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 March 31, 2015

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 125,831,891 shares of the registrant’s Common Stock outstanding at May 4, 2015.

TESORO CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	Page
Item 1. Financial Statements (Unaudited)
Condensed Statements of Consolidated Operations - Three Months Ended March 31, 2015 and 2014	3
Condensed Consolidated Balance Sheets - March 31, 2015 and December 31, 2014	4
Condensed Statements of Consolidated Cash Flows - Three Months Ended March 31, 2015 and 2014	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	54
Item 4. Controls and Procedures	56
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	57
Item 1A. Risk Factors	57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 5. Other Information	59
Item 6. Exhibits	60
SIGNATURES	61

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TESORO CORPORATION

CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS

(Unaudited)

	Three Months Ended March 31,
	2015			2014
	(In millions, except per share amounts)
Revenues (a)	$	6,463		$	9,933
Costs and Expenses:
Cost of sales (a)	5,340			8,948
Operating expenses	509			591
Selling, general and administrative expenses	91			31
Depreciation and amortization expense	179			130
(Gain) loss on asset disposals and impairments	4			(5		)
Operating Income	340			238
Interest and financing costs, net	(55		)	(77		)
Other expense, net	(1		)	(1		)
Earnings Before Income Taxes	284			160
Income tax expense	96			56
Net Earnings from Continuing Operations	188			104
Loss from discontinued operations, net of tax	—			(1		)
Net Earnings	188			103
Less: Net earnings from continuing operations attributable to noncontrolling interest	43			25
Net Earnings Attributable to Tesoro Corporation	$	145		$	78
Net Earnings (Loss) Attributable to Tesoro Corporation
Continuing operations	$	145		$	79
Discontinued operations	—			(1		)
Total	$	145		$	78
Net Earnings (Loss) per Share - Basic:
Continuing operations	$	1.17		$	0.60
Discontinued operations	—			(0.01		)
Total	$	1.17		$	0.59
Weighted average common shares outstanding - Basic	125.2			131.3
Net Earnings (Loss) per Share - Diluted:
Continuing operations	$	1.15		$	0.59
Discontinued operations	—			(0.01		)
Total	$	1.15		$	0.58
Weighted average common shares outstanding - Diluted	126.9			133.8
Dividends per Share	$	0.425		$	0.250
Supplemental Information:
(a) Includes excise taxes collected by our retail segment	$	140		$	141

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

3

TESORO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2015			December 31, 2014
	(Dollars in millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents (TLLP: $16 and $19, respectively)	$	459		$	1,000
Receivables, net of allowance for doubtful accounts	1,367			1,435
Inventories	2,532			2,439
Prepayments and other current assets	223			200
Total Current Assets	4,581			5,074
Net Property, Plant and Equipment (TLLP: $3,335 and $3,306, respectively)	9,180			9,045
Other Noncurrent Assets
Acquired intangibles, net (TLLP: $966 and $973, respectively)	1,211			1,222
Other, net (TLLP: $258 and $251, respectively)	1,311			1,150
Total Other Noncurrent Assets	2,522			2,372
Total Assets	$	16,283		$	16,491
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	2,141		$	2,470
Other current liabilities	864			996
Total Current Liabilities	3,005			3,466
Deferred Income Taxes	1,121			1,098
Other Noncurrent Liabilities	941			790
Debt, Net of Unamortized Issuance Costs (TLLP: $2,520 and $2,544, respectively)	4,138			4,161
Commitments and Contingencies (Note 10)
Equity
Tesoro Corporation Stockholders’ Equity
Common stock, par value $0.162/3; authorized 200,000,000 shares; 158,146,319 shares issued (156,627,604 in 2014)	26			26
Additional paid-in capital	1,309			1,255
Retained earnings	4,733			4,642
Treasury stock, 32,394,535 common shares (31,677,195 in 2014), at cost	(1,378		)	(1,320		)
Accumulated other comprehensive loss	(149		)	(149		)
Total Tesoro Corporation Stockholders’ Equity	4,541			4,454
Noncontrolling Interest	2,537			2,522
Total Equity	7,078			6,976
Total Liabilities and Equity	$	16,283		$	16,491

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

4

TESORO CORPORATION

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2015			2014
	(Dollars in millions)
Cash Flows From (Used In) Operating Activities
Net earnings	$	188		$	103
Adjustments to reconcile net earnings to net cash from (used in) operating activities:
Depreciation and amortization expense	179			130
Debt redemption charges	—			31
Stock-based compensation expense (benefit)	28			(18		)
Deferred charges	(83		)	(60		)
Other non-cash operating activities	10			7
Changes in current assets and current liabilities	(470		)	(343		)
Net cash used in operating activities	(148		)	(150		)
Cash Flows From (Used In) Investing Activities
Capital expenditures	(271		)	(119		)
Other investing activities	(2		)	10
Net cash used in investing activities	(273		)	(109		)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	99			—
Proceeds from debt offering	—			300
Repayments on revolving credit agreements	(124		)	—
Repayments of debt	—			(301		)
Dividend payments	(54		)	(33		)
Net proceeds from issuance of Tesoro Logistics LP common units	24			—
Distributions to noncontrolling interest	(44		)	(20		)
Purchases of common stock	(19		)	(100		)
Taxes paid related to net share settlement of equity awards	(39		)	—
Premium paid on notes redemption	—			(19		)
Other financing activities	37			(8		)
Net cash used in financing activities	(120		)	(181		)
Decrease in Cash and Cash Equivalents	(541		)	(440		)
Cash and Cash Equivalents, Beginning of Period	1,000			1,238
Cash and Cash Equivalents, End of Period	$	459		$	798

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

5

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – 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, including its 58% interest in QEP Midstream Partners, LP (“QEPM”), a publicly traded limited partnership, and its 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, 2014 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, 2014.

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. Due to there being no adjustments to accumulated other comprehensive income for the three months ended March 31, 2015 and 2014, consolidated statements of comprehensive income have been omitted.

Our condensed 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 56% and 88% of TLLP’s total revenues for the three months ended March 31, 2015 and 2014, respectively. In the event TLLP incurs a loss, our operating results will reflect TLLP’s loss, net of intercompany eliminations. See Note 2 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 Hawaii refinery, retail stations and associated logistics assets (the “Hawaii Business”). The results of operations for this business have been presented as discontinued operations in the condensed statements of consolidated operations for the three months ended March 31, 2015 and 2014. There were no revenues for either the three months ended March 31, 2015 or 2014. We recorded losses, before and after tax of $1 million for the three months ended March 31, 2014 related to the Hawaii Business. There were no recorded losses, before or after tax, for the three months ended March 31, 2015. There were no cash flows for either the three months ended March 31, 2015 or 2014. 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 providing 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 FASB has proposed a one-year deferral of the effective date; however, this proposal has not been finalized. 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.

6

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Debt Issuance Costs. In April 2015, the FASB issued ASU 2015-03 which will simplify the presentation of debt issuance costs. Under the new ASU, debt issuance costs related to a recognized debt liability will be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. As a result, our balance sheet will reflect a reclassification of unamortized debt issuance costs from other noncurrent assets to debt. This ASU is effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. We have adopted this standard effective as of March 31, 2015 and applied the changes retrospectively to the prior periods presented. Adoption of this standard has resulted in the reclassification of $93 million from other noncurrent assets to debt on the balance sheet at December 31, 2014. Unamortized debt issuance costs of $89 million are recorded as a reduction to debt on the balance sheet at March 31, 2015.

NOTE 2 – TESORO LOGISTICS LP

TLLP is a publicly traded limited partnership that was formed to own, operate, develop and acquire logistics assets. Its assets are integral to the success of Tesoro’s refining and marketing operations and are used to gather crude oil and natural gas, process natural gas, and distribute, transport and store crude oil and refined products. TLLP’s gathering assets consist of crude oil gathering systems in the Williston Basin located in North Dakota and natural gas gathering systems in the Green River and Uinta Basins located in Wyoming and Utah. Its processing assets include four gas processing complexes and a fractionation facility in or around the Green River and Uinta Basins. Its terminalling and transportation assets consist of:

• 24 crude oil and refined products terminals and storage facilities in the western and midwestern United States;

• four marine terminals in California;

• 140 miles of pipelines, which transport products and crude oil from Tesoro’s refineries to nearby facilities in Salt Lake City, Utah and Los Angeles, California;

• the Northwest Products Pipeline, which includes a regulated common carrier products pipeline running from Salt Lake City, Utah to Spokane, Washington and a jet fuel pipeline to the Salt Lake City International Airport;

• a rail-car unloading facility in Washington;

• a petroleum coke handling and storage facility in Los Angeles, California; and

• a regulated common carrier refined products pipeline system connecting Tesoro’s Kenai refinery terminals to terminals in Anchorage, Alaska.

Tesoro Logistics GP, LLC (“TLGP”), a wholly-owned subsidiary, serves as the general partner of TLLP. We held an approximate 36% interest in TLLP at both March 31, 2015 and December 31, 2014, including a 2% general partner interest and all of the incentive distribution rights. This interest at March 31, 2015 includes 28,181,748 common units and 1,631,448 general partner units.

TLLP acquired assets related to, and entities engaged in, natural gas gathering, transportation and processing in Wyoming, Colorado, Utah, and North Dakota (the “Rockies Natural Gas Business”) through its acquisition of QEP Field Services, LLC (“QEPFS”) from QEP Resources, Inc. on December 2, 2014 for $2.5 billion. QEPFS holds an approximate 56% limited partner interest in QEPM, consisting of 3,701,750 common units and 26,705,000 subordinated units, and 100% of QEPM’s general partner, QEP Midstream Partners GP, LLC (“QEPM GP”), which itself holds a 2% general partner interest and all of the incentive distribution rights in QEPM. All intercompany transactions with TLLP and QEPM are eliminated upon consolidation.

On April 6, 2015, TLLP entered into an Agreement and Plan of Merger (the “Merger Agreement”) with TLGP, QEPFS, TLLP Merger Sub LLC (“Merger Sub”), QEPM, and QEPM GP. Subject to the satisfaction or waiver of certain conditions in the Merger Agreement, upon the later of the filing with the Secretary of State of the State of Delaware of a certificate of merger or the later date and time set forth in such certificate, Merger Sub will merge with and into QEPM, with QEPM surviving the merger as a wholly owned subsidiary of TLLP (the “Merger”). Following the Merger, QEPM GP will remain the general partner of QEPM, and all outstanding common units representing limited partnership interests in QEPM (the “QEPM Common Units”) other than QEPM Common Units held by QEPFS will be converted into the right to receive 0.3088 common units representing limited partnership interests in TLLP (the “TLLP Common Units”). No fractional TLLP Common Units will be issued in the Merger, and holders of QEPM Common Units other than QEPFS will instead receive cash in lieu of fractional TLLP Common Units, if any.

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.

7

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

TLLP’s allocation of the Rockies Natural Gas Business acquisition’s $2.5 billion purchase price remains preliminary as of March 31, 2015. During the three months ended March 31, 2015, the original purchase price was increased by $7 million for adjustments in net working capital primarily for changes related to accounts receivable as well as a change related to goodwill. Finalization of the purchase price allocation is pending and adjustments can be made through the end of TLLP’s measurement period, which is not to exceed one year from the acquisition date. The table below reflects the preliminary acquisition date purchase price allocation as of March 31, 2015 (in millions):

Cash	$	31
Accounts receivable	120
Prepayments and other	7
Property, plant and equipment	1,735
Acquired intangibles	976
Other noncurrent assets (a)	239
Accounts payable	(81		)
Other current liabilities	(47		)
Other noncurrent liabilities	(31		)
Noncontrolling interest	(432		)
Total purchase price	$	2,517

____________________

(a) Other noncurrent assets include $159 million of goodwill.

During the three months ended March 31, 2015, TLLP incurred transaction and integration costs of $3 million directly attributable to the Rockies Natural Gas Business acquisition. These costs are included in selling, general and administrative expenses in our condensed statements of consolidated operations.

NOTE 3 – 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 March 31,
	2015	2014
Weighted average common shares outstanding	125.2	131.3
Common stock equivalents	1.7	2.5
Total diluted shares	126.9	133.8

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 0.3 millionand 0.4 million for the three months ended March 31, 2015 and 2014, respectively.

8

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4 – INVENTORIES

Components of inventories were as follows (in millions):

	March 31, 2015		December 31, 2014
Domestic crude oil and refined products	$	2,219	$	1,930
Foreign subsidiary crude oil	134		351
Other inventories	179		158
Total Inventories	$	2,532	$	2,439

The total carrying value of our crude oil and refined product inventories was less than replacement cost by approximately$318 million at March 31, 2015. Due to the declining crude oil and refined product pricing environment at the end of 2014, we recorded additional expense to cost of sales for a lower of cost or market adjustment of $42 million at December 31, 2014 for our crude oil, refined products, oxygenates and by-product inventories. This adjustment was reversed as the inventories associated with the adjustment at the end of 2014 were sold or used during the three months ended March 31, 2015.

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

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

	March 31, 2015			December 31, 2014
Refining	$	7,171		$	6,994
TLLP	3,617			3,551
Retail	835			834
Corporate	256			254
Property, plant and equipment, at cost	11,879			11,633
Accumulated depreciation	(2,699		)	(2,588		)
Net property, plant and equipment	$	9,180		$	9,045

We capitalize interest as part of the cost of major projects during the construction period. Capitalized interest totaled $9 million and $5 million for the three months ended March 31, 2015 and 2014, respectively, and is recorded as a reduction to net interest and financing costs in our condensed statements of consolidated operations.

NOTE 6 - 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 related to our refineries, terminals, retail fuel inventory 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.

9

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 to be received or paid if our asset or liability position, respectively, 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 March 31, 2015 and December 31, 2014. 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	March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014
Commodity Futures Contracts	Prepayments and other current assets	$	786		$	1,201		$	751		$	1,025
Commodity OTC Swap Contracts	Receivables	2			—			—			—
Commodity OTC Swap Contracts	Accounts payable	—			—			—			1
Commodity Forward Contracts	Receivables	2			3			—			—
Commodity Forward Contracts	Accounts payable	—			—			1			1
Total Gross Mark-to-Market    Derivatives		790			1,204			752			1,027
Less: Counterparty Netting and    Cash Collateral (a)		(675		)	(1,136		)	(749		)	(1,024		)
Total Net Fair Value of Derivatives		$	115		$	68		$	3		$	3

________________

(a) As of March 31, 2015, we had provided cash collateral amounts of $74 million related to our unrealized derivative positions. At December 31, 2014, our counterparties had provided cash collateral of $112 million related to our unrealized derivative positions. Cash collateral amounts are netted with mark-to-market derivative assets.

Gains (losses) for our mark-to market derivatives for the three months ended March 31, 2015 and 2014 were as follows (in millions):

	Three Months Ended March 31,
	2015			2014
Commodity Futures Contracts	$	43		$	—
Commodity OTC Swap Contracts	—			(1		)
Commodity Forward Contracts	2			1
Foreign Currency Forward Contracts	(2		)	(2		)
Total Gain (Loss) on Mark-to-Market Derivatives	$	43		$	(2	)

10

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 March 31,
	2015			2014
Revenues	$	4		$	1
Cost of sales	41			(1		)
Other expense, net	(2		)	(2		)
Total Gain (Loss) on Mark-to-Market Derivatives	$	43		$	(2	)

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 March 31, 2015 (units in thousands):

	Contract Volumes by Year of Maturity
Mark-to-Market Derivative Instrument	2015	2016	2017	Unit of Measure
Crude oil, refined products and blending products:
Futures - short	(13,710)	—	—	Barrels
Futures - long	—	485	—	Barrels
OTC Swaps - long	2,000	—	—	Barrels
Forwards - long	131	—	—	Barrels
Carbon credits:
Futures - long	3,675	1,000	1,000	Tons
Corn:
Futures - short	(3,515)	—	—	Bushels

NOTE 7 – 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 March 31, 2015 or December 31, 2014.

Our financial assets and liabilities measured at fair value on a recurring basis include derivative instruments. Additionally, our financial liabilities include 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 6 for further information on our derivative instruments. Our Environmental Credit Obligations represent the estimated fair value amount at each balance sheet date for which we do not have sufficient RINs and California cap and trade credits to satisfy our obligations to 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. We must purchase RINs in the open market to satisfy the requirement if we are unable to blend at that rate. Our liability for cap and trade emission credits for the state of California represent the deficit of credits to satisfy emission reduction requirements mandated in California’s Assembly Bill 32 for each period which stationary or transportation fuel carbon emissions exceed the level allowed by the regulation.

11

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):

	March 31, 2015
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	772	$	14	$	—	$	(675	)	$	111
Commodity OTC Swap Contracts	—		2		—		—			2
Commodity Forward Contracts	—		2		—		—			2
Total Assets	$	772	$	18	$	—	$	(675	)	$	115
Liabilities:
Commodity Futures Contracts	$	738	$	13	$	—	$	(749	)	$	2
Commodity Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		37		—		—			37
Total Liabilities	$	738	$	51	$	—	$	(749	)	$	40

	December 31, 2014
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	1,165	$	36	$	—	$	(1,136	)	$	65
Commodity Forward Contracts	—		3		—		—			3
Total Assets	$	1,165	$	39	$	—	$	(1,136	)	$	68
Liabilities:
Commodity Futures Contracts	$	1,011	$	14	$	—	$	(1,024	)	$	1
Commodity OTC Swap Contracts	—		1		—		—			1
Commodity Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		20		—		—			20
Total Liabilities	$	1,011	$	36	$	—	$	(1,024	)	$	23

________________

(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 March 31, 2015, we had provided cash collateral amounts of $74 million related to our unrealized derivative positions. At December 31, 2014, our counterparties had provided cash collateral of $112 million related to our unrealized derivative positions.

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 values of our debt were approximately $4.2 billion at both March 31, 2015 and December 31, 2014, and the fair values of our debt were approximately $4.3 billion and $4.2 billion at March 31, 2015 and December 31, 2014, respectively. These carrying and fair values of our debt do not include the unamortized issuance costs associated with our total debt.

12

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 8 – DEBT

Our debt balance, net of unamortized issuance costs, at March 31, 2015 and December 31, 2014 was as follows (in millions):

	March 31, 2015			December 31, 2014
Total debt (a)	$	4,229		$	4,255
Unamortized issuance costs (b)	(85		)	(88		)
Current maturities	(6		)	(6		)
Debt, net of current maturities and unamortized issuance costs	$	4,138		$	4,161

________________

(a) Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was $2.5 billion at both March 31, 2015 and December 31, 2014, respectively.

(b) The Company has adopted ASU 2015-03 as of March 31, 2015 and applied the changes retrospectively to the prior period presented. Adoption of this standard has resulted in the reclassification of $93 million of unamortized debt issuance costs from other noncurrent assets to debt on the balance sheet at December 31, 2014. Unamortized debt issuance costs of $89 million are recorded as a reduction to debt on the balance sheet at March 31, 2015. See Note 1 for further discussion.

Revolving Credit Facilities

We had available capacity under our credit facilities as follows at March 31, 2015 (in millions):

	Total Capacity		Amount Borrowed as of March 31, 2015		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (c)	$	2,156	$	—	$	237	$	1,919	November 18, 2019
TLLP Revolving Credit Facility	900		235		—		665		December 2, 2019
Letter of Credit Facilities	2,035		—		56		1,979
Total credit facilities	$	5,091	$	235	$	293	$	4,563

________________

(c) Borrowing base is the lesser of the amount of the periodically adjusted borrowing base or the agreement’s total capacity of $3.0 billion.

As of March 31, 2015, 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    ($2.2 billion) (d)	0.18%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($900 million) (e)	0.18%	2.50%	3.25%	1.50%	0.50%

________________

(d) 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.

(e) 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 TLLP Revolving Credit Facility incur fees at the Eurodollar margin rate.

13

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Revolving Credit Facilities

Tesoro Corporation Revolving Credit Facility. Our Revolving Credit Facility provides for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base, which consists 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. We had unused credit availability of approximately 89% of the eligible borrowing base at March 31, 2015. Our 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, as amended, senior notes and Term Loan 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 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 $56 million outstanding as of March 31, 2015. Letters of credit outstanding under these agreements incur fees ranging from 0.40% to 1.00% and are secured by the crude oil inventories for which they are issued. Capacity under these letter of credit agreements is available on an uncommitted basis and can be terminated by either party at any time.

TLLP Revolving Credit Facility. The TLLP Revolving Credit Facility provided for total loan availability of $900 million as of March 31, 2015, and TLLP may request that the loan availability be increased up to an aggregate of $1.5 billion, 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, with the exception of certain non-wholly owned subsidiaries acquired in the Rockies Natural Gas Business acquisition, 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 was $235 million in borrowings outstanding under the TLLP Revolving Credit Facility, which incurred interest at a weighted average interest rate of 2.67% at March 31, 2015. TLLP had unused credit availability of approximately 74% of the eligible borrowing base at March 31, 2015.

Tesoro Debt

Term Loan Facility. We entered into the Term Loan Facility in January 2013, which allowed us to borrow up to an aggregate of $500 million, which we used to fund a portion of the acquisition of BP’s integrated Southern California refining, marketing and logistics business (the “Los Angeles Acquisition”). The Term Loan Facility matures May 30, 2016. The obligations under the Term Loan 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 Facility may be repaid at any time but amounts may not be re-borrowed. There were no payments on the borrowings under the Term Loan Facility for the three months ended March 31, 2015. The borrowings under our Term Loan Facility incurred interest at a rate of 2.43% as of March 31, 2015 based on the following expense and fee schedule:

Credit Facility	30 day Eurodollar (LIBOR) Rate	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Term Loan Facility ($398 million) (a)	0.18%	2.25%	3.25%	1.25%	—%

____________________

(a) 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 Term Loan 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 set forth in most of our current indentures.

14

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9 – 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 $15 million during the three months ended March 31, 2015 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 months ended March 31, 2015 and 2014 were (in millions):

	Pension Benefits						Other Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
	2015			2014			2015			2014
Service cost	$	12		$	13		$	1		$	1
Interest cost	8			9			1			1
Expected return on plan assets	(7		)	(8		)	—			—
Amortization of prior service cost	—			—			(9		)	(9		)
Recognized net actuarial loss	6			4			1			1
Net Periodic Benefit Expense (Income)	$	19		$	18		$	(6	)	$	(6	)

NOTE 10 - COMMITMENTS AND CONTINGENCIES AND ENVIRONMENTAL LIABILITIES

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$259 millionand $274 million at March 31, 2015 and December 31, 2014, respectively, including $28 millionand $32 million for TLLP, respectively. These accruals include $208 million and $216 million at March 31, 2015 and December 31, 2014, respectively, related to amounts estimated for site cleanup activities arising from operations at our Martinez refinery and operations of assets acquired in the Los Angeles Acquisition prior to their respective acquisition dates. 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. The environmental remediation liabilities assumed in the Los Angeles Acquisition include amounts estimated for site cleanup activities and monitoring activities arising from operations at the Carson refinery, certain terminals and pipelines, and retail stations prior to our acquisition on June 1, 2013. These estimates for environmental liabilities are based on third-party assessments and available information. 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.

15

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other Contingencies

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”) initiated an investigation 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, November 2013 and February 2015 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.

On November 20, 2013, 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. The EPA conducted an investigation of the refinery in 2011, following the April 2010 fire in the naphtha hydrotreater unit. We have provided a response to the NOV and additional information to the EPA. While 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.

In January 2015, we received notice and demand for indemnity from the previous owner of our Washington refinery for damages incurred in the civil litigation brought by the families of those fatally wounded in the April 2010 refinery fire. We settled our involvement in civil litigation in 2012. Arbitration proceedings were initiated in March 2015 after an unsuccessful mediation and we intend to vigorously defend ourselves against this claim.

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 U.S. Department of Justice. We have established an accrual for this matter although we cannot currently estimate the final amount or timing of its resolution. 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 at our operating refineries. However, we do not believe that the final outcome of this matter will have a material impact on our liquidity or financial position.

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. This matter, originally filed in 2004, is proceeding in the United States District Court of the Southern District of New York. 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.

16

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Environmental. 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 are defending the permits with UDEQ. In orders issued on July 10 and September 9, 2014, the UDEQ Administrative Law Judge (“ALJ”) 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 final decision approving the ALJ’s recommended order is currently under appeal. 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.

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.

NOTE 11 - STOCKHOLDERS’ EQUITY

Changes to equity during the three months ended March 31, 2015 are presented below (in millions):

	Tesoro Corporation Stockholders’ Equity			Noncontrolling  Interest			Total Equity
Balance at December 31, 2014 (a)	$	4,454		$	2,522		$	6,976
Net earnings	145			43			188
Purchases of common stock	(19		)	—			(19		)
Dividend payments	(54		)	—			(54		)
Shares issued for equity-based compensation awards (b)	6			—			6
Amortization of equity settled awards	10			—			10
Excess tax benefits from stock-based compensation arrangements, net	31			—			31
Taxes paid related to net share settlement of equity awards	(39		)	—			(39		)
Net proceeds from issuance of Tesoro Logistics LP common units	—			24			24
Distributions to noncontrolling interest	—			(44		)	(44		)
Transfers to (from) noncontrolling interest from (to) Tesoro related to:
TLLP’s sale of common units	—			(8		)	(8		)
Tesoro’s purchase of TLLP common units	8			—			8
Other	(1		)	—			(1		)
Balance at March 31, 2015 (a)	$	4,541		$	2,537		$	7,078

________________

(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 March 31, 2015 and December 31, 2014.

(b) We issued approximately 0.2 million shares and less than 0.1 million shares for proceeds of $6 million and $1 million primarily for stock option exercises under our equity-based compensation plans during the three months ended March 31, 2015 and 2014, respectively.

17

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 0.3 million shares and 1.9 million shares of our common stock for approximately $19 million and $100 million during the three months ended March 31, 2015 and 2014, respectively.

Cash Dividends

We paid cash dividends totaling $54 million for the three months ended March 31, 2015 based on a $0.425 per share quarterly cash dividend on common stock. We paid cash dividends totaling $33 million for the three months ended March 31, 2014 based on a $0.25 per share quarterly cash dividend on common stock. On May 7, 2015, our Board declared a cash dividend of $0.425 per share payable on June 15, 2015 to shareholders of record on May 29, 2015.

NOTE 12 - STOCK-BASED COMPENSATION

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

	Three Months Ended March 31,
	2015		2014
Stock appreciation rights (a)	$	15	$	(18	)
Performance share awards (b)	4		(3		)
Market stock units (c)	5		3
Other stock-based awards (d)	4		—
Total Stock-Based Compensation Expense (Benefit)	$	28	$	(18	)

________________

(a) We paid cash of $20 million and $4 million to settle 0.3 million and 0.2 million SARs that were exercised during the three months ended March 31, 2015 and 2014, respectively. We had $55 million and $60 million recorded in accrued liabilities associated with our SARs awards at March 31, 2015 and December 31, 2014, respectively.

(b) We granted 0.1 million market condition performance share awards at a weighted average grant date fair value of $117.96 per share under the amended and restated 2011 Long-Term Incentive Plan (“2011 Plan”) during the three months ended March 31, 2015.

(c) We granted 0.4 million market stock units at a weighted average grant date fair value of $114.57 per unit under the 2011 Plan during the three months ended March 31, 2015.

(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 $11 million and an expense of $7 million for the three months ended March 31, 2015 and 2014, 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 $54 million and $3 million for the three months ended March 31, 2015 and 2014, respectively.

18

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 13 - 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, natural gas gathering and processing 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 natural gas, for processing natural gas, and for terminalling, transporting and storing crude oil, and refined products. During 2014, we converted our company-operated retail locations to multi-site operators (“MSOs”) and retained the transportation fuel sales. Our retail segment sells gasoline and diesel fuel through MSOs 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.

19

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Segment information related to continuing operations is as follows:

	Three Months Ended March 31,
	2015			2014
	(In millions)
Revenues
Refining:
Refined products	$	5,838		$	9,500
Crude oil resales and other	299			272
TLLP:
Gathering	77			25
Processing	67			—
Terminalling and transportation	119			102
Retail:
Fuel (a)	2,195			3,024
Other non-fuel (b)	16			61
Intersegment sales	(2,148		)	(3,051		)
Total Revenues	$	6,463		$	9,933
Segment Operating Income
Refining (c)	$	190		$	185
TLLP (d)	108			60
Retail (c)	126			19
Total Segment Operating Income	424			264
Corporate and unallocated costs (e)	(84		)	(26		)
Operating Income	340			238
Interest and financing costs, net (f)	(55		)	(77		)
Other expense, net	(1		)	(1		)
Earnings Before Income Taxes	$	284		$	160
Depreciation and Amortization Expense
Refining	$	119		$	101
TLLP	44			16
Retail	12			10
Corporate	4			3
Total Depreciation and Amortization Expense	$	179		$	130
Capital Expenditures
Refining	$	184		$	68
TLLP	66			26
Retail	4			5
Corporate	6			4
Total Capital Expenditures	$	260		$	103

________________

(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 $140 million and $141 million for the three months ended March 31, 2015 and 2014, respectively.

(b) Includes merchandise revenue for the three months ended March 31, 2014.

(c) Our refining segment uses RINs to satisfy its obligations under the Renewable Fuels Standard, in addition to physically blending required biofuels. Effective April 1, 2013, we changed our intersegment pricing methodology and no longer reduced the amount retail pays for the biofuels by the market value of the RINs due to significant volatility in the value of RINs. At the end of 2014, given the price of RINs has become more transparent in the price of biofuels, we determined our intersegment pricing methodology should include the market value of RINs as a reduction to the price our retail segment pays to our refining segment. We made this change effective January 1, 2015. We have not adjusted financial information presented for our refining and retail segments for the period ended March 31, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $28 million with a corresponding increase to operating income in our retail segment.

20

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(d) We present TLLP’s segment operating income net of general and administrative expenses totaling $12 million and $4 million representing TLLP’s corporate costs for the three months ended March 31, 2015 and 2014, respectively, that are not allocated to TLLP’s operating segments.

(e) Includes stock-based compensation expense of $28 million and benefit of $18 million for the three months ended March 31, 2015 and 2014, respectively. The significant impact to stock-based compensation expense during the three months ended March 31, 2015 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

(f) Includes charges totaling $31 million for premiums and unamortized debt issuance costs associated with the redemption of the 5.50% Senior Notes due 2019 during the three months ended March 31, 2014.

NOTE 14 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Separate condensed consolidating financial information of Tesoro Corporation (the “Parent”), subsidiary guarantors and non-guarantors is presented below. At March 31, 2015, Tesoro and certain subsidiary guarantors have fully and unconditionally guaranteed our 4.250% Senior Notes due 2017, 5.375% Senior Notes due 2022, and 5.125% Senior Notes due 2024. TLLP, in which we had a 36% ownership interest as of March 31, 2015, 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. Certain intercompany and intracompany 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 months ended March 31, 2015 and 2014.

21

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Operations

for the Three Months EndedMarch 31, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
Revenues	$	—		$	6,999		$	914		$	(1,450	)	$	6,463
Costs and Expenses:
Cost of sales	—			5,993			661			(1,314		)	5,340
Operating, selling, general and administrative expenses	4			609			123			(136		)	600
Depreciation and amortization expense	—			134			45			—			179
Loss on asset disposals and impairments	—			4			—			—			4
Operating Income (Loss)	(4		)	259			85			—			340
Equity in earnings of subsidiaries	157			16			—			(173		)	—
Interest and financing costs, net	(11		)	(18		)	(26		)	—			(55		)
Other income (expense), net	—			(4		)	3			—			(1		)
Earnings Before Income Taxes	142			253			62			(173		)	284
Income tax expense (benefit) (a)	(3		)	95			4			—			96
Net Earnings	145			158			58			(173		)	188
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			43			—			43
Net Earnings Attributable to Tesoro Corporation	$	145		$	158		$	15		$	(173	)	$	145
Comprehensive Income
Total comprehensive income	$	145		$	158		$	58		$	(173	)	$	188
Less: Noncontrolling interest in comprehensive income	—			—			43			—			43
Comprehensive Income Attributable to Tesoro    Corporation	$	145		$	158		$	15		$	(173	)	$	145

_________________

(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.

22

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Operations

for the Three Months EndedMarch 31, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
Revenues	$	—		$	11,564		$	1,610		$	(3,241	)	$	9,933
Costs and Expenses:
Cost of sales	—			10,664			1,476			(3,192		)	8,948
Operating, selling, general and administrative expenses	1			612			58			(49		)	622
Depreciation and amortization expense	—			113			17			—			130
Gain on asset disposals and impairments	—			(1		)	(4		)	—			(5		)
Operating Income (Loss)	(1		)	176			63			—			238
Equity in earnings of subsidiaries (a)	86			14			—			(100		)	—
Interest and financing costs, net	(8		)	(59		)	(18		)	8			(77		)
Other income (expense), net	—			(1		)	8			(8		)	(1		)
Earnings Before Income Taxes	77			130			53			(100		)	160
Income tax expense (benefit) (b)	(1		)	51			6			—			56
Net Earnings from Continuing Operations	78			79			47			(100		)	104
Loss from discontinued operations, net of tax	—			(1		)	—			—			(1		)
Net Earnings	78			78			47			(100		)	103
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			25			—			25
Net Earnings Attributable to Tesoro Corporation	$	78		$	78		$	22		$	(100	)	$	78
Comprehensive Income
Total comprehensive income	$	78		$	78		$	47		$	(100	)	$	103
Less: Noncontrolling interest in comprehensive income	—			—			25			—			25
Comprehensive Income Attributable to Tesoro    Corporation	$	78		$	78		$	22		$	(100	)	$	78

_________________

(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.

23

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Balance Sheet as of March 31, 2015

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	400	$	59	$	—		$	459
Receivables, net of allowance for doubtful accounts	9		884		474		—			1,367
Short-term receivables from affiliates	—		35		—		(35		)	—
Inventories	—		2,398		134		—			2,532
Prepayments and other current assets	51		158		15		(1		)	223
Total Current Assets	60		3,875		682		(36		)	4,581
Net Property, Plant and Equipment	—		5,775		3,405		—			9,180
Investment in Subsidiaries	6,742		351		—		(7,093		)	—
Long-Term Receivables from Affiliates	2,450		—		—		(2,450		)	—
Long-Term Intercompany Note Receivable	—		—		1,376		(1,376		)	—
Other Noncurrent Assets:
Acquired intangibles, net	—		245		966		—			1,211
Other, net	6		1,048		257		—			1,311
Total Other Noncurrent Assets, Net	6		1,293		1,223		—			2,522
Total Assets	$	9,258	$	11,294	$	6,686	$	(10,955	)	$	16,283
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	—	$	1,639	$	502	$	—		$	2,141
Short-term payables to affiliates	—		—		35		(35		)	—
Other current liabilities	193		535		137		(1		)	864
Total Current Liabilities	193		2,174		674		(36		)	3,005
Long-Term Payables to Affiliates	—		2,412		38		(2,450		)	—
Deferred Income Taxes	1,121		—		—		—			1,121
Other Noncurrent Liabilities	446		431		64		—			941
Debt, net of unamortized issuance costs	1,581		37		2,520		—			4,138
Long-Term Intercompany Note Payable	1,376		—		—		(1,376		)	—
Equity-Tesoro Corporation	4,541		6,240		853		(7,093		)	4,541
Equity-Noncontrolling Interest	—		—		2,537		—			2,537
Total Liabilities and Equity	$	9,258	$	11,294	$	6,686	$	(10,955	)	$	16,283

24

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Balance Sheet as of December 31, 2014

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	943	$	57	$	—		$	1,000
Receivables, net of allowance for doubtful accounts	6		912		517		—			1,435
Short-term receivables from affiliates	—		84		—		(84		)	—
Inventories	—		2,088		351		—			2,439
Prepayments and other current assets	71		115		16		(2		)	200
Total Current Assets	77		4,142		941		(86		)	5,074
Net Property, Plant and Equipment	—		5,666		3,379		—			9,045
Investment in Subsidiaries	6,592		362		—		(6,954		)	—
Long-Term Receivables from Affiliates	2,427		—		—		(2,427		)	—
Long-Term Intercompany Note Receivable	—		—		1,376		(1,376		)	—
Other Noncurrent Assets:
Acquired intangibles, net	—		249		973		—			1,222
Other, net	6		893		251		—			1,150
Total Other Noncurrent Assets, Net	6		1,142		1,224		—			2,372
Total Assets	$	9,102	$	11,312	$	6,920	$	(10,843	)	$	16,491
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	1	$	1,779	$	690	$	—		$	2,470
Short-term payables to affiliates	—		—		84		(84		)	—
Other current liabilities	148		717		133		(2		)	996
Total Current Liabilities	149		2,496		907		(86		)	3,466
Long-Term Payables to Affiliates	—		2,399		28		(2,427		)	—
Deferred Income Taxes	1,098		—		—		—			1,098
Other Noncurrent Liabilities	447		296		47		—			790
Debt, net of unamortized issuance costs	1,578		39		2,544		—			4,161
Long-Term Intercompany Note Payable	1,376		—		—		(1,376		)	—
Equity-Tesoro Corporation	4,454		6,082		872		(6,954		)	4,454
Equity-Noncontrolling Interest	—		—		2,522		—			2,522
Total Liabilities and Equity	$	9,102	$	11,312	$	6,920	$	(10,843	)	$	16,491

25

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Cash Flows for the threeMarch 31, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities	$	(10	)	$	(350	)	$	212		$	—		$	(148	)
Cash Flows From (Used In) Investing Activities
Capital expenditures	—			(191		)	(80		)	—			(271		)
Intercompany notes, net	106			—			—			(106		)	—
Other investing activities	—			(2		)	—			—			(2		)
Net cash from (used in) investing activities	106			(193		)	(80		)	(106		)	(273		)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	—			—			99			—			99
Repayments on revolving credit agreements	—			—			(124		)	—			(124		)
Dividend payments	(54		)	—			—			—			(54		)
Net proceeds from issuance of Tesoro Logistics LP    common units	—			—			24			—			24
Distributions to noncontrolling interest	—			—			(44		)	—			(44		)
Purchases of common stock	(19		)	—			—			—			(19		)
Taxes paid related to net share settlement of equity awards	(39		)	—			—			—			(39		)
Net intercompany repayments	—			(37		)	(69		)	106			—
Distributions to TLLP unitholders and general partner	10			6			(16		)	—			—
Other financing activities	6			31			—			—			37
Net cash used in financing activities	(96		)	—			(130		)	106			(120		)
Increase (Decrease) in Cash And Cash Equivalents	—			(543		)	2			—			(541		)
Cash and Cash Equivalents, Beginning of Period	—			943			57			—			1,000
Cash and Cash Equivalents, End of Period	$	—		$	400		$	59		$	—		$	459

26

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Cash Flows for the threeMarch 31, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities	$	(17	)	$	154		$	(287	)	$	—		$	(150	)
Cash Flows From (Used In) Investing Activities
Capital expenditures	—			(92		)	(27		)	—			(119		)
Intercompany notes, net	168			—			—			(168		)	—
Other investing activities	—			—			10			—			10
Net cash from (used in) investing activities	168			(92		)	(17		)	(168		)	(109		)
Cash Flows From (Used In) Financing Activities
Proceeds from debt offering	300			—			—			—			300
Repayments of debt	(300		)	(1		)	—			—			(301		)
Dividend payments	(33		)	—			—			—			(33		)
Distributions to noncontrolling interest	—			—			(20		)	—			(20		)
Purchases of common stock	(100		)	—			—			—			(100		)
Net intercompany borrowings (repayments)	—			(501		)	333			168			—
Premium paid on notes redemption	(19		)	—			—			—			(19		)
Distributions to TLLP unitholders and general partner	4			5			(9		)	—			—
Other financing activities	(3		)	—			(5		)	—			(8		)
Net cash from (used in) financing activities	(151		)	(497		)	299			168			(181		)
Decrease in Cash And Cash Equivalents	—			(435		)	(5		)	—			(440		)
Cash and Cash Equivalents, Beginning of Period	—			1,161			77			—			1,238
Cash and Cash Equivalents, End of Period	$	—		$	726		$	72		$	—		$	798

27

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 53 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, 2014.

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 2015:

	Operational Efficiency & Effectiveness	Commercial Excellence	Financial Discipline	Value Driven Growth	High Performing Culture
Operated our Los Angeles and Anacortes refineries safely during a work stoppage in February and March 2015.	•	•			•
Safely shut down our Martinez refinery and operated as a terminal during the work stoppage. We began a safe restart of the Martinez refinery in late March 2015.	•				•
TLLP entered into a merger agreement with QEPM which continues the integration of the Rockies Natural Gas Business assets within the midstream and downstream value chain.				•
Continued work on the second phase of the Salt Lake City refinery expansion and Waxy Crude Oil Project. We expect the project to be completed in the second quarter of 2015.		•		•	•

Synergy and Business Improvement Objectives

In December 2014, we laid out our plans to deliver an additional $550 to $670 million of annual improvements during 2015. These improvements are in addition to what was delivered in 2014 and include $95 to $125 million from delivering West Coast improvements, $130 to $170 million from capturing margin improvements, and $325 to $375 million by growing our logistics operations.

28

Market Outlook

Based on current market conditions and the Companies expectations for the remainder of 2015, consolidated EBITDA (as defined on page 31) is projected to be $2.6 billion. This forecast is based on actual first quarter results and forecasted full year estimates. The forecast includes declining margin conditions during the second quarter and a margin environment based on Tesoro’s long-term forecast. The long-term forecast is based on normalized crude differentials and refining margins, which are similar to historical averages during the second half of 2015. This forecast also includes the earnings that are expected from the 2015 Synergy and Business Improvement Objectives.

The market in the second half of the first quarter and to date in the second quarter has seen above average refining margins as a result of several unplanned refinery outages on the West Coast. The unplanned refinery maintenance and work stoppages along with strong clean product demand have supported the strong margin environment. The Company estimates these above average margins will decline over time as our Martinez refinery is running post the work stoppage and other refineries are expected to come back online after maintenance activities.

There are many negative and positive factors for which our estimates could change, which could significantly impact the projected $2.6 billion of EBITDA.

Current Market Conditions

Over the second half of 2014, the price of a barrel of oil dropped by more than 50%. This type of price decline can have a pronounced impact on producers and several have announced capital program reductions. However, the corresponding fall in gasoline prices did bolster demand in domestic markets. Crack spreads on the West Coast remain positive and the transition into driving season could cause demand to continue to increase.

Collective bargaining agreements for hourly represented employees at several of our plants expired on January 31, 2015. Even though we were in the midst of good faith negotiations, we, along with several other U.S. refiners, received strike notifications on February 1, 2015. These notifications included our Anacortes and Martinez refineries and the Carson portion of our Los Angeles refinery. We had a contingency plan that prepared us to safely operate our facilities during this work stoppage and we safely transitioned to this plan at our Anacortes refinery and the Carson portion of our Los Angeles refinery. Since our Martinez refinery was undergoing extensive planned maintenance when the strike was called, we idled the remaining units and converted the refinery to terminal operations as we believed it was the safest option. As a result, compared to first quarter of 2014, the California region throughput was lower by approximately 100 Mbpd resulting in increased operating costs of more than $1 per barrel. New collective bargaining agreements were negotiated and agreed to during March 2015. The Martinez refinery was restarted during late March 2015.

Following negotiations, a tentative collective bargaining agreement has been reached regarding our hourly represented employees at the Wilmington portion of our Los Angeles refinery, which had an off-pattern contract that expired on April 30, 2015. The tentative agreement has been presented for a ratification vote by the membership scheduled for early May 2015.

The rapid decline in crude oil prices and the work stoppage have provided operational challenges. However, to-date we have not experienced any adverse material effects on our abilities to meet our goals and objectives outlined above.

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 wholly-owned consolidated subsidiary, serves as the general partner of TLLP. We held an approximate 36% interest in TLLP at March 31, 2015, including a general partner interest and all of the incentive distribution rights. In the first quarter of 2015, 56% of TLLP’s revenue was derived from us primarily under various long-term, fee-based commercial agreements that generally include minimum volume commitments.

TLLP’s strategy remains to grow earnings through four ways that have remained constant since its 2011 initial public offering:

• Focusing on stable, fee-based business;

• Optimizing our existing asset base;

• Pursuing organic expansion opportunities; and

• Continued growth through strategic acquisitions.

29

By achieving this growth and through our ownership of TLLP’s general partner, we expect the logistics operations to maximize the integrated value of assets within the midstream and downstream value chain. This includes creating shareholder value through the lower cost of capital available to TLLP as a limited partnership and receipt of TLLP’s quarterly distributions. As the distributions per unit increase, our proportion of the total distribution will grow at an accelerated rate due to our incentive distribution rights. We believe TLLP is well positioned to achieve its primary business objectives and execute business strategies based on its long-term fee-based contracts, relationship with us, assets positioned in the high demand Williston Basin, and financial flexibility.

Relative to these goals, in 2015, TLLP intends to continue to implement this strategy and have completed or announced plans to:

• expand TLLP’s assets on its gathering and transportation system, located in the Bakken Region (the “High Plains System”) in support of growing third-party demand for transportation services and Tesoro’s increased demand for Bakken crude oil in the Mid-Continent and west coast refining systems, including:

◦ expanding utilization of TLLP’s proprietary truck fleet, which should generate cost and operating efficiencies;

◦ further expanding capacity on the recently reversed segment of TLLP’s common carrier pipeline in North Dakota and Montana (the “High Plains Pipeline”); and

◦ adding other origin and destination points on the High Plains System to increase volumes.

• increase TLLP’s terminalling volumes by expanding capacity and growing its third-party services at certain of its terminals;

• optimize Tesoro volumes and grow third-party volumes using TLLP’s logistics assets on the west coast; and

• expand and optimize TLLP’s acquired assets related to, and entities engaged in, natural gas gathering, transportation and processing in Wyoming, Colorado, Utah, and North Dakota (the “Rockies Natural Gas Business”).

Total market value of TLLP units held by Tesoro was $1.5 billion and $1.7 billion at March 31, 2015 and December 31, 2014, respectively. At March 31, 2015, Tesoro held 28,181,748 common units at a market value of $53.80 per unit based on the closing unit price as of that date. At December 31, 2014, Tesoro held 28,181,748 common units at a market value of $58.85 per unit based on the closing unit price as of that date. For the three months ended March 31, 2015 and 2014, cash distributions received from TLLP, including incentive distribution rights, is as follows (in millions):

	Three Months Ended March 31,
	2015		2014
Cash distributions received from TLLP (a):
For common/subordinated units held	$	19	$	11
For general partner units held	16		5

__________________

(a) Represents distributions received from TLLP during the three months ended March 31, 2015 and 2014 on common or subordinated units and general partner units held by Tesoro.

Vancouver Energy

Consistent with our strategic priorities to drive commercial excellence and capture value-driven growth, we entered into an equally-owned joint venture in 2013 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 thousand barrels per day (“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. These cost estimates include the entire project scope and requirements necessary to comply with American Society of Civil Engineering and International Building Codes for seismic risks in the area. Our contributions, totaling $2 million during 2015, 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. EFSEC has begun the adjudicative phase and based on the schedule it laid out is expected to release the Draft Environmental Impact Statement in the summer of 2015. We expect EFSEC will submit its recommendation to the governor of Washington once it completes the adjudicative phase. The joint venture expects to 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.

30

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.

Non-GAAP Measures

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 define adjusted EBITDA as EBITDA plus or minus amounts determined to be “special items” by our management based on their unusual nature and relative significance to earnings (loss) in a certain period. We provide complete reconciliation and discussion of items identified as special items with our presentation of adjusted EBITDA.

We present EBITDA and adjusted EBITDA because we believe some investors and analysts use EBITDA and adjusted EBITDA to help analyze our cash flows including our ability to satisfy principal and interest obligations with respect to our indebtedness and use cash for other purposes, including capital expenditures. EBITDA and adjusted EBITDA are 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 and adjusted EBITDA should not be considered as alternatives to U.S. GAAP net earnings or net cash from operating activities. EBITDA and adjusted EBITDA have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and net cash from operating activities.

Items Impacting Comparability

The TLLP financial and operational data presented include the historical results of all assets acquired from Tesoro prior to the acquisition dates. The acquisitions from Tesoro were transfers between entities under common control. Accordingly, the financial information of TLLP contained herein has been retrospectively adjusted to include the historical results of the assets acquired in the acquisitions from Tesoro prior to the effective date of each acquisition for all periods presented. The TLLP financial data is derived from the combined financial results of the TLLP predecessor (the “TLLP Predecessor”). We refer to the TLLP Predecessor and, prior to each acquisition date, the acquisitions from Tesoro collectively, as “TLLP’s Predecessors”.

TLLP acquired assets related to the Rockies Natural Gas Business through its acquisition of QEP Field Services, LLC (“QEPFS”) from QEP Resources, Inc. on December 2, 2014. QEPFS holds an approximate 56% limited partner interest in QEP Midstream Partners, LP (“QEPM”) and 100% of QEPM’s general partner, QEP Midstream Partners GP, LLC, which itself holds a 2% general partner interest and all of the incentive distribution rights in QEPM. All intercompany transactions with TLLP and QEPM are eliminated upon consolidation.

On September 25, 2013, we completed the sale of all of our interest in Tesoro Hawaii, LLC, which operated a 94 Mbpd Hawaii refinery, retail stations and associated logistics assets (the “Hawaii Business”). We have reflected its results of operations as discontinued operations in our condensed statements of consolidated 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.

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Summary

	Three Months Ended March 31,
	2015			2014
	(In millions, except per share amounts)
Revenues	$	6,463		$	9,933
Costs and Expenses:
Cost of sales	5,340			8,948
Operating expenses	509			591
Selling, general and administrative expenses	91			31
Depreciation and amortization expense	179			130
(Gain) loss on asset disposals and impairments	4			(5		)
Operating Income	340			238
Interest and financing costs, net	(55		)	(77		)
Other expense, net	(1		)	(1		)
Earnings Before Income Taxes	284			160
Income tax expense	96			56
Net Earnings from Continuing Operations	188			104
Loss from discontinued operations, net of tax	—			(1		)
Net Earnings	188			103
Less: Net earnings from continuing operations attributable to noncontrolling interest	43			25
Net Earnings Attributable to Tesoro Corporation	$	145		$	78
Net Earnings (Loss) Attributable to Tesoro Corporation
Continuing operations	$	145		$	79
Discontinued operations	—			(1		)
Total	$	145		$	78
Net Earnings (Loss) per Share - Basic:
Continuing operations	$	1.17		$	0.60
Discontinued operations	—			(0.01		)
Total	$	1.17		$	0.59
Weighted average common shares outstanding - Basic	125.2			131.3
Net Earnings (Loss) per Share - Diluted:
Continuing operations	$	1.15		$	0.59
Discontinued operations	—			(0.01		)
Total	$	1.15		$	0.58
Weighted average common shares outstanding - Diluted	126.9			133.8

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	Three Months Ended March 31,
	2015			2014
	(In millions)
Reconciliation of Net Earnings to EBITDA and Adjusted EBITDA
Net earnings	$	188		$	103
Loss from discontinued operations, net of tax	—			1
Depreciation and amortization expense	179			130
Income tax expense	96			56
Interest and financing costs, net	55			77
EBITDA (a)	$	518		$	367
Special items (b)	(29		)	(5		)
Adjusted EBITDA (a)	$	489		$	362
Reconciliation of Cash Flows used in Operating Activities to    EBITDA and Adjusted EBITDA
Net cash used in operating activities	$	(148	)	$	(150	)
Debt redemption charges	—			(31		)
Deferred charges	83			60
Changes in current assets and current liabilities	470			343
Income tax expense	96			56
Stock-based compensation benefit (expense)	(28		)	18
Interest and financing costs, net	55			77
Other	(10		)	(6		)
EBITDA (a)	$	518		$	367
Special items (b)	(29		)	(5		)
Adjusted EBITDA (a)	$	489		$	362

________________

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

(b) Special items included in EBITDA but excluded for presentation of adjusted EBITDA consist of the following:

	Three Months Ended March 31,
	2015			2014
	(In millions)
Reversal of lower of cost or market inventory adjustment (c)	$	(42	)	$	—
Throughput deficiency receivable (d)	13			—
Gain on sale of Boise Terminal (e)	—			(5		)
Total special items included in EBITDA	$	(29	)	$	(5	)

____________________

(c) Includes a benefit of $42 million for the reversal of a lower of cost or market adjustment during the three months ended March 31, 2015.

(d) During the three months ended March 31, 2015, TLLP invoiced QEPFS customers for a shortfall payment. TLLP did not recognize $13 million of revenue related to the billing period as it represented opening balance sheet assets for the acquisition of the Rockies Natural Gas Business; however TLLP is entitled to the cash receipt from such billing.

(e) Includes a gain of $5 million for the three months ended March 31, 2014 resulting from TLLP’s sale of its Boise terminal.

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	Year Ended December 31,
	2015
Reconciliation of Projected Net Earnings to Projected EBITDA	(In millions)
Projected net earnings	$	1,086
Depreciation and amortization expense	716
Income tax expense	560
Interest and financing costs, net	238
Projected EBITDA (a)	$	2,600

________________

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

Consolidated Results

Three Months Ended March 31, 2015 versus March 31, 2014

Overview. Our net earnings from continuing operations attributable to Tesoro Corporation were $145 million ($1.15 per diluted share) for the three months ended March 31, 2015 (“2015 Quarter”) compared to $79 million ($0.59 per diluted share) for the three months ended March 31, 2014 (“2014 Quarter”).

Gross Margins. Our gross refining margin decreased$16 million during the 2015 Quarter compared to the 2014 Quarter driven bylower crude oil differentials and lower gasoline and diesel margins in the Mid-Continent region partially offset by increases in the California region due to the stronger industry gasoline and diesel margins as a result of several unplanned refinery outages, which included our idled Martinez facilityresulting in an overall increase of $0.97 in our gross refining margin per barrel. Our gross retail margin increased$95 million primarily due to higher fuel margins. 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.

Other Costs and Expenses. Operating expenses decreased$82 million to $509 million in the 2015 Quarter compared to the 2014 Quarter primarily due to lower refinery throughput as a result of our Martinez refinery being idled during the work stoppage, the work stoppage at our Anacortes refinery and a portion of our Los Angeles refinery, declining natural gas costs and the conversion of company-operated retail sites to multi-site operators (“MSO”) that reduced costs associated with the management of station operations. Our selling, general and administrative expenses were $91 million in the 2015 Quarter compared to $31 million in the 2014 Quarter primarily attributable to changes in stock-based compensation expense during the 2015 Quarter as compared to the 2014 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 2015 Quarter results include an expense of $28 million due to an increase in the stock price per share during the Quarter as compared to the 2014 Quarter results, which included a benefit of $18 million due to the decrease in the stock price per share during that Quarter.

Income Taxes. Our income tax expense totaled $96 million in the 2015 Quarter versus $56 million in the 2014 Quarter. The combined federal and state effective income tax rate was 33.8% and 35.0% during the 2015 Quarter and the 2014 Quarter, respectively. The 2015 rate benefited from an increased share of income from non-taxable noncontrolling interests attributable to TLLP.

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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 first quarter of 2015 was impacted by work stoppages at the Anacortes, Washington and Los Angeles and Martinez, California refineries. Also during the first quarter, planned maintenance was performed at our Martinez, Anacortes and Salt Lake City refineries. Our California region was the most impacted by the work stoppage. The Martinez refinery was idled during February and March and production was impacted at the Los Angeles refinery. As a result, compared to first quarter of 2014, California region throughput was lower by approximately 100 Mbpd resulting in increased operating costs of more than $1 per barrel.

Crude Oil. 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 approximately$5per barrel during the first quarter of 2015, compared to approximately $9 per barrel during the first quarter of 2014.

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 first quarter of 2015, the average discount of Bakken crude oil to WTI decreased to approximately $3 per barrel, compared to an average discount of more than $4 per barrel in the first quarter of 2014. The average discount of Canadian Light Sweet crude oil to WTI decreased to approximately$4 per barrel in the first quarter of 2015, compared to approximately $7 per barrel during the first quarter of 2014. 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.

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Refined Product. 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 were up approximately 14% and diesel fuel margins were down approximately 13%, respectively, in the first quarter of 2015 as compared to the first quarter of 2014. Average U.S. West Coast benchmark gasoline margins and diesel fuel margins were up approximately 107% and 25%, respectively, in the first quarter of 2015, as compared to first quarter of 2014.

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Operational Data and Results. Management uses various measures to evaluate performance and efficiency and to compare profitability to other companies in the industry. These measures include:

• Gross refining margin per barrel is calculated by dividing gross refining margin (revenues less costs of feedstocks, purchased refined products, transportation and distribution) by total refining throughput;

• Manufacturing costs before depreciation and amortization expense (“Manufacturing Costs”) per barrel is calculated by dividing Manufacturing Costs by total refining throughput;

• We calculate refined product sales margin per barrel by dividing refined product sales margin by total refined product sales (in barrels); and

• Refined product sales margin represents refined product sales less refined product cost of sales.

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 March 31,
	2015	2014
Throughput (Mbpd)
Heavy crude (a)	96	170
Light crude	546	598
Other feedstocks	54	49
Total Throughput	696	817
Yield (Mbpd)
Gasoline and gasoline blendstocks	358	421
Diesel fuel	144	200
Jet fuel	119	128
Heavy fuel oils, residual products, internally produced fuel    and other	117	124
Total Yield	738	873
Refined Product Sales (Mbpd) (b)
Gasoline and gasoline blendstocks	487	512
Diesel fuel	180	187
Jet fuel	158	152
Heavy fuel oils, residual products and other	74	77
Total Refined Product Sales	899	928

________________

(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.

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Our Refining segment operating results are as follows:

	Three Months Ended March 31,
	2015		2014
	(Dollars in millions, except per barrel amounts)
Revenues
Refined products (a)	$	5,838	$	9,500
Crude oil resales and other	299		272
Total Revenues	$	6,137	$	9,772
Segment Operating Income
Gross refining margin (b) (c)	$	779	$	795
Expenses
Manufacturing costs	397		416
Other operating expenses	67		92
Selling, general and administrative expenses	3		2
Depreciation and amortization expense	119		101
(Gain) loss on asset disposals and impairments	3		(1		)
Segment Operating Income (c)	$	190	$	185
Gross Refining Margin ($/throughput barrel) (d)	$	11.77	$	10.80
Manufacturing Cost before Depreciation and Amortization    Expense ($/throughput barrel)	$	6.33	$	5.65
Refined Product Sales Margin ($/barrel) (e)
Average sales price	$	74.13	$	114.87
Average costs of sales	65.11		105.34
Refined Product Sales Margin	$	9.02	$	9.53

________________

(a) Refined product sales include intersegment sales to our retail segment at prices which approximate market of $2.0 billion and $2.9 billion for the three months ended March 31, 2015 and 2014, respectively.

(b) Consolidated gross refining margin combines gross refining margin for each of our regions adjusted for other amounts not directly attributable to a specific region. Other amounts resulted in a decrease of $1 million and an increase of $2 million for the three months ended March 31, 2015 and 2014, respectively. 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.

(c) Our refining segment uses RINs to satisfy its obligations under the Renewable Fuels Standard, in addition to physically blending required biofuels. Effective April 1, 2013, we changed our intersegment pricing methodology and no longer reduced the amount retail pays for the biofuels by the market value of the RINs due to significant volatility in the value of RINs. At the end of 2014, given the price of RINs has become more transparent in the price of biofuels, we determined our intersegment pricing methodology should include the market value of RINs as a reduction to the price our retail segment pays to our refining segment. We made this change effective January 1, 2015. We have not adjusted financial information presented for our refining and retail segments for the period ended March 31, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $28 million with a corresponding increase to operating income in our retail segment.

(d) The gross refining margin per throughput barrel excludes the impact of the $42 million benefit recognized during the three months ended March 31, 2015 from a lower of cost or market inventory valuation adjustment recorded in the fourth quarter of 2014 in the computation of the rate at a consolidated or regional level.

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

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Our Refining segment operating results by region are as follows:

	Three Months Ended March 31,
	2015		2014
	(Dollars in millions, except per barrel amounts)
Refining Data by Region
California (Martinez and Los Angeles)
Refining throughput (Mbpd)	422		521
Gross refining margin	$	436	$	397
Gross refining margin ($/throughput barrel)	$	10.67	$	8.45
Manufacturing cost before depreciation and amortization    expense ($/throughput barrel)	$	7.53	$	6.48
Pacific Northwest (Washington and Alaska)
Refining throughput (Mbpd)	158		168
Gross refining margin	$	172	$	136
Gross refining margin ($/throughput barrel)	$	11.52	$	9.04
Manufacturing cost before depreciation and amortization    expense ($/throughput barrel)	$	4.43	$	4.27
Mid-Continent (North Dakota and Utah)
Refining throughput (Mbpd)	116		128
Gross refining margin	$	172	$	260
Gross refining margin ($/throughput barrel)	$	16.06	$	22.56
Manufacturing cost before depreciation and amortization    expense ($/throughput barrel)	$	4.56	$	4.07

Three Months EndedMarch 31, 2015 Compared with Three Months EndedMarch 31, 2014

Overview. Operating income for our refining segment increased$5 million, or 3%, to $190 million during the 2015 Quarter as compared to the 2014 Quarter due to a stronger margin environment. However, our capture of the stronger margins was significantly limited by the combination of higher system throughput during January when margins were low, the work stoppage impact in February and March and inventory builds associated with the turnarounds.

Refining Throughput. Total refining throughput decreased121 Mbpd, or 15%, to 696 Mbpd during the 2015 Quarter as compared to the 2014 Quarter was impacted by the work stoppage across three of the Company’s facilities and two large planned turnarounds. Our California region was most significantly impacted with our Martinez, California refinery being idled and work stoppage affecting a portion of our Los Angeles refinery.

Refined Product Sales. Revenues from sales of refined products decreased$3.7 billion to $5.8 billion in the 2015 Quarter as compared to the 2014 Quarter, primarily due to a decrease in average product sales price of $40.74 per barrel, or 35%, to $74.13 per barrel in the 2015 Quarter as compared to the 2014 Quarter driven by lower crude oil prices. The decrease in revenues was coupled with decreased refined product sales volumes of 29 Mbpd, or 3%, to 899 Mbpd in the 2015 Quarter as compared to the 2014 Quarter. During the 2015 Quarter, purchases of refined products from third parties increased compared to the 2014 Quarter to enable the Company to meet its supply obligations as a result of lower refinery throughput from our Martinez refinery being idled during the work stoppage.

Costs of Sales and Expenses. Our average costs of sales decreased$40.23 per barrel, or 38%, to $65.11 per barrel during the 2015 Quarter compared to the 2014 Quarter, reflecting decreases in crude oil prices. Manufacturing and other operating expenses decreased$44 million to $464 million in the 2015 Quarter as compared to the 2014 Quarter primarily as a result of lower refinery throughput from our Martinez refinery being idled during the work stoppage, the work stoppage at our Anacortes refinery and a portion of our Los Angeles refinery and declining natural gas costs.

Gross Refining Margins. Our gross refining margin per barrel increased$0.97 per barrel, or 9%, to $11.77 per barrel in the 2015 Quarter as compared to the 2014 Quarter given a stronger margin environment across the California and Pacific Northwest regions, which was offset by the impact of the work stoppages and three refinery turnarounds during the quarter.

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Total gross margin decreased$16 million, or 2%, to $779 million in the 2015 Quarter as compared to the 2014 Quarter. Gross margins in the California and Pacific Northwest regions increased $39 million and $36 million, respectively, and decreased $88 million in the Mid-Continent region. Gross refining margin increases in the California region were due to the stronger industry gasoline and diesel margins as a result of several unplanned refinery outages, which included our idled Martinez facility. Margins decreased in the Mid-Continent region due to lower crude oil differentials and lower gasoline and diesel margins. The increase in the Pacific Northwest region was driven by stronger industry gasoline and diesel margins in the Pacific Northwest partially offset by marginally lower discounts on advantaged Bakken and Canadian crude oil.

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 and natural gas, for terminalling, transporting and storing crude oil and refined products and for processing and fractionating natural gas and natural gas liquids (“NGL”). On December 2, 2014, TLLP completed the Rockies Natural Gas Business acquisition transforming TLLP into a full-service logistics company with assets allowing geographic and revenue diversification in support of our strategic initiatives.

Operational Data and Results. Management uses average revenue per barrel and average revenue per MMBtu to evaluate performance and compare profitability to other companies in the industry. We calculate average revenue per barrel as revenue divided by total throughput or keep-whole processing volumes. We calculate average revenue per MMBtu as revenue divided by gas gathering and fee-based processing volume. 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 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 March 31,
	2015 (a)		2014 (a) (b)
Gathering
Crude oil gathering pipeline throughput (Mbpd)	156		98
Average crude oil gathering pipeline revenue per barrel	$	1.95	$	1.34
Crude oil gathering trucking volume (Mbpd)	46		45
Average crude oil gathering trucking revenue per barrel	$	3.23	$	3.18
Gas gathering throughput (thousands of MMBtu/day) (c)	1,020		—
Average gas gathering revenue per MMBtu (c)	$	0.39	$	—
Processing (c)
NGL processing throughput (Mbpd)	7		—
Average keep-whole fee per barrel of NGL	$	31.84	$	—
Fee-based processing throughput (thousands of MMBtu/day)	689		—
Average fee-based processing revenue per MMBtu	$	0.46	$	—
Terminalling and Transportation
Terminalling throughput (Mbpd)	918		901
Average terminalling revenue per barrel	$	1.10	$	0.93
Pipeline transportation throughput (Mbpd)	818		817
Average pipeline transportation revenue per barrel	$	0.39	$	0.36

________________

(a) The results of operations for TLLP’s natural gas gathering and processing operations are shown in Mbpd, per barrel, million British thermal units (“MMBtu”) and per MMBtu amounts.

(b) Includes historical results of TLLP’s Predecessors for the three months ended March 31, 2014. See additional information regarding TLLP’s Predecessors on page 31.

(c) TLLP commenced natural gas gathering and processing operations with the acquisition of Rockies Natural Gas Business on December 2, 2014.

40

Our TLLP segment operating results are as follows:

	Three Months Ended March 31,
	2015 (a)		2014 (a)
	(Dollars in millions)
Segment Operating Income
Revenues
Gathering (b)	$	77	$	25
Processing (b)	67		—
Terminalling and transportation	119		102
Total Revenues (c)	263		127
Expenses
Operating expenses (d)	86		45
General and administrative expenses (e)	25		10
Depreciation and amortization expense	44		16
Gain on asset disposals and impairments	—		(4		)
Segment Operating Income	$	108	$	60

________________

(a) Includes historical results of TLLP’s Predecessors for the three months ended March 31, 2014. See additional information regarding TLLP’s Predecessors on page 31.

(b) TLLP commenced natural gas gathering and processing operations with the acquisition of Rockies Natural Gas Business on December 2, 2014.

(c) TLLP segment revenues from services provided to our refining segment were $148 million and $111 million for the three months ended March 31, 2015 and 2014, respectively. These amounts are eliminated upon consolidation.

(d) TLLP segment operating expenses include amounts billed by Tesoro for services provided to TLLP under various operational contracts. These amounts totaled $17 million and $13 million for the three months ended March 31, 2015 and 2014, respectively. These amounts are net of imbalance gains and reimbursements primarily related to pressure testing and repairs and maintenance costs totaling $8 million and $7 million for the three months ended March 31, 2015 and 2014, 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.

(e) 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 $17 million and $7 million for the three months ended March 31, 2015 and 2014, respectively. These amounts are eliminated upon consolidation.

Three Months EndedMarch 31, 2015 Compared with Three Months EndedMarch 31, 2014

Overview. Operating income for TLLP increased$48 million to $108 million due to the higher revenues, offset by an increase in operating expenses of $41 million to $86 million in the 2015 Quarter as compared to the 2014 Quarter. The Rockies Natural Gas Business contributed $38 million toward the increase in TLLP’s operating income during the 2015 Quarter.

Revenues and Throughput. Pipeline gathering throughput volume increased as a result of the expansion of our High Plains System and the assets acquired in the Rockies Natural Gas Business acquisition. This increase in volumes for crude oil gathering pipeline throughput includes a 51 Mbpd increase in third-party volumes. These higher throughput volumes resulted in an increase to revenues of $136 million to $263 million during the 2015 Quarter as compared to the 2014 Quarter. Terminalling and transportation pipeline throughput volumes increased during the 2015 Quarter as compared to the 2014 Quarter driven by certain terminalling and pipeline assets acquired from Tesoro, which were partially offset by lower volumes at the Martinez, California marine terminal.

Operating and Other Expenses. Operating expenses increased $41 million during the 2015 Quarter primarily related to the operations acquired in the Rockies Natural Gas Business acquisition and assets acquired from Tesoro during 2014. General and administrative expenses increased by $15 million due to higher allocations of overhead costs associated with increased costs to support the growth of the business.

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Retail Segment

We sell gasoline and diesel fuel in the western United States through 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. During the fourth quarter 2014, we converted our company-operated retail locations to MSOs and retained the transportation fuel sales. Under these MSO arrangements, we no longer operate the convenience stores, own the related merchandise inventory or employ the store employees as the MSO operates the stations. Our retail operating segment (“Retail”) included a network of 2,258 retail stations under the ARCO^®, Shell^®,Exxon^®, Mobil^®, USA Gasoline^TM and Tesoro^® brands as of March 31, 2015.

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.

Our Retail segment operating data and results are as follows:

	Three Months Ended March 31,
	2015		2014
	(Dollars in millions, except per gallon amounts)
Average Number of Stations (during the period)
Company/MSO-operated (a)	584		574
Branded jobber/dealer	1,677		1,696
Total Average Retail Stations	2,261		2,270
Fuel Sales (millions of gallons)	1,038		995
Revenues
Fuel	$	2,195	$	3,024
Other non-fuel (b)	16		61
Total Revenues	$	2,211	$	3,085
Fuel Margin ($/gallon)	$	0.19	$	0.09
Segment Operating Income
Gross Margins
Fuel (c)	$	195	$	85
Other non-fuel (b)	13		28
Total Gross Margins	208		113
Expenses
Operating expenses	68		81
Selling, general and administrative expenses	1		2
Depreciation and amortization expense	12		10
Loss on asset disposals and impairments	1		1
Segment Operating Income (c)	$	126	$	19

________________

(a) In December 2014, we converted our company-operated retail stations to MSO retail stations. The impact of this change was not material to our retail segment results.

(b) Includes merchandise revenue or gross margins for the three months ended March 31, 2014.

42

(c) Our refining segment uses RINs to satisfy its obligations under the Renewable Fuels Standard, in addition to physically blending required biofuels. Effective April 1, 2013, we changed our intersegment pricing methodology and no longer reduced the amount retail pays for the biofuels by the market value of the RINs due to significant volatility in the value of RINs. At the end of 2014, given the price of RINs has become more transparent in the price of biofuels, we determined our intersegment pricing methodology should include the market value of RINs as a reduction to the price our retail segment pays to our refining segment. We made this change effective January 1, 2015. We have not adjusted financial information presented for our refining and retail segments for the period ended March 31, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $28 million with a corresponding increase to operating income in our retail segment.

Three Months EndedMarch 31, 2015 Compared with Three Months EndedMarch 31, 2014

Overview. Operating income increased$107 million to $126 million during the 2015 Quarter as compared to the 2014 Quarter primarily as a result of our increased gross fuel margin.

Gross Margin. Gross margin increased$95 million, or 84%, to $208 million during the 2015 Quarter as compared to the 2014 Quarter primarily due to the higher fuel margin per gallon. We experienced higher fuel margin driven by our ability to capture favorable market conditions where declining street prices were outpaced by spot market prices at the rack. Fuel sales volumes were relatively flat at 1.0 billion gallons during both the 2015 Quarter and 2014 Quarter.

Operating and Other Expenses. The decrease of $13 million in operating expenses was primarily driven by our conversion to MSOs at retail stations that reduced costs associated with the management of the station operations.

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 53 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.

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Capitalization

Our capital structure at March 31, 2015 was comprised of the following (in millions):

	March 31, 2015
Debt, including current maturities:	Principal		Unamortized Issuance Costs
Tesoro Corporation Revolving Credit Facility	$	—	$	26
Term Loan Credit Facility	398		1
4.250% Senior Notes due 2017	450		4
5.375% Senior Notes due 2022	475		7
5.125% Senior Notes due 2024	300		4
Capital lease obligations and other	43		—
Tesoro Debt and Unamortized Issuance Costs	1,666		42
TLLP Revolving Credit Facility	235		14
5.500% TLLP Senior Notes due 2019	500		7
5.875% TLLP Senior Notes due 2020	470		3
6.125% TLLP Senior Notes due 2021	550		8
6.250% TLLP Senior Notes due 2022	800		11
TLLP Capital lease obligations and other	8		—
TLLP Debt and Unamortized Issuance Costs	2,563		43
Total Debt and Unamortized Issuance Costs	$	4,229	85
Debt, Net of Unamortized Issuance Costs			4,144
Total Equity			7,078
Total Capitalization			$	11,222

Our net debt to capitalization ratio was 37% at both March 31, 2015 and December 31, 2014. Our net debt to capitalization ratio, excluding TLLP, was 26% and 27% at March 31, 2015 and December 31, 2014, respectively, which excludes TLLP total net debt and capital leases of $2.5 billion for both periods. The net debt to capitalization ratio also excludes noncontrolling interest of $2.5 billion at both March 31, 2015 and December 31, 2014. TLLP’s debt is non-recourse to Tesoro, except for TLGP.

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.

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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 first quarter of 2015 with $459 million of cash and cash equivalents and borrowings of $398 million under the Term Loan Credit Facility and $235 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 March 31, 2015 (in millions):

	Total Capacity		Amount Borrowed as of March 31, 2015		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (a)	$	2,156	$	—	$	237	$	1,919	November 18, 2019
TLLP Revolving Credit Facility	900		235		—		665		December 2, 2019
Letter of Credit Facilities	2,035		—		56		1,979
Total credit facilities	$	5,091	$	235	$	293	$	4,563

________________

(a) Borrowing base is the lesser of the amount of the periodically adjusted borrowing base or the agreement’s total capacity of $3.0 billion.

As of March 31, 2015, 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    ($2.2 billion) (b)	0.18%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($900 million) (c)	0.18%	2.50%	3.25%	1.50%	0.50%

________________

(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 TLLP Revolving Credit Facility incur fees at the Eurodollar margin rate.

Tesoro Corporation Revolving Credit Facility

On November 18, 2014, we entered into Omnibus Amendment No. 1 (the “Omnibus Amendment”) to the Sixth Amended and Restated Credit Agreement (the “Existing Credit Agreement”; and as amended in accordance with the Omnibus Amendment, the “Amended Credit Agreement”) dated as of January 4, 2013 and the related guaranties. The Omnibus Amendment provided for:

• an extension of the revolving facility maturity date to November 18, 2019;

• total available revolving capacity of $3.0 billion, or lower based on the periodically adjusted borrowing base, and the removal of previously included required revolving loan commitment decreases;

• a reduction in the minimum consolidated tangible net worth requirement beginning with the fiscal year ending December 31, 2014;

• revisions to the covenants to provide additional flexibility for making restricted payments, dispositions and entering into certain investments; and

• a backstop guarantee by Tesoro of certain swap obligations.

The Amended Credit Agreement retains affirmative, negative and financial covenants that, other than as described above, continue to limit or restrict the Company and its subsidiaries and is guaranteed and secured to the same extent as the Existing Credit Agreement.

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Overview. OurRevolving Credit Facility provides for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base, which consists 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. We had unused credit availability of approximately 89% of the eligible borrowing base at March 31, 2015. Our 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.

Covenants. Our Revolving Credit Facility, as amended, senior notes and Term Loan 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. 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 do not believe that the limitations will restrict our ability to pay dividends or repurchase stock under our current programs. 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 three months ended March 31, 2015. We were in compliance with our debt covenants as of and for the three months ended March 31, 2015.

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 $56 million outstanding as of March 31, 2015. Letters of credit outstanding under these agreements incur fees ranging from 0.40% to 1.00% and are secured by the crude oil inventories for which they are issued. Capacity under these letter of credit agreements is available on an uncommitted basis and can be terminated by either party at any time.

TLLP Revolving Credit Facility

Overview. The TLLP Revolving Credit Facility provided for total loan availability of $900 million as of March 31, 2015, and TLLP may request that the loan availability be increased up to an aggregate of $1.5 billion, 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, with the exception of certain non-wholly owned subsidiaries acquired in the Rockies Natural Gas Business acquisition, 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.

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Covenants. The TLLP Revolving Credit Facility and TLLP senior notes contain certain covenants that may, among other things, limit or restrict TLLP’s ability (as well as those of TLLP’s subsidiaries) to:

• incur additional indebtedness and incur liens on assets to secure certain debt;

• pay and make certain restricted payments;

• make distributions from its subsidiaries;

• dispose of assets in excess of an annual threshold amount;

• in the case of the TLLP Revolving Credit Facility, make certain amendments, modifications or supplements to organization documents and material contracts;

• in the case of the TLLP Revolving Credit Facility, engage in certain business activities;

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

• enter into non-arm’s-length transactions with affiliates.

We do not believe that the limitations imposed by the TLLP Revolving Credit Facility will restrict TLLP’s ability to pay distributions. Additionally, the TLLP Revolving Credit Facility contains covenants that require TLLP to maintain certain interest coverage and leverage ratios. TLLP was in compliance with all TLLP Revolving Credit Facility and TLLP senior notes covenants as of and for the three months ended March 31, 2015.

Tesoro Debt

Term Loan Facility. We entered into the Term Loan Facility in January 2013, which allowed us to borrow up to an aggregate of $500 million, which we used to fund a portion of the acquisition of BP’s integrated Southern California refining, marketing and logistics business (the “Los Angeles Acquisition”). The Term Loan Facility matures May 30, 2016. The obligations under the Term Loan 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 Facility may be repaid at any time but amounts may not be re-borrowed. There were no payments on the borrowings under the Term Loan Facility for the three months ended March 31, 2015. The borrowings under our Term Loan Facility incurred interest at a rate of 2.43% as of March 31, 2015 based on the following expense and fee schedule:

Credit Facility	30 day Eurodollar (LIBOR) Rate	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Term Loan Facility ($398 million) (a)	0.18%	2.25%	3.25%	1.25%	—%

____________________

(a) 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 Term Loan 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 set forth in most of our current indentures.

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 0.3 million shares and 1.9 million shares of our common stock for approximately $19 million and $100 million during the three months ended March 31, 2015 and 2014, respectively. We have $981 million remaining under our authorized programs.

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Cash Dividends

We paid cash dividends totaling $54 million for the three months ended March 31, 2015 based on a $0.425 per share quarterly cash dividend on common stock. We paid cash dividends totaling $33 million for the three months ended March 31, 2014 based on a $0.25 per share quarterly cash dividend on common stock. On May 7, 2015, our Board declared a cash dividend of $0.425 per share, payable on June 15, 2015 to shareholders of record on May 29, 2015.

Cash Flow Summary

Working capital (excluding cash) increased$509 million in the 2015 Quarter primarily related to the timing of our payments for crude oil, refined product purchases and other accrued expenses and increased inventory levels.

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

	Three Months Ended March 31,
	2015			2014
Cash Flows Used in:
Operating activities	$	(148	)	$	(150	)
Investing activities	(273		)	(109		)
Financing activities	(120		)	(181		)
Decrease in Cash and Cash Equivalents	$	(541	)	$	(440	)

Net cash used in operating activities during the 2015 Quarter was relatively flat at $148 million as compared to $150 million in the 2014 Quarter. The increase in net earnings of $85 million and impact of non-cash items were offset by the change in working capital during the 2015 Quarter compared to the 2014 Quarter. Net cash used in investing activities increased$164 million to $273 million in the 2015 Quarter as compared to $109 million in the 2014 Quarter, primarily due to the increase in capital expenditures to $271 million. Net cash used in financing activities during the 2015 Quarter totaled $120 million as compared to $181 million in the 2014 Quarter. The decrease of $61 million is primarily attributable to the decrease in common stock repurchases during the 2015 Quarter compared to the 2014 Quarter.

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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 2015 Capital Expenditures (b)		Expected Capital Expenditures for Remainder of 2015 (a)		Expected In-service Date
In Process:
Salt Lake City Refinery Expansion (c)	$	380	$	58	$	20	2013-2015
TLLP’s Connolly Gathering System (d)	150		23		85		2014-2015
Clean Product Upgrade Project (e)	300		—		30		2017
Avon Wharf Project (f)	168		15		49		2017
Under Development:
Los Angeles Refinery Integration (g)	$ 400 - 425		$	7	$	50	2017

____________________

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

(b) 2015 actual capital expenditure disclosures include capitalized interest and labor costs associated with the project.

(c) The expansion project at the Salt Lake City 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 expansion project increases potential Waxy Crude oil processing capabilities up to 26 Mbpd. We expect the work to be completed in the second quarter of 2015.

(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 Clean Product Upgrade Project at our Anacortes, Washington refinery allows compliance with Tier 3 gasoline sulfur reduction; reduction of gasoline production costs; extraction of existing mixed xylene from gasoline and logistics capability for its export to manufacturers of polyester fibers and films used in clothing, food packaging and beverage containers. The project was approved by our board in February 2015 with approximately $30 million approved for the first phase of the project. The project remains subject to regulatory approval, which we expect to finalize in 2015.

(f) The regulatory and compliance project for the Avon Wharf in Martinez, California is required under the 2013 California building code for Marine Oil Terminal Engineering and Maintenance Standards (“MOTEMS”). The project will replace the existing berth with a MOTEMS compliant structure that will improve clean product movements and has received regulatory approval and expect to receive permits in the second quarter 2015.

(g) 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.

Capital expenditures during the 2015 Quarter were $260 million, including $66 million of TLLP capital spending for the 2015 Quarter. Our capital spending is expected to be $600 million for 2015, reflecting the Company’s emphasis on long-term strategic priorities including continued focus on safety and reliability and greater focus on value-driven growth. The 2015 capital budget excludes TLLP expected capital spending of $450 million, which is primarily financed by TLLP. Our 2015 Quarter capital expenditure amounts, excluding TLLP capital spending, are comprised of the following project categories at March 31, 2015:

Project Category	Percent of 2015 Quarter Capital Expenditures	Percent of 2015 Expected Capital Expenditures
Regulatory	25%	20%
Sustaining	23%	20%
Income Improvement	52%	60%

Turnarounds and other Deferred Expenditures

We spent $83 million during the 2015 Quarter for turnarounds, catalysts and other deferred expenditures, including $77 million for turnarounds primarily at our Martinez, Anacortes, and Los Angeles refineries. Total expected spending for 2015 on turnarounds and catalysts is $286 million primarily spent at our Los Angeles, Anacortes and Martinez refineries. Additionally, total expected spend on deferred branding costs in our retail segment is $65 million for 2015.

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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.

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 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 or other 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 20.5 billion gallons in 2015 and to increase to 36.0 billion gallons by 2022. 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. The EPA has proposed, but has yet to finalize, a reduced total renewable fuel requirement of 15.2 billion gallons for 2014 and has yet to propose requirements for 2015. In the absence of binding renewable fuel requirements for 2014 and 2015, we believe that we are currently meeting our renewable fuel obligations pursuant to the RFS2, 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 2015 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 for future blending mandates, and currently believe that the outcome will not have a material impact on our liquidity or financial position, the ultimate outcome could have a material impact on our results of operations.

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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 were brought into the California cap-and-trade program, making fuel suppliers responsible for carbon emission from their products. The cost for carbon emissions is being passed through to customers. We cannot currently predict the long-term impact of the LCFS, cap and trade requirements, and other AB 32 related regulations on our liquidity, financial position, or results of operations.

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”) initiated an investigation 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, November 2013 and February 2015 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.

On November 20, 2013, 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. The EPA conducted an investigation of the refinery in 2011, following the April 2010 fire in the naphtha hydrotreater unit. We have provided a response to the NOV and additional information to the EPA. While 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.

In January 2015, we received notice and demand for indemnity from the previous owner of our Washington refinery for damages incurred in the civil litigation brought by the families of those fatally wounded in the April 2010 refinery fire. We settled our involvement in civil litigation in 2012. Arbitration proceedings were initiated in March 2015 after an unsuccessful mediation and we intend to vigorously defend ourselves against this claim.

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 $259 million and $274 million at March 31, 2015 and December 31, 2014, respectively, including $28 million and $32 million for TLLP, respectively. These accruals include $208 million and $216 million at March 31, 2015 and December 31, 2014, respectively, related to amounts estimated for site cleanup activities arising from operations at our Martinez refinery and operations of assets acquired in the Los Angeles Acquisition prior to their respective acquisition dates. 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. The environmental remediation liabilities assumed in the Los Angeles Acquisition include amounts estimated for site cleanup activities and monitoring activities arising from operations at the Carson refinery, certain terminals and pipelines, and retail stations prior to our acquisition on June 1, 2013. These estimates for environmental liabilities are based on third-party assessments and available information. 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.

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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.

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 U.S. Department of Justice. We have established an accrual for this matter although we cannot currently estimate the final amount or timing of its resolution. 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 at our operating refineries. However, we do not believe that the final outcome of this matter 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 are defending the permits with UDEQ. In orders issued on July 10 and September 9, 2014, the UDEQ Administrative Law Judge (“ALJ”) 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 final decision approving the ALJ’s recommended order is currently under appeal. 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.

In response to incidents in February and March 2014 at our Martinez refinery involving sulfuric acid exposure at the Alkylation Unit 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 this investigation, 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 the California Department of Industrial Relations (“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, natural gas and NGLs;

• changes in the expected value of and benefits derived from acquisitions, including TLLP’s Rockies Natural Gas Business acquisition;

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

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

• changes in fuel and utility costs for our facilities;

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

• actions of customers and competitors;

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

• 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 Securities and Exchange Commission (“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, identify emerging risks and facilitating 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 policies and 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 and emerging risks and risk prevention and mitigation activities. 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 696 Mbpd, would change annualized pre-tax operating income by approximately $250 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 43 million barrels and 42 million barrels at March 31, 2015 and December 31, 2014, respectively. The average cost of our refinery feedstocks and refined products at March 31, 2015, was approximately $59 per barrel compared to market prices of approximately $67 per barrel.

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 6 to our financial statements in Part 1 Item 1.

54

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 March 31, 2015, 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 first quarter of 2015 included a net gain of $45 million but were not impacted during the first quarter of 2014 on our commodity derivative positions comprised of the following (dollars in millions):

	Net Gain (Loss)
	Three Months Ended March 31,
	2015			2014
Unrealized gain (loss) carried on open derivative positions from prior period	$	(177	)	$	19
Realized gain (loss) on settled derivative positions	184			(3		)
Unrealized gain (loss) on open net derivative positions	38			(16		)
Net Gain	$	45		$	—

Our open derivative positions at March 31, 2015, 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 March 31, 2015, 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 $7 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.

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 carrying values of our debt were approximately $4.2 billion at both March 31, 2015 and December 31, 2014, and the fair values of our debt were approximately $4.3 billion and $4.2 billion at March 31, 2015 and December 31, 2014, respectively. These carrying and fair values of our debt do not include the unamortized issuance costs associated with our total debt.

55

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 March 31, 2015 would change annual interest expense by approximately $2 million. There were no borrowings outstanding under the Revolving Credit Facility and $235 million borrowings outstanding under the TLLP Revolving Credit Facility as of March 31, 2015.

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 Securities and Exchange Commission rules) during the quarter ended March 31, 2015 that have materially affected or are reasonably likely to materially affect these controls.

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, except as may be specifically disclosed, will not have a material adverse impact on our liquidity, financial position, or results of operations.

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”) initiated an investigation 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, November 2013 and February 2015 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.

In January 2015, we received notice and demand for indemnity from the previous owner of our Washington refinery for damages incurred in the civil litigation brought by the families of those fatally wounded in the April 2010 refinery fire. We settled our involvement in civil litigation in 2012. Arbitration proceedings were initiated in March 2015 after an unsuccessful mediation and we intend to vigorously defend ourselves against this claim.

In January 2015, the Bay Area Air Quality Management District (the “BAAQMD”) offered to settle four notices of violations (“NOV”) received at our Martinez refinery from May through September 2013. The allegations concern hydrocarbon emissions from a process water drain system. While we are actively discussing a settlement of the allegations with BAAQMD, we cannot currently estimate the amount or timing of the resolution of this matter.

On October 30, 2014, we received an offer to settle 36 NOVs received from the BAAQMD. The NOVs were issued from March 2012 to October 2013 and allege violations of air quality regulations at our Martinez refinery. While we actively discussing a settlement of the allegations with BAAQMD, we cannot currently estimate the amount or timing of the resolution of this matter.

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. While we are working with ADEC to mitigate the emissions and resolve the allegations we cannot currently estimate the amount or timing of the resolution of this matter.

ITEM 1A. RISK FACTORS

There have been no significant changes from the risk factors previously disclosed in Item 1A of our 2014 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 March 31, 2015.

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)
January 2015	267,947	$	70.34	267,947	$	981
February 2015	459,084	$	86.53	—	$	981
March 2015	309	$	88.51	—	$	981
Total	727,340			267,947

________________

(a) Includes 459,393 shares acquired from employees during the first quarter of 2015 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 in July 2014. 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.

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ITEM 5. OTHER INFORMATION

Submission of Matters to a Vote of Security Holders

The Annual Meeting of Stockholders of the Company was held on May 7, 2015. There were 125,745,757 shares of common stock entitled to vote, and 97,726,705 (or 78%) shares present in person or by proxy at the Annual Meeting.

Three items of business were acted upon by stockholders at the Annual Meeting. The voting results are as follows:

1. Election of Directors.

Name	For	Against	Withheld	Broker Non-Votes
Rodney F. Chase	89,214,949	994,152	245,702	7,271,902
Gregory J. Goff	84,692,222	4,795,103	967,478	7,271,902
Robert W. Goldman	89,451,192	757,665	245,946	7,271,902
David Lilley	90,098,273	110,085	246,445	7,271,902
Mary Pat McCarthy	90,112,815	101,036	240,948	7,271,902
J.W. Nokes	90,088,903	114,819	251,080	7,271,902
Susan Tomasky	89,270,212	942,734	241,853	7,271,902
Michael E. Wiley	90,109,988	101,905	242,909	7,271,902
Patrick Y. Yang	89,305,840	898,265	250,696	7,271,902

2. Advisory vote on executive compensation.

For	Against	Withheld	Broker Non-Votes
83,944,003	5,801,873	708,734	7,272,094

3. Ratification of the Appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2015.

For	Against	Withheld	Broker Non-Votes
97,264,120	191,326	271,259	—

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ITEM 6. EXHIBITS

(a) Exhibits

Exhibit Number	Description of Exhibit
*#10.1	Tesoro Corporation Non-Employee Director Compensation Program.
*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.

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SIGNATURES

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

		TESORO CORPORATION
Date:	May 8, 2015	/s/ GREGORY J. GOFF
		Gregory J. Goff
		President and Chief Executive Officer
		(Principal Executive Officer)
Date:	May 8, 2015	/s/ STEVEN M. STERIN
		Steven M. Sterin
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

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EX-10.1

Exhibit 10.1

TESORO CORPORATION

NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM

(Revisions adopted February 2015, effective as of January 1, 2015)

As previously disclosed, the Company’s director compensation program for 2015 provide for an annual retainer of $270,000, payable $120,000 in cash and $150,000 in the form of restricted stock units representing the right to receive shares of common stock with dividend equivalent rights (“RSUs”). Such RSUs vest one year from the date of grant, which is made in connection with the annual meeting of stockholders.

In addition, independent Lead Director and Committee Chairs are entitled to the following annual amounts: Lead Director -- $75,000; Audit Committee Chair and Compensation Committee Chair -- $20,000; Environmental Health, Safety & Security Committee Chair and Governance Committee Chair -- $15,000.

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Gregory J. Goff, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:	May 8, 2015	/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:	May 8, 2015	/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 March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory J. Goff, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ GREGORY J. GOFF

Gregory J. Goff

Chief Executive Officer

May 8, 2015

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

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Tesoro Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2015 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

May 8, 2015

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

XML

Tesoro Logistics LP Tesoro Logistics LP, Ownership Interest (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended	12 Months Ended	0 Months Ended
	Mar. 31, 2015	Dec. 31, 2014	Dec. 02, 2014	Apr. 06, 2015
Variable Interest Entity
Percentage ownership of Tesoro Logistics LP	36.00%	36.00%
Limited partner common units outstanding (units)	28,181,748
TLGP
Variable Interest Entity
General Partner, Ownership Interest	2.00%	2.00%
General partner units outstanding (units)	1,631,448
Rockies Natural Gas Business
Variable Interest Entity
Limited partner common units outstanding (units)			3,701,750
Effective date of acquisition			Dec. 02, 2014
Purchase price	2,517
Subordinated units outstanding (units)			26,705,000
QEP Field Services, LLC
Variable Interest Entity
General Partner, Ownership Interest			100.00%
Limited Partner, Ownership Interest			56.00%
QEP Midstream Partners GP, LLC
Variable Interest Entity
General Partner, Ownership Interest			2.00%
Subsequent Event
Variable Interest Entity
Merger agreement date				Apr. 06, 2015
Limited Partnership interests Common Units, Conversion Ratio				0.3088
Refined Products Pipeline | TLLP
Variable Interest Entity
Number of assets (assets)	1
Crude Oil Gathering System | TLLP
Variable Interest Entity
Number of assets (assets)	1
Gas Processing Complexes | TLLP
Variable Interest Entity
Number of assets (assets)	4
Crude Oil and Refined Products Terminals and Storage Facilities | TLLP
Variable Interest Entity
Number of assets (assets)	24
Rail Car Unloading Facility | TLLP
Variable Interest Entity
Number of assets (assets)	1
Fractionation Facility | TLLP
Variable Interest Entity
Number of assets (assets)	1
Regulated Common Carrier Products Pipeline | TLLP
Variable Interest Entity
Number of assets (assets)	1
Jet Fuel Pipeline | TLLP
Variable Interest Entity
Number of assets (assets)	1
Petroleum Coke Handling and Storage Facility | TLLP
Variable Interest Entity
Number of assets (assets)	1
Marine Terminals | TLLP
Variable Interest Entity
Number of assets (assets)	4
Pipeline Transportation of Refined Petroleum Products and Crude Oil | TLLP
Variable Interest Entity
Number of miles (miles)	140

XML

Benefit Plans (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015 plans	Mar. 31, 2014
Pension Benefits
General Discussion of Pension Plan
Number of defined benefit plans sponsored (plans)	4
Pension Contributions
Employer contributions to employee retirement plan	$ 15
Components of Net Periodic Benefit Expense and Other Postretirement Expense (Income):
Service cost	12	13
Interest cost	8	9
Expected return on plan assets	(7)	(8)
Amortization of prior service cost (credit)	0	0
Recognized net actuarial loss	6	4
Net Periodic Benefit Expense (Income)	19	18
Other Postretirement Benefits
Components of Net Periodic Benefit Expense and Other Postretirement Expense (Income):
Service cost	1	1
Interest cost	1	1
Expected return on plan assets	0	0
Amortization of prior service cost (credit)	(9)	(9)
Recognized net actuarial loss	1	1
Net Periodic Benefit Expense (Income)	$ (6)	$ (6)
Funded Qualified Employee Retirement Plan
General Discussion of Pension Plan
Number of defined benefit plans sponsored (plans)	1
Unfunded Nonqualified Executive Plan
General Discussion of Pension Plan
Number of defined benefit plans sponsored (plans)	3

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Derivative Instruments, Derivative Gains and Losses (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	$ 43	$ (2)
Revenues
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	4	1
Cost of sales
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	41	(1)
Other expense, net
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	(2)	(2)
Commodity Futures Contracts
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	43	0
Commodity OTC Swap Contracts
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	0	(1)
Commodity Forward Contracts
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	2	1
Foreign Currency Forward Contracts
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	$ (2)	$ (2)

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Commitments and Contingencies, Environmental Liabilities (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015 entities	Dec. 31, 2014
Environmental Liabilities
Environmental liability accrual	$ 259	$ 274
Martinez refinery
Environmental Liabilities
Number of previous owners (owners)	2
Environmental liability accrual	208	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.
Environmental insurance coverage ceiling	190
Self-insurance deductible	50
TLLP
Environmental Liabilities
Environmental liability accrual	$ 28	$ 32

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Property, Plant and Equipment Property, Plant and Equipment Narrative (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Property, Plant and Equipment [Abstract]
Capitalized interest	$ 9	$ 5

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2015

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 March 31,
	2015		2014
Stock appreciation rights (a)	$	15	$	(18	)
Performance share awards (b)	4		(3		)
Market stock units (c)	5		3
Other stock-based awards (d)	4		—
Total Stock-Based Compensation Expense (Benefit)	$	28	$	(18	)

________________

(a) We paid cash of $20 million and $4 million to settle 0.3 million and 0.2 million SARs that were exercised during the three months ended March 31, 2015 and 2014, respectively. We had $55 million and $60 million recorded in accrued liabilities associated with our SARs awards at March 31, 2015 and December 31, 2014, respectively.

(b) We granted 0.1 million market condition performance share awards at a weighted average grant date fair value of $117.96 per share under the amended and restated 2011 Long-Term Incentive Plan (“2011 Plan”) during the three months ended March 31, 2015.

(c) We granted 0.4 million market stock units at a weighted average grant date fair value of $114.57 per unit under the 2011 Plan during the three months ended March 31, 2015.

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

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Commitments and Contingencies, Tax Matters (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015
Commitments and Contingencies Disclosure [Abstract]
Possible decrease in unrecognized tax benefits in the next twelve months	$ 8
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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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2015

Earnings Per Share [Abstract]

Schedule of Basic and Diluted Shares Outstanding

Our share calculations are presented below (in millions):

	Three Months Ended March 31,
	2015	2014
Weighted average common shares outstanding	125.2	131.3
Common stock equivalents	1.7	2.5
Total diluted shares	126.9	133.8

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Fair Value Measurements (Details) (USD $)	3 Months Ended
	Mar. 31, 2015		Dec. 31, 2014
Fair Value Measurements
Gross derivative assets	790,000,000		$ 1,204,000,000
Derivative asset amount offset against collateral and netting arrangements	(675,000,000)	[1],[2]	(1,136,000,000)	[1],[2]
Net derivative assets	115,000,000		68,000,000
Gross derivative liabilities	752,000,000		1,027,000,000
Derivative liability amount offset against collateral and netting arrangements	(749,000,000)	[1],[2]	(1,024,000,000)	[1],[2]
Net derivative liabilities	40,000,000		23,000,000
Cash collateral posted	74,000,000
Counterparty cash collateral			(112,000,000)
Debt carrying value	4,200,000,000		4,200,000,000
Debt fair value	4,300,000,000		4,200,000,000
Commodity Futures Contracts
Fair Value Measurements
Derivative asset amount offset against collateral and netting arrangements	(675,000,000)	[1]	(1,136,000,000)	[1]
Net derivative assets	111,000,000		65,000,000
Derivative liability amount offset against collateral and netting arrangements	(749,000,000)	[1]	(1,024,000,000)	[1]
Net derivative liabilities	2,000,000		1,000,000
Commodity OTC Swap Contracts
Fair Value Measurements
Derivative asset amount offset against collateral and netting arrangements	0	[1]
Net derivative assets	2,000,000
Derivative liability amount offset against collateral and netting arrangements			0	[1]
Net derivative liabilities			1,000,000
Commodity Forward Contracts
Fair Value Measurements
Derivative asset amount offset against collateral and netting arrangements	0	[1]	0
Net derivative assets	2,000,000		3,000,000
Derivative liability amount offset against collateral and netting arrangements	0	[1]	0	[1]
Net derivative liabilities	1,000,000		1,000,000
Environmental Credit Obligations
Fair Value Measurements
Derivative liability amount offset against collateral and netting arrangements	0	[1]	0	[1]
Net derivative liabilities	37,000,000		20,000,000
Level 1
Fair Value Measurements
Gross derivative assets	772,000,000		1,165,000,000
Gross derivative liabilities	738,000,000		1,011,000,000
Level 1 | Commodity Futures Contracts
Fair Value Measurements
Gross derivative assets	772,000,000		1,165,000,000
Gross derivative liabilities	738,000,000		1,011,000,000
Level 1 | Commodity OTC Swap Contracts
Fair Value Measurements
Gross derivative assets	0
Gross derivative liabilities			0
Level 1 | Commodity Forward Contracts
Fair Value Measurements
Gross derivative assets	0		0
Gross derivative liabilities	0		0
Level 1 | Environmental Credit Obligations
Fair Value Measurements
Gross derivative liabilities	0		0
Level 2
Fair Value Measurements
Gross derivative assets	18,000,000		39,000,000
Gross derivative liabilities	51,000,000		36,000,000
Level 2 | Commodity Futures Contracts
Fair Value Measurements
Gross derivative assets	14,000,000		36,000,000
Gross derivative liabilities	13,000,000		14,000,000
Level 2 | Commodity OTC Swap Contracts
Fair Value Measurements
Gross derivative assets	2,000,000
Gross derivative liabilities			1,000,000
Level 2 | Commodity Forward Contracts
Fair Value Measurements
Gross derivative assets	2,000,000		3,000,000
Gross derivative liabilities	1,000,000		1,000,000
Level 2 | Environmental Credit Obligations
Fair Value Measurements
Gross derivative liabilities	37,000,000		20,000,000
Level 3
Fair Value Measurements
Gross derivative assets	0		0
Gross derivative liabilities	0		0
Level 3 | Commodity Futures Contracts
Fair Value Measurements
Gross derivative assets	0		0
Gross derivative liabilities	0		0
Level 3 | Commodity OTC Swap Contracts
Fair Value Measurements
Gross derivative assets	0
Gross derivative liabilities			0
Level 3 | Commodity Forward Contracts
Fair Value Measurements
Gross derivative assets	0		0
Gross derivative liabilities	0		0
Level 3 | Environmental Credit Obligations
Fair Value Measurements
Gross derivative liabilities	0		$ 0
Maximum
Fair Value Measurements
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%
Minimum
Fair Value Measurements
Days outstanding on accounts payable and receivable	90 days

[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 March 31, 2015, we had provided cash collateral amounts of $74 million related to our unrealized derivative positions. At December 31, 2014, our counterparties had provided cash collateral of $112 million related to our unrealized derivative positions.

[2] As of March 31, 2015, we had provided cash collateral amounts of $74 million related to our unrealized derivative positions. At December 31, 2014, our counterparties had provided cash collateral of $112 million related to our unrealized derivative positions. Cash collateral amounts are netted with mark-to-market derivative assets.

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Earnings Per Share Earnings Per Share Narrative (Details) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Earnings Per Share [Abstract]
Anti-dilutive securities (shares)	0.3	0.4

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Basis of Presentation Basis of Presentation, Discontinued Operations (Details) (USD $) In Millions, unless otherwise specified	0 Months Ended	3 Months Ended
	Sep. 25, 2013	Mar. 31, 2015	Mar. 31, 2014
Discontinued Operations
Loss from discontinued operations, net of tax		$ 0	$ (1)
Hawaii Operations
Discontinued Operations
Disposal date	Sep. 25, 2013
Capacity (bpd)	94,000
Revenues		0	0
Loss from discontinued operations, before tax			(1)
Loss from discontinued operations, net of tax			(1)
Net Cash Provided by (Used in) Discontinued Operations		$ 0	$ 0

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Revolving Credit Facilities (Details) (USD $)	3 Months Ended
	Mar. 31, 2015
Credit facilities
Total capacity	$ 5,091,000,000
Amount Borrowed as of March 31, 2015	235,000,000
Outstanding Letters of Credit	293,000,000
Available Capacity	4,563,000,000
Tesoro Corporation Revolving Credit Facility
Credit facilities
Total capacity	2,156,000,000	[1]
Amount Borrowed as of March 31, 2015	0	[1]
Outstanding Letters of Credit	237,000,000	[1]
Available Capacity	1,919,000,000	[1]
Maturity date	Nov. 18, 2019	[1]
Expenses and Fees
Commitment Fee (unused portion)	0.375%	[2]
Line of credit facility, remaining borrowing capacity percentage	89.00%
Maximum available capacity	3,000,000,000
TLLP Revolving Credit Facility
Credit facilities
Total capacity	900,000,000
Amount Borrowed as of March 31, 2015	235,000,000
Outstanding Letters of Credit	0
Available Capacity	665,000,000
Maturity date	Dec. 02, 2019
Expenses and Fees
Commitment Fee (unused portion)	0.50%	[3]
Line of credit facility, remaining borrowing capacity percentage	74.00%
Maximum available capacity	1,500,000,000
Weighted average interest rate	2.67%
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, with the exception of certain non-wholly owned subsidiaries acquired in the Rockies Natural Gas Business acquisition, 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.
Letter of Credit Facilities
Credit facilities
Total capacity	2,035,000,000
Amount Borrowed as of March 31, 2015	0
Outstanding Letters of Credit	56,000,000
Available Capacity	$ 1,979,000,000
30 day Eurodollar (LIBOR) Rate | Tesoro Corporation Revolving Credit Facility
Expenses and Fees
Eurodollar or Base Rate	0.18%	[2]
Eurodollar or Base Rate Margin	1.50%	[2]
30 day Eurodollar (LIBOR) Rate | TLLP Revolving Credit Facility
Expenses and Fees
Eurodollar or Base Rate	0.18%	[3]
Eurodollar or Base Rate Margin	2.50%	[3]
Base Rate | Tesoro Corporation Revolving Credit Facility
Expenses and Fees
Eurodollar or Base Rate	3.25%	[2]
Eurodollar or Base Rate Margin	0.50%	[2]
Base Rate | TLLP Revolving Credit Facility
Expenses and Fees
Eurodollar or Base Rate	3.25%	[3]
Eurodollar or Base Rate Margin	1.50%	[3]
Minimum | Letter of Credit Facilities
Expenses and Fees
Tesoro Corporation, letter of credit outstanding fees	0.40%
Maximum | Letter of Credit Facilities
Expenses and Fees
Tesoro Corporation, letter of credit outstanding fees	1.00%

[1] Borrowing base is the lesser of the amount of the periodically adjusted borrowing base or the agreement’s total capacity of $3.0 billion.

[2] 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.

[3] 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 TLLP Revolving Credit Facility incur fees at the Eurodollar margin rate.

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Condensed Consolidating Financial Information, Cash Flows (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$ (148)	$ (150)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	(271)	(119)
Intercompany notes, net	0	0
Other investing activities	(2)	10
Net cash used in investing activities	(273)	(109)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	99	0
Proceeds from debt offering	0	300
Repayments on revolving credit agreements	(124)	0
Repayments of debt	0	(301)
Dividend payments	(54)	(33)
Net proceeds from issuance of Tesoro Logistics LP common units	24	0
Distributions to noncontrolling interest	(44)	(20)
Purchases of common stock	(19)	(100)
Taxes paid related to net share settlement of equity awards	(39)	0
Net intercompany borrowings (repayments)	0	0
Premium paid on notes redemption	0	(19)
Distributions to TLLP unitholders and general partner	0	0
Other financing activities	37	(8)
Net cash used in financing activities	(120)	(181)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(541)	(440)
Cash and Cash Equivalents, Beginning of Period	1,000	1,238
Cash and Cash Equivalents, End of Period	459	798
Parent
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	(10)	(17)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	0	0
Intercompany notes, net	106	168
Other investing activities	0	0
Net cash used in investing activities	106	168
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	0
Proceeds from debt offering		300
Repayments on revolving credit agreements	0
Repayments of debt		(300)
Dividend payments	(54)	(33)
Net proceeds from issuance of Tesoro Logistics LP common units	0
Distributions to noncontrolling interest	0	0
Purchases of common stock	(19)	(100)
Taxes paid related to net share settlement of equity awards	(39)
Net intercompany borrowings (repayments)	0	0
Premium paid on notes redemption		(19)
Distributions to TLLP unitholders and general partner	10	4
Other financing activities	6	(3)
Net cash used in financing activities	(96)	(151)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	0	0
Cash and Cash Equivalents, Beginning of Period	0	0
Cash and Cash Equivalents, End of Period	0	0
Guarantor Subsidiaries
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	(350)	154
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	(191)	(92)
Intercompany notes, net	0	0
Other investing activities	(2)	0
Net cash used in investing activities	(193)	(92)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	0
Proceeds from debt offering		0
Repayments on revolving credit agreements	0
Repayments of debt		(1)
Dividend payments	0	0
Net proceeds from issuance of Tesoro Logistics LP common units	0
Distributions to noncontrolling interest	0	0
Purchases of common stock	0	0
Taxes paid related to net share settlement of equity awards	0
Net intercompany borrowings (repayments)	(37)	(501)
Premium paid on notes redemption		0
Distributions to TLLP unitholders and general partner	6	5
Other financing activities	31	0
Net cash used in financing activities	0	(497)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(543)	(435)
Cash and Cash Equivalents, Beginning of Period	943	1,161
Cash and Cash Equivalents, End of Period	400	726
Non- Guarantors
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	212	(287)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	(80)	(27)
Intercompany notes, net	0	0
Other investing activities	0	10
Net cash used in investing activities	(80)	(17)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	99
Proceeds from debt offering		0
Repayments on revolving credit agreements	(124)
Repayments of debt		0
Dividend payments	0	0
Net proceeds from issuance of Tesoro Logistics LP common units	24
Distributions to noncontrolling interest	(44)	(20)
Purchases of common stock	0	0
Taxes paid related to net share settlement of equity awards	0
Net intercompany borrowings (repayments)	(69)	333
Premium paid on notes redemption		0
Distributions to TLLP unitholders and general partner	(16)	(9)
Other financing activities	0	(5)
Net cash used in financing activities	(130)	299
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	2	(5)
Cash and Cash Equivalents, Beginning of Period	57	77
Cash and Cash Equivalents, End of Period	59	72
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
Intercompany notes, net	(106)	(168)
Other investing activities	0	0
Net cash used in investing activities	(106)	(168)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	0
Proceeds from debt offering		0
Repayments on revolving credit agreements	0
Repayments of debt		0
Dividend payments	0	0
Net proceeds from issuance of Tesoro Logistics LP common units	0
Distributions to noncontrolling interest	0	0
Purchases of common stock	0	0
Taxes paid related to net share settlement of equity awards	0
Net intercompany borrowings (repayments)	106	168
Premium paid on notes redemption		0
Distributions to TLLP unitholders and general partner	0	0
Other financing activities	0	0
Net cash used in financing activities	106	168
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	0	0
Cash and Cash Equivalents, Beginning of Period	0	0
Cash and Cash Equivalents, End of Period	$ 0	$ 0

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Stock-Based Compensation Stock-Based Compensation, Stock Appreciation Rights, Performance Share Awards and Market Stock Units(Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Stock appreciation rights
Stock-Based Compensation Arrangement by Stock-based Payment Award
Cash paid to settle awards	$ 20	$ 4
Exercised stock appreciation rights (shares)	0.3	0.2
Accrued stock appreciation rights	$ 55		$ 60
Performance share awards
Stock-Based Compensation Arrangement by Stock-based Payment Award
Awards granted (shares)	0.1
Weighted average grant date fair value (dollars per share)	$ 117.96
Market stock units
Stock-Based Compensation Arrangement by Stock-based Payment Award
Awards granted (shares)	0.4
Weighted average grant date fair value (dollars per share)	$ 114.57

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Derivative Instruments, Derivative Assets and Liabilities (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2015		Dec. 31, 2014
Derivatives, Fair Value
Gross derivative assets	$ 790		$ 1,204
Gross derivative liabilities	752		1,027
Derivative asset amount offset against collateral and netting arrangements	(675)	[1],[2]	(1,136)	[1],[2]
Derivative liability amount offset against collateral and netting arrangements	(749)	[1],[2]	(1,024)	[1],[2]
Net derivative assets	115		68
Net derivative liabilities	3		3
Derivative, Collateral
Cash collateral outstanding	74
Counterparty cash collateral			(112)
Commodity Futures Contracts | Prepayments and other current assets
Derivatives, Fair Value
Gross derivative assets	786		1,201
Gross derivative liabilities	751		1,025
Commodity OTC Swap Contracts | Receivables
Derivatives, Fair Value
Gross derivative assets	2		0
Gross derivative liabilities	0		0
Commodity OTC Swap Contracts | Accounts payable
Derivatives, Fair Value
Gross derivative assets	0		0
Gross derivative liabilities	0		1
Commodity Forward Contracts | Receivables
Derivatives, Fair Value
Gross derivative assets	2		3
Gross derivative liabilities	0		0
Commodity Forward Contracts | Accounts payable
Derivatives, Fair Value
Gross derivative assets	0		0
Gross derivative liabilities	$ 1		$ 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 March 31, 2015, we had provided cash collateral amounts of $74 million related to our unrealized derivative positions. At December 31, 2014, our counterparties had provided cash collateral of $112 million related to our unrealized derivative positions.

[2] As of March 31, 2015, we had provided cash collateral amounts of $74 million related to our unrealized derivative positions. At December 31, 2014, our counterparties had provided cash collateral of $112 million related to our unrealized derivative positions. Cash collateral amounts are netted with mark-to-market derivative assets.

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Inventories (Notes)

3 Months Ended

Mar. 31, 2015

Inventory Disclosure [Abstract]

INVENTORIES

INVENTORIES

Components of inventories were as follows (in millions):

	March 31, 2015		December 31, 2014
Domestic crude oil and refined products	$	2,219	$	1,930
Foreign subsidiary crude oil	134		351
Other inventories	179		158
Total Inventories	$	2,532	$	2,439

The total carrying value of our crude oil and refined product inventories was less than replacement cost by approximately$318 million at March 31, 2015. Due to the declining crude oil and refined product pricing environment at the end of 2014, we recorded additional expense to cost of sales for a lower of cost or market adjustment of $42 million at December 31, 2014 for our crude oil, refined products, oxygenates and by-product inventories. This adjustment was reversed as the inventories associated with the adjustment at the end of 2014 were sold or used during the three months ended March 31, 2015.

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Operating Segments (Details)	3 Months Ended
	Mar. 31, 2015 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.
Retail
Segment Reporting Information
Number of states with retail sites (states)	16
Segment reporting description	Our retail segment sells gasoline and diesel fuel through MSOs and branded jobber/dealers in 16 states.
TLLP
Segment Reporting Information
Segment reporting description	TLLP’s assets and operations include certain crude oil gathering assets, natural gas gathering and processing 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 natural gas, for processing natural gas, and for terminalling, transporting and storing crude oil, and refined products.

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Inventories (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Inventory Disclosure [Abstract]
Domestic crude oil and refined products	$ 2,219	$ 1,930
Foreign subsidiary crude oil	134	351
Other inventories	179	158
Total Inventories	$ 2,532	$ 2,439

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2015

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):

	March 31, 2015
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	772	$	14	$	—	$	(675	)	$	111
Commodity OTC Swap Contracts	—		2		—		—			2
Commodity Forward Contracts	—		2		—		—			2
Total Assets	$	772	$	18	$	—	$	(675	)	$	115
Liabilities:
Commodity Futures Contracts	$	738	$	13	$	—	$	(749	)	$	2
Commodity Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		37		—		—			37
Total Liabilities	$	738	$	51	$	—	$	(749	)	$	40

	December 31, 2014
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	1,165	$	36	$	—	$	(1,136	)	$	65
Commodity Forward Contracts	—		3		—		—			3
Total Assets	$	1,165	$	39	$	—	$	(1,136	)	$	68
Liabilities:
Commodity Futures Contracts	$	1,011	$	14	$	—	$	(1,024	)	$	1
Commodity OTC Swap Contracts	—		1		—		—			1
Commodity Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		20		—		—			20
Total Liabilities	$	1,011	$	36	$	—	$	(1,024	)	$	23

________________

(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 March 31, 2015, we had provided cash collateral amounts of $74 million related to our unrealized derivative positions. At December 31, 2014, our counterparties had provided cash collateral of $112 million related to our unrealized derivative positions.

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Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2015

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 March 31, 2015 and December 31, 2014. 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	March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014
Commodity Futures Contracts	Prepayments and other current assets	$	786		$	1,201		$	751		$	1,025
Commodity OTC Swap Contracts	Receivables	2			—			—			—
Commodity OTC Swap Contracts	Accounts payable	—			—			—			1
Commodity Forward Contracts	Receivables	2			3			—			—
Commodity Forward Contracts	Accounts payable	—			—			1			1
Total Gross Mark-to-Market    Derivatives		790			1,204			752			1,027
Less: Counterparty Netting and    Cash Collateral (a)		(675		)	(1,136		)	(749		)	(1,024		)
Total Net Fair Value of Derivatives		$	115		$	68		$	3		$	3

________________

(a) As of March 31, 2015, we had provided cash collateral amounts of $74 million related to our unrealized derivative positions. At December 31, 2014, our counterparties had provided cash collateral of $112 million related to our unrealized derivative positions. Cash collateral amounts are netted with mark-to-market derivative assets.

Schedule of mark-to-market derivatives

Gains (losses) for our mark-to market derivatives for the three months ended March 31, 2015 and 2014 were as follows (in millions):

	Three Months Ended March 31,
	2015			2014
Commodity Futures Contracts	$	43		$	—
Commodity OTC Swap Contracts	—			(1		)
Commodity Forward Contracts	2			1
Foreign Currency Forward Contracts	(2		)	(2		)
Total Gain (Loss) on Mark-to-Market Derivatives	$	43		$	(2	)

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

	Three Months Ended March 31,
	2015			2014
Revenues	$	4		$	1
Cost of sales	41			(1		)
Other expense, net	(2		)	(2		)
Total Gain (Loss) on Mark-to-Market Derivatives	$	43		$	(2	)

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 March 31, 2015 (units in thousands):

	Contract Volumes by Year of Maturity
Mark-to-Market Derivative Instrument	2015	2016	2017	Unit of Measure
Crude oil, refined products and blending products:
Futures - short	(13,710)	—	—	Barrels
Futures - long	—	485	—	Barrels
OTC Swaps - long	2,000	—	—	Barrels
Forwards - long	131	—	—	Barrels
Carbon credits:
Futures - long	3,675	1,000	1,000	Tons
Corn:
Futures - short	(3,515)	—	—	Bushels

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Commitments and Contingencies, Washington Refinery Fire (Details) (Washington Refinery Fire, USD $) In Millions, unless otherwise specified	0 Months Ended	1 Months Ended									3 Months Ended
	Nov. 20, 2013	Mar. 31, 2015	Feb. 28, 2015	Jan. 31, 2015	Nov. 30, 2013	Sep. 30, 2013	Jan. 31, 2011	Dec. 31, 2010	Oct. 31, 2010	Apr. 30, 2010 employees	Mar. 31, 2015
Washington Refinery Fire
Loss Contingencies
Incident date										April 2010
previous owner, notification of indemnity demand date				January 2015
Number of fatally injured employees in the refinery incident (employees)										7
Citation issuance date									October 2010
Fines and penalties assessed									$ 2.4
L&I Citation allegation reassumption date								December 2010
Citation order appeal date			February 2015		November 2013	September 2013	January 2011
Notice of Violation (NOV) disclosure	46										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.
Notice of Violation (NOV) date	Nov. 20, 2013
Arbitration proceedings against previous owner claim, initiation date		March 2015

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Inventories Inventories Narrative (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Inventory Disclosure [Abstract]
Excess of replacement or current costs over stated LIFO value	$ 318
Lower of cost or market adjustment		$ 42

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Debt (Tables)

3 Months Ended

Mar. 31, 2015

Debt Disclosure [Abstract]

Schedule of Debt

Our debt balance, net of unamortized issuance costs, at March 31, 2015 and December 31, 2014 was as follows (in millions):

	March 31, 2015			December 31, 2014
Total debt (a)	$	4,229		$	4,255
Unamortized issuance costs (b)	(85		)	(88		)
Current maturities	(6		)	(6		)
Debt, net of current maturities and unamortized issuance costs	$	4,138		$	4,161

________________

(a) Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was $2.5 billion at both March 31, 2015 and December 31, 2014, respectively.

(b) The Company has adopted ASU 2015-03 as of March 31, 2015 and applied the changes retrospectively to the prior period presented. Adoption of this standard has resulted in the reclassification of $93 million of unamortized debt issuance costs from other noncurrent assets to debt on the balance sheet at December 31, 2014. Unamortized debt issuance costs of $89 million are recorded as a reduction to debt on the balance sheet at March 31, 2015. See Note 1 for further discussion.

Schedule of Line of Credit Facilities

The borrowings under our Term Loan Facility incurred interest at a rate of 2.43% as of March 31, 2015 based on the following expense and fee schedule:

Credit Facility	30 day Eurodollar (LIBOR) Rate	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Term Loan Facility ($398 million) (a)	0.18%	2.25%	3.25%	1.25%	—%

____________________

(a) 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.

We had available capacity under our credit facilities as follows at March 31, 2015 (in millions):

	Total Capacity		Amount Borrowed as of March 31, 2015		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (c)	$	2,156	$	—	$	237	$	1,919	November 18, 2019
TLLP Revolving Credit Facility	900		235		—		665		December 2, 2019
Letter of Credit Facilities	2,035		—		56		1,979
Total credit facilities	$	5,091	$	235	$	293	$	4,563

________________

(c) Borrowing base is the lesser of the amount of the periodically adjusted borrowing base or the agreement’s total capacity of $3.0 billion.

As of March 31, 2015, 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    ($2.2 billion) (d)	0.18%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($900 million) (e)	0.18%	2.50%	3.25%	1.50%	0.50%

________________

(d) 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.

(e) 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 TLLP Revolving Credit Facility incur fees at the Eurodollar margin rate.

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Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2015

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 months ended March 31, 2015 and 2014 were (in millions):

	Pension Benefits						Other Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
	2015			2014			2015			2014
Service cost	$	12		$	13		$	1		$	1
Interest cost	8			9			1			1
Expected return on plan assets	(7		)	(8		)	—			—
Amortization of prior service cost	—			—			(9		)	(9		)
Recognized net actuarial loss	6			4			1			1
Net Periodic Benefit Expense (Income)	$	19		$	18		$	(6	)	$	(6	)

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Earnings Per Share (Notes)

3 Months Ended

Mar. 31, 2015

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 March 31,
	2015	2014
Weighted average common shares outstanding	125.2	131.3
Common stock equivalents	1.7	2.5
Total diluted shares	126.9	133.8

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 0.3 millionand 0.4 million for the three months ended March 31, 2015 and 2014, respectively.

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2015

Stockholders' Equity Attributable to Parent [Abstract]

Stockholders' equity and noncontrolling interest

Changes to equity during the three months ended March 31, 2015 are presented below (in millions):

	Tesoro Corporation Stockholders’ Equity			Noncontrolling  Interest			Total Equity
Balance at December 31, 2014 (a)	$	4,454		$	2,522		$	6,976
Net earnings	145			43			188
Purchases of common stock	(19		)	—			(19		)
Dividend payments	(54		)	—			(54		)
Shares issued for equity-based compensation awards (b)	6			—			6
Amortization of equity settled awards	10			—			10
Excess tax benefits from stock-based compensation arrangements, net	31			—			31
Taxes paid related to net share settlement of equity awards	(39		)	—			(39		)
Net proceeds from issuance of Tesoro Logistics LP common units	—			24			24
Distributions to noncontrolling interest	—			(44		)	(44		)
Transfers to (from) noncontrolling interest from (to) Tesoro related to:
TLLP’s sale of common units	—			(8		)	(8		)
Tesoro’s purchase of TLLP common units	8			—			8
Other	(1		)	—			(1		)
Balance at March 31, 2015 (a)	$	4,541		$	2,537		$	7,078

________________

(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 March 31, 2015 and December 31, 2014.

(b) We issued approximately 0.2 million shares and less than 0.1 million shares for proceeds of $6 million and $1 million primarily for stock option exercises under our equity-based compensation plans during the three months ended March 31, 2015 and 2014, respectively.

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Tesoro Logistics LP TLLP’s Preliminary Acquisition Date Purchase Price Allocation (Details) (Rockies Natural Gas Business, USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015
Rockies Natural Gas Business
Preliminary acquisition date purchase price allocation
Cash	$ 31
Accounts receivable	120
Prepayments and other	7
Property, plant and equipment	1,735
Acquired intangibles	976
Other noncurrent assets	239	[1]
Accounts payable	(81)
Other current liabilities	(47)
Other noncurrent liabilities	(31)
Noncontrolling interest	(432)
Total purchase price	2,517
Purchase price adjustment	7
Goodwill	159
Transaction and integration costs	$ 3

[1] Other noncurrent assets include $159 million of goodwill.

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Debt Tesoro Debt (Details) (USD $)	3 Months Ended
	Mar. 31, 2015		Mar. 31, 2014
Line of Credit Facility
Repayments of borrowings	$ 124,000,000		$ 0
amount borrowed	235,000,000
Total capacity	5,091,000,000
Term Loan Credit Facility
Line of Credit Facility
Maximum available capacity	500,000,000
Maturity date	May 30, 2016
Repayments of borrowings	0
Interest rate	2.43%
Total capacity	$ 398,000,000
Expenses and Fees
Commitment Fee (unused portion)	0.00%	[1]
Line of credit facility, collateral	The obligations under the Term Loan 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.
30 day Eurodollar (LIBOR) Rate | Term Loan Credit Facility
Expenses and Fees
Eurodollar or Base Rate	0.18%	[1]
Eurodollar or Base Rate Margin	2.25%	[1]
Base Rate | Term Loan Credit Facility
Expenses and Fees
Eurodollar or Base Rate	3.25%	[1]
Eurodollar or Base Rate Margin	1.25%	[1]

[1] 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.

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Condensed Statements of Consolidated Operations (Unaudited) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015		Mar. 31, 2014
Income Statement [Abstract]
Revenues (a)	$ 6,463		$ 9,933
Costs and Expenses:
Cost of sales (a)	5,340		8,948
Operating expenses	509		591
Selling, general and administrative expenses	91		31
Depreciation and amortization expense	179		130
(Gain) loss on asset disposals and impairments	4		(5)
Operating Income	340		238
Interest and financing costs, net	(55)	[1]	(77)	[1]
Other expense, net	(1)		(1)
Earnings Before Income Taxes	284		160
Income tax expense	96		56
Net Earnings from Continuing Operations	188		104
Loss from discontinued operations, net of tax	0		(1)
Net Earnings	188		103
Less: Net earnings from continuing operations attributable to noncontrolling interest	43		25
Net Earnings Attributable to Tesoro Corporation	145		78
Net Earnings (Loss) Attributable to Tesoro Corporation
Continuing operations	145		79
Discontinued operations	0		(1)
Total	145		78
Net Earnings (Loss) per Share - Basic:
Continuing operations	$ 1.17		$ 0.60
Discontinued operations	$ 0.00		$ (0.01)
Total	$ 1.17		$ 0.59
Weighted average common shares outstanding - Basic	125.2		131.3
Net Earnings (Loss) per Share - Diluted:
Continuing operations	$ 1.15		$ 0.59
Discontinued operations	$ 0.00		$ (0.01)
Total	$ 1.15		$ 0.58
Weighted average common shares outstanding - Diluted	126.9		133.8
Dividends per Share	$ 0.425		$ 0.250
Supplemental Information:
(a) Includes excise taxes collected by our retail segment	$ 140		$ 141

[1] Includes charges totaling $31 million for premiums and unamortized debt issuance costs associated with the redemption of the 5.50% Senior Notes due 2019 during the three months ended March 31, 2014.

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Property, Plant and Equipment (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	$ 11,879	$ 11,633
Accumulated depreciation	(2,699)	(2,588)
Net property, plant and equipment	9,180	9,045
Refining
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	7,171	6,994
TLLP
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	3,617	3,551
Retail
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	835	834
Corporate
Property Plant and Equipment, at cost
Property, plant and equipment, at cost	$ 256	$ 254

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Basis of Presentation (Notes)

3 Months Ended

Mar. 31, 2015

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, including its 58% interest in QEP Midstream Partners, LP (“QEPM”), a publicly traded limited partnership, and its 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, 2014 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, 2014.

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. Due to there being no adjustments to accumulated other comprehensive income for the three months ended March 31, 2015 and 2014, consolidated statements of comprehensive income have been omitted.

Our condensed 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 56% and 88% of TLLP’s total revenues for the three months ended March 31, 2015 and 2014, respectively. In the event TLLP incurs a loss, our operating results will reflect TLLP’s loss, net of intercompany eliminations. See Note 2 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 Hawaii refinery, retail stations and associated logistics assets (the “Hawaii Business”). The results of operations for this business have been presented as discontinued operations in the condensed statements of consolidated operations for the three months ended March 31, 2015 and 2014. There were no revenues for either the three months ended March 31, 2015 or 2014. We recorded losses, before and after tax of $1 million for the three months ended March 31, 2014 related to the Hawaii Business. There were no recorded losses, before or after tax, for the three months ended March 31, 2015. There were no cash flows for either the three months ended March 31, 2015 or 2014. 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 providing 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 FASB has proposed a one-year deferral of the effective date; however, this proposal has not been finalized. 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.

Debt Issuance Costs. In April 2015, the FASB issued ASU 2015-03 which will simplify the presentation of debt issuance costs. Under the new ASU, debt issuance costs related to a recognized debt liability will be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. As a result, our balance sheet will reflect a reclassification of unamortized debt issuance costs from other noncurrent assets to debt. This ASU is effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. We have adopted this standard effective as of March 31, 2015 and applied the changes retrospectively to the prior periods presented. Adoption of this standard has resulted in the reclassification of $93 million from other noncurrent assets to debt on the balance sheet at December 31, 2014. Unamortized debt issuance costs of $89 million are recorded as a reduction to debt on the balance sheet at March 31, 2015.

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Stockholders' Equity Stockholders' Equity, Share Repurchases and Dividends (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		0 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	May 07, 2015
Number of shares purchased (shares)	0.3
Share repurchases, value	$ 19
Dividend payments	54	33
Dividends declared (dollars per share)	$ 0.425	$ 0.250
Subsequent Event
Dividends declared (dollars per share)			$ 0.425
Dividends payable, date declared			May 07, 2015
Dividends, date to be paid			Jun. 15, 2015
Dividends, date of record			May 29, 2015
2014 Share repurchase program
Number of shares purchased (shares)		1.9
Share repurchases, value		$ 100

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Condensed Consolidating Financial Information (Tables)

3 Months Ended

Mar. 31, 2015

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Consolidating Statement of Operations

Condensed Consolidating Statement of Operations

for the Three Months EndedMarch 31, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
Revenues	$	—		$	6,999		$	914		$	(1,450	)	$	6,463
Costs and Expenses:
Cost of sales	—			5,993			661			(1,314		)	5,340
Operating, selling, general and administrative expenses	4			609			123			(136		)	600
Depreciation and amortization expense	—			134			45			—			179
Loss on asset disposals and impairments	—			4			—			—			4
Operating Income (Loss)	(4		)	259			85			—			340
Equity in earnings of subsidiaries	157			16			—			(173		)	—
Interest and financing costs, net	(11		)	(18		)	(26		)	—			(55		)
Other income (expense), net	—			(4		)	3			—			(1		)
Earnings Before Income Taxes	142			253			62			(173		)	284
Income tax expense (benefit) (a)	(3		)	95			4			—			96
Net Earnings	145			158			58			(173		)	188
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			43			—			43
Net Earnings Attributable to Tesoro Corporation	$	145		$	158		$	15		$	(173	)	$	145
Comprehensive Income
Total comprehensive income	$	145		$	158		$	58		$	(173	)	$	188
Less: Noncontrolling interest in comprehensive income	—			—			43			—			43
Comprehensive Income Attributable to Tesoro    Corporation	$	145		$	158		$	15		$	(173	)	$	145

_________________

(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 EndedMarch 31, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
Revenues	$	—		$	11,564		$	1,610		$	(3,241	)	$	9,933
Costs and Expenses:
Cost of sales	—			10,664			1,476			(3,192		)	8,948
Operating, selling, general and administrative expenses	1			612			58			(49		)	622
Depreciation and amortization expense	—			113			17			—			130
Gain on asset disposals and impairments	—			(1		)	(4		)	—			(5		)
Operating Income (Loss)	(1		)	176			63			—			238
Equity in earnings of subsidiaries (a)	86			14			—			(100		)	—
Interest and financing costs, net	(8		)	(59		)	(18		)	8			(77		)
Other income (expense), net	—			(1		)	8			(8		)	(1		)
Earnings Before Income Taxes	77			130			53			(100		)	160
Income tax expense (benefit) (b)	(1		)	51			6			—			56
Net Earnings from Continuing Operations	78			79			47			(100		)	104
Loss from discontinued operations, net of tax	—			(1		)	—			—			(1		)
Net Earnings	78			78			47			(100		)	103
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			25			—			25
Net Earnings Attributable to Tesoro Corporation	$	78		$	78		$	22		$	(100	)	$	78
Comprehensive Income
Total comprehensive income	$	78		$	78		$	47		$	(100	)	$	103
Less: Noncontrolling interest in comprehensive income	—			—			25			—			25
Comprehensive Income Attributable to Tesoro    Corporation	$	78		$	78		$	22		$	(100	)	$	78

_________________

(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 March 31, 2015

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	400	$	59	$	—		$	459
Receivables, net of allowance for doubtful accounts	9		884		474		—			1,367
Short-term receivables from affiliates	—		35		—		(35		)	—
Inventories	—		2,398		134		—			2,532
Prepayments and other current assets	51		158		15		(1		)	223
Total Current Assets	60		3,875		682		(36		)	4,581
Net Property, Plant and Equipment	—		5,775		3,405		—			9,180
Investment in Subsidiaries	6,742		351		—		(7,093		)	—
Long-Term Receivables from Affiliates	2,450		—		—		(2,450		)	—
Long-Term Intercompany Note Receivable	—		—		1,376		(1,376		)	—
Other Noncurrent Assets:
Acquired intangibles, net	—		245		966		—			1,211
Other, net	6		1,048		257		—			1,311
Total Other Noncurrent Assets, Net	6		1,293		1,223		—			2,522
Total Assets	$	9,258	$	11,294	$	6,686	$	(10,955	)	$	16,283
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	—	$	1,639	$	502	$	—		$	2,141
Short-term payables to affiliates	—		—		35		(35		)	—
Other current liabilities	193		535		137		(1		)	864
Total Current Liabilities	193		2,174		674		(36		)	3,005
Long-Term Payables to Affiliates	—		2,412		38		(2,450		)	—
Deferred Income Taxes	1,121		—		—		—			1,121
Other Noncurrent Liabilities	446		431		64		—			941
Debt, net of unamortized issuance costs	1,581		37		2,520		—			4,138
Long-Term Intercompany Note Payable	1,376		—		—		(1,376		)	—
Equity-Tesoro Corporation	4,541		6,240		853		(7,093		)	4,541
Equity-Noncontrolling Interest	—		—		2,537		—			2,537
Total Liabilities and Equity	$	9,258	$	11,294	$	6,686	$	(10,955	)	$	16,283

Condensed Consolidating Balance Sheet as of December 31, 2014

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	943	$	57	$	—		$	1,000
Receivables, net of allowance for doubtful accounts	6		912		517		—			1,435
Short-term receivables from affiliates	—		84		—		(84		)	—
Inventories	—		2,088		351		—			2,439
Prepayments and other current assets	71		115		16		(2		)	200
Total Current Assets	77		4,142		941		(86		)	5,074
Net Property, Plant and Equipment	—		5,666		3,379		—			9,045
Investment in Subsidiaries	6,592		362		—		(6,954		)	—
Long-Term Receivables from Affiliates	2,427		—		—		(2,427		)	—
Long-Term Intercompany Note Receivable	—		—		1,376		(1,376		)	—
Other Noncurrent Assets:
Acquired intangibles, net	—		249		973		—			1,222
Other, net	6		893		251		—			1,150
Total Other Noncurrent Assets, Net	6		1,142		1,224		—			2,372
Total Assets	$	9,102	$	11,312	$	6,920	$	(10,843	)	$	16,491
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	1	$	1,779	$	690	$	—		$	2,470
Short-term payables to affiliates	—		—		84		(84		)	—
Other current liabilities	148		717		133		(2		)	996
Total Current Liabilities	149		2,496		907		(86		)	3,466
Long-Term Payables to Affiliates	—		2,399		28		(2,427		)	—
Deferred Income Taxes	1,098		—		—		—			1,098
Other Noncurrent Liabilities	447		296		47		—			790
Debt, net of unamortized issuance costs	1,578		39		2,544		—			4,161
Long-Term Intercompany Note Payable	1,376		—		—		(1,376		)	—
Equity-Tesoro Corporation	4,454		6,082		872		(6,954		)	4,454
Equity-Noncontrolling Interest	—		—		2,522		—			2,522
Total Liabilities and Equity	$	9,102	$	11,312	$	6,920	$	(10,843	)	$	16,491

Condensed Consolidating Statement of Cash Flows

Condensed Consolidating Statement of Cash Flows for the threeMarch 31, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities	$	(10	)	$	(350	)	$	212		$	—		$	(148	)
Cash Flows From (Used In) Investing Activities
Capital expenditures	—			(191		)	(80		)	—			(271		)
Intercompany notes, net	106			—			—			(106		)	—
Other investing activities	—			(2		)	—			—			(2		)
Net cash from (used in) investing activities	106			(193		)	(80		)	(106		)	(273		)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	—			—			99			—			99
Repayments on revolving credit agreements	—			—			(124		)	—			(124		)
Dividend payments	(54		)	—			—			—			(54		)
Net proceeds from issuance of Tesoro Logistics LP    common units	—			—			24			—			24
Distributions to noncontrolling interest	—			—			(44		)	—			(44		)
Purchases of common stock	(19		)	—			—			—			(19		)
Taxes paid related to net share settlement of equity awards	(39		)	—			—			—			(39		)
Net intercompany repayments	—			(37		)	(69		)	106			—
Distributions to TLLP unitholders and general partner	10			6			(16		)	—			—
Other financing activities	6			31			—			—			37
Net cash used in financing activities	(96		)	—			(130		)	106			(120		)
Increase (Decrease) in Cash And Cash Equivalents	—			(543		)	2			—			(541		)
Cash and Cash Equivalents, Beginning of Period	—			943			57			—			1,000
Cash and Cash Equivalents, End of Period	$	—		$	400		$	59		$	—		$	459

Condensed Consolidating Statement of Cash Flows for the threeMarch 31, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities	$	(17	)	$	154		$	(287	)	$	—		$	(150	)
Cash Flows From (Used In) Investing Activities
Capital expenditures	—			(92		)	(27		)	—			(119		)
Intercompany notes, net	168			—			—			(168		)	—
Other investing activities	—			—			10			—			10
Net cash from (used in) investing activities	168			(92		)	(17		)	(168		)	(109		)
Cash Flows From (Used In) Financing Activities
Proceeds from debt offering	300			—			—			—			300
Repayments of debt	(300		)	(1		)	—			—			(301		)
Dividend payments	(33		)	—			—			—			(33		)
Distributions to noncontrolling interest	—			—			(20		)	—			(20		)
Purchases of common stock	(100		)	—			—			—			(100		)
Net intercompany borrowings (repayments)	—			(501		)	333			168			—
Premium paid on notes redemption	(19		)	—			—			—			(19		)
Distributions to TLLP unitholders and general partner	4			5			(9		)	—			—
Other financing activities	(3		)	—			(5		)	—			(8		)
Net cash from (used in) financing activities	(151		)	(497		)	299			168			(181		)
Decrease in Cash And Cash Equivalents	—			(435		)	(5		)	—			(440		)
Cash and Cash Equivalents, Beginning of Period	—			1,161			77			—			1,238
Cash and Cash Equivalents, End of Period	$	—		$	726		$	72		$	—		$	798

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Condensed Consolidating Financial Information, Statement of Operations (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015		Mar. 31, 2014
Condensed Financial Statements, captions
REVENUES	$ 6,463		$ 9,933
Costs and Expenses:
Cost of sales	5,340		8,948
Operating, selling, general and administrative expenses	600		622
Depreciation and amortization expense	179		130
(Gain) loss on asset disposals and impairments	4		(5)
Operating Income	340		238
Equity in earnings of subsidiaries	0		0
Interest and financing costs, net	(55)	[1]	(77)	[1]
Other income (expense), net	(1)		(1)
Earnings Before Income Taxes	284		160
Income tax expense (benefit)	96		56
Net earnings from continuing operations	188		104
Loss from discontinued operations, net of tax	0		(1)
Net Earnings	188		103
Less: Net earnings from continuing operations attributable to noncontrolling interest	43		25
Net Earnings Attributable to Tesoro Corporation	145		78
Comprehensive Income
Total comprehensive income	188		103
Less: Noncontrolling interest in comprehensive income	43		25
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	145		78
Parent
Condensed Financial Statements, captions
REVENUES	0		0
Costs and Expenses:
Cost of sales	0		0
Operating, selling, general and administrative expenses	4		1
Depreciation and amortization expense	0		0
(Gain) loss on asset disposals and impairments	0		0
Operating Income	(4)		(1)
Equity in earnings of subsidiaries	157		86	[2]
Interest and financing costs, net	(11)		(8)
Other income (expense), net	0		0
Earnings Before Income Taxes	142		77
Income tax expense (benefit)	(3)	[3]	(1)	[3]
Net earnings from continuing operations			78
Loss from discontinued operations, net of tax			0
Net Earnings	145		78
Less: Net earnings from continuing operations attributable to noncontrolling interest	0		0
Net Earnings Attributable to Tesoro Corporation	145		78
Comprehensive Income
Total comprehensive income	145		78
Less: Noncontrolling interest in comprehensive income	0		0
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	145		78
Guarantor Subsidiaries
Condensed Financial Statements, captions
REVENUES	6,999		11,564
Costs and Expenses:
Cost of sales	5,993		10,664
Operating, selling, general and administrative expenses	609		612
Depreciation and amortization expense	134		113
(Gain) loss on asset disposals and impairments	4		(1)
Operating Income	259		176
Equity in earnings of subsidiaries	16		14	[2]
Interest and financing costs, net	(18)		(59)
Other income (expense), net	(4)		(1)
Earnings Before Income Taxes	253		130
Income tax expense (benefit)	95	[3]	51	[3]
Net earnings from continuing operations			79
Loss from discontinued operations, net of tax			(1)
Net Earnings	158		78
Less: Net earnings from continuing operations attributable to noncontrolling interest	0		0
Net Earnings Attributable to Tesoro Corporation	158		78
Comprehensive Income
Total comprehensive income	158		78
Less: Noncontrolling interest in comprehensive income	0		0
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	158		78
Non- Guarantors
Condensed Financial Statements, captions
REVENUES	914		1,610
Costs and Expenses:
Cost of sales	661		1,476
Operating, selling, general and administrative expenses	123		58
Depreciation and amortization expense	45		17
(Gain) loss on asset disposals and impairments	0		(4)
Operating Income	85		63
Equity in earnings of subsidiaries	0		0	[2]
Interest and financing costs, net	(26)		(18)
Other income (expense), net	3		8
Earnings Before Income Taxes	62		53
Income tax expense (benefit)	4	[3]	6	[3]
Net earnings from continuing operations			47
Loss from discontinued operations, net of tax			0
Net Earnings	58		47
Less: Net earnings from continuing operations attributable to noncontrolling interest	43		25
Net Earnings Attributable to Tesoro Corporation	15		22
Comprehensive Income
Total comprehensive income	58		47
Less: Noncontrolling interest in comprehensive income	43		25
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	15		22
Eliminations
Condensed Financial Statements, captions
REVENUES	(1,450)		(3,241)
Costs and Expenses:
Cost of sales	(1,314)		(3,192)
Operating, selling, general and administrative expenses	(136)		(49)
Depreciation and amortization expense	0		0
(Gain) loss on asset disposals and impairments	0		0
Operating Income	0		0
Equity in earnings of subsidiaries	(173)		(100)	[2]
Interest and financing costs, net	0		8
Other income (expense), net	0		(8)
Earnings Before Income Taxes	(173)		(100)
Income tax expense (benefit)	0	[3]	0	[3]
Net earnings from continuing operations			(100)
Loss from discontinued operations, net of tax			0
Net Earnings	(173)		(100)
Less: Net earnings from continuing operations attributable to noncontrolling interest	0		0
Net Earnings Attributable to Tesoro Corporation	(173)		(100)
Comprehensive Income
Total comprehensive income	(173)		(100)
Less: Noncontrolling interest in comprehensive income	0		0
COMPREHENSIVE INCOME ATTRIBUTABLE TO TESORO CORPORATION	$ (173)		$ (100)

[1] Includes charges totaling $31 million for premiums and unamortized debt issuance costs associated with the redemption of the 5.50% Senior Notes due 2019 during the three months ended March 31, 2014.

[2] 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.

[3] 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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Derivative Instruments (Policies)

3 Months Ended

Mar. 31, 2015

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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Basis of Presentation Basis of Presentation (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Variable Interest Entity
Ownership interest	36.00%		36.00%
Percentage of TLLP's revenues from Tesoro	56.00%	88.00%
QEP Midstream Partners LP
Variable Interest Entity
Ownership interest	58.00%

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Tesoro Logistics LP (Tables)

3 Months Ended

Mar. 31, 2015

Variable Interest Entity, Measure of Activity [Abstract]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

Cash	$	31
Accounts receivable	120
Prepayments and other	7
Property, plant and equipment	1,735
Acquired intangibles	976
Other noncurrent assets (a)	239
Accounts payable	(81		)
Other current liabilities	(47		)
Other noncurrent liabilities	(31		)
Noncontrolling interest	(432		)
Total purchase price	$	2,517

____________________

(a) Other noncurrent assets include $159 million of goodwill.

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Tesoro Logistics LP (Notes)

3 Months Ended

Mar. 31, 2015

Variable Interest Entity, Measure of Activity [Abstract]

TESORO LOGISTICS LP

TESORO LOGISTICS LP

TLLP is a publicly traded limited partnership that was formed to own, operate, develop and acquire logistics assets. Its assets are integral to the success of Tesoro’s refining and marketing operations and are used to gather crude oil and natural gas, process natural gas, and distribute, transport and store crude oil and refined products. TLLP’s gathering assets consist of crude oil gathering systems in the Williston Basin located in North Dakota and natural gas gathering systems in the Green River and Uinta Basins located in Wyoming and Utah. Its processing assets include four gas processing complexes and a fractionation facility in or around the Green River and Uinta Basins. Its terminalling and transportation assets consist of:

• 24 crude oil and refined products terminals and storage facilities in the western and midwestern United States;

• four marine terminals in California;

• 140 miles of pipelines, which transport products and crude oil from Tesoro’s refineries to nearby facilities in Salt Lake City, Utah and Los Angeles, California;

• the Northwest Products Pipeline, which includes a regulated common carrier products pipeline running from Salt Lake City, Utah to Spokane, Washington and a jet fuel pipeline to the Salt Lake City International Airport;

• a rail-car unloading facility in Washington;

• a petroleum coke handling and storage facility in Los Angeles, California; and

• a regulated common carrier refined products pipeline system connecting Tesoro’s Kenai refinery terminals to terminals in Anchorage, Alaska.

Tesoro Logistics GP, LLC (“TLGP”), a wholly-owned subsidiary, serves as the general partner of TLLP. We held an approximate 36% interest in TLLP at both March 31, 2015 and December 31, 2014, including a 2% general partner interest and all of the incentive distribution rights. This interest at March 31, 2015 includes 28,181,748 common units and 1,631,448 general partner units.

TLLP acquired assets related to, and entities engaged in, natural gas gathering, transportation and processing in Wyoming, Colorado, Utah, and North Dakota (the “Rockies Natural Gas Business”) through its acquisition of QEP Field Services, LLC (“QEPFS”) from QEP Resources, Inc. on December 2, 2014 for $2.5 billion. QEPFS holds an approximate 56% limited partner interest in QEPM, consisting of 3,701,750 common units and 26,705,000 subordinated units, and 100% of QEPM’s general partner, QEP Midstream Partners GP, LLC (“QEPM GP”), which itself holds a 2% general partner interest and all of the incentive distribution rights in QEPM. All intercompany transactions with TLLP and QEPM are eliminated upon consolidation.

On April 6, 2015, TLLP entered into an Agreement and Plan of Merger (the “Merger Agreement”) with TLGP, QEPFS, TLLP Merger Sub LLC (“Merger Sub”), QEPM, and QEPM GP. Subject to the satisfaction or waiver of certain conditions in the Merger Agreement, upon the later of the filing with the Secretary of State of the State of Delaware of a certificate of merger or the later date and time set forth in such certificate, Merger Sub will merge with and into QEPM, with QEPM surviving the merger as a wholly owned subsidiary of TLLP (the “Merger”). Following the Merger, QEPM GP will remain the general partner of QEPM, and all outstanding common units representing limited partnership interests in QEPM (the “QEPM Common Units”) other than QEPM Common Units held by QEPFS will be converted into the right to receive 0.3088 common units representing limited partnership interests in TLLP (the “TLLP Common Units”). No fractional TLLP Common Units will be issued in the Merger, and holders of QEPM Common Units other than QEPFS will instead receive cash in lieu of fractional TLLP Common Units, if any.

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.

TLLP’s allocation of the Rockies Natural Gas Business acquisition’s $2.5 billion purchase price remains preliminary as of March 31, 2015. During the three months ended March 31, 2015, the original purchase price was increased by $7 million for adjustments in net working capital primarily for changes related to accounts receivable as well as a change related to goodwill. Finalization of the purchase price allocation is pending and adjustments can be made through the end of TLLP’s measurement period, which is not to exceed one year from the acquisition date. The table below reflects the preliminary acquisition date purchase price allocation as of March 31, 2015 (in millions):

Cash	$	31
Accounts receivable	120
Prepayments and other	7
Property, plant and equipment	1,735
Acquired intangibles	976
Other noncurrent assets (a)	239
Accounts payable	(81		)
Other current liabilities	(47		)
Other noncurrent liabilities	(31		)
Noncontrolling interest	(432		)
Total purchase price	$	2,517

____________________

(a) Other noncurrent assets include $159 million of goodwill.

During the three months ended March 31, 2015, TLLP incurred transaction and integration costs of $3 million directly attributable to the Rockies Natural Gas Business acquisition. These costs are included in selling, general and administrative expenses in our condensed statements of consolidated operations.

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Millions, unless otherwise specified	Mar. 31, 2015		Dec. 31, 2014
Current Assets
Cash and cash equivalents	$ 459		$ 1,000
Receivables, net of allowance for doubtful accounts	1,367		1,435
Inventories	2,532		2,439
Prepayments and other current assets	223		200
Total Current Assets	4,581		5,074
Net Property, Plant and Equipment	9,180		9,045
OTHER NONCURRENT ASSETS
Acquired intangibles, net	1,211		1,222
Other, net	1,311		1,150
Total Other Noncurrent Assets, Net	2,522		2,372
Total Assets	16,283		16,491
Current Liabilities
Accounts payable	2,141		2,470
Other current liabilities	864		996
Total Current Liabilities	3,005		3,466
Deferred Income Taxes	1,121		1,098
Other Noncurrent Liabilities	941		790
Debt, net of unamortized issuance costs	4,138		4,161
Commitments and Contingencies (Note 10)
Tesoro Corporation Stockholders’ Equity
Common stock, par value $0.162/3; authorized 200,000,000 shares; 158,146,319 shares issued (156,627,604 in 2014)	26		26
Additional paid-in capital	1,309		1,255
Retained earnings	4,733		4,642
Treasury stock, 32,394,535 common shares (31,677,195 in 2014), at cost	(1,378)		(1,320)
Accumulated other comprehensive loss	(149)		(149)
Total Tesoro Corporation Stockholders’ Equity	4,541		4,454
Noncontrolling Interest	2,537		2,522
Total Equity	7,078	[1]	6,976	[1]
Total Liabilities and Equity	$ 16,283		$ 16,491

[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 March 31, 2015 and December 31, 2014.

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Stock-Based Compensation (Notes)

3 Months Ended

Mar. 31, 2015

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 March 31,
	2015		2014
Stock appreciation rights (a)	$	15	$	(18	)
Performance share awards (b)	4		(3		)
Market stock units (c)	5		3
Other stock-based awards (d)	4		—
Total Stock-Based Compensation Expense (Benefit)	$	28	$	(18	)

________________

(a) We paid cash of $20 million and $4 million to settle 0.3 million and 0.2 million SARs that were exercised during the three months ended March 31, 2015 and 2014, respectively. We had $55 million and $60 million recorded in accrued liabilities associated with our SARs awards at March 31, 2015 and December 31, 2014, respectively.

(b) We granted 0.1 million market condition performance share awards at a weighted average grant date fair value of $117.96 per share under the amended and restated 2011 Long-Term Incentive Plan (“2011 Plan”) during the three months ended March 31, 2015.

(c) We granted 0.4 million market stock units at a weighted average grant date fair value of $114.57 per unit under the 2011 Plan during the three months ended March 31, 2015.

(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 $11 million and an expense of $7 million for the three months ended March 31, 2015 and 2014, 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 $54 million and $3 million for the three months ended March 31, 2015 and 2014, respectively.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2015	May 04, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	TESORO CORP /NEW/
Entity Central Index Key	0000050104
Document Type	10-Q
Document Period End Date	Mar. 31, 2015
Amendment Flag	false
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		125,831,891

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Operating Segments (Notes)

3 Months Ended

Mar. 31, 2015

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, natural gas gathering and processing 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 natural gas, for processing natural gas, and for terminalling, transporting and storing crude oil, and refined products. During 2014, we converted our company-operated retail locations to multi-site operators (“MSOs”) and retained the transportation fuel sales. Our retail segment sells gasoline and diesel fuel through MSOs 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 March 31,
	2015			2014
	(In millions)
Revenues
Refining:
Refined products	$	5,838		$	9,500
Crude oil resales and other	299			272
TLLP:
Gathering	77			25
Processing	67			—
Terminalling and transportation	119			102
Retail:
Fuel (a)	2,195			3,024
Other non-fuel (b)	16			61
Intersegment sales	(2,148		)	(3,051		)
Total Revenues	$	6,463		$	9,933
Segment Operating Income
Refining (c)	$	190		$	185
TLLP (d)	108			60
Retail (c)	126			19
Total Segment Operating Income	424			264
Corporate and unallocated costs (e)	(84		)	(26		)
Operating Income	340			238
Interest and financing costs, net (f)	(55		)	(77		)
Other expense, net	(1		)	(1		)
Earnings Before Income Taxes	$	284		$	160
Depreciation and Amortization Expense
Refining	$	119		$	101
TLLP	44			16
Retail	12			10
Corporate	4			3
Total Depreciation and Amortization Expense	$	179		$	130
Capital Expenditures
Refining	$	184		$	68
TLLP	66			26
Retail	4			5
Corporate	6			4
Total Capital Expenditures	$	260		$	103

________________

(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 $140 million and $141 million for the three months ended March 31, 2015 and 2014, respectively.

(b) Includes merchandise revenue for the three months ended March 31, 2014.

(c) Our refining segment uses RINs to satisfy its obligations under the Renewable Fuels Standard, in addition to physically blending required biofuels. Effective April 1, 2013, we changed our intersegment pricing methodology and no longer reduced the amount retail pays for the biofuels by the market value of the RINs due to significant volatility in the value of RINs. At the end of 2014, given the price of RINs has become more transparent in the price of biofuels, we determined our intersegment pricing methodology should include the market value of RINs as a reduction to the price our retail segment pays to our refining segment. We made this change effective January 1, 2015. We have not adjusted financial information presented for our refining and retail segments for the period ended March 31, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $28 million with a corresponding increase to operating income in our retail segment.

(d) We present TLLP’s segment operating income net of general and administrative expenses totaling $12 million and $4 million representing TLLP’s corporate costs for the three months ended March 31, 2015 and 2014, respectively, that are not allocated to TLLP’s operating segments.

(e) Includes stock-based compensation expense of $28 million and benefit of $18 million for the three months ended March 31, 2015 and 2014, respectively. The significant impact to stock-based compensation expense during the three months ended March 31, 2015 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

(f) Includes charges totaling $31 million for premiums and unamortized debt issuance costs associated with the redemption of the 5.50% Senior Notes due 2019 during the three months ended March 31, 2014.

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Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $) In Millions, except Share data, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
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)	158,146,319	156,627,604
Treasury stock, common shares (shares)	32,394,535	31,667,195
Current Assets
Cash and cash equivalents	$ 459	$ 1,000
OTHER NONCURRENT ASSETS
Acquired intangibles, net	1,211	1,222
Other, net	1,311	1,150
Property, Plant and Equipment, Net
Net Property, Plant and Equipment	9,180	9,045
Debt
Debt, net of unamortized issuance costs	4,138	4,161
Tesoro Logistics LP
Current Assets
Cash and cash equivalents	16	19
OTHER NONCURRENT ASSETS
Acquired intangibles, net	966	973
Other, net	258	251
Property, Plant and Equipment, Net
Net Property, Plant and Equipment	3,335	3,306
Debt
Debt, net of unamortized issuance costs	$ 2,520	$ 2,544

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Fair Value Measurements (Notes)

3 Months Ended

Mar. 31, 2015

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 March 31, 2015 or December 31, 2014.

Our financial assets and liabilities measured at fair value on a recurring basis include derivative instruments. Additionally, our financial liabilities include 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 6 for further information on our derivative instruments. Our Environmental Credit Obligations represent the estimated fair value amount at each balance sheet date for which we do not have sufficient RINs and California cap and trade credits to satisfy our obligations to 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. We must purchase RINs in the open market to satisfy the requirement if we are unable to blend at that rate. Our liability for cap and trade emission credits for the state of California represent the deficit of credits to satisfy emission reduction requirements mandated in California’s Assembly Bill 32 for each period which stationary or transportation fuel 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):

	March 31, 2015
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	772	$	14	$	—	$	(675	)	$	111
Commodity OTC Swap Contracts	—		2		—		—			2
Commodity Forward Contracts	—		2		—		—			2
Total Assets	$	772	$	18	$	—	$	(675	)	$	115
Liabilities:
Commodity Futures Contracts	$	738	$	13	$	—	$	(749	)	$	2
Commodity Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		37		—		—			37
Total Liabilities	$	738	$	51	$	—	$	(749	)	$	40

	December 31, 2014
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	1,165	$	36	$	—	$	(1,136	)	$	65
Commodity Forward Contracts	—		3		—		—			3
Total Assets	$	1,165	$	39	$	—	$	(1,136	)	$	68
Liabilities:
Commodity Futures Contracts	$	1,011	$	14	$	—	$	(1,024	)	$	1
Commodity OTC Swap Contracts	—		1		—		—			1
Commodity Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		20		—		—			20
Total Liabilities	$	1,011	$	36	$	—	$	(1,024	)	$	23

________________

(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 March 31, 2015, we had provided cash collateral amounts of $74 million related to our unrealized derivative positions. At December 31, 2014, our counterparties had provided cash collateral of $112 million related to our unrealized derivative positions.

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 values of our debt were approximately $4.2 billion at both March 31, 2015 and December 31, 2014, and the fair values of our debt were approximately $4.3 billion and $4.2 billion at March 31, 2015 and December 31, 2014, respectively. These carrying and fair values of our debt do not include the unamortized issuance costs associated with our total debt.

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Derivative Instruments (Notes)

3 Months Ended

Mar. 31, 2015

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 related to our refineries, terminals, retail fuel inventory 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 to be received or paid if our asset or liability position, respectively, 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 March 31, 2015 and December 31, 2014. 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	March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014
Commodity Futures Contracts	Prepayments and other current assets	$	786		$	1,201		$	751		$	1,025
Commodity OTC Swap Contracts	Receivables	2			—			—			—
Commodity OTC Swap Contracts	Accounts payable	—			—			—			1
Commodity Forward Contracts	Receivables	2			3			—			—
Commodity Forward Contracts	Accounts payable	—			—			1			1
Total Gross Mark-to-Market    Derivatives		790			1,204			752			1,027
Less: Counterparty Netting and    Cash Collateral (a)		(675		)	(1,136		)	(749		)	(1,024		)
Total Net Fair Value of Derivatives		$	115		$	68		$	3		$	3

________________

(a) As of March 31, 2015, we had provided cash collateral amounts of $74 million related to our unrealized derivative positions. At December 31, 2014, our counterparties had provided cash collateral of $112 million related to our unrealized derivative positions. Cash collateral amounts are netted with mark-to-market derivative assets.

Gains (losses) for our mark-to market derivatives for the three months ended March 31, 2015 and 2014 were as follows (in millions):

	Three Months Ended March 31,
	2015			2014
Commodity Futures Contracts	$	43		$	—
Commodity OTC Swap Contracts	—			(1		)
Commodity Forward Contracts	2			1
Foreign Currency Forward Contracts	(2		)	(2		)
Total Gain (Loss) on Mark-to-Market Derivatives	$	43		$	(2	)

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

	Three Months Ended March 31,
	2015			2014
Revenues	$	4		$	1
Cost of sales	41			(1		)
Other expense, net	(2		)	(2		)
Total Gain (Loss) on Mark-to-Market Derivatives	$	43		$	(2	)

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 March 31, 2015 (units in thousands):

	Contract Volumes by Year of Maturity
Mark-to-Market Derivative Instrument	2015	2016	2017	Unit of Measure
Crude oil, refined products and blending products:
Futures - short	(13,710)	—	—	Barrels
Futures - long	—	485	—	Barrels
OTC Swaps - long	2,000	—	—	Barrels
Forwards - long	131	—	—	Barrels
Carbon credits:
Futures - long	3,675	1,000	1,000	Tons
Corn:
Futures - short	(3,515)	—	—	Bushels

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Fair Value Measurements (Policies)

3 Months Ended

Mar. 31, 2015

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.

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Condensed Consolidating Financial Information (Notes)

3 Months Ended

Mar. 31, 2015

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 March 31, 2015, Tesoro and certain subsidiary guarantors have fully and unconditionally guaranteed our 4.250% Senior Notes due 2017, 5.375% Senior Notes due 2022, and 5.125% Senior Notes due 2024. TLLP, in which we had a 36% ownership interest as of March 31, 2015, 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. Certain intercompany and intracompany 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 months ended March 31, 2015 and 2014.

Condensed Consolidating Statement of Operations

for the Three Months EndedMarch 31, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
Revenues	$	—		$	6,999		$	914		$	(1,450	)	$	6,463
Costs and Expenses:
Cost of sales	—			5,993			661			(1,314		)	5,340
Operating, selling, general and administrative expenses	4			609			123			(136		)	600
Depreciation and amortization expense	—			134			45			—			179
Loss on asset disposals and impairments	—			4			—			—			4
Operating Income (Loss)	(4		)	259			85			—			340
Equity in earnings of subsidiaries	157			16			—			(173		)	—
Interest and financing costs, net	(11		)	(18		)	(26		)	—			(55		)
Other income (expense), net	—			(4		)	3			—			(1		)
Earnings Before Income Taxes	142			253			62			(173		)	284
Income tax expense (benefit) (a)	(3		)	95			4			—			96
Net Earnings	145			158			58			(173		)	188
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			43			—			43
Net Earnings Attributable to Tesoro Corporation	$	145		$	158		$	15		$	(173	)	$	145
Comprehensive Income
Total comprehensive income	$	145		$	158		$	58		$	(173	)	$	188
Less: Noncontrolling interest in comprehensive income	—			—			43			—			43
Comprehensive Income Attributable to Tesoro    Corporation	$	145		$	158		$	15		$	(173	)	$	145

_________________

(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 EndedMarch 31, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
Revenues	$	—		$	11,564		$	1,610		$	(3,241	)	$	9,933
Costs and Expenses:
Cost of sales	—			10,664			1,476			(3,192		)	8,948
Operating, selling, general and administrative expenses	1			612			58			(49		)	622
Depreciation and amortization expense	—			113			17			—			130
Gain on asset disposals and impairments	—			(1		)	(4		)	—			(5		)
Operating Income (Loss)	(1		)	176			63			—			238
Equity in earnings of subsidiaries (a)	86			14			—			(100		)	—
Interest and financing costs, net	(8		)	(59		)	(18		)	8			(77		)
Other income (expense), net	—			(1		)	8			(8		)	(1		)
Earnings Before Income Taxes	77			130			53			(100		)	160
Income tax expense (benefit) (b)	(1		)	51			6			—			56
Net Earnings from Continuing Operations	78			79			47			(100		)	104
Loss from discontinued operations, net of tax	—			(1		)	—			—			(1		)
Net Earnings	78			78			47			(100		)	103
Less: Net earnings from continuing operations attributable to    noncontrolling interest	—			—			25			—			25
Net Earnings Attributable to Tesoro Corporation	$	78		$	78		$	22		$	(100	)	$	78
Comprehensive Income
Total comprehensive income	$	78		$	78		$	47		$	(100	)	$	103
Less: Noncontrolling interest in comprehensive income	—			—			25			—			25
Comprehensive Income Attributable to Tesoro    Corporation	$	78		$	78		$	22		$	(100	)	$	78

_________________

(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 March 31, 2015

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	400	$	59	$	—		$	459
Receivables, net of allowance for doubtful accounts	9		884		474		—			1,367
Short-term receivables from affiliates	—		35		—		(35		)	—
Inventories	—		2,398		134		—			2,532
Prepayments and other current assets	51		158		15		(1		)	223
Total Current Assets	60		3,875		682		(36		)	4,581
Net Property, Plant and Equipment	—		5,775		3,405		—			9,180
Investment in Subsidiaries	6,742		351		—		(7,093		)	—
Long-Term Receivables from Affiliates	2,450		—		—		(2,450		)	—
Long-Term Intercompany Note Receivable	—		—		1,376		(1,376		)	—
Other Noncurrent Assets:
Acquired intangibles, net	—		245		966		—			1,211
Other, net	6		1,048		257		—			1,311
Total Other Noncurrent Assets, Net	6		1,293		1,223		—			2,522
Total Assets	$	9,258	$	11,294	$	6,686	$	(10,955	)	$	16,283
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	—	$	1,639	$	502	$	—		$	2,141
Short-term payables to affiliates	—		—		35		(35		)	—
Other current liabilities	193		535		137		(1		)	864
Total Current Liabilities	193		2,174		674		(36		)	3,005
Long-Term Payables to Affiliates	—		2,412		38		(2,450		)	—
Deferred Income Taxes	1,121		—		—		—			1,121
Other Noncurrent Liabilities	446		431		64		—			941
Debt, net of unamortized issuance costs	1,581		37		2,520		—			4,138
Long-Term Intercompany Note Payable	1,376		—		—		(1,376		)	—
Equity-Tesoro Corporation	4,541		6,240		853		(7,093		)	4,541
Equity-Noncontrolling Interest	—		—		2,537		—			2,537
Total Liabilities and Equity	$	9,258	$	11,294	$	6,686	$	(10,955	)	$	16,283

Condensed Consolidating Balance Sheet as of December 31, 2014

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	943	$	57	$	—		$	1,000
Receivables, net of allowance for doubtful accounts	6		912		517		—			1,435
Short-term receivables from affiliates	—		84		—		(84		)	—
Inventories	—		2,088		351		—			2,439
Prepayments and other current assets	71		115		16		(2		)	200
Total Current Assets	77		4,142		941		(86		)	5,074
Net Property, Plant and Equipment	—		5,666		3,379		—			9,045
Investment in Subsidiaries	6,592		362		—		(6,954		)	—
Long-Term Receivables from Affiliates	2,427		—		—		(2,427		)	—
Long-Term Intercompany Note Receivable	—		—		1,376		(1,376		)	—
Other Noncurrent Assets:
Acquired intangibles, net	—		249		973		—			1,222
Other, net	6		893		251		—			1,150
Total Other Noncurrent Assets, Net	6		1,142		1,224		—			2,372
Total Assets	$	9,102	$	11,312	$	6,920	$	(10,843	)	$	16,491
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	1	$	1,779	$	690	$	—		$	2,470
Short-term payables to affiliates	—		—		84		(84		)	—
Other current liabilities	148		717		133		(2		)	996
Total Current Liabilities	149		2,496		907		(86		)	3,466
Long-Term Payables to Affiliates	—		2,399		28		(2,427		)	—
Deferred Income Taxes	1,098		—		—		—			1,098
Other Noncurrent Liabilities	447		296		47		—			790
Debt, net of unamortized issuance costs	1,578		39		2,544		—			4,161
Long-Term Intercompany Note Payable	1,376		—		—		(1,376		)	—
Equity-Tesoro Corporation	4,454		6,082		872		(6,954		)	4,454
Equity-Noncontrolling Interest	—		—		2,522		—			2,522
Total Liabilities and Equity	$	9,102	$	11,312	$	6,920	$	(10,843	)	$	16,491

Condensed Consolidating Statement of Cash Flows for the threeMarch 31, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities	$	(10	)	$	(350	)	$	212		$	—		$	(148	)
Cash Flows From (Used In) Investing Activities
Capital expenditures	—			(191		)	(80		)	—			(271		)
Intercompany notes, net	106			—			—			(106		)	—
Other investing activities	—			(2		)	—			—			(2		)
Net cash from (used in) investing activities	106			(193		)	(80		)	(106		)	(273		)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	—			—			99			—			99
Repayments on revolving credit agreements	—			—			(124		)	—			(124		)
Dividend payments	(54		)	—			—			—			(54		)
Net proceeds from issuance of Tesoro Logistics LP    common units	—			—			24			—			24
Distributions to noncontrolling interest	—			—			(44		)	—			(44		)
Purchases of common stock	(19		)	—			—			—			(19		)
Taxes paid related to net share settlement of equity awards	(39		)	—			—			—			(39		)
Net intercompany repayments	—			(37		)	(69		)	106			—
Distributions to TLLP unitholders and general partner	10			6			(16		)	—			—
Other financing activities	6			31			—			—			37
Net cash used in financing activities	(96		)	—			(130		)	106			(120		)
Increase (Decrease) in Cash And Cash Equivalents	—			(543		)	2			—			(541		)
Cash and Cash Equivalents, Beginning of Period	—			943			57			—			1,000
Cash and Cash Equivalents, End of Period	$	—		$	400		$	59		$	—		$	459

Condensed Consolidating Statement of Cash Flows for the threeMarch 31, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities	$	(17	)	$	154		$	(287	)	$	—		$	(150	)
Cash Flows From (Used In) Investing Activities
Capital expenditures	—			(92		)	(27		)	—			(119		)
Intercompany notes, net	168			—			—			(168		)	—
Other investing activities	—			—			10			—			10
Net cash from (used in) investing activities	168			(92		)	(17		)	(168		)	(109		)
Cash Flows From (Used In) Financing Activities
Proceeds from debt offering	300			—			—			—			300
Repayments of debt	(300		)	(1		)	—			—			(301		)
Dividend payments	(33		)	—			—			—			(33		)
Distributions to noncontrolling interest	—			—			(20		)	—			(20		)
Purchases of common stock	(100		)	—			—			—			(100		)
Net intercompany borrowings (repayments)	—			(501		)	333			168			—
Premium paid on notes redemption	(19		)	—			—			—			(19		)
Distributions to TLLP unitholders and general partner	4			5			(9		)	—			—
Other financing activities	(3		)	—			(5		)	—			(8		)
Net cash from (used in) financing activities	(151		)	(497		)	299			168			(181		)
Decrease in Cash And Cash Equivalents	—			(435		)	(5		)	—			(440		)
Cash and Cash Equivalents, Beginning of Period	—			1,161			77			—			1,238
Cash and Cash Equivalents, End of Period	$	—		$	726		$	72		$	—		$	798

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Commitments and Contingencies (Notes)

3 Months Ended

Mar. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES AND ENVIRONMENTAL LIABILITIES

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$259 millionand $274 million at March 31, 2015 and December 31, 2014, respectively, including $28 millionand $32 million for TLLP, respectively. These accruals include $208 million and $216 million at March 31, 2015 and December 31, 2014, respectively, related to amounts estimated for site cleanup activities arising from operations at our Martinez refinery and operations of assets acquired in the Los Angeles Acquisition prior to their respective acquisition dates. 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. The environmental remediation liabilities assumed in the Los Angeles Acquisition include amounts estimated for site cleanup activities and monitoring activities arising from operations at the Carson refinery, certain terminals and pipelines, and retail stations prior to our acquisition on June 1, 2013. These estimates for environmental liabilities are based on third-party assessments and available information. 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.

Other Contingencies

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”) initiated an investigation 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, November 2013 and February 2015 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.

On November 20, 2013, 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. The EPA conducted an investigation of the refinery in 2011, following the April 2010 fire in the naphtha hydrotreater unit. We have provided a response to the NOV and additional information to the EPA. While 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.

In January 2015, we received notice and demand for indemnity from the previous owner of our Washington refinery for damages incurred in the civil litigation brought by the families of those fatally wounded in the April 2010 refinery fire. We settled our involvement in civil litigation in 2012. Arbitration proceedings were initiated in March 2015 after an unsuccessful mediation and we intend to vigorously defend ourselves against this claim.

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 U.S. Department of Justice. We have established an accrual for this matter although we cannot currently estimate the final amount or timing of its resolution. 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 at our operating refineries. However, we do not believe that the final outcome of this matter will have a material impact on our liquidity or financial position.

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. This matter, originally filed in 2004, is proceeding in the United States District Court of the Southern District of New York. 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. 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 are defending the permits with UDEQ. In orders issued on July 10 and September 9, 2014, the UDEQ Administrative Law Judge (“ALJ”) 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 final decision approving the ALJ’s recommended order is currently under appeal. 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.

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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Stock-Based Compensation (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015		Mar. 31, 2014
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense (benefit)	$ 28		$ (18)
Income tax benefit (expense) for stock-based compensation arrangements	11		(7)
Tax benefit realized from exercise of stock-based compensation arrangements	54		3
Stock appreciation rights
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense (benefit)	15	[1]	(18)	[1]
Performance share awards
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense (benefit)	4	[2]	(3)	[2]
Market stock units
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense (benefit)	5	[3]	3	[3]
Other stock-based awards
Stock-Based Compensation Arrangement by Stock-based Payment Award
Stock-based compensation expense (benefit)	$ 4	[4]	$ 0	[4]

[1] We paid cash of $20 million and $4 million to settle 0.3 million and 0.2 million SARs that were exercised during the three months ended March 31, 2015 and 2014, respectively. We had $55 million and $60 million recorded in accrued liabilities associated with our SARs awards at March 31, 2015 and December 31, 2014, respectively.

[2] We granted 0.1 million market condition performance share awards at a weighted average grant date fair value of $117.96 per share under the amended and restated 2011 Long-Term Incentive Plan (“2011 Plan”) during the three months ended March 31, 2015.

[3] We granted 0.4 million market stock units at a weighted average grant date fair value of $114.57 per unit under the 2011 Plan during the three months ended March 31, 2015.

[4] We have aggregated expenses for certain award types as they are not considered significant.

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Debt (Notes)

3 Months Ended

Mar. 31, 2015

Debt Disclosure [Abstract]

DEBT

DEBT

Our debt balance, net of unamortized issuance costs, at March 31, 2015 and December 31, 2014 was as follows (in millions):

	March 31, 2015			December 31, 2014
Total debt (a)	$	4,229		$	4,255
Unamortized issuance costs (b)	(85		)	(88		)
Current maturities	(6		)	(6		)
Debt, net of current maturities and unamortized issuance costs	$	4,138		$	4,161

________________

(a) Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was $2.5 billion at both March 31, 2015 and December 31, 2014, respectively.

(b) The Company has adopted ASU 2015-03 as of March 31, 2015 and applied the changes retrospectively to the prior period presented. Adoption of this standard has resulted in the reclassification of $93 million of unamortized debt issuance costs from other noncurrent assets to debt on the balance sheet at December 31, 2014. Unamortized debt issuance costs of $89 million are recorded as a reduction to debt on the balance sheet at March 31, 2015. See Note 1 for further discussion.

Revolving Credit Facilities

We had available capacity under our credit facilities as follows at March 31, 2015 (in millions):

	Total Capacity		Amount Borrowed as of March 31, 2015		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (c)	$	2,156	$	—	$	237	$	1,919	November 18, 2019
TLLP Revolving Credit Facility	900		235		—		665		December 2, 2019
Letter of Credit Facilities	2,035		—		56		1,979
Total credit facilities	$	5,091	$	235	$	293	$	4,563

________________

(c) Borrowing base is the lesser of the amount of the periodically adjusted borrowing base or the agreement’s total capacity of $3.0 billion.

As of March 31, 2015, 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    ($2.2 billion) (d)	0.18%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($900 million) (e)	0.18%	2.50%	3.25%	1.50%	0.50%

________________

(d) 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.

(e) 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 TLLP Revolving Credit Facility incur fees at the Eurodollar margin rate.

Revolving Credit Facilities

Tesoro Corporation Revolving Credit Facility. Our Revolving Credit Facility provides for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base, which consists 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. We had unused credit availability of approximately 89% of the eligible borrowing base at March 31, 2015. Our 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, as amended, senior notes and Term Loan 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 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 $56 million outstanding as of March 31, 2015. Letters of credit outstanding under these agreements incur fees ranging from 0.40% to 1.00% and are secured by the crude oil inventories for which they are issued. Capacity under these letter of credit agreements is available on an uncommitted basis and can be terminated by either party at any time.

TLLP Revolving Credit Facility. The TLLP Revolving Credit Facility provided for total loan availability of $900 million as of March 31, 2015, and TLLP may request that the loan availability be increased up to an aggregate of $1.5 billion, 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, with the exception of certain non-wholly owned subsidiaries acquired in the Rockies Natural Gas Business acquisition, 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 was $235 million in borrowings outstanding under the TLLP Revolving Credit Facility, which incurred interest at a weighted average interest rate of 2.67% at March 31, 2015. TLLP had unused credit availability of approximately 74% of the eligible borrowing base at March 31, 2015.

Tesoro Debt

Term Loan Facility. We entered into the Term Loan Facility in January 2013, which allowed us to borrow up to an aggregate of $500 million, which we used to fund a portion of the acquisition of BP’s integrated Southern California refining, marketing and logistics business (the “Los Angeles Acquisition”). The Term Loan Facility matures May 30, 2016. The obligations under the Term Loan 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 Facility may be repaid at any time but amounts may not be re-borrowed. There were no payments on the borrowings under the Term Loan Facility for the three months ended March 31, 2015. The borrowings under our Term Loan Facility incurred interest at a rate of 2.43% as of March 31, 2015 based on the following expense and fee schedule:

Credit Facility	30 day Eurodollar (LIBOR) Rate	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Term Loan Facility ($398 million) (a)	0.18%	2.25%	3.25%	1.25%	—%

____________________

(a) 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 Term Loan 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 set forth in most of our current indentures.

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Benefit Plans (Notes)

3 Months Ended

Mar. 31, 2015

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 $15 million during the three months ended March 31, 2015 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 months ended March 31, 2015 and 2014 were (in millions):

	Pension Benefits						Other Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
	2015			2014			2015			2014
Service cost	$	12		$	13		$	1		$	1
Interest cost	8			9			1			1
Expected return on plan assets	(7		)	(8		)	—			—
Amortization of prior service cost	—			—			(9		)	(9		)
Recognized net actuarial loss	6			4			1			1
Net Periodic Benefit Expense (Income)	$	19		$	18		$	(6	)	$	(6	)

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Stockholders' Equity (Notes)

3 Months Ended

Mar. 31, 2015

Stockholders' Equity Attributable to Parent [Abstract]

STOCKHOLDERS' EQUITY

STOCKHOLDERS’ EQUITY

Changes to equity during the three months ended March 31, 2015 are presented below (in millions):

	Tesoro Corporation Stockholders’ Equity			Noncontrolling  Interest			Total Equity
Balance at December 31, 2014 (a)	$	4,454		$	2,522		$	6,976
Net earnings	145			43			188
Purchases of common stock	(19		)	—			(19		)
Dividend payments	(54		)	—			(54		)
Shares issued for equity-based compensation awards (b)	6			—			6
Amortization of equity settled awards	10			—			10
Excess tax benefits from stock-based compensation arrangements, net	31			—			31
Taxes paid related to net share settlement of equity awards	(39		)	—			(39		)
Net proceeds from issuance of Tesoro Logistics LP common units	—			24			24
Distributions to noncontrolling interest	—			(44		)	(44		)
Transfers to (from) noncontrolling interest from (to) Tesoro related to:
TLLP’s sale of common units	—			(8		)	(8		)
Tesoro’s purchase of TLLP common units	8			—			8
Other	(1		)	—			(1		)
Balance at March 31, 2015 (a)	$	4,541		$	2,537		$	7,078

________________

(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 March 31, 2015 and December 31, 2014.

(b) We issued approximately 0.2 million shares and less than 0.1 million shares for proceeds of $6 million and $1 million primarily for stock option exercises under our equity-based compensation plans during the three months ended March 31, 2015 and 2014, 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 0.3 million shares and 1.9 million shares of our common stock for approximately $19 million and $100 million during the three months ended March 31, 2015 and 2014, respectively.

Cash Dividends

We paid cash dividends totaling $54 million for the three months ended March 31, 2015 based on a $0.425 per share quarterly cash dividend on common stock. We paid cash dividends totaling $33 million for the three months ended March 31, 2014 based on a $0.25 per share quarterly cash dividend on common stock. On May 7, 2015, our Board declared a cash dividend of $0.425 per share payable on June 15, 2015 to shareholders of record on May 29, 2015.

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Condensed Consolidating Financial Information, Narrative (Details)	3 Months Ended	12 Months Ended
	Mar. 31, 2015	Dec. 31, 2014
Guarantor Information
Percentage ownership of Tesoro Logistics LP	36.00%	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
5.125% Senior Notes due 2024
Guarantor Information
Debt instrument interest rate	5.125%
Debt instrument, maturity date	Apr. 01, 2024

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Condensed Consolidating Financial Information, Balance Sheet (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014	Mar. 31, 2014	Dec. 31, 2013
Current Assets
Cash and cash equivalents	$ 459	$ 1,000	$ 798	$ 1,238
Receivables, net of allowance for doubtful accounts	1,367	1,435
Short-term receivables from affiliates	0	0
Inventories	2,532	2,439
Prepayments and other current assets	223	200
Total Current Assets	4,581	5,074
Net Property, Plant and Equipment	9,180	9,045
Investment in Subsidiaries	0	0
Long-Term Receivables from Affiliates	0	0
Long-Term Intercompany Note Receivable	0	0
OTHER NONCURRENT ASSETS
Acquired intangibles, net	1,211	1,222
Other, net	1,311	1,150
Total Other Noncurrent Assets, Net	2,522	2,372
Total Assets	16,283	16,491
Current Liabilities:
Accounts payable	2,141	2,470
Short-term payables to affiliates	0	0
Other current liabilities	864	996
Total Current Liabilities	3,005	3,466
Long-Term Payables to Affiliates	0	0
Deferred Income Taxes	1,121	1,098
Other Noncurrent Liabilities	941	790
Debt, net of unamortized issuance costs	4,138	4,161
Long-Term Intercompany Note Payable	0	0
Equity-Tesoro Corporation	4,541	4,454
Equity-Noncontrolling Interest	2,537	2,522
Total Liabilities and Equity	16,283	16,491
Parent
Current Assets
Cash and cash equivalents	0	0	0	0
Receivables, net of allowance for doubtful accounts	9	6
Short-term receivables from affiliates	0	0
Inventories	0	0
Prepayments and other current assets	51	71
Total Current Assets	60	77
Net Property, Plant and Equipment	0	0
Investment in Subsidiaries	6,742	6,592
Long-Term Receivables from Affiliates	2,450	2,427
Long-Term Intercompany Note Receivable	0	0
OTHER NONCURRENT ASSETS
Acquired intangibles, net	0	0
Other, net	6	6
Total Other Noncurrent Assets, Net	6	6
Total Assets	9,258	9,102
Current Liabilities:
Accounts payable	0	1
Short-term payables to affiliates	0	0
Other current liabilities	193	148
Total Current Liabilities	193	149
Long-Term Payables to Affiliates	0	0
Deferred Income Taxes	1,121	1,098
Other Noncurrent Liabilities	446	447
Debt, net of unamortized issuance costs	1,581	1,578
Long-Term Intercompany Note Payable	1,376	1,376
Equity-Tesoro Corporation	4,541	4,454
Equity-Noncontrolling Interest	0	0
Total Liabilities and Equity	9,258	9,102
Guarantor Subsidiaries
Current Assets
Cash and cash equivalents	400	943	726	1,161
Receivables, net of allowance for doubtful accounts	884	912
Short-term receivables from affiliates	35	84
Inventories	2,398	2,088
Prepayments and other current assets	158	115
Total Current Assets	3,875	4,142
Net Property, Plant and Equipment	5,775	5,666
Investment in Subsidiaries	351	362
Long-Term Receivables from Affiliates	0	0
Long-Term Intercompany Note Receivable	0	0
OTHER NONCURRENT ASSETS
Acquired intangibles, net	245	249
Other, net	1,048	893
Total Other Noncurrent Assets, Net	1,293	1,142
Total Assets	11,294	11,312
Current Liabilities:
Accounts payable	1,639	1,779
Short-term payables to affiliates	0	0
Other current liabilities	535	717
Total Current Liabilities	2,174	2,496
Long-Term Payables to Affiliates	2,412	2,399
Deferred Income Taxes	0	0
Other Noncurrent Liabilities	431	296
Debt, net of unamortized issuance costs	37	39
Long-Term Intercompany Note Payable	0	0
Equity-Tesoro Corporation	6,240	6,082
Equity-Noncontrolling Interest	0	0
Total Liabilities and Equity	11,294	11,312
Non- Guarantors
Current Assets
Cash and cash equivalents	59	57	72	77
Receivables, net of allowance for doubtful accounts	474	517
Short-term receivables from affiliates	0	0
Inventories	134	351
Prepayments and other current assets	15	16
Total Current Assets	682	941
Net Property, Plant and Equipment	3,405	3,379
Investment in Subsidiaries	0	0
Long-Term Receivables from Affiliates	0	0
Long-Term Intercompany Note Receivable	1,376	1,376
OTHER NONCURRENT ASSETS
Acquired intangibles, net	966	973
Other, net	257	251
Total Other Noncurrent Assets, Net	1,223	1,224
Total Assets	6,686	6,920
Current Liabilities:
Accounts payable	502	690
Short-term payables to affiliates	35	84
Other current liabilities	137	133
Total Current Liabilities	674	907
Long-Term Payables to Affiliates	38	28
Deferred Income Taxes	0	0
Other Noncurrent Liabilities	64	47
Debt, net of unamortized issuance costs	2,520	2,544
Long-Term Intercompany Note Payable	0	0
Equity-Tesoro Corporation	853	872
Equity-Noncontrolling Interest	2,537	2,522
Total Liabilities and Equity	6,686	6,920
Eliminations
Current Assets
Cash and cash equivalents	0	0	0	0
Receivables, net of allowance for doubtful accounts	0	0
Short-term receivables from affiliates	(35)	(84)
Inventories	0	0
Prepayments and other current assets	(1)	(2)
Total Current Assets	(36)	(86)
Net Property, Plant and Equipment	0	0
Investment in Subsidiaries	(7,093)	(6,954)
Long-Term Receivables from Affiliates	(2,450)	(2,427)
Long-Term Intercompany Note Receivable	(1,376)	(1,376)
OTHER NONCURRENT ASSETS
Acquired intangibles, net	0	0
Other, net	0	0
Total Other Noncurrent Assets, Net	0	0
Total Assets	(10,955)	(10,843)
Current Liabilities:
Accounts payable	0	0
Short-term payables to affiliates	(35)	(84)
Other current liabilities	(1)	(2)
Total Current Liabilities	(36)	(86)
Long-Term Payables to Affiliates	(2,450)	(2,427)
Deferred Income Taxes	0	0
Other Noncurrent Liabilities	0	0
Debt, net of unamortized issuance costs	0	0
Long-Term Intercompany Note Payable	(1,376)	(1,376)
Equity-Tesoro Corporation	(7,093)	(6,954)
Equity-Noncontrolling Interest	0	0
Total Liabilities and Equity	$ (10,955)	$ (10,843)

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Operating Segments, Results (Details) (USD $) In Millions, unless otherwise specified	0 Months Ended		3 Months Ended				0 Months Ended
	Jan. 01, 2015	Apr. 01, 2013	Mar. 31, 2015		Mar. 31, 2014		Jan. 01, 2014
Segment Reporting Information
Total Revenues			$ 6,463		$ 9,933
OPERATING INCOME			340		238
Reconciliation of Operating Income from Segments to Consolidated
Total Segment Operating Income			424		264
Corporate and unallocated costs			(84)	[1]	(26)	[1]
Segment Reporting Information, Income before Income Taxes
Interest and financing costs, net			(55)	[2]	(77)	[2]
Other expense, net			(1)		(1)
Earnings Before Income Taxes			284		160
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense			179		130
Total Capital Expenditures			260		103
Segment Reporting Table Footnotes
Federal and state motor fuel taxes on sales by the retail segment			140		141
Stock-based compensation expense (benefit)			28		(18)
Debt redemption charges			0		(31)
Intersegment pricing methodology effective date		Apr. 01, 2013
Intersegment pricing methodology, new inclusion effective date	Jan. 01, 2015
Refining
Segment Reporting Information
OPERATING INCOME			190	[3]	185	[3]
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense			119		101
Total Capital Expenditures			184		68
Refining | Refined products
Segment Reporting Information
Total Revenues			5,838		9,500
Refining | Crude oil resales and other
Segment Reporting Information
Total Revenues			299		272
TLLP
Segment Reporting Information
OPERATING INCOME			108	[4]	60	[4]
Reconciliation of Operating Income from Segments to Consolidated
Corporate and unallocated costs			(12)		(4)
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense			44		16
Total Capital Expenditures			66		26
TLLP | Gathering
Segment Reporting Information
Total Revenues			77		25
TLLP | Processing
Segment Reporting Information
Total Revenues			67		0
TLLP | Terminalling and transportation
Segment Reporting Information
Total Revenues			119		102
Retail
Segment Reporting Information
OPERATING INCOME			126	[3]	19	[3]
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense			12		10
Total Capital Expenditures			4		5
Retail | Fuel
Segment Reporting Information
Total Revenues			2,195	[5]	3,024	[5]
Retail | Other Non-fuel
Segment Reporting Information
Total Revenues			16	[6]	61	[6]
Intersegment sales
Segment Reporting Information
Total Revenues			(2,148)		(3,051)
Corporate
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense			4		3
Total Capital Expenditures			6		4
Segment Reporting Table Footnotes
Stock-based compensation expense (benefit)			28		(18)
5.5% Senior Notes due 2019
Segment Reporting Table Footnotes
Debt redemption charges					31
Debt instrument interest rate					5.50%
Debt instrument, maturity date					Oct. 15, 2019
Pro Forma
Segment Reporting Table Footnotes
Intersegment pricing methodology, new inclusion effective date							Jan. 01, 2014
Pro Forma | Refining
Segment Reporting Information
OPERATING INCOME					(28)	[3]
Pro Forma | Retail
Segment Reporting Information
OPERATING INCOME					$ 28	[3]

[1] Includes stock-based compensation expense of $28 million and benefit of $18 million for the three months ended March 31, 2015 and 2014, respectively. The significant impact to stock-based compensation expense during the three months ended March 31, 2015 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

[2] Includes charges totaling $31 million for premiums and unamortized debt issuance costs associated with the redemption of the 5.50% Senior Notes due 2019 during the three months ended March 31, 2014.

[3] Our refining segment uses RINs to satisfy its obligations under the Renewable Fuels Standard, in addition to physically blending required biofuels. Effective April 1, 2013, we changed our intersegment pricing methodology and no longer reduced the amount retail pays for the biofuels by the market value of the RINs due to significant volatility in the value of RINs. At the end of 2014, given the price of RINs has become more transparent in the price of biofuels, we determined our intersegment pricing methodology should include the market value of RINs as a reduction to the price our retail segment pays to our refining segment. We made this change effective January 1, 2015. We have not adjusted financial information presented for our refining and retail segments for the period ended March 31, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $28 million with a corresponding increase to operating income in our retail segment.

[4] We present TLLP’s segment operating income net of general and administrative expenses totaling $12 million and $4 million representing TLLP’s corporate costs for the three months ended March 31, 2015 and 2014, respectively, that are not allocated to TLLP’s operating segments.

[5] 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 $140 million and $141 million for the three months ended March 31, 2015 and 2014, respectively.

[6] Includes merchandise revenue for the three months ended March 31, 2014.

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Operating Segments (Tables)

3 Months Ended

Mar. 31, 2015

Segment Reporting [Abstract]

Schedule of segment reporting information, by segment

Segment information related to continuing operations is as follows:

	Three Months Ended March 31,
	2015			2014
	(In millions)
Revenues
Refining:
Refined products	$	5,838		$	9,500
Crude oil resales and other	299			272
TLLP:
Gathering	77			25
Processing	67			—
Terminalling and transportation	119			102
Retail:
Fuel (a)	2,195			3,024
Other non-fuel (b)	16			61
Intersegment sales	(2,148		)	(3,051		)
Total Revenues	$	6,463		$	9,933
Segment Operating Income
Refining (c)	$	190		$	185
TLLP (d)	108			60
Retail (c)	126			19
Total Segment Operating Income	424			264
Corporate and unallocated costs (e)	(84		)	(26		)
Operating Income	340			238
Interest and financing costs, net (f)	(55		)	(77		)
Other expense, net	(1		)	(1		)
Earnings Before Income Taxes	$	284		$	160
Depreciation and Amortization Expense
Refining	$	119		$	101
TLLP	44			16
Retail	12			10
Corporate	4			3
Total Depreciation and Amortization Expense	$	179		$	130
Capital Expenditures
Refining	$	184		$	68
TLLP	66			26
Retail	4			5
Corporate	6			4
Total Capital Expenditures	$	260		$	103

________________

(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 $140 million and $141 million for the three months ended March 31, 2015 and 2014, respectively.

(b) Includes merchandise revenue for the three months ended March 31, 2014.

(c) Our refining segment uses RINs to satisfy its obligations under the Renewable Fuels Standard, in addition to physically blending required biofuels. Effective April 1, 2013, we changed our intersegment pricing methodology and no longer reduced the amount retail pays for the biofuels by the market value of the RINs due to significant volatility in the value of RINs. At the end of 2014, given the price of RINs has become more transparent in the price of biofuels, we determined our intersegment pricing methodology should include the market value of RINs as a reduction to the price our retail segment pays to our refining segment. We made this change effective January 1, 2015. We have not adjusted financial information presented for our refining and retail segments for the period ended March 31, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $28 million with a corresponding increase to operating income in our retail segment.

(d) We present TLLP’s segment operating income net of general and administrative expenses totaling $12 million and $4 million representing TLLP’s corporate costs for the three months ended March 31, 2015 and 2014, respectively, that are not allocated to TLLP’s operating segments.

(e) Includes stock-based compensation expense of $28 million and benefit of $18 million for the three months ended March 31, 2015 and 2014, respectively. The significant impact to stock-based compensation expense during the three months ended March 31, 2015 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

(f) Includes charges totaling $31 million for premiums and unamortized debt issuance costs associated with the redemption of the 5.50% Senior Notes due 2019 during the three months ended March 31, 2014.

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Total Debt (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2015		Dec. 31, 2014
Debt Instrument
Total Debt	$ 4,229	[1]	$ 4,255	[1]
Unamortized issuance costs	(85)	[2]	(88)	[2]
Current maturities	(6)		(6)
Debt, net of current maturities and unamortized issuance costs	4,138		4,161
Unamortized debt issuance costs	(89)
TLLP
Debt Instrument
Total Debt	2,500		2,500
New Accounting Pronouncement, Early Adoption, Effect
Debt Instrument
Unamortized debt issuance costs			$ (93)

[1] Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was $2.5 billion at both March 31, 2015 and December 31, 2014, respectively.

[2] The Company has adopted ASU 2015-03 as of March 31, 2015 and applied the changes retrospectively to the prior period presented. Adoption of this standard has resulted in the reclassification of $93 million of unamortized debt issuance costs from other noncurrent assets to debt on the balance sheet at December 31, 2014. Unamortized debt issuance costs of $89 million are recorded as a reduction to debt on the balance sheet at March 31, 2015. See Note 1 for further discussion.

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

3 Months Ended

Mar. 31, 2015

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 (Tables)

3 Months Ended

Mar. 31, 2015

Inventory Disclosure [Abstract]

Schedule of inventory, current

Components of inventories were as follows (in millions):

	March 31, 2015		December 31, 2014
Domestic crude oil and refined products	$	2,219	$	1,930
Foreign subsidiary crude oil	134		351
Other inventories	179		158
Total Inventories	$	2,532	$	2,439

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Derivative Instruments, Open Long (Short) Positions (Details)	3 Months Ended
	Mar. 31, 2015 bbl
Crude Oil Refined Products And Blending Products (in barrels) | Futures | Short | 2015
Derivative
Contract volumes	(13,710,000)
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) | Futures | Long | 2015
Derivative
Contract volumes	0
Crude Oil Refined Products And Blending Products (in barrels) | Futures | Long | 2016
Derivative
Contract volumes	485,000
Crude Oil Refined Products And Blending Products (in barrels) | Futures | Long | 2017
Derivative
Contract volumes	0
Crude Oil Refined Products And Blending Products (in barrels) | OTC Swaps | Long | 2015
Derivative
Contract volumes	2,000,000
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 | Long | 2015
Derivative
Contract volumes	131,000
Crude Oil Refined Products And Blending Products (in barrels) | Forwards | Long | 2016
Derivative
Contract volumes	0
Crude Oil Refined Products And Blending Products (in barrels) | Forwards | Long | 2017
Derivative
Contract volumes	0
Carbon Credit (in tons) | Futures | Long | 2015
Derivative
Contract, mass	3,675,000
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
Corn (in bushels) | Futures | Short | 2015
Derivative
Contract volumes	(3,515,000)
Corn (in bushels) | Futures | Short | 2016
Derivative
Contract volumes	0
Corn (in bushels) | Futures | Short | 2017
Derivative
Contract volumes	0

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Earnings Per Share (Details) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Earnings Per Share [Abstract]
Weighted average common shares outstanding	125.2	131.3
Common stock equivalents	1.7	2.5
Total diluted shares	126.9	133.8

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Condensed Statements of Consolidated Cash Flows (Unaudited) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Cash Flows From (Used In) Operating Activities
Net earnings	$ 188	$ 103
Adjustments to reconcile net earnings to net cash from (used in) operating activities:
Depreciation and amortization expense	179	130
Debt redemption charges	0	31
Stock-based compensation expense (benefit)	28	(18)
Deferred charges	(83)	(60)
Other non-cash operating activities	10	7
Changes in current assets and current liabilities	(470)	(343)
Net cash used in operating activities	(148)	(150)
Cash Flows From (Used In) Investing Activities
Capital expenditures	(271)	(119)
Other investing activities	(2)	10
Net cash used in investing activities	(273)	(109)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	99	0
Proceeds from debt offering	0	300
Repayments on revolving credit agreements	(124)	0
Repayments of debt	0	(301)
Dividend payments	(54)	(33)
Net proceeds from issuance of Tesoro Logistics LP common units	24	0
Distributions to noncontrolling interest	(44)	(20)
Purchases of common stock	(19)	(100)
Taxes paid related to net share settlement of equity awards	(39)	0
Premium paid on notes redemption	0	(19)
Other financing activities	37	(8)
Net cash used in financing activities	(120)	(181)
Decrease in Cash and Cash Equivalents	(541)	(440)
Cash and Cash Equivalents, Beginning of Period	1,000	1,238
Cash and Cash Equivalents, End of Period	$ 459	$ 798

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Property, Plant and Equipment (Notes)

3 Months Ended

Mar. 31, 2015

Property, Plant and Equipment [Abstract]

PROPERTY, PLANT AND EQUIPMENT

PROPERTY, PLANT AND EQUIPMENT

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

	March 31, 2015			December 31, 2014
Refining	$	7,171		$	6,994
TLLP	3,617			3,551
Retail	835			834
Corporate	256			254
Property, plant and equipment, at cost	11,879			11,633
Accumulated depreciation	(2,699		)	(2,588		)
Net property, plant and equipment	$	9,180		$	9,045

We capitalize interest as part of the cost of major projects during the construction period. Capitalized interest totaled $9 million and $5 million for the three months ended March 31, 2015 and 2014, respectively, and is recorded as a reduction to net interest and financing costs in our condensed statements of consolidated operations.

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Stockholders' Equity, Changes to Equity (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015		Mar. 31, 2014	Dec. 31, 2014
Total Equity
Balance at December 31, 2014	$ 6,976	[1]
Net earnings	188		103
Purchases of common stock	(19)
Dividend payments	(54)
Shares issued for equity-based compensation awards	6	[2]	1
Amortization of equity settled awards	10
Excess tax benefits from stock-based compensation arrangements, net	31
Taxes paid related to net share settlement of equity awards	(39)
Net proceeds from issuance of Tesoro Logistics LP common units	24
Distributions to noncontrolling interest	(44)
TLLP’s sale of common units	(8)
Tesoro’s purchase of TLLP common units	8
Other	(1)
Balance at March 31, 2015	7,078	[1]
Preferred Stock, Shares Authorized	5,000,000			5,000,000
Preferred Stock, Par or Stated Value Per Share	$ 0			$ 0
Preferred Stock, Shares Issued	0			0
Shares issued for equity-based compensation plans (shares)	200,000		100,000
Tesoro Corporation Stockholders’ Equity
Total Equity
Balance at December 31, 2014	4,454	[1]
Net earnings	145
Purchases of common stock	(19)
Dividend payments	(54)
Shares issued for equity-based compensation awards	6	[2]
Amortization of equity settled awards	10
Excess tax benefits from stock-based compensation arrangements, net	31
Taxes paid related to net share settlement of equity awards	(39)
Net proceeds from issuance of Tesoro Logistics LP common units	0
Distributions to noncontrolling interest	0
TLLP’s sale of common units	0
Tesoro’s purchase of TLLP common units	8
Other	(1)
Balance at March 31, 2015	4,541	[1]
Noncontrolling Interest
Total Equity
Balance at December 31, 2014	2,522	[1]
Net earnings	43
Purchases of common stock	0
Dividend payments	0
Shares issued for equity-based compensation awards	0	[2]
Amortization of equity settled awards	0
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	24
Distributions to noncontrolling interest	(44)
TLLP’s sale of common units	(8)
Tesoro’s purchase of TLLP common units	0
Other	0
Balance at March 31, 2015	2,537	[1]
2014 Share repurchase program
Total Equity
Purchases of common stock			$ (100)

[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 March 31, 2015 and December 31, 2014.

[2] We issued approximately 0.2 million shares and less than 0.1 million shares for proceeds of $6 million and $1 million primarily for stock option exercises under our equity-based compensation plans during the three months ended March 31, 2015 and 2014, respectively.

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Property, Plant and Equipment (Tables)

3 Months Ended

Mar. 31, 2015

Property, Plant and Equipment [Abstract]

Property, plant and equipment

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

	March 31, 2015			December 31, 2014
Refining	$	7,171		$	6,994
TLLP	3,617			3,551
Retail	835			834
Corporate	256			254
Property, plant and equipment, at cost	11,879			11,633
Accumulated depreciation	(2,699		)	(2,588		)
Net property, plant and equipment	$	9,180		$	9,045

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Basis of Presentation New Accounting Standards and Disclosures (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
New Accounting Pronouncement, Early Adoption
Unamortized debt issuance costs	$ (89)
New Accounting Pronouncement, Early Adoption, Effect
New Accounting Pronouncement, Early Adoption
Unamortized debt issuance costs		$ (93)

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Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2015

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 condensed 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 Hawaii refinery, retail stations and associated logistics assets (the “Hawaii Business”).

New Accounting Pronouncements, Policy

New Accounting Standards and Disclosures

Revenue Recognition. The Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) in May 2014 providing 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 FASB has proposed a one-year deferral of the effective date; however, this proposal has not been finalized. 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.

Debt Issuance Costs. In April 2015, the FASB issued ASU 2015-03 which will simplify the presentation of debt issuance costs. Under the new ASU, debt issuance costs related to a recognized debt liability will be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. As a result, our balance sheet will reflect a reclassification of unamortized debt issuance costs from other noncurrent assets to debt. This ASU is effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. We have adopted this standard effective as of March 31, 2015 and applied the changes retrospectively to the prior periods presented. Adoption of this standard has resulted in the reclassification of $93 million from other noncurrent assets to debt on the balance sheet at December 31, 2014. Unamortized debt issuance costs of $89 million are recorded as a reduction to debt on the balance sheet at March 31, 2015.