PERIOD	1,530	1,492	1,530	1,492
Parent
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities			(31)	(17)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures			0	0
Acquisitions			0	0
Proceeds from sale of Hawaii Business				539
Intercompany notes, net			261	(2,117)
Other investing activities			0	0
Net cash from (used in) investing activities			261	(1,578)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements			0	1,524
Borrowings under term loan credit agreements				500
Proceeds from debt offering			300	0
Repayments on revolving credit agreements			0	(824)
Repayments of debt			(300)	(3)
Dividend payments			(104)	(88)
Proceeds from stock options exercised			14	69
Net proceeds from issuance of Tesoro Logistics LP common units			0	0
Distributions to noncontrolling interest			0	0
Purchases of common stock			(350)	(341)
Taxes paid related to net share settlement of equity awards			(22)	(5)
Net intercompany borrowings (repayments)			0	0
Borrowings from general partner			243	774
Distributions to TLLP unitholders and general partner			13	10
Other financing activities			(24)	(21)
Net cash from (used in) financing activities			(230)	1,595
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	0	0
Guarantor Subsidiaries
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities			926	702
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures			(341)	(397)
Acquisitions			(17)	(1,901)
Proceeds from sale of Hawaii Business				0
Intercompany notes, net			0	0
Other investing activities			1	(2)
Net cash from (used in) investing activities			(357)	(2,300)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements			0	0
Borrowings under term loan credit agreements				0
Proceeds from debt offering			0	0
Repayments on revolving credit agreements			0	0
Repayments of debt			(2)	(3)
Dividend payments			0	0
Proceeds from stock options exercised			0	0
Net proceeds from issuance of Tesoro Logistics LP common units			0	0
Distributions to noncontrolling interest			0	0
Purchases of common stock			0	0
Taxes paid related to net share settlement of equity awards			0	0
Net intercompany borrowings (repayments)			(324)	1,695
Borrowings from general partner			0	0
Distributions to TLLP unitholders and general partner			15	12
Other financing activities			19	11
Net cash from (used in) financing activities			(292)	1,715
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			277	117
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			1,161	1,244
CASH AND CASH EQUIVALENTS, END OF PERIOD	1,438	1,361	1,438	1,361
Non- Guarantors
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities			152	(15)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures			(136)	(50)
Acquisitions			0	(714)
Proceeds from sale of Hawaii Business				0
Intercompany notes, net			0	0
Other investing activities			10	2
Net cash from (used in) investing activities			(126)	(762)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements			295	544
Borrowings under term loan credit agreements				0
Proceeds from debt offering			0	550
Repayments on revolving credit agreements			(52)	(544)
Repayments of debt			(131)	0
Dividend payments			0	0
Proceeds from stock options exercised			0	0
Net proceeds from issuance of Tesoro Logistics LP common units			156	392
Distributions to noncontrolling interest			(63)	(43)
Purchases of common stock			0	0
Taxes paid related to net share settlement of equity awards			0	0
Net intercompany borrowings (repayments)			63	422
Borrowings from general partner			(243)	(774)
Distributions to TLLP unitholders and general partner			(28)	(22)
Other financing activities			(8)	(12)
Net cash from (used in) financing activities			(11)	513
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			15	(264)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			77	395
CASH AND CASH EQUIVALENTS, END OF PERIOD	92	131	92	131
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
Acquisitions			0	0
Proceeds from sale of Hawaii Business				0
Intercompany notes, net			(261)	2,117
Other investing activities			0	0
Net cash from (used in) investing activities			(261)	2,117
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements			0	0
Borrowings under term loan credit agreements				0
Proceeds from debt offering			0	0
Repayments on revolving credit agreements			0	0
Repayments of debt			0	0
Dividend payments			0	0
Proceeds from stock options exercised			0	0
Net proceeds from issuance of Tesoro Logistics LP common units			0	0
Distributions to noncontrolling interest			0	0
Purchases of common stock			0	0
Taxes paid related to net share settlement of equity awards			0	0
Net intercompany borrowings (repayments)			261	(2,117)
Borrowings from general partner			0	0
Distributions to TLLP unitholders and general partner			0	0
Other financing activities			0	0
Net cash from (used in) financing activities			261	(2,117)
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	$ 0	$ 0

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Operating Segments (Tables)

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Schedule of segment reporting information, by segment

Segment information related to continuing operations is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(In millions)
Revenues
Refining:
Refined products	$	10,409		$	10,674		$	30,429		$	25,564
Crude oil resales and other	434			358			1,060			1,425
TLLP:
Crude oil gathering	32			24			84			66
Terminalling and transportation	118			73			326			146
Retail:
Fuel (a)	3,382			3,362			9,929			7,087
Merchandise and other	73			70			203			177
Intersegment sales	(3,297		)	(3,320		)	(9,843		)	(6,980		)
Total Revenues	$	11,151		$	11,241		$	32,188		$	27,485
Segment Operating Income
Refining (b)	$	578		$	128		$	1,137		$	766
TLLP (c)	61			13			169			53
Retail	138			56			229			96
Total Segment Operating Income	777			197			1,535			915
Corporate and unallocated costs (d)	(75		)	(51		)	(185		)	(212		)
Operating Income	702			146			1,350			703
Interest and financing costs, net (e)	(51		)	(47		)	(169		)	(110		)
Other income, net (f)	12			22			14			78
Earnings Before Income Taxes	$	663		$	121		$	1,195		$	671
Depreciation and Amortization Expense
Refining	$	112		$	109		$	317		$	286
TLLP	18			16			51			28
Retail	10			9			30			26
Corporate	4			6			11			16
Total Depreciation and Amortization Expense	$	144		$	140		$	409		$	356
Capital Expenditures
Refining	$	118		$	88		$	280		$	317
TLLP	63			23			137			59
Retail	9			10			27			26
Corporate	4			2			20			10
Total Capital Expenditures	$	194		$	123		$	464		$	412

___________________________

(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 $148 million and $151 million for the three months ended September 30, 2014 and 2013, respectively, and $441 million and $423 million for the nine months ended September 30, 2014 and 2013, respectively.

(b) Includes $16 million in business interruption insurance recoveries for the three and nine months ended September 30, 2013.

(c) We present TLLP’s segment operating income net of general and administrative expenses totaling $6 million and $4 million representing TLLP’s corporate costs for the three months ended September 30, 2014 and 2013, respectively, and $14 million and $12 million for the nine months ended September 30, 2014 and 2013, respectively that are not allocated to TLLP’s operating segments.

(d) Includes stock-based compensation expense of $12 million and benefit of $12 million for the three months ended September 30, 2014 and 2013, respectively, and expense of $20 million and $33 million for the nine months ended September 30, 2014 and 2013, respectively. The significant impact to stock-based compensation expense during the three and nine months ended September 30, 2014 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

(e) Includes charges totaling $10 million and $41 million for premiums and unamortized debt issuance costs associated with the redemption of the 2019 Notes and 2020 Notes during the three and nine months ended September 30, 2014.

(f) Includes $54 million in refunds from a settlement of a rate proceeding from the California Public Utilities Commission for the nine months ended September 30, 2013 and the release of a $16 million legal reserve as a result of the favorable settlement of litigation for the three and nine months ended September 30, 2013.

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Stockholders' Equity (Notes)

9 Months Ended

Sep. 30, 2014

Stockholders' Equity Attributable to Parent [Abstract]

STOCKHOLDERS' EQUITY

STOCKHOLDERS’ EQUITY

Changes to equity during the nine months ended September 30, 2014 are presented below (in millions):

	Tesoro Corporation Stockholders’ Equity			Noncontrolling  Interest			Total Equity
Balance at December 31, 2013 (a)	$	4,302		$	1,183		$	5,485
Net earnings	698			58			756
Purchases of common stock	(350		)	—			(350		)
Dividend payments	(104		)	—			(104		)
Shares issued for equity-based compensation awards (b)	14			—			14
Amortization of equity settled awards	20			1			21
Excess tax benefits from stock-based compensation arrangements, net	18			—			18
Taxes paid related to net share settlement of equity awards	(22		)	—			(22		)
Net proceeds from issuance of Tesoro Logistics LP common units	—			156			156
Distributions to noncontrolling interest	—			(63		)	(63		)
Other	27			(46		)	(19		)
Balance at September 30, 2014 (a)	$	4,603		$	1,289		$	5,892

________________

(a) We have 5.0 million shares of preferred stock authorized with no par value per share. No shares of preferred stock were outstanding as of September 30, 2014 and December 31, 2013.

(b) We issued approximately 0.5 million shares and 2.0 million shares for proceeds of $14 million and $69 million primarily for stock option exercises under our equity-based compensation plans during the nine months ended September 30, 2014 and 2013, respectively.

Share Repurchases

We are authorized by our Board to purchase shares of our common stock in open market transactions at our discretion. The Board’s authorization has no time limit and may be suspended or discontinued at any time. Purchases of our common stock can also be made to offset the dilutive effect of stock-based compensation awards and to meet our obligations under employee benefit and compensation plans, including the exercise of stock options and vesting of restricted stock and to fulfill other stock compensation requirements. We purchased approximately 6.2 million shares and 6.4 million shares of our common stock for approximately $350 million and $336 million during the nine months ended September 30, 2014 and 2013, respectively. On July 30, 2014, our Board approved a new $1.0 billion share repurchase program to become effective upon the full completion of our current $1.0 billion share repurchase authorization.

Cash Dividends

We paid cash dividends totaling $39 million and $104 million for the three and nine months ended September 30, 2014, respectively, based on a $0.30 per share and $0.25 per share quarterly cash dividend on common stock in the third quarter and the first two quarters, respectively. We paid cash dividends totaling $33 million and $88 million for the three and nine months ended September 30, 2013, respectively, based on a $0.25 per share quarterly cash dividend on common stock in the third quarter and a $0.20 per share quarterly cash dividend on common stock in the first and second quarters. On October 30, 2014, our Board declared a cash dividend of $0.30 per share, payable on December 15, 2014 to shareholders of record on November 28, 2014.