10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

(Mark One)

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

For the quarterly period ended September 30, 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 120,390,425 shares of the registrant’s Common Stock outstanding at October 26, 2015.

TESORO CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	Page
Item 1. Financial Statements (Unaudited)
Condensed Statements of Consolidated Operations - Three and Nine Months Ended September 30, 2015 and 2014	3
Condensed Consolidated Balance Sheets - September 30, 2015 and December 31, 2014	4
Condensed Statements of Consolidated Cash Flows - Nine Months Ended September 30, 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	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	55
Item 4. Controls and Procedures	57
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	58
Item 1A. Risk Factors	58
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	59
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 September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(In millions, except per share amounts)
Revenues (a)	$	7,743		$	11,151		$	22,438		$	32,188
Costs and Expenses:
Cost of sales (a)	5,571			9,594			17,309			28,409
Operating expenses	589			624			1,676			1,813
Selling, general and administrative expenses	95			86			247			209
Depreciation and amortization expense	192			144			553			409
(Gain) loss on asset disposals and impairments	4			1			12			(2		)
Operating Income	1,292			702			2,641			1,350
Interest and financing costs, net	(54		)	(50		)	(163		)	(168		)
Other income, net	19			11			21			13
Earnings Before Income Taxes	1,257			663			2,499			1,195
Income tax expense	458			249			888			437
Net Earnings from Continuing Operations	799			414			1,611			758
Loss from discontinued operations, net of tax	—			(1		)	(4		)	(2		)
Net Earnings	799			413			1,607			756
Less: Net earnings from continuing operations attributable to    noncontrolling interest	40			17			121			58
Net Earnings Attributable to Tesoro Corporation	$	759		$	396		$	1,486		$	698
Net Earnings (Loss) Attributable to Tesoro Corporation
Continuing operations	$	759		$	397		$	1,490		$	700
Discontinued operations	—			(1		)	(4		)	(2		)
Total	$	759		$	396		$	1,486		$	698
Net Earnings (Loss) per Share - Basic:
Continuing operations	$	6.19		$	3.11		$	11.98		$	5.41
Discontinued operations	—			(0.01		)	(0.03		)	(0.02		)
Total	$	6.19		$	3.10		$	11.95		$	5.39
Weighted average common shares outstanding - Basic	122.5			127.9			124.3			129.5
Net Earnings (Loss) per Share - Diluted:
Continuing operations	$	6.13		$	3.06		$	11.85		$	5.32
Discontinued operations	—			(0.01		)	(0.03		)	(0.02		)
Total	$	6.13		$	3.05		$	11.82		$	5.30
Weighted average common shares outstanding - Diluted	123.8			129.7			125.7			131.7
Dividends per Share	$	0.50		$	0.30		$	1.35		$	0.80
Supplemental Information:
(a) Includes excise taxes collected by our marketing         segment	$	137		$	148		$	423		$	441

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

3

TESORO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2015			December 31, 2014
	(In millions, except share data)
ASSETS
Current Assets
Cash and cash equivalents (TLLP: $11 and $19, respectively)	$	959		$	1,000
Receivables, net of allowance for doubtful accounts	1,016			1,435
Inventories	2,507			2,439
Prepayments and other current assets	176			200
Total Current Assets	4,658			5,074
Net Property, Plant and Equipment (TLLP: $3,432 and $3,306, respectively)	9,427			9,045
Other Noncurrent Assets
Acquired intangibles, net (TLLP: $952 and $973, respectively)	1,190			1,222
Other, net (TLLP: $236 and $251, respectively)	1,326			1,150
Total Other Noncurrent Assets	2,516			2,372
Total Assets	$	16,601		$	16,491
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	1,789		$	2,470
Other current liabilities	1,063			996
Total Current Liabilities	2,852			3,466
Deferred Income Taxes	1,256			1,098
Other Noncurrent Liabilities	843			790
Debt, Net of Unamortized Issuance Costs (TLLP: $2,569 and $2,544, respectively)	3,791			4,161
Commitments and Contingencies (Note 10)
Equity
Tesoro Corporation Stockholders’ Equity
Common stock, par value $0.162/3; authorized 200,000,000 shares; 158,429,940 shares issued (156,627,604 in 2014)	26			26
Additional paid-in capital	1,392			1,255
Retained earnings	5,959			4,642
Treasury stock, 37,666,223 common shares (31,677,195 in 2014), at cost	(1,858		)	(1,320		)
Accumulated other comprehensive loss	(149		)	(149		)
Total Tesoro Corporation Stockholders’ Equity	5,370			4,454
Noncontrolling Interest	2,489			2,522
Total Equity	7,859			6,976
Total Liabilities and Equity	$	16,601		$	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)

	Nine Months Ended September 30,
	2015			2014
	(In millions)
Cash Flows From (Used In) Operating Activities
Net earnings	$	1,607		$	756
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization expense	553			409
Debt redemption charges	1			41
Stock-based compensation expense	57			20
Deferred income taxes	157			227
Turnaround and branding charges	(248		)	(119		)
Other non-cash operating activities	(33		)	(59		)
Changes in current assets and current liabilities	(247		)	(228		)
Net cash from operating activities	1,847			1,047
Cash Flows From (Used In) Investing Activities
Capital expenditures	(773		)	(477		)
Acquisitions	(6		)	(17		)
Other investing activities	(4		)	11
Net cash used in investing activities	(783		)	(483		)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	346			295
Repayments on revolving credit agreements	(326		)	(52		)
Proceeds from debt offering	—			300
Repayments of debt	(402		)	(433		)
Dividend payments	(169		)	(104		)
Net proceeds from issuance of Tesoro Logistics LP common units	71			156
Distributions to noncontrolling interest	(135		)	(63		)
Purchases of common stock	(494		)	(350		)
Other financing activities	4			(21		)
Net cash used in financing activities	(1,105		)	(272		)
Increase (Decrease) in Cash and Cash Equivalents	(41		)	292
Cash and Cash Equivalents, Beginning of Period	1,000			1,238
Cash and Cash Equivalents, End of Period	$	959		$	1,530

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.

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”) and 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 and nine months ended September 30, 2015 and 2014, consolidated statements of comprehensive income have been omitted.

We changed our operating segment presentation in the second quarter of 2015 to include refining, TLLP and a new marketing segment. Comparable prior period information has been recast to reflect our revised segment presentation. See Note 13 for additional information.

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 54% and 55% of TLLP’s total revenues for the three and nine months ended September 30, 2015 and 86% and 87% for the three and nine months ended September 30, 2014. 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 and nine months ended September 30, 2015 and 2014. There were no revenues for either the three and nine months ended September 30, 2015 or 2014. There were no recorded losses, before and after tax, respectively, for the three months ended September 30, 2015 and $6 million and $4 million, respectively, for the nine months ended September 30, 2015. We recorded losses, before and after tax, of $2 million and $1 million, respectively, for the three months ended September 30, 2014 and $3 million and $2 million, respectively, for the nine months ended September 30, 2014 related to the Hawaii Business. Cash flows used in operating activities were $2 million for both the nine months ended September 30, 2015 and September 30, 2014, respectively. Unless otherwise noted, the information in the notes to the condensed consolidated financial statements relates to our continuing operations.

6

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

New Accounting Standards and Disclosures

Revenue Recognition. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which provides accounting guidance for all revenue arising from contracts to provide goods or services to customers. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017 given the FASB’s recent deferral of ASU 2014-09’s effective date. Entities may choose to early adopt ASU 2014-09 as of the original effective date. The standard allows for either full retrospective adoption or modified retrospective adoption. At this time, we are evaluating the standard to determine the method of adoption and the impact of ASU 2014-09 on our financial statements and related disclosures.

Consolidation.  In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis” (“ASU 2015-02”). This standard modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities.  ASU 2015-02 is effective for interim and annual periods beginning after December 15, 2015, and requires either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. At this time, we are evaluating the potential impact of this standard on our financial statements, as well as the available transition methods.

Debt Issuance Costs. In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest” (“ASU 2015-03”), which will simplify the presentation of debt issuance costs. Under ASU 2015-03, 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 reflects a reclassification of unamortized debt issuance costs from other noncurrent assets to debt. ASU 2015-03 is effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. We adopted this standard in the first quarter of 2015 and applied the changes retrospectively to prior periods presented. The adoption of this standard 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$80 millionare recorded as a reduction to debt on the balance sheet at September 30, 2015.

Business Combinations. In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). The standard requires an acquirer to recognize the cumulative impact of adjustments to provisional purchase price amounts that are identified during the measurement period in the reporting period, in which the adjustment amounts are determined. The standard also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for interim and annual periods beginning after beginning after December 15, 2015 and must be applied prospectively to adjustments that occur after the effective date. Early application is permitted for financial statements that have not been issued.

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 provides us with various pipeline transportation, trucking, terminal distribution, storage and petroleum-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.

Tesoro Logistics GP, LLC (“TLGP”), our wholly-owned subsidiary, serves as the general partner of TLLP. We held an approximate 33% and 36% interest in TLLP at September 30, 2015 and December 31, 2014, respectively, including an approximate 2% general partner interest and all of the incentive distribution rights. This interest at September 30, 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. At the acquisition date, QEPFS held an approximate 56% limited partner interest in QEP Midstream Partners, LP (“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 held 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.

7

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On April 6, 2015, TLLP entered into an Agreement and Plan of Merger with TLGP, QEPFS, TLLP Merger Sub LLC (“Merger Sub”), QEPM, and QEPM GP. TLLP and QEPM completed the transaction, in which the Merger Sub merged with and into QEPM, with QEPM surviving the merger as a wholly owned subsidiary of TLLP (the “Merger”). The Merger transaction was completed on July 22, 2015. Following the Merger, QEPM GP remains the general partner of QEPM, and all outstanding common units representing limited partnership interests in QEPM other than QEPM Common Units held by QEPFS (the “QEPM Common Units”) were converted into the right to receive 0.3088 common units representing limited partnership interests in TLLP (the “TLLP Common Units”). As a result of the Merger, TLLP issued approximately 7.1 million TLLP Common Units to QEPM unitholders. No fractional TLLP Common Units were issued in the Merger, and holders of QEPM Common Units other than QEPFS received cash in lieu of fractional TLLP Common Units. There was no impact to the purchase price allocation as a result of the Merger.

TLLP’s allocation of the Rockies Natural Gas Business acquisition’s $2.5 billion purchase price remains preliminary as of September 30, 2015. During the nine months ended September 30, 2015, the original purchase price was increased by $6 million for the settlement of acquisition date net working capital amounts. 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 September 30, 2015 (in millions):

Cash	$	32
Accounts receivable	120
Prepayments and other	8
Property, plant and equipment	1,735
Acquired intangibles	976
Other noncurrent assets (a)	228
Accounts payable	(67		)
Other current liabilities	(51		)
Other noncurrent liabilities	(33		)
Noncontrolling interest	(432		)
Total Purchase Price	$	2,516

____________________

(a) Other noncurrent assets include $148 million of goodwill.

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 September 30,		Nine Months Ended September 30,
	2015	2014	2015	2014
Weighted average common shares outstanding	122.5	127.9	124.3	129.5
Common stock equivalents	1.3	1.8	1.4	2.2
Total Diluted Shares	123.8	129.7	125.7	131.7

Potentially dilutive common stock equivalents are excluded from the calculation of diluted earnings per share if the effect of including such securities in the calculation would have been anti-dilutive. Anti-dilutive securities were 0.1 millionfor both the three months ended September 30, 2015 and 2014, and 0.6 millionand 0.1 million for the nine months ended September 30, 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):

	September 30, 2015		December 31, 2014
Domestic crude oil and refined products	$	2,125	$	1,930
Foreign subsidiary crude oil	190		351
Other inventories	192		158
Total Inventories	$	2,507	$	2,439

Due to a lower crude oil and refined product pricing environment experienced since the end of 2014, we recorded a lower of cost or market adjustment to cost of sales of $83 million at September 30, 2015 for our crude oil, refined products, oxygenates and by-product inventories. At December 31, 2014, we recorded a $42 million lower of cost or market adjustment for the same type of inventories, which was reversed in the first quarter of 2015 as the inventories associated with the adjustment at the end of 2014 were sold or used during the first quarter of 2015.

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

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

	September 30, 2015			December 31, 2014
Refining	$	7,449		$	6,994
TLLP	3,789			3,551
Marketing	842			834
Corporate	261			254
Property, Plant and Equipment, at Cost	12,341			11,633
Accumulated depreciation	(2,914		)	(2,588		)
Net Property, Plant and Equipment	$	9,427		$	9,045

We capitalize interest as part of the cost of major projects during the construction period. Capitalized interest totaled $9 million and $7 million for the three months ended September 30, 2015 and 2014, respectively, and $27 million and $17 million for the nine months ended September 30, 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, marketing 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 September 30, 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	September 30, 2015			December 31, 2014			September 30, 2015			December 31, 2014
Commodity Futures Contracts	Prepayments and other current assets	$	902		$	1,201		$	870		$	1,025
Commodity OTC Swap    Contracts	Receivables	3			—			—			—
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		907			1,204			871			1,027
Less: Counterparty Netting and    Cash Collateral (a)		(859		)	(1,136		)	(870		)	(1,024		)
Total Net Fair Value of Derivatives		$	48		$	68		$	1		$	3

________________

(a) Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously. As of September 30, 2015, we had provided cash collateral amounts of $11 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 and nine months ended September 30, 2015 and 2014 were as follows (in millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Commodity Futures Contracts	$	145		$	167		$	102		$	90
Commodity OTC Swap Contracts	7			(2		)	5			(5		)
Commodity Forward Contracts	1			1			15			5
Foreign Currency Forward Contracts	(3		)	(3		)	(5		)	(3		)
Total Gain on Mark-to-Market Derivatives	$	150		$	163		$	117		$	87

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 September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues	$	30		$	6		$	28		$	7
Cost of sales	123			160			94			83
Other expense, net	(3		)	(3		)	(5		)	(3		)
Total Gain on Mark-to-Market Derivatives	$	150		$	163		$	117		$	87

Open Long (Short) Positions

The information below presents the net volume of outstanding commodity and other contracts by type of instrument, year of maturity and unit of measure as of September 30, 2015 (units in thousands):

	Contract Volumes by Year of Maturity			Unit of Measure
Mark-to-Market Derivative Instrument	2015	2016	2017
Crude oil, refined products and blending products:
Futures - short	(5,311)	(1,050)	—	Barrels
OTC Swaps - long	1,100	900	—	Barrels
Forwards - long	250	—	—	Barrels
Carbon emissions credits:
Futures - long	175	1,000	1,000	Tons
Corn:
Futures - short	(4,270)	—	—	Bushels

At September 30, 2015, we had open Forward Contracts to purchase CAD $20 million that were settled on October 26, 2015.

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 using quoted prices in active markets for identical assets and liabilities. Level 2 instruments are valued using 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. Our level 2 instruments include derivatives valued using market quotations from independent price reporting agencies, third-party brokers and commodity exchange price curves that are corroborated with market data. Level 3 instruments are valued using significant unobservable inputs that are not supported by sufficient market activity. We do not have any financial assets or liabilities classified as level 3 at September 30, 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):

	September 30, 2015
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	896	$	6	$	—	$	(859	)	$	43
Commodity OTC Swap Contracts	—		3		—		—			3
Commodity Forward Contracts	—		2		—		—			2
Total Assets	$	896	$	11	$	—	$	(859	)	$	48
Liabilities:
Commodity Futures Contracts	$	867	$	3	$	—	$	(870	)	$	—
Commodity Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		17		—		—			17
Total Liabilities	$	867	$	21	$	—	$	(870	)	$	18

	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 September 30, 2015, we had provided cash collateral amounts of $11 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.

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 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”) and the TLLP senior secured revolving credit agreement (the “TLLP Revolving 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$3.9 billion and $4.3 billion at September 30, 2015 and December 31, 2014, respectively, and the fair values of our debt were approximately $3.8 billion and $4.3 billion at September 30, 2015 and December 31, 2014, respectively. These carrying and fair values of our debt do not consider the unamortized issuance costs, which are netted against 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 September 30, 2015 and December 31, 2014 was as follows (in millions):

	September 30, 2015			December 31, 2014
Total debt (a)	$	3,873		$	4,255
Unamortized issuance costs (b) (c)	(76		)	(88		)
Current maturities	(6		)	(6		)
Debt, Net of Current Maturities and Unamortized Issuance Costs	$	3,791		$	4,161

________________

(a) Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was $2.6 billion at both September 30, 2015 and December 31, 2014.

(b) Includes unamortized premium associated with TLLP’s 5.875% Senior Notes due 2020 of $4 million and $5 million as of September 30, 2015 and December 31, 2014, respectively.

(c) The Company adopted ASU 2015-03 in the first quarter of 2015 and applied the changes retrospectively to the prior period presented. See Note 1 for further discussion.

Revolving Credit Facilities

We had available capacity under our credit facilities as follows at September 30, 2015 (in millions):

	Total Capacity		Amount Borrowed as of September 30, 2015		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (a)	$	3,000	$	—	$	76	$	2,924	November 18, 2019
TLLP Revolving Credit Facility	900		280		—		620		December 2, 2019
Letter of Credit Facilities	1,895		—		189		1,706
Total Credit Facilities	$	5,795	$	280	$	265	$	5,250

________________

(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.

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 97% of the eligible borrowing base at September 30, 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.

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 $189 million outstanding as of September 30, 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.

13

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

TLLP Revolving Credit Facility. The TLLP Revolving Credit Facility provided for total loan availability of $900 million as of September 30, 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 Rendezvous Gas Services L.L.C., 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 $280 million in borrowings outstanding under the TLLP Revolving Credit Facility, which incurred interest at a weighted average interest rate of 2.69% at September 30, 2015. TLLP had unused credit availability of approximately 69% of the borrowing capacity at September 30, 2015.

Tesoro Debt Repayments

During August 2015, we voluntarily repaid our obligation of$398 million under the Term Loan Facility in its entirety with available cash on hand. The Term Loan Facility originally funded a portion of the acquisition of BP’s integrated Southern California refining, marketing and logistics business (“The Los Angeles Acquisition”) and was scheduled to mature on May 30, 2016. Amounts paid on the Term Loan Facility cannot be re-borrowed.

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 $60 million during the nine months ended September 30, 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 and nine months ended September 30, 2015 and 2014 were (in millions):

	Pension Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Service cost	$	11		$	12		$	34		$	38
Interest cost	7			7			22			24
Expected return on plan assets	(7		)	(6		)	(20		)	(21		)
Amortization of prior service cost	1			—			1			1
Recognized net actuarial loss	6			3			18			10
Net Periodic Benefit Expense	$	18		$	16		$	55		$	52
	Other Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Service cost	$	—		$	—		$	2		$	2
Interest cost	1			1			2			2
Amortization of prior service credit	(8		)	(8		)	(25		)	(25		)
Recognized net actuarial loss	1			1			3			4
Net Periodic Benefit Income	$	(6	)	$	(6	)	$	(18	)	$	(17	)

14

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10 - COMMITMENTS AND CONTINGENCIES

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$229 million and $274 million at September 30, 2015 and December 31, 2014, respectively, including $15 millionand $32 million for TLLP, respectively. These accruals include $196 million and $216 million at September 30, 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.

On July 10, 2015, a federal court issued an order denying coverage pursuant to insurance policies for environmental remediation liabilities at our Martinez refinery and those liabilities are included in our accruals above. The insurer had filed a declaratory relief action challenging coverage of the primary policy assigned to us when we acquired the refinery. The policies provide for coverage up to $190 million for expenditures in excess of $50 million in self-insurance. We have not recognized possible insurance recoveries under the policies and have appealed the order.

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 a citation 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 (“BIIA”) Judge granted partial summary judgment in our favor rejecting 33 of the original 44 allegations in the citation as lacking legal or evidentiary support. A hearing on the remaining 11 allegations started on July 21, 2015, and we expect the Judge to issue a recommended decision for the BIIA’s review in 2016. While we cannot currently estimate the final amount or timing of the resolution of this matter, we have established an accrual based on our best estimate at this time.

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

15

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Environmental. The EPA has alleged that we have violated certain Clean Air Act regulations at our Alaska, Washington, Martinez, North Dakota and Utah refineries. We also retained the responsibility for resolving similar allegations relating to our former Hawaii refinery, which we sold in September 2013. We previously received a NOV in March 2011 from the EPA alleging violations of Title V of the Clean Air Act at our Alaska refinery, which arose from a 2007 state of Alaska inspection and inspections by the EPA in 2008 and 2010. We also previously received NOVs in 2005 and 2008 alleging violations of the Clean Air Act at our Washington refinery. We are continuing discussions of all of these 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 us, 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, results of operations 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 based on our best estimate at this time 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.

Unrecognized tax benefits increased by approximately $150 million in the second quarterof 2015 for tax positions taken on amended returns filed for 2006-2010. The positions taken exclude certain tax credits, for blending biofuels into refined products, from taxable income. These tax credits were received from the federal government during the years being amended. However, due to the complex and uncertain nature of the issue, we are unable to conclude that it is more likely than not that we will sustain the claims. Therefore, we have neither recognized a tax benefit, nor recorded a receivable for this item.

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.

16

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 - STOCKHOLDERS’ EQUITY

Changes to equity during the nine months ended September 30, 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	1,486			121			1,607
Purchases of common stock	(494		)	—			(494		)
Dividend payments	(169		)	—			(169		)
Net effect of amounts related to equity-based compensation (b)	34			4			38
Net proceeds from issuance of Tesoro Logistics LP common units	—			71			71
Distributions to noncontrolling interest	—			(135		)	(135		)
Transfers to (from) Tesoro paid-in capital related to:
TLLP’s issuance of common units	59			(94		)	(35		)
Balance at September30, 2015 (a)	$	5,370		$	2,489		$	7,859

________________

(a) We have 5.0 million shares of preferred stock authorized with no par value per share. No shares of preferred stock were outstanding as of September 30, 2015 and December 31, 2014.

(b) We issued approximately 0.3 million shares and 0.5 million shares during the nine months ended September 30, 2015 and 2014 for proceeds of $12 million and $14 million, respectively, primarily for stock option exercises under our equity-based compensation plans. See Note 12 for more information on stock-based compensation.

Share Repurchases

We are authorized by our Board of Directors (the “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 5.5 million shares and 6.2 million shares of our common stock for approximately $494 million and $350 million during the nine months ended September 30, 2015 and 2014, respectively.

Cash Dividends

We paid cash dividends totaling $62 million and $169 million for the three and nine months ended September 30, 2015, respectively, based on a $0.50 per share and $0.425 per share quarterly cash dividend on common stock in the third and first two quarters, respectively. We paid cash dividends totaling $39 million and $104 million for the three and nine months ended September 30, 2014, respectively, based on a $0.30 per share and $0.25 per share quarterly cash dividend on common stock in the third quarter and first two quarters respectively. On October 27, 2015, our Board declared a cash dividend of $0.50 per share payable on December 15, 2015 to shareholders of record on November 30, 2015.

17

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 12 - STOCK-BASED COMPENSATION

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Stock appreciation rights (a)	$	10	$	4	$	20	$	(2	)
Performance share awards (b)	3		3		9		7
Market stock units (c)	7		4		19		12
Other stock-based awards (d)	2		1		9		3
Total Stock-Based Compensation Expense	$	22	$	12	$	57	$	20

____________________

(a) We paid cash of $37 million and $22 million to settle 0.5 million and 0.8 million SARs that were exercised during the nine months ended September 30, 2015 and 2014, respectively. We had $43 million and $60 million recorded in accrued liabilities associated with our SARs awards at September 30, 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 nine months ended September 30, 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 nine months ended September 30, 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 $8 million and $7 million for the three months ended September 30, 2015 and 2014, respectively, and a benefit of $22 million and $9 million for the nine months ended September 30, 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 $8 million and $7 million for the three months ended September 30, 2015 and 2014, respectively, and $71 million and $41 million for the nine months ended September 30, 2015 and 2014, respectively.

NOTE 13 - OPERATING SEGMENTS

Our branded operations represented the assets and operations that were previously shown as the retail segment. In previous periods, a portion of our marketing business related to sales in unbranded or wholesale channels that were presented within our refining operating segment. Upon considering the changes in our business, including the transition from company-owned retail operations to multi-site operator model, we assessed how our chief operating decision maker evaluates the business, assesses performance and allocates resources. From this analysis, we believed the presentation of a marketing segment inclusive of both unbranded and branded marketing operations was appropriate. As of the second quarter 2015, we revised our operating segments to include refining, TLLP and a realigned marketing segment. Comparable prior period information has been recast to reflect our revised segment presentation. No other changes were deemed necessary to our refining and TLLP segments.

Our refining segment owns and operates 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, to our marketing segment 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 marketing segment sells gasoline and diesel fuel through branded MSOs and jobber/dealers in 16 states as well as unbranded or wholesale channels through terminal facilities and other locations. 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. TLLP and marketing revenues include intersegment transactions with our refining segment. Income taxes, other income, net, interest and financing costs, net, corporate depreciation and corporate general and administrative expenses are excluded from segment operating income.

18

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Segment information related to continuing operations is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(In millions)
Revenues
Refining:
Refined products	$	6,966		$	10,363		$	20,293		$	30,353
Crude oil resales and other	172			434			780			1,060
TLLP:
Gathering	87			32			253			84
Processing	71			—			205			—
Terminalling and transportation	124			118			362			326
Marketing:
Fuel (a)	5,144			6,501			14,143			18,814
Other non-fuel (b)	16			73			48			203
Intersegment sales	(4,837		)	(6,370		)	(13,646		)	(18,652		)
Total Revenues	$	7,743		$	11,151		$	22,438		$	32,188
Segment Operating Income
Refining (c)	$	895		$	536		$	1,831		$	1,074
TLLP (d)	112			61			329			169
Marketing (c)	379			180			724			292
Total Segment Operating Income	1,386			777			2,884			1,535
Corporate and unallocated costs (e)	(94		)	(75		)	(243		)	(185		)
Operating Income	1,292			702			2,641			1,350
Interest and financing costs, net (f)	(54		)	(50		)	(163		)	(168		)
Other income, net (g)	19			11			21			13
Earnings Before Income Taxes	$	1,257		$	663		$	2,499		$	1,195
Depreciation and Amortization Expense
Refining	$	132		$	112		$	373		$	317
TLLP	44			18			132			51
Marketing	11			10			34			30
Corporate	5			4			14			11
Total Depreciation and Amortization Expense	$	192		$	144		$	553		$	409
Capital Expenditures
Refining	$	153		$	118		$	485		$	280
TLLP	92			63			235			137
Marketing	8			9			20			27
Corporate	6			4			16			20
Total Capital Expenditures	$	259		$	194		$	756		$	464

______________________

(a) Federal and state motor fuel taxes on sales by our marketing segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $137 million and $148 million for the three months ended September 30, 2015 and 2014, respectively, and $423 million and $441 million for the nine months ended September 30, 2015 and 2014, respectively.

(b) Primarily includes rental income for the three and nine months ended September 30, 2015 and primarily merchandise revenue for the three and nine months ended September 30, 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 marketing 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 marketing 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 marketing segments for the three or nine month periods ended September 30, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $35 million and $94 million with a corresponding increase to operating income in our marketing segment for the three and nine months ended September 30, 2014, respectively.

19

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(d) We present TLLP’s segment operating income net of general and administrative expenses totaling $16 million and $6 million representing TLLP’s corporate costs for the three months ended September 30, 2015 and 2014, respectively, and $43 million and $14 million for the nine months ended September 30, 2015 and 2014, respectively that are not allocated by TLLP to its operating segments.

(e) Includes stock-based compensation expense of $22 million and $12 million for the three months ended September 30, 2015 and 2014, respectively, and $57 million and $20 million for the nine months ended September 30, 2015 and 2014, respectively. The significant impact to stock-based compensation expense during the three and nine months ended September 30, 2015 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

(f) Includes charges totaling $41 million for premiums and unamortized debt issuance costs associated with the redemption of the 5.50% Senior Notes due 2019 during the nine months ended September 30, 2014.

(g) During the three and nine months ended September 30, 2015, we recorded a gain of $11 million as other income for insurance proceeds related to the settlement of claims associated with the Washington Refinery Fire.

The following table details our identifiable assets related to continuing operations:

	September 30, 2015		December 31, 2014
Identifiable Assets Related to Continuing Operations:	(In millions)
Refining	$	9,521	$	9,467
TLLP	4,851		4,765
Marketing	1,115		1,048
Corporate	1,114		1,211
Total Assets	$	16,601	$	16,491

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 September 30, 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 33% ownership interest as of September 30, 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 and nine months ended September 30, 2015 and 2014.

20

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Operations

for the Three Months EndedSeptember 30, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Revenues	$	—		$	8,574		$	1,054		$	(1,885	)	$	7,743
Costs and Expenses:
Cost of sales	—			6,574			748			(1,751		)	5,571
Operating, selling, general and administrative expenses	2			679			137			(134		)	684
Depreciation and amortization expense	—			147			45			—			192
Loss on asset disposals and impairments	—			4			—			—			4
Operating Income (Loss)	(2		)	1,170			124			—			1,292
Equity in earnings of subsidiaries	776			38			—			(814		)	—
Interest and financing costs, net	(11		)	(17		)	(26		)	—			(54		)
Other income, net	—			17			2			—			19
Earnings Before Income Taxes	763			1,208			100			(814		)	1,257
Income tax expense (a)	4			443			11			—			458
Net Earnings	759			765			89			(814		)	799
Less: Net earnings from continuing operations attributable    to noncontrolling interest	—			—			40			—			40
Net Earnings Attributable to Tesoro Corporation	$	759		$	765		$	49		$	(814	)	$	759
Comprehensive Income
Total comprehensive income	$	759		$	765		$	89		$	(814	)	$	799
Less: Noncontrolling interest in comprehensive income	—			—			40			—			40
Comprehensive Income Attributable to Tesoro    Corporation	$	759		$	765		$	49		$	(814	)	$	759

_________________

(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.

21

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Operations

for the Three Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Revenues	$	—		$	12,528		$	1,671		$	(3,048	)	$	11,151
Costs and Expenses:
Cost of sales	—			11,076			1,504			(2,986		)	9,594
Operating, selling, general and administrative expenses	2			692			78			(62		)	710
Depreciation and amortization expense	—			125			19			—			144
Loss on asset disposals and impairments	—			1			—			—			1
Operating Income (Loss)	(2		)	634			70			—			702
Equity in earnings of subsidiaries	405			11			—			(416		)	—
Interest and financing costs, net	(10		)	(22		)	(18		)	—			(50		)
Other income, net	—			11			—			—			11
Earnings Before Income Taxes	393			634			52			(416		)	663
Income tax expense (benefit) (a)	(3		)	241			11			—			249
Net Earnings from Continuing Operations	396			393			41			(416		)	414
Loss from discontinued operations, net of tax	—			(1		)	—			—			(1		)
Net Earnings	396			392			41			(416		)	413
Less: Net earnings from continuing operations attributable    to noncontrolling interest	—			—			17			—			17
Net Earnings Attributable to Tesoro Corporation	$	396		$	392		$	24		$	(416	)	$	396
Comprehensive Income
Total comprehensive income	$	396		$	392		$	41		$	(416	)	$	413
Less: Noncontrolling interest in comprehensive income	—			—			17			—			17
Comprehensive Income Attributable to Tesoro    Corporation	$	396		$	392		$	24		$	(416	)	$	396

_________________

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

22

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Operations

for the Nine Months EndedSeptember 30, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Revenues	$	—		$	24,573		$	2,718		$	(4,853	)	$	22,438
Costs and Expenses:
Cost of sales	—			19,903			1,874			(4,468		)	17,309
Operating, selling, general and administrative expenses	8			1,905			395			(385		)	1,923
Depreciation and amortization expense	—			417			136			—			553
Loss on asset disposals and impairments	—			12			—			—			12
Operating Income (Loss)	(8		)	2,336			313			—			2,641
Equity in earnings of subsidiaries	1,523			102			—			(1,625		)	—
Interest and financing costs, net	(32		)	(52		)	(79		)	—			(163		)
Other income (expense), net	1			14			6			—			21
Earnings Before Income Taxes	1,484			2,400			240			(1,625		)	2,499
Income tax expense (benefit) (a)	(2		)	863			27			—			888
Net Earnings from Continuing Operations	1,486			1,537			213			(1,625		)	1,611
Loss from discontinued operations, net of tax	—			(4		)	—			—			(4		)
Net Earnings	1,486			1,533			213			(1,625		)	1,607
Less: Net earnings from continuing operations attributable    to noncontrolling interest	—			—			121			—			121
Net Earnings Attributable to Tesoro Corporation	$	1,486		$	1,533		$	92		$	(1,625	)	$	1,486
Comprehensive Income
Total comprehensive income	$	1,486		$	1,533		$	213		$	(1,625	)	$	1,607
Less: Noncontrolling interest in comprehensive income	—			—			121			—			121
Comprehensive Income Attributable to Tesoro    Corporation	$	1,486		$	1,533		$	92		$	(1,625	)	$	1,486

_________________

(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.

23

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Operations

for the Nine Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Revenues	$	—		$	36,821		$	5,110		$	(9,743	)	$	32,188
Costs and Expenses:
Cost of sales	—			33,312			4,668			(9,571		)	28,409
Operating, selling, general and administrative expenses	6			1,981			207			(172		)	2,022
Depreciation and amortization expense	—			355			54			—			409
(Gain) loss on asset disposals and impairments	—			3			(5		)	—			(2		)
Operating Income (Loss)	(6		)	1,170			186			—			1,350
Equity in earnings of subsidiaries	722			38			—			(760		)	—
Interest and financing costs, net	(27		)	(105		)	(36		)	—			(168		)
Other income, net	2			11			—			—			13
Earnings Before Income Taxes	691			1,114			150			(760		)	1,195
Income tax expense (benefit) (a)	(7		)	419			25			—			437
Net Earnings from Continuing Operations	698			695			125			(760		)	758
Loss from discontinued operations, net of tax	—			(2		)	—			—			(2		)
Net Earnings	698			693			125			(760		)	756
Less: Net earnings from continuing operations attributable    to noncontrolling interest	—			—			58			—			58
Net Earnings Attributable to Tesoro Corporation	$	698		$	693		$	67		$	(760	)	$	698
Comprehensive Income
Total comprehensive income	$	698		$	693		$	125		$	(760	)	$	756
Less: Noncontrolling interest in comprehensive income	—			—			58			—			58
Comprehensive Income Attributable to Tesoro    Corporation	$	698		$	693		$	67		$	(760	)	$	698

_________________

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

24

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Balance Sheet as of September 30, 2015

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	926	$	33	$	—		$	959
Receivables, net of allowance for doubtful accounts	—		802		214		—			1,016
Short-term receivables from affiliates	—		73		—		(73		)	—
Inventories	—		2,315		192		—			2,507
Prepayments and other current assets	51		107		18		—			176
Total Current Assets	51		4,223		457		(73		)	4,658
Net Property, Plant and Equipment	—		5,926		3,501		—			9,427
Investment in Subsidiaries	8,125		449		—		(8,574		)	—
Long-Term Receivables from Affiliates	1,653		—		—		(1,653		)	—
Long-Term Intercompany Note Receivable	—		—		1,376		(1,376		)	—
Other Noncurrent Assets:
Acquired intangibles, net	—		237		953		—			1,190
Other, net	6		1,085		235		—			1,326
Total Other Noncurrent Assets, Net	6		1,322		1,188		—			2,516
Total Assets	$	9,835	$	11,920	$	6,522	$	(11,676	)	$	16,601
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	26	$	1,546	$	217	$	—		$	1,789
Short-term payables to affiliates	—		—		73		(73		)	—
Other current liabilities	208		705		150		—			1,063
Total Current Liabilities	234		2,251		440		(73		)	2,852
Long-Term Payables to Affiliates	—		1,587		66		(1,653		)	—
Deferred Income Taxes	1,256		—		—		—			1,256
Other Noncurrent Liabilities	411		380		52		—			843
Debt, net of unamortized issuance costs	1,188		34		2,569		—			3,791
Long-Term Intercompany Note Payable	1,376		—		—		(1,376		)	—
Equity-Tesoro Corporation	5,370		7,668		906		(8,574		)	5,370
Equity-Noncontrolling Interest	—		—		2,489		—			2,489
Total Liabilities and Equity	$	9,835	$	11,920	$	6,522	$	(11,676	)	$	16,601

25

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		Consolidating Adjustments			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

26

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Cash Flows for the Nine Months EndedSeptember 30, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities	$	(14	)	$	1,462		$	399		$	—		$	1,847
Cash Flows From (Used In) Investing Activities
Capital expenditures	—			(530		)	(243		)	—			(773		)
Acquisitions	—			—			(6		)	—			(6		)
Intercompany notes, net	1,075			—			—			(1,075		)	—
Other investing activities	—			(4		)	—			—			(4		)
Net cash from (used in) investing activities	1,075			(534		)	(249		)	(1,075		)	(783		)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	—			—			346			—			346
Repayments on revolving credit agreements	—			—			(326		)	—			(326		)
Repayments of debt	(398		)	(4		)	—			—			(402		)
Dividend payments	(169		)	—			—			—			(169		)
Net proceeds from issuance of Tesoro Logistics LP    common units	—			—			71			—			71
Distributions to noncontrolling interest	—			—			(135		)	—			(135		)
Purchases of common stock	(494		)	—			—			—			(494		)
Net intercompany repayments	—			(996		)	(79		)	1,075			—
Distributions to TLLP unitholders and general partner	33			18			(51		)	—			—
Other financing activities	(33		)	37			—			—			4
Net cash from (used in) financing activities	(1,061		)	(945		)	(174		)	1,075			(1,105		)
Decrease in Cash And Cash Equivalents	—			(17		)	(24		)	—			(41		)
Cash and Cash Equivalents, Beginning of Period	—			943			57			—			1,000
Cash and Cash Equivalents, End of Period	$	—		$	926		$	33		$	—		$	959

27

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities	$	(31	)	$	926		$	152		$	—		$	1,047
Cash Flows From (Used In) Investing Activities
Capital expenditures	—			(341		)	(136		)	—			(477		)
Acquisitions	—			(17		)	—			—			(17		)
Intercompany notes, net	261			—			—			(261		)	—
Other investing activities	—			1			10			—			11
Net cash from (used in) investing activities	261			(357		)	(126		)	(261		)	(483		)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	—			—			295			—			295
Proceeds from debt offering	300			—			—			—			300
Repayments on revolving credit agreements	—			—			(52		)	—			(52		)
Repayments of debt	(300		)	(2		)	(131		)	—			(433		)
Dividend payments	(104		)	—			—			—			(104		)
Net proceeds from issuance of Tesoro Logistics LP    common units	—			—			156			—			156
Distributions to noncontrolling interest	—			—			(63		)	—			(63		)
Purchases of common stock	(350		)	—			—			—			(350		)
Net intercompany repayments	—			(324		)	63			261			—
Borrowings from general partner	243			—			(243		)	—			—
Distributions to TLLP unitholders and general partner	13			15			(28		)	—			—
Other financing activities	(32		)	19			(8		)	—			(21		)
Net cash used in financing activities	(230		)	(292		)	(11		)	261			(272		)
Increase in Cash And Cash Equivalents	—			277			15			—			292
Cash and Cash Equivalents, Beginning of Period	—			1,161			77			—			1,238
Cash and Cash Equivalents, End of Period	$	—		$	1,438		$	92		$	—		$	1,530

28

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

Those statements in this section that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See “Important Information Regarding Forward-Looking Statements” section 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, thus far, we have 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.	•	•			•
Completed a safe restart of the Martinez refinery in late March 2015.	•				•
Completed the second phase of the Salt Lake City refinery expansion and Waxy Crude Oil Project.		•		•	•
TLLP completed the merger with QEPM, furthering the integration of the Rockies Natural Gas Business assets within the midstream and downstream value chain.				•
Purchased 5.5 million shares of our common stock and paid $0.50 and $0.425 per share dividends in the third and first two quarters, respectively.			•
Continued to upgrade our crude oil rail car fleet by adding enhanced tank cars that exceed new safe transport standards issued by the Department of Transportation.	•				•
Modified Anacortes refinery crude tower during second quarter turnaround allowing increased throughput totaling 125 Mbpd in the third quarter.	•	•		•	•
Processed over 2 million barrels of additional crude oil at the Los Angeles refinery during a third quarter hydrocracker turnaround versus past events, demonstrating the synergy and integration efforts.	•	•		•	•
Added pipeline interconnects at the Los Angeles refinery, enabling further movements between assets and reduced dependence on third party systems.		•
Successful launch of a new ARCO Consumer Value Proposition: “ARCO has Top Tier gasoline for less” leading to solid gains in improving ARCO fuel quality perceptions and increasing fuel volumes in our key markets.		•		•	•

29

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. During the first nine months of 2015, we estimate that we delivered approximately $505 million towards our ongoing initiatives around synergies and business improvement objectives, including approximately $130 million related to West Coast improvements, approximately $120 million related to enhanced gross margins, and approximately $255 million from growing our logistics operations. These initiatives focus on improving capture rates and managing our costs to drive improvements in operating income. Our 2015 achievements include the following:

• Benefited from Los Angeles improvements including:

◦ Crude optimizations from sourcing new crudes;

◦ Crude blending capabilities at the Carson crude terminal that resulted in higher throughput volumes;

◦ New cargo sharing with our Martinez, California refinery; and

◦ Improved pipeline connectivity between the Los Angeles refinery sites.

• Re-distributed in-bound crude oil to our Kenai, Alaska refinery during maintenance and turnaround activities at our Anacortes, Washington refinery to optimize inventory utilization.

• Completed the second phase expansion of the waxy crude project at our Salt Lake City, Utah refinery.

Current Market Conditions

The markets in which we operate have continued to experience extreme domestic volatility, with the price of crude oil dropping more than 50% over the last twelve months. Slowing growth in domestic U.S. crude oil production, supply outages, changing logistical infrastructure as well as improving domestic macroeconomic conditions have influenced all portions of our business. Supply to the West Coast market has been impacted this year by work stoppages and several unplanned outages at refineries, including some of our facilities. During this same time period, lower gasoline and energy prices, along with improving employment have led to higher domestic demand. These factors have helped move towards an above average margin environment in our regions. During the third quarter, we saw crude oil volatility resume compared to the second quarter, as well as further declines in crude production growth, leading towards narrowing regional crude differentials. Weaker seasonal product demand and higher utilization rates resulted in a decline to a more average refining margin environment in the latter part of the third quarter and to-date in the fourth quarter. We continue to monitor the impact of these changes in market prices and fundamentals on our business including values recognized in connection with the recently acquired Rockies Natural Gas Business.

The global energy markets have also experienced volatility due to increasing demand for refined products and increasing worldwide crude oil supply. The market for crude oil, natural gas and refined products 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. We expect these global demand and supply imbalances to drive continued volatility in our markets.

Tesoro Logistics LP (“TLLP”)

TLLP was formed to own, operate, develop and acquire logistics assets to gather crude oil and natural gas, to distribute, transport and store crude oil and refined products and to process and fractionate natural gas and natural gas liquids (“NGL”).Tesoro Logistics GP, LLC (“TLGP”), a wholly-owned consolidated subsidiary, serves as the general partner of TLLP. We held an approximate 33% interest in TLLP at September 30, 2015, including an approximate 2% general partner interest and all of the incentive distribution rights. In the first nine months of 2015, 55% 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.

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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:

◦ further expanding capacity and capability of TLLP’s common carrier pipeline in North Dakota and Montana;

◦ expanding TLLP’s gathering footprint in the Bakken region, including crude oil, natural gas and water, to enhance and improve overall basin logistic efficiencies;

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

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

• 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 terminalling and transportation assets; and

• expand and optimize TLLP’s acquired assets in the Rockies Natural Gas Business acquisition.

Total market value of TLLP units held by Tesoro was $1.3 billion and $1.7 billion at September 30, 2015 and December 31, 2014, respectively. At September 30, 2015, Tesoro held 28,181,748 common units at a market value of $45.00 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 and nine months ended September 30, 2015 and 2014, cash distributions received from TLLP, including incentive distribution rights, is as follows (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Cash distributions received from TLLP (a):
For common/subordinated units held	$	20	$	12	$	58	$	34
For general partner units held	18		8		48		21
Total Cash Distributions Received from TLLP	$	38	$	20	$	106	$	55

__________________

(a) Represents distributions received from TLLP during the three and nine months ended September 30, 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 a 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 $4 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 November 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.

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RESULTS OF OPERATIONS

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

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

Our branded operations represented the assets and operations that were previously shown as the retail segment. In previous periods, a portion of our marketing business related to sales in unbranded or wholesale channels that were presented within our refining operating segment. Upon considering the changes in our business including the transition from company-owned retail operations to multi-site operator model, we assessed how our chief operating decision maker evaluates the business, assesses performance and allocates resources. From this analysis, we believed the presentation of a marketing segment inclusive of both unbranded and branded marketing operations was appropriate. As of the second quarter 2015, we revised our operating segments to include refining, TLLP and a realigned marketing segment. Comparable prior period information has been recast to reflect our revised segment presentation. No other changes were deemed necessary to our refining and TLLP segments.

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. At the acquisition date, QEPFS held 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 held a 2% general partner interest and all of the incentive distribution rights in QEPM. In July 2015, TLLP and QEPM completed the merger, in which QEPM became a wholly owned subsidiary of TLLP. All intercompany transactions with TLLP and QEPM are eliminated upon consolidation.

Certain 2014 period EBITDA financial information has been revised to conform with EBITDA and Adjusted EBITDA presentation disclosed by TLLP on a standalone basis.

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Summary

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(In millions, except per share amounts)
Revenues	$	7,743		$	11,151		$	22,438		$	32,188
Costs and Expenses:
Cost of sales	5,571			9,594			17,309			28,409
Operating expenses	589			624			1,676			1,813
Selling, general and administrative expenses	95			86			247			209
Depreciation and amortization expense	192			144			553			409
(Gain) loss on asset disposals and impairments	4			1			12			(2		)
Operating Income	1,292			702			2,641			1,350
Interest and financing costs, net	(54		)	(50		)	(163		)	(168		)
Other income, net	19			11			21			13
Earnings Before Income Taxes	1,257			663			2,499			1,195
Income tax expense	458			249			888			437
Net Earnings from Continuing Operations	799			414			1,611			758
Loss from discontinued operations, net of tax	—			(1		)	(4		)	(2		)
Net Earnings	799			413			1,607			756
Less: Net earnings from continuing operations attributable to    noncontrolling interest	40			17			121			58
Net Earnings Attributable to Tesoro Corporation	$	759		$	396		$	1,486		$	698
Net Earnings (Loss) Attributable to Tesoro Corporation
Continuing operations	$	759		$	397		$	1,490		$	700
Discontinued operations	—			(1		)	(4		)	(2		)
Total	$	759		$	396		$	1,486		$	698
Net Earnings (Loss) per Share - Basic:
Continuing operations	$	6.19		$	3.11		$	11.98		$	5.41
Discontinued operations	—			(0.01		)	(0.03		)	(0.02		)
Total	$	6.19		$	3.10		$	11.95		$	5.39
Weighted average common shares outstanding - Basic	122.5			127.9			124.3			129.5
Net Earnings (Loss) per Share - Diluted:
Continuing operations	$	6.13		$	3.06		$	11.85		$	5.32
Discontinued operations	—			(0.01		)	(0.03		)	(0.02		)
Total	$	6.13		$	3.05		$	11.82		$	5.30
Weighted average common shares outstanding - Diluted	123.8			129.7			125.7			131.7

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	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(In millions)
Reconciliation of Net Earnings to EBITDA and    Adjusted EBITDA
Net earnings	$	799		$	413		$	1,607		$	756
Loss from discontinued operations, net of tax	—			1			4			2
Depreciation and amortization expense	192			144			553			409
Income tax expense	458			249			888			437
Interest and financing costs, net	54			50			163			168
EBITDA	1,503			857			3,215			1,772
Special items (a)	72			1			44			1
Adjusted EBITDA	$	1,575		$	858		$	3,259		$	1,773
Reconciliation of Cash Flows from Operating Activities    to EBITDA and Adjusted EBITDA
Net cash from operating activities	$	940		$	671		$	1,847		$	1,047
Net cash used in discontinued operations	2			1			2			2
Debt redemption charges	(1		)	(10		)	(1		)	(41		)
Turnaround and branding charges	81			40			248			119
Changes in current assets and current liabilities	26			25			247			228
Income tax expense	458			249			888			437
Stock-based compensation expense	(22		)	(12		)	(57		)	(20		)
Interest and financing costs, net	54			50			163			168
Deferred income tax expense	(111		)	(203		)	(157		)	(227		)
Other	76			46			35			59
EBITDA	1,503			857			3,215			1,772
Special items (a)	72			1			44			1
Adjusted EBITDA	$	1,575		$	858		$	3,259		$	1,773

________________

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015			2014
	(In millions)
Lower of cost or market inventory adjustment (b)	$	83		$	—	$	41		$	—
Throughput deficiency receivables (c)	—			—		13			—
Insurance settlement gain (d)	(11		)	—		(11		)	—
Gain on sale of Boise Terminal (e)	—			—		—			(5		)
Acquisition costs included in general and administrative expenses (f)	—			1		1			1
Inspection and maintenance expenses associated with the Northwest Products    System (g)	—			—		—			5
Total Special Items Included in EBITDA	$	72		$	1	$	44		$	1

________________

(b) We recorded an $83 million lower of cost or market adjustment related to our inventory for the three and nine months ended September 30, 2015. The nine months ended September 30, 2015 also include a benefit of $42 million for the reversal of a lower of cost or market inventory adjustment made in 2014.

(c) During the nine months ended September 30, 2015, TLLP invoiced QEPFS customers for deficiency payments. 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 billings.

(d) During the three and nine months ended September 30, 2015, we recorded a gain of $11 million as other income for insurance proceeds related to the settlement of claims associated with the Washington Refinery Fire.

(e) Includes a gain of $5 million for the nine months ended September 30, 2014 resulting from TLLP’s sale of its Boise terminal.

(f) Reflects acquisition costs included in general and administrative expenses primarily related to the merger of QEPM into TLLP.

(g) Includes costs for detailed inspection and maintenance program on the Northwest Products System Pipeline. The purchase price of

the Northwest Products System was reduced to compensate the Partnership for assuming responsibilities to perform this work.

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Consolidated Results

Selected consolidated operating data and results are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Refined Product Sales (Mbpd) (a)
Gasoline and gasoline blendstocks	530		516		510		511
Diesel fuel	213		223		198		208
Jet fuel	148		146		153		146
Heavy fuel oils, residual products and other	101		87		91		85
Total Refined Product Sales	992		972		952		950
Refined Product Sales Margin ($/barrel) (a) (b)
Average sales price	$	81.92	$	118.75	$	81.84	$	119.04
Average costs of sales	66.35		106.93		67.92		107.77
Refined Product Sales Margin	$	15.57	$	11.82	$	13.92	$	11.27

________________

(a) 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.

(b) Average refined product sales price include all sales through our marketing segment as well as in bulk markets and exports through our refining segment. Average costs of sales and related sales margins include amounts recognized for the sale of refined products manufactured at our refineries along with the sale of refined products purchased from third parties to help fulfill supply commitments.

Three Months EndedSeptember 30, 2015 versus September 30, 2014

Overview. Our net earnings from continuing operations attributable to Tesoro Corporation were $759 million ($6.13 per diluted share) for the three months ended September 30, 2015 (“2015 Quarter”) compared to $397 million ($3.06 per diluted share) for the three months ended September 30, 2014 (“2014 Quarter”).

Gross Margins. Our gross refining margin increased$363 million during the 2015 Quarter compared to the 2014 Quarter driven by a stronger margin environment across the California and Pacific Northwest regions resulting in an overall increase of $5.57 in our gross refining margin per barrel. The increases in gross margin during the 2015 Quarter were partially offset by an $83 million lower of cost or market adjustment related to inventory given the lower price environment we experienced at the end of the third quarter of 2015. Our gross marketing margin increased$183 million primarily driven by favorable market conditions and strong demand. TLLP revenues, net of operating expenses, increased$89 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$35 million to $589 million in the 2015 Quarter compared to the 2014 Quarter primarily due to 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. This was partially offset by increases due to the Rockies Natural Gas Business acquisition. Our selling, general and administrative expenses were $95 million in the 2015 Quarter compared to $86 million in the 2014 Quarter primarily attributable to changes in stock-based compensation expense during the 2015 Quarter as compared to the 2014 Quarter, the majority 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 $22 million due to an increase in the stock price per share during the quarter as compared to the 2014 Quarter results, which included an expense of $12 million due to the increase in the stock price per share during that quarter.

Other income, net. The balance for the 2015 Quarter included a gain for an insurance settlement of $11 million related to the Washington Refinery Fire and $6 million related to equity in earnings of equity method investments. The balance for the 2014 Quarter included $9 million related to equity in earnings of equity method investments.

Income Taxes. Our income tax expense totaled $458 million in the 2015 Quarter versus $249 million in the 2014 Quarter. The combined federal and state effective income tax rate was 36.4% and 37.6% during the 2015 Quarter and the 2014 Quarter, respectively. The 2015 rate benefited from an increased domestic manufacturing deduction.

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Nine Months EndedSeptember 30, 2015 versus September 30, 2014

Overview. Our net earnings from continuing operations attributable to Tesoro Corporation were $1.5 billion ($11.85 per diluted share) for the nine months ended September 30, 2015 (“2015 Period”) compared to $700 million ($5.32 per diluted share) for the nine months ended September 30, 2014 (“2014 Period”).

Gross Margins. Our gross refining margin increased$733 million during the 2015 Period compared to the 2014 Period driven by stronger margin environment across the California and Pacific Northwest regions. The increases in gross refining margin were partially offset by the impact of the work stoppages and three refinery turnarounds during the 2015 Period resulting in an overall increase of $4.46 in our gross refining margin per barrel as well as the net effect of the lower of cost or market inventory adjustment of $41 million. Our gross marketing margin increased$390 million primarily driven by favorable market conditions and strong demand. TLLP revenues, net of operating expenses, increased$287 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$137 million to $1.7 billion in the 2015 Period compared to the 2014 Period primarily due to declining natural gas costs and the conversion of company-operated retail sites to MSO that reduced costs associated with the management of station operations. These expenses were partially offset by increases due to the Rockies Natural Gas Business acquisition. Our selling, general and administrative expenses were $247 million in the 2015 Period compared to $209 million in the 2014 Period primarily attributable to changes in stock-based compensation expense during the 2015 Period as compared to the 2014 Period, principally related to our stock appreciation rights that are adjusted based on the market price of the stock each period. The stock-based compensation impact on the 2015 Period results include an expense of $57 million due to an increase in the stock price per share during the Period as compared to the 2014 Period results, which included an expense of $20 million due to the increase in the stock price per share during that Period.

Other income, net. The balance for the 2015 Period included a gain for an insurance settlement of $11 million related to the Washington Refinery Fire and $9 million related to equity in earnings of equity method investments. The balance for the 2014 Period included $10 million related to equity in earnings of equity method investments.

Income Taxes. Our income tax expense totaled $888 million in the 2015 Period versus $437 million in the 2014 Period. The combined federal and state effective income tax rate was 35.5% and 36.6% during the 2015 Period and the 2014 Period, respectively. The 2015 rate benefited from an increased domestic manufacturing deduction.

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 marketing segment, including its branded 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 bulk and opportunistically export refined products to certain foreign markets.

Market Overview. Results from our refining segment are heavily influenced by our gross refining margin and refinery throughputs. The gross refining margin is the difference between the prices of all manufactured refined products sold and the cost of crude oil and other feedstocks used to produce refined products, including the cost of transportation and distribution. The market for crude oil and products 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. When evaluating the markets in which we operate, we utilize the U.S. Energy Information Administration (“EIA”) and other industry sources, to gather supply, demand, utilization, import and export information to forecast and monitor market conditions for our operating regions. We focus on PADD V, or the West Coast of the US where the majority of our operations are located. PADD V is defined by the Petroleum Administration for Defense Districts (“PADD”) as the states of Alaska, Arizona, California, Hawaii, Nevada, Oregon and Washington.

As a performance benchmark and a comparison with other industry participants, we utilize the West Coast and Mid-Continent crack spreads. The crack spread is a measure of the difference between market prices for crude oil and refined products and is a commonly used proxy within the industry to estimate or identify trends in gross refining margins. Crack spreads can fluctuate significantly over time as a result of market conditions and supply and demand balances. The West Coast 321 crack spread is calculated using 3 barrels of Alaska North Slope crude oil (“ANS”) producing 2 barrels of Los Angeles CARB gasoline and 1 barrel of Los Angeles CARB diesel. The Mid-Continent 321 crack spread is calculated using 3 barrels of West Texas Intermediate crude oil (“WTI”) producing 2 barrels of Group 3 gasoline and 1 barrel of Group 3 diesel.

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Our actual gross refining margins differ from these crack spreads based on the actual slate of crude oil we run at our refineries and the products we produce or yield. The global commodity markets for crude oil and refined products are subject to significant volatility resulting in rapidly changing prices and margin environments. Our refineries process a variety of crude oils that are sourced from around the world. The slate of crude oil we process can vary over time as of result of changes in market prices and shipping rates. Additionally, our refining gross margin is impacted by the changing crude oil differentials, which is the difference between the benchmark crude oils, WTI and Brent crude oil (“Brent”), and the actual crude oil we run at our refineries. We may experience financial risk associated with price volatility of crude oil and refined products and we may utilize financial hedge instruments to help mitigate such risks where possible.

The following table provides key information that can be used to monitor our business:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015		2014
Crack Spreads
West Coast 321 (ANS) ($/barrel)	$	30.88		$	17.87	$	26.71	$	17.51
Mid-Continent 321 (WTI) ($/barrel)	22.10			16.94		19.53		17.39
Crude Oil Differentials
Brent to WTI	$	4.03		$	6.15	$	5.62	$	7.40
Brent to ANS	(1.05		)	1.91		1.25		1.93
WTI to Bakken (Clearbrook)	2.53			7.64		2.75		5.96
ANS to Bakken (Clearbrook)	7.61			11.87		7.11		11.44
ANS to San Joaquin Valley Heavy (CA)	8.12			8.03		8.41		7.39
ANS to Canadian Lt. Sweet	8.57			12.54		6.99		12.97

Source: PLATTS

West Coast. Average U.S. West Coast crack spreads margins were up approximately 73% in the third quarter of 2015, as compared to third quarter of 2014 and were up approximately 53% for the nine months ended September 30, 2015, as compared to thenine months ended September 30, 2014. The increased margins are a result of increased demand year over year along with several extended unplanned refinery outages, including our own as discussed below, in PADD V, which reduced West Coast refinery utilization. The EIA reports have noted an increase in PADD V clean product imports to meet the increased demand.

The first half of 2015 was impacted by work stoppages at the Anacortes, Washington and Los Angeles and Martinez, California refineries. Also during the first three quarters, planned maintenance was performed at our Los Angeles, 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.

Mid-Continent. Average Mid-Continent crack spreads margins were up approximately 30% in the third quarter of 2015, as compared to the third quarter of 2014 and were up approximately 12% for the nine months ended September 30, 2015, as compared to the nine months ended September 30, 2015. While margins have increased slightly year over year, the local crude oil differentials have more than offset this increase. The WTI to Bakken differential has decreased by approximately $5.11 per barrel increasing the price of Bakken, which resulted in a lower gross margin in the third quarter of 2015 compared to the third quarter of 2014. Bakken crude oil represented over 50% of the crude oil consumed by our Mid-Continent system in the third quarter of 2015.

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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 September 30,		Nine Months Ended September 30,
	2015	2014	2015	2014
Throughput (Mbpd)
Heavy crude (a)	178	157	150	163
Light crude	635	641	575	614
Other feedstocks	48	60	56	54
Total Throughput	861	858	781	831
Yield (Mbpd)
Gasoline and gasoline blendstocks	438	445	405	430
Diesel fuel	195	199	166	196
Jet fuel	122	130	119	126
Heavy fuel oils, residual products, internally produced fuel    and other	158	141	140	135
Total Yield	913	915	830	887

________________

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

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Our refining segment operating results are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(In millions, except per barrel amounts)
Revenues
Refined products (a)	$	6,966	$	10,363	$	20,293	$	30,353
Crude oil resales and other	172		434		780		1,060
Total Revenues	$	7,138	$	10,797	$	21,073	$	31,413
Segment Operating Income
Gross refining margin (b) (c)	$	1,540	$	1,177	$	3,672	$	2,939
Expenses
Manufacturing costs	384		428		1,178		1,280
Other operating expenses	124		96		275		258
Selling, general and administrative expenses	3		4		7		9
Depreciation and amortization expense	132		112		373		317
Loss on asset disposals and impairments	2		1		8		1
Segment Operating Income (c)	$	895	$	536	$	1,831	$	1,074
Gross Refining Margin ($/throughput barrel) (d)	$	20.49	$	14.92	$	17.42	$	12.96
Manufacturing Cost before Depreciation and Amortization    Expense ($/throughput barrel)	$	4.84	$	5.42	$	5.53	$	5.65

________________

(a) Refined product sales include intersegment sales to our marketing segment of $4.7 billion and $6.2 billion for the three months ended September 30, 2015 and 2014, respectively, and $13.2 billion and $18.3 billion for the nine months ended September 30, 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 included $1 million for the three months ended September 30, 2015 and $3 million and $4 million for the nine months ended September 30, 2015 and 2014, respectively. There were no amounts for the three months ended September 30, 2014. Gross refining margin includes the effect of intersegment sales to the marketing segment and services provided by TLLP. 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 marketing 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 marketing 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 marketing segments for the three or nine month periods ended September 30, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $35 million and $94 million for the three and nine months ended September 30, 2014, respectively, with a corresponding increase to operating income in our marketing segment.

(d) At September 30, 2015, we recorded an $83 million charge for a lower of cost or market adjustment to our inventories. The gross refining margin per throughput barrel does not include this charge. In addition, the gross refining margin per throughput barrel for the nine months ended September 30, 2015 excludes the impact of the $42 million benefit recognized during the first quarter of 2015 from the reversal of 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.

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Our refining segment operating results by region are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(Dollars in millions, except per barrel amounts)
Refining Data by Region
California (Martinez and Los Angeles)
Refining throughput (Mbpd)	534		538		494		528
Gross refining margin	$	1,015	$	637	$	2,408	$	1,616
Gross refining margin ($/throughput barrel) (a)	$	21.82	$	12.87	$	18.07	$	11.22
Manufacturing cost before depreciation and amortization    expense ($/throughput barrel)	$	5.79	$	6.26	$	6.32	$	6.46
Pacific Northwest (Washington and Alaska)
Refining throughput (Mbpd)	192		187		168		172
Gross refining margin	$	238	$	248	$	641	$	506
Gross refining margin ($/throughput barrel) (a)	$	14.49	$	14.38	$	14.20	$	10.80
Manufacturing cost before depreciation and amortization    expense ($/throughput barrel)	$	3.35	$	4.00	$	3.97	$	4.33
Mid-Continent (North Dakota and Utah)
Refining throughput (Mbpd)	135		133		119		131
Gross refining margin	$	286	$	292	$	620	$	813
Gross refining margin ($/throughput barrel) (a)	$	23.66	$	23.91	$	19.22	$	22.69
Manufacturing cost before depreciation and amortization    expense ($/throughput barrel)	$	3.19	$	4.02	$	4.45	$	4.08

________________

(a) At September 30, 2015, we recorded an $83 million charge for a lower of cost or market adjustment to our inventories. On a regional basis, gross refining margin reflects charges of $56 million, $18 million and $9 million for California, Pacific Northwest and Mid-Continent, respectively. The gross refining margin per throughput barrel on a consolidated and regional basis does not include this charge. In addition, the gross refining margin per throughput barrel for the nine months ended September 30, 2015 excludes the impact of the $42 million benefit recognized during the first quarter of 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.

Three Months EndedSeptember 30, 2015 Compared with Three Months EndedSeptember 30, 2014

Overview. Operating income for our refining segment increased$359 million, or 67%, to $895 million during the 2015 Quarter as compared to the 2014 Quarter due to a stronger margin environment. Average U.S. West Coast crack spreads margins were approximately $31 per barrel, up over $13 per barrel in the 2015 Quarter as compared to the 2014 Quarter.

Refining Throughput. Total refining throughput remained steady during the 2015 Quarter as compared to the 2014 Quarter.

Gross Refining Margins. Total gross margin increased$363 million, or 31%, to $1.5 billion in the 2015 Quarter as compared to the 2014 Quarter. On a per barrel basis, our gross refining margin increased$5.57 per barrel, or 37%, to $20.49 per barrel in the 2015 Quarter as compared to the 2014 Quarter given a stronger margin environment across the California and Pacific Northwest regions. We recorded an $83 million lower of cost or market adjustment related to our inventory in the 2015 Quarter driven by the lower price environment experienced during the quarter.

Nine Months EndedSeptember 30, 2015 Compared with Nine Months EndedSeptember 30, 2014

Overview. Operating income for our refining segment increased$757 million, or 70%, to $1.8 billion during the 2015 Period as compared to the 2014 Period due to a stronger margin environment. Average U.S. West Coast crack spreads margins were approximately $27 per barrel up over $9 per barrel for the 2015 Period as compared to the 2014 Period.

Refining Throughput. Total refining throughput decreased50 Mbpd, or 6%, to 781 Mbpd during the 2015 Period as compared to the 2014 Period primarily due to the work stoppage 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.

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Gross Refining Margins. Total gross margin increased$733 million, or 25%, to $3.7 billion in the 2015 Period as compared to the 2014 Period. On a per barrel basis, our gross refining margin increased$4.46 per barrel, or 34%, to $17.42 per barrel in the 2015 Period as compared to the 2014 Period 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 Period as well as an $83 million lower of cost or market adjustment related to our inventory in the 2015 Period driven by the lower price environment experienced during the quarter.

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 NGLs. 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 million British thermal units (“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 September 30,				Nine Months Ended September 30,
	2015 (a)		2014 (a)		2015 (a)		2014 (a)
Gathering
Crude oil gathering pipeline throughput (Mbpd)	199		136		182		114
Average crude oil gathering pipeline revenue per barrel	$	1.71	$	1.38	$	1.77	$	1.35
Crude oil gathering trucking volume (Mbpd)	34		51		42		47
Average crude oil gathering trucking revenue per barrel	$	3.14	$	3.30	$	3.24	$	3.24
Gas gathering throughput (thousands of MMBtu/day) (b)	1,115		—		1,069		—
Average gas gathering revenue per MMBtu (b)	$	0.45	$	—	$	0.44	$	—
Processing (b)
NGL processing throughput (Mbpd)	8		—		8		—
Average keep-whole fee per barrel of NGL	$	35.75	$	—	$	34.26	$	—
Fee-based processing throughput    (thousands of MMBtu/day)	767		—		742		—
Average fee-based processing revenue per MMBtu	$	0.39	$	—	$	0.40	$	—
Terminalling and Transportation
Terminalling throughput (Mbpd)	964		943		932		919
Average terminalling revenue per barrel	$	1.05	$	1.03	$	1.08	$	0.97
Pipeline transportation throughput (Mbpd)	838		843		819		824
Average pipeline transportation revenue per barrel	$	0.40	$	0.36	$	0.39	$	0.36

________________

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

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

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Our TLLP segment operating results are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(In millions)
Segment Operating Income
Revenues
Gathering (a)	$	87	$	32	$	253	$	84
Processing (a)	71		—		205		—
Terminalling and transportation	124		118		362		326
Total Revenues (b)	282		150		820		410
Expenses
Operating expenses (c)	98		55		278		155
General and administrative expenses (d)	28		16		81		39
Depreciation and amortization expense	44		18		132		51
Gain on asset disposals and impairments	—		—		—		(4		)
Segment Operating Income	$	112	$	61	$	329	$	169

________________

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

(b) TLLP segment revenues from services provided to our refining segment were $152 million and $130 million for the three months ended September 30, 2015 and 2014, respectively, and $454 million and $358 million for the nine months ended September 30, 2015 and 2014, respectively. These amounts are eliminated upon consolidation.

(c) TLLP segment operating expenses include amounts billed by Tesoro for services provided to TLLP under various operational contracts. Amounts billed by Tesoro totaled $28 million and $18 million for the three months ended September 30, 2015 and 2014, respectively, and $77 million and $56 million for the nine months ended September 30, 2015 and 2014, respectively. Operating expenses also include imbalance gains and reimbursements of $12 million and $17 million for the three months ended September 30, 2015 and 2014, respectively, and $31 million and $32 million for the nine months ended September 30, 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.

(d) TLLP segment general and administrative expenses include amounts charged by Tesoro for general and administrative services provided to TLLP under various operational and administrative contracts. These amounts totaled $16 million and $11 million for the three months ended September 30, 2015 and 2014, respectively, and $51 million and $28 million for the nine months ended September 30, 2015 and 2014, respectively, and are eliminated upon consolidation. TLLP segment third-party general and administrative expenses are reclassified to cost of sales in our condensed statements of consolidated operations upon consolidation.

Three Months EndedSeptember 30, 2015 Compared with Three Months EndedSeptember 30, 2014

Overview. Operating income for TLLP increased$51 million to $112 million due to the higher revenues driven by the Rockies Natural Gas Business. The Rockies Natural Gas Business contributed $46 million toward the increase in TLLP’s operating income during the 2015 Quarter.

Revenues and Throughput. Crude oil and gas gathering throughput volume increased as a result of the assets acquired in the Rockies Natural Gas Business acquisition and the continuing expansion of the High Plains System. This increase in volumes for crude oil gathering pipeline throughput includes a 67 Mbpd increase in third-party volumes. NGL processing throughput and fee-based processing throughput volumes also increased as a result of the assets acquired in the Rockies Natural Gas Business acquisition. These higher throughput volumes resulted in an increase to revenues of $132 million to $282 million during the 2015 Quarter as compared to the 2014 Quarter.

Operating and Other Expenses. Operating expenses increased $43 million during the 2015 Quarter primarily related to the operations acquired in the Rockies Natural Gas Business acquisition during 2014. General and administrative expenses increased by $12 million due to higher allocations of overhead costs associated with increased costs to support the growth of the business.

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Nine Months EndedSeptember 30, 2015 Compared with Nine Months EndedSeptember 30, 2014

Overview. Operating income for TLLP increased$160 million to $329 million due to the higher revenues, offset by an increase in operating expenses of $123 million to $278 million in the 2015 Period as compared to the 2014 Period. The Rockies Natural Gas Business contributed $128 million toward the increase in TLLP’s operating income during the 2015 Period.

Revenues and Throughput. Gathering throughput volume increased as a result of the assets acquired in the Rockies Natural Gas Business acquisition and the continuing expansion of the High Plains System. This increase in volumes for crude oil gathering pipeline throughput was almost entirely due to third party volumes. NGL processing throughput and fee-based processing throughput volumes also increased as a result of the assets acquired in the Rockies Natural Gas Business acquisition. These higher throughput volumes resulted in an increase to revenues of $410 million to $820 million during the 2015 Period as compared to the 2014 Period.

Operating and Other Expenses. Operating expenses increased $123 million during the 2015 Period primarily related to the operations acquired in the Rockies Natural Gas Business acquisition during 2014. General and administrative expenses increased by $42 million due to higher allocations of overhead costs associated with increased costs to support the growth of the business.

Marketing Segment

As discussed in the “Items Impacting Comparability”, we revised our segment presentation during the second quarter of 2015 to present a marketing segment inclusive of both branded and unbranded operations. Previously, our retail segment included only branded operations and unbranded operations were included in the refining segment operating results.

We sell gasoline and diesel fuel in the western United States through branded and unbranded channels. Our branded operations include transportation fuel sales through retail stations and agreements with third-party dealers and distributors (or “Jobber/Dealers”). Our unbranded, or wholesale, operations include volumes sold through agreements with third-party dealers. Our branded and unbranded channels provide committed outlets for nearly all 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 marketing segment includes a network of retail stations under the ARCO^®, Shell^®,Exxon^®, Mobil^®, USA Gasoline^TM and Tesoro^® brands.

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.

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Our marketing segment operating data and results are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(Dollars in millions, except per gallon amounts)
Average Number of Branded Stations (during the period)
Company/MSO-operated (a)	580		586		582		580
Jobber/Dealer operated	1,695		1,693		1,684		1,694
Total Average Branded Stations	2,275		2,279		2,266		2,274
Branded and Unbranded Fuel Sales (millions of gallons)	2,249		2,155		6,408		6,175
Marketing Revenues
Fuel	$	5,144	$	6,501	$	14,143	$	18,814
Other non-fuel (b)	16		73		48		203
Total Revenues	$	5,160	$	6,574	$	14,191	$	19,017
Branded and Unbranded Fuel Margin ($/gallon)	$	0.20	$	0.12	$	0.15	$	0.08
Segment Operating Income
Gross Margins
Fuel (c)	$	459	$	259	$	951	$	514
Other non-fuel (b)	16		33		45		92
Total Gross Margins	475		292		996		606
Expenses
Operating expenses	81		97		223		271
Selling, general and administrative expenses	3		5		12		11
Depreciation and amortization expense	11		10		34		30
Loss on asset disposals and impairments	1		—		3		2
Segment Operating Income (c)	$	379	$	180	$	724	$	292

________________

(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 marketing segment results.

(b) Primarily includes rental income for the three and nine months ended September 30, 2015 and primarily merchandise revenue for the three and nine months ended September 30, 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 marketing 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 marketing 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 marketing segments for the three and nine month periods ended September 30, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $35 million and $94 million for the three and nine months ended September 30, 2014, respectively, with a corresponding increase to operating income in our marketing segment.

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Three Months EndedSeptember 30, 2015 Compared with Three Months EndedSeptember 30, 2014

Overview. Operating income increased$199 million to $379 million during the 2015 Quarter as compared to the 2014 Quarter primarily as a result of strong demand.

Gross Margin. Gross margin increased$183 million to $475 million during the 2015 Quarter as compared to the 2014 Quarter. We experienced higher branded and unbranded fuel margin driven by favorable market conditions and strong demand. Branded and unbranded fuel sales volumes increased 4% during the 2015 Quarter and 2014 Quarter, respectively from strong demand attributed to lower fuel prices and continued improvement in the markets in which we operate.

Operating and Other Expenses. The decrease of $16 million in operating expenses was primarily driven by our conversion to MSOs at retail stations that reduced costs associated with the management of station operations.

Nine Months EndedSeptember 30, 2015 Compared with Nine Months EndedSeptember 30, 2014

Overview. Operating income increased$432 million to $724 million during the 2015 Period as compared to the 2014 Period primarily as a result of strong demand.

Gross Margin. Gross margin increased$390 million to $996 million during the 2015 Period as compared to the 2014 Period. We experienced higher branded and unbranded fuel margin driven by favorable market conditions and strong demand. Branded and unbranded fuel sales volumes slightly increased to 6.4 billion from 6.2 billion gallons during the 2015 Period and 2014 Period, respectively from strong demand attributed to lower fuel prices and an improved economy across our markets.

Operating and Other Expenses. The decrease of $48 million in operating expenses was primarily driven by our conversion to MSOs at retail stations that reduced costs associated with the management of station operations.

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CAPITAL RESOURCES AND LIQUIDITY

Overview

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

Capitalization

Our capital structure at September 30, 2015 was comprised of the following (in millions):

Debt, including current maturities:	September 30, 2015
Tesoro Corporation Revolving Credit Facility	$	—
4.250% Senior Notes due 2017	450
5.375% Senior Notes due 2022	475
5.125% Senior Notes due 2024	300
Capital lease obligations and other	40
Tesoro Debt	1,265
TLLP Revolving Credit Facility	280
TLLP 5.500% Senior Notes due 2019	500
TLLP 5.875% Senior Notes due 2020	470
TLLP 6.125% Senior Notes due 2021	550
TLLP 6.250% Senior Notes due 2022	800
TLLP Capital lease obligations and other	8
TLLP Debt	2,608
Total Debt	3,873
Unamortized Issuance Costs (a)	(76		)
Debt, Net of Unamortized Issuance Costs	3,797
Total Equity	7,859
Total Capitalization	$	11,656

________________

(a) The unamortized issuance costs for TLLP were $39 million, including an unamortized premium of $4 million as of September 30, 2015.

Our debt, net of unamortized issuance costs, to capitalization ratio was 33% and 37% at September 30, 2015 and December 31, 2014, respectively. Our debt, net of unamortized issuance costs, to capitalization ratio, excluding TLLP, was 19% and 27% at September 30, 2015 and December 31, 2014, respectively, which excludes TLLP total debt, net of unamortized issuance costs and TLLP capital leases of $2.6 billion and $2.5 billion at September 30, 2015 and December 31, 2014, respectively and excludes noncontrolling interest of $2.5 billion at both September 30, 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”) and senior notes each limit our ability, under certain circumstances, 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 third quarter of 2015 with $959 million of cash and cash equivalents and $280 million of borrowings under the TLLP senior secured revolving credit agreement (the “TLLP Revolving Credit Facility”). We believe available capital resources will be adequate to meet our capital expenditure, working capital and debt service requirements. We had available capacity under our credit facilities as follows at September 30, 2015 (in millions):

	Total Capacity		Amount Borrowed as of September 30, 2015		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (a)	$	3,000	$	—	$	76	$	2,924	November 18, 2019
TLLP Revolving Credit Facility	900		280		—		620		December 2, 2019
Letter of Credit Facilities	1,895		—		189		1,706
Total Credit Facilities	$	5,795	$	280	$	265	$	5,250

________________

(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 September 30, 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    ($3.0 billion) (b)	0.19%	1.50%	3.25%	0.50%	0.375%
TLLP Revolving Credit Facility ($900 million) (c)	0.19%	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 senior secured 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

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 97% of the eligible borrowing base at September 30, 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.

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Covenants. Our Revolving Credit Facility, as amended and senior notes each limit our ability, under certain circumstances, 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 nine months ended September 30, 2015. We were in compliance with our debt covenants as of and for the nine months ended September 30, 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 $189 million outstanding as of September 30, 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 September 30, 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 Rendezvous Gas Services L.L.C., 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.

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 nine months ended September 30, 2015.

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Tesoro Debt Repayments

During August 2015, we voluntarily repaid our obligation of $398 million under the Term Loan Facility in its entirety with available cash on hand. The Term Loan Facility originally funded a portion of the acquisition of BP’s integrated Southern California refining, marketing and logistics business (“The Los Angeles Acquisition”) and was scheduled to mature on May 30, 2016. Amounts paid on the Term Loan Facility cannot be re-borrowed.

Share Repurchases

We are authorized by our Board of Directors (the “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 5.5 million shares and 6.2 million shares of our common stock for approximately $494 million and $350 million during the nine months ended September 30, 2015 and 2014, respectively. We have $506 million remaining under our authorized programs. On October 28, 2015, our Board authorized a new $1.0 billion share repurchase program to become effective upon the full completion of our current $1.0 billion share repurchase authorization.

Cash Dividends

We paid cash dividends totaling $62 million and $169 million for the three and nine months ended September 30, 2015, respectively, based on a $0.50 per share and $0.425 per share quarterly cash dividend on common stock in the third and first two quarters, respectively. We paid cash dividends totaling $39 million and $104 million for the three and nine months ended September 30, 2014, respectively, based on a $0.30 per share and $0.25 per share quarterly cash dividend on common stock in the third and first two quarters, respectively. On October 27, 2015, our Board declared a cash dividend of $0.50 per share, payable on December 15, 2015 to shareholders of record on November 30, 2015.

Cash Flow Summary

Working capital (excluding cash) increased$239 million in the 2015 Period primarily related to the timing of our payments for crude oil and refined product purchases, which was offset by timing of receivables.

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

	Nine Months Ended September 30,
	2015			2014
Cash Flows From (Used in):
Operating activities	$	1,847		$	1,047
Investing activities	(783		)	(483		)
Financing activities	(1,105		)	(272		)
Increase (Decrease) in Cash and Cash Equivalents	$	(41	)	$	292

Net cash from operating activities during the 2015 Period totaled $1.8 billion as compared to $1.0 billion in the 2014 Period. The increase in net earnings of $851 million and impact of non-cash items were partially offset by the change in working capital during the 2015 Period compared to the 2014 Period. Net cash used in investing activities increased$300 million to $783 million in the 2015 Period as compared to $483 million in the 2014 Period, primarily due to the increase in capital expenditures to $773 million. Net cash used in financing activities during the 2015 Period totaled $1.1 billion as compared to $272 million in the 2014 Period. The change of $833 million is primarily attributable to an increase in the stock price per share of the repurchases of our common stock as well as increased dividend payments and distributions to noncontrolling interests during the 2015 Period compared to the 2014 Period, the impact of proceeds from debt offerings during the 2014 Period that did not occur in the 2015 Period and less net proceeds from issuance of TLLP common units partially offset by a decrease in net borrowings on revolving credit facilities.

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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
Completed:
Salt Lake City Refinery Expansion (c)	$	380	$	84	$	—	In-Service
In Process:
TLLP’s Connolly Gathering System (d)	$	150	$	93	$	22	2014-2015
Clean Product Upgrade Project (e)	300		19		6		2017
Avon Wharf Project (f)	168		67		16		2017
Under Development:
Los Angeles Refinery Integration (g)	$	460	$	29	$	14	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 improved yields of gasoline and diesel, improved the flexibility of processing crude feedstocks and increased throughput capacity by 4 Mbpd. The expansion project increases potential Waxy Crude oil processing capabilities up to 26 Mbpd. We completed the work 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. The first barrels were delivered into the main line at the end of 2014 and the project is expected to be completed in November 2015.

(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 $25 million approved for the first phase of the project. The project remains subject to regulatory approval, which we expect to finalize in 2016.

(f) The regulatory and compliance project for the Avon Wharf in Martinez, California is required under the 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 all regulatory approval and permits.

(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 and Period were $259 million and $756 million, respectively, including $92 million and $235 million of TLLP capital spending for the 2015 Quarter and Period, respectively. Our capital spending is expected to be $745 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 $345 million, which is primarily financed by TLLP. Our 2015 Quarter, Period and full-year capital expenditure amounts, excluding TLLP capital spending, are comprised of the following project categories at September 30, 2015:

Project Category	Percent of 2015 Quarter Capital Expenditures	Percent of 2015 Period Capital Expenditures	Percent of 2015 Expected Capital Expenditures
Regulatory	40%	33%	25%
Sustaining	19%	20%	20%
Income Improvement	41%	47%	55%

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Turnarounds and Branding Charges

We spent $82 million and $252 million during the 2015 Quarter and 2015 Period, respectively, for turnarounds, catalysts and branding charges, including $66 million and $220 million for turnarounds primarily at our Anacortes, Los Angeles and Martinez refineries during the 2015 Quarter and 2015 Period, respectively. Total expected spending for 2015 on turnarounds and catalysts is approximately $280 million primarily spent at our Los Angeles, Anacortes and Martinez refineries. Additionally, total expected spend on branding charges in our marketing segment is approximately $50 million for 2015.

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, reduced total renewable fuel requirements of 15.9 billion gallons for 2014, 16.3 billion gallons for 2015 and 17.4 billion gallons for 2016. The final requirements are expected in November 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 a citation 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 (“BIIA”) Judge granted partial summary judgment in our favor rejecting 33 of the original 44 allegations in the citation as lacking legal or evidentiary support. A hearing on the remaining 11 allegations started on July 21, 2015, and we expect the Judge to issue a recommended decision for the BIIA’s review in 2016. While we cannot currently estimate the final amount or timing of the resolution of this matter, we have established an accrual based on our best estimate at this time.

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 the damages they incurred in the civil litigation involving us and the previous owner brought by the families of those fatally wounded in the April 2010 refinery fire. We settled our involvement in the civil litigation in 2012. Arbitration proceedings concerning the demand for indemnity 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 $229 million and $274 million at September 30, 2015 and December 31, 2014, respectively, including $15 million and $32 million for TLLP, respectively. These accruals include $196 million and $216 million at September 30, 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.

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On July 10, 2015, a federal court issued an order denying coverage pursuant to insurance policies for environmental remediation liabilities at our Martinez refinery and those liabilities are included in our accruals above. The insurer had filed a declaratory relief action challenging coverage of the primary policy assigned to us when we acquired the refinery. The policies provide for coverage up to $190 million for expenditures in excess of $50 million in self-insurance. We have not recognized possible insurance recoveries under the policies and have appealed the order.

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 of these 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 us, 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, results of operations 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 April 2015, we finalized settlement of citations from the California Department of Industrial Relations alleging violations of the California Labor Code associated with two incidents at our Martinez refinery in February and March 2014. The final resolution of this matter did 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.

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Unrecognized tax benefits increased by approximately $150 million in the second quarter of 2015 for tax positions taken on amended returns filed for 2006-2010. The positions taken exclude certain tax credits, for blending biofuels into refined products, from taxable income. These tax credits were received from the federal government during the years being amended. However, due to the complex and uncertain nature of the issue, we are unable to conclude that it is more likely than not that we will sustain the claims. Therefore, we have neither recognized a tax benefit, nor recorded a receivable for this item.

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.

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;

• changes in the carrying costs of our inventory;

• 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;

• 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;

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk Management

We have established a risk committee comprised of senior level leadership from our financial, strategic, governance, administrative and operational functions. The risk committee’s responsibilities include the performance of an annual review to assess and prioritize the Company’s risks 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 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 861 thousand barrels per day, would change annualized pre-tax operating income by approximately $310 million. This analysis may differ from actual results.

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We maintain inventories of crude oil, intermediate products and refined products, the values of which are subject to fluctuations in market prices. Our inventories of refinery feedstocks and refined products totaled 44 million barrels and 42 million barrels at September 30, 2015 and December 31, 2014, respectively. Since the replacement cost of our inventories declined to a level below our average cost, we recorded a lower of cost or market adjustment of $83 million and $42 million as of September 30, 2015 and December 31, 2014, respectively.

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.

Also, we may enter into derivative contracts such as exchange-traded futures, over-the-counter swaps, options and over-the-counter options, most of which had remaining durations of less than one year as of September 30, 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 third quarters of 2015 and 2014 included a net gain of $154 million and $166 million, respectively, on our commodity derivative positions comprised of the following (in millions):

	Net Gain
	Three Months Ended September 30,
	2015		2014
Unrealized gain carried on open derivative positions from prior period	$	13	$	14
Realized gain on settled derivative positions	105		103
Unrealized gain on open net derivative positions	36		49
Net Gain	$	154	$	166

Our open derivative positions at September 30, 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 September 30, 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 $4 million.

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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, exposes us to short-term changes in market rates that impact our interest expense. The carrying values of our debt were approximately$3.9 billion and $4.3 billion at September 30, 2015 and December 31, 2014, respectively, and the fair values of our debt were approximately $3.8 billion and $4.3 billion at September 30, 2015 and December 31, 2014, respectively. These carrying and fair values of our debt do not consider the unamortized issuance costs, which are netted against our total debt.

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. There were no borrowings outstanding under the Revolving Credit Facility and $280 million borrowings outstanding under the TLLP Revolving Credit Facility as of September 30, 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 September 30, 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 a citation 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 (“BIIA”) Judge granted partial summary judgment in our favor rejecting 33 of the original 44 allegations in the citation as lacking legal or evidentiary support. A hearing on the remaining 11 allegations started on July 21, 2015, and we expect the Judge to issue a recommended decision for the BIIA’s review in early 2016. While we cannot currently estimate the final amount or timing of the resolution of this matter, we have established an accrual based on our best estimate at this time.

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

In July 2015, we agreed to settle four notices of violations (“NOV”) we received from the Bay Area Air Quality Management District (the “BAAQMD”) in May through September 2013. The allegations concern hydrocarbon emissions from a process water drain system at our Martinez refinery. The final resolution of this matter did not have a material impact on our liquidity, financial position or results of operations.

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 June 10, 2015, we agreed to settle a NOV previously received in January 2014 from the Alaska Department of Environmental Conservation (“ADEC”). ADEC alleged that we violated emission limits in 7 process heaters at our Kenai refinery. The resolution of this matter did not have a material impact on our liquidity, financial position or results of operations.

On October 7, 2015, Tesoro Logistics LP (“TLLP”) received an offer to settle a NOV received from the North Dakota Department of Health. The NOV was issued on March 21, 2015 and alleges violations of water pollution regulations as a result of a release of crude oil that occurred near Tioga, North Dakota on the Tesoro High Plains Pipeline system in September 2013. TLLP cannot currently estimate the timing of the resolution of this matter while it evaluates a settlement offer. The ultimate resolution of this matter will not have a material impact on TLLP’s liquidity, financial position, or results of operations.

In October 2015, we finalized settlement of twelve NOVs we received from the South Coast Air Quality Management District in January 2013 through March 2015. The allegations concern violations of air quality regulations at our Los Angeles refinery. The final resolution of this matter will not have a material impact on our liquidity, financial position or results of operations.

ITEM 1A. RISK FACTORS

There have been no significant changes from the risk factors previously disclosed in Item 1A of our 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 September 30, 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)
July 2015	1,888	$	97.12	—	$	731
August 2015	561,721	$	95.41	559,369	$	678
September 2015	1,796,337	$	95.64	1,795,200	$	506
Total	2,359,946			2,354,569

________________

(a) Includes 5,377 shares acquired from employees during the third 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. On October 28, 2015, our Board authorized a new $1.0 billion share repurchase program to become effective upon the full completion of our current $1.0 billion share repurchase authorization. The authorization has no time limit and may be suspended or discontinued at any time.

ITEM 5. OTHER INFORMATION

Amended and Restated Executive Deferred Compensation Plan

On October 27, 2015, the Compensation Committee approved amendments to the Executive Deferred Compensation Plan. Among other things, these changes clarify the types of elections that may be made by participants regarding the timing and form of distributions from the Plan, clarify the types of compensation that may be eligible for deferral under the Plan, and provide for an automatic acceleration of distributions to participants (absent an affirmative participant election to the contrary) upon the occurrence of certain corporate change in control events. These amendments and modifications are not expected to increase the cost to participants. The amendments will become effective for deferrals made after January 1, 2016.

Code of Business Conduct and Ethics for Senior Financial Executives

On October 27, 2015, the Company adopted an amended Code of Business Conduct and Ethics for Senior Financial Executives (the “Code”). The amendment to the Code added discussion under the Enforcement section stating that the Company may recoup incentive payments previously made to a Senior Financial Executive if the executive is found to be in violation of the Code.

The foregoing description of the amendment to the Code is qualified in its entirety by reference to the full text of the Code, which is attached hereto as Exhibit 14.1 and is posted on the Company’s website at www.tsocorp.com under the heading “Investors” and subheading “Corporate Governance.”

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ITEM 6. EXHIBITS

(a) Exhibits

Exhibit Number	Description of Exhibit
4.1	Second Supplemental Indenture, dated as of May 21, 2015, among TLLP Merger Sub LLC, Tesoro Logistics LP, Tesoro Logistics Finance Corp., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the 5.50% Senior Notes due 2019 and the 6.25% Senior Notes due 2022 (incorporated by reference herein to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, File No. 1-3473)
4.2	Fourth Supplemental Indenture, dated as of May 21, 2015, among TLLP Merger Sub LLC, Tesoro Logistics LP, Tesoro Logistics Finance Corp., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the 6.125% Senior Notes due 2021 (incorporated by reference herein to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, File No. 1-3473)
4.3	Sixth Supplemental Indenture, dated as of May 21, 2015, among TLLP Merger Sub LLC, Tesoro Logistics LP, Tesoro Logistics Finance Corp., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2020 (incorporated by reference herein to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, File No. 1-3473)
#10.1	Tesoro Corporation Non-Employee Director Compensation Program (incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, File No. 1-3473).
10.2	Amendment No. 2 to the Third Amended and Restated Omnibus Agreement, dated as of August 3, 2015, among Tesoro Corporation, Tesoro Refining & Marketing Company LLC, Tesoro Companies, Inc., Tesoro Alaska Company LLC, Tesoro Logistics LP and Tesoro Logistics GP, LLC (incorporated by reference herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, File No. 1-3473)
*10.3	Omnibus Amendment No. 2 and Consent to Sixth Amended and Restated Credit Agreement and Amendment No. 3 to the Amended and Restated Security Agreement, dated as of August 21, 2015, among Tesoro Corporation and Subsidiaries of the Borrower.
*10.4	Amended and Restated Executive Deferred Compensation Plan, effective as of January 1, 2016.
*14.1	Code of Business Conduct and Ethics for Senior Financial Executives, amended as of October 27, 2015.
*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:	October 29, 2015	/s/ GREGORY J. GOFF
		Gregory J. Goff
		President and Chief Executive Officer
		(Principal Executive Officer)
Date:	October 29, 2015	/s/ STEVEN M. STERIN
		Steven M. Sterin
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

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EX-10.3

Exhibit 10.3

EXECUTION COPY

OMNIBUS AMENDMENT NO. 2 AND CONSENT

TO

SIXTH AMENDED AND RESTATED CREDIT AGREEMENT

AND

AMENDMENT NO. 3 TO AMENDED AND RESTATED SECURITYAGREEMENT

This OMNIBUS AMENDMENT NO. 2 AND CONSENT to SIXTH AMENDED AND RESTATED CREDIT AGREEMENT and AMENDMENT NO. 3 TO AMENDED AND RESTATED SECURITY AGREEMENT (the “Amendment”), dated as of August 21, 2015, is entered into by and among Tesoro Corporation (the “Borrower”), the Subsidiaries of the Borrower party hereto (the “Subsidiary Grantors” and, together with the Borrower, the “Grantors”), the financial institutions listed on the signature pages hereof (the “Lenders”), and JPMorgan Chase Bank, National Association, as Administrative Agent (the “Agent”), under the below-defined Credit Agreement. Each capitalized term used herein and not otherwise defined herein shall have the meaning given to it in the below-defined Credit Agreement.

WITNESSETH

WHEREAS, the Borrower, the Lenders, and the Agent are parties to a Sixth Amended and Restated Credit Agreement dated as of January 4, 2013 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”);

WHEREAS, the Borrower wishes to amend the Credit Agreement in certain respects and the Lenders party hereto and the Agent are willing to amend the Credit Agreement on the terms and conditions set forth herein;

WHEREAS, the Borrower has informed the Agent that, notwithstanding the terms of Section 6.25 of the Credit Agreement as in effect prior to this Amendment, the Borrower has caused funds on deposit in the Collection Accounts to be released to Borrower operating accounts maintained at Lenders other than JPMorgan (collectively, the “Collection Account Transfers”);

WHEREAS, the Borrower has requested that the Lenders party hereto and the Agent consent to the Collection Account Transfers;

WHEREAS, subject to the terms and conditions of this Amendment, the Lenders party hereto and the Agent are willing to consent to the Collection Account Transfers;

WHEREAS, the Grantors and the Agent are parties to an Amended and Restated Security Agreement, dated as of March 16, 2011 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement”); and

WHEREAS, the Grantors wish to amend the Security Agreement in certain respects and the Lenders party hereto and the Agent are willing to amend the Security Agreement on the terms and conditions set forth herein.

ACTIVE 209499242v.12

NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Subsidiary Grantors, the Agent and the Lenders party hereto hereby agree as follows:

1.Amendments to Credit Agreement.Effective as of the date of satisfaction of the conditions precedent set forth in Section 4 below, the Credit Agreement is hereby amended as follows:

(a) Section 1.1 of the Credit Agreement is hereby amended to add the following definitions in their appropriate alphabetical order therein:

“ “JPMorgan Money Market Mutual Fund Interests” means shares in certain money market mutual funds advised by J.P. Morgan Investment Management Inc., an affiliate of JPMorgan, each as reflected on such fund’s shareholder records maintained by Boston Financial Data Services, Inc., as transfer agent on behalf of each such fund.”

“ “Second Amendment Effective Date” means August 21, 2015.”

(b) The definition of “Perfected Cash Interests” contained in Section 1.1 of the Credit

Agreement is hereby amended to amend and restate such definition in its entirety as follows:

““Perfected Cash Interests” means Dollars or Cash Equivalent Investments on deposit in collection accounts, other accounts or otherwise (including the JPMorgan Money Market Mutual Fund Interests), in each case subject to control agreements in form and substance acceptable to the Agent that grant the Agent first priority perfected security interests in such accounts or investments and the Dollars and Cash Equivalent Investments (including proceeds thereof) on deposit or otherwise maintained or reflected therein or other similar arrangements whereby the bank, financial institution or other agent holding or reflecting such deposits or investments (or the issuer of such investments, as applicable to establish control) have acknowledged the Lien created thereon and the Agent holds a first priority perfected security interest therein.”

(c) Section 6.25 of the Credit Agreement is hereby amended and restated in its entirety as follows:

“6.25 Collection Account. The Borrower and its Subsidiaries shall cause all collections of Receivables constituting Collateral and all proceeds of Collateral to be directly deposited into collection accounts (such accounts, “Collection Accounts”) maintained with JPMorgan or an Affiliate thereof or other financial institutions. Collection Accounts shall, upon the request of the Agent, be subject to account control agreements, in form and substance acceptable to the Agent, which grant the Agent control over and a first-priority perfected security interest in such Collection Accounts, including, without limitation, amounts and other items on deposit therein. If any collections referred to in the first sentence of this Section 6.25 are received by the Borrower, a Subsidiary, or any other Person, such collections shall be deemed to have been received by the Borrower, such Subsidiary or such other Person in trust for the Agent, and, upon the Borrower’s, such Subsidiary’s, or such other Person’s receipt thereof, the Borrower shall (or shall cause such Subsidiary or other Person to) promptly remit all of such collections, in their original form, for deposit into a Collection Account. Following the occurrence and during the continuance of a Default, all amounts received by the Agent, all amounts on deposit in the Collection Accounts, and all amounts constituting collections required to be deposited into Collection Accounts shall be the sole property of the Agent for the benefit of the Holders of Secured Obligations and shall be deemed received by the Agent for application to the Secured Obligations pursuant to the terms of this Agreement. With respect to any Collection Account described in this Section 6.25 not already

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subject to a control agreement on the Second Amendment Effective Date, the Borrower and its Subsidiaries shall have ninety (90) days from the date of the Agent’s request therefor to cause such account to become subject to one of the aforementioned account control agreements. For the avoidance of doubt, amounts on deposit in any Collection Account and other Cash Equivalent Investments not subject to an account control agreement shall not constitute Perfected Cash Interests and therefore shall not be included in the Borrowing Base. Notwithstanding the foregoing, or anything to the contrary in Section 2.11.1, (a) the Borrower and its Subsidiaries shall be permitted to transfer amounts on deposit in any Collection Account to any other account or investment constituting a Cash Equivalent Investment (including the JPMorgan Money Market Mutual Fund Interests) so long as after giving effect to such transfer such amounts constitute Perfected Cash Interests and (b) at all times that (i) no Default exists and (ii) Excess Availability equals or exceeds $300,000,000, amounts which are on deposit in Collection Accounts or other accounts or investments referenced in the preceding clause (a) may be released, in a manner mutually satisfactory to the Borrower and the Agent, on a daily basis to the Borrower’s operating accounts maintained with JPMorgan or with any other Lender or otherwise at the direction of the Borrower (and such released amounts shall be automatically released from the Lien created by the Security Agreement and cease to be Collateral without delivery of any instrument or performance of any act by any party, and all rights to such released amounts shall revert to the Borrower or applicable Subsidiary). In connection with any release described in clause (b) of the immediately preceding sentence, the Agent, at the request and sole expense of the Borrower, shall execute and deliver to the Borrower all releases or other documents reasonably necessary or desirable for the release of the Lien on such released amounts.”

2.Amendments to Security Agreement and Reaffirmation of Security Interest.

(a)Effective as of the date of satisfaction of the conditions precedent set forth in

Section 4 below, the Security Agreement is hereby amended as follows:

(i) The definition of “Cash Equivalents” contained in Section 1.3 of the Security Agreement is hereby amended by (i) deleting the word “and” at the end of clause (4), (ii) replacing the period at the end of clause (5) with “; and” and (iii) adding new clause (6) as follows:

“(6)Cash Equivalent Investments.”

(ii) The following new definition of “Cash Equivalent Investments” is hereby added to Section 1.3 of the Security Agreement in its appropriate alphabetical order therein:

“Cash Equivalent Investments” shall have the meaning set forth in the Credit

Agreement.”

(iii) Section 4.6 of the Security Agreement is hereby amended and restated in its entirety as follows:

“4.6. Deposit Accounts and Cash Equivalent Investments. Each Grantor will, within ninety (90) days of the Agent’s request (and as required pursuant to Section 6.25 of the Credit Agreement), cause each bank or other financial institution in which it maintains (a) a Deposit Account (other than a Deposit Account maintained for collections from retail sales) to enter into a control agreement with the Agent, in form and substance satisfactory to the Agent in order to give the Agent Control of the Deposit Account, (b) other Cash Equivalent Investments to enter into control agreements in form and substance acceptable to the Agent that grant the Agent Control over such investments, or (c) other deposits (general or special, time or demand, provisional or final) to be notified of the security interest granted to the Agent hereunder and cause each such

3

bank or other financial institution to acknowledge such notification in writing. In the case of deposits maintained with Lenders, the terms of such letter shall be subject to the provisions of the Credit Agreement regarding setoffs.”

(b) For the avoidance of doubt, each Grantor hereby reaffirms the security interest granted under the terms and conditions of the Security Agreement and agrees that such security interest remains in full force and effect and is hereby ratified, reaffirmed and confirmed, and each Grantor hereby pledges, assigns and grants to the Agent, on behalf of and for the ratable benefit of the Holders of Secured Obligations and (to the extent specifically provided for in the Security Agreement) their Affiliates, a security interest in all of such Grantor’s right, title and interest, whether now owned or hereafter acquired, in and to the Collateral (as defined in the Security Agreement as amended hereby and including Cash Equivalent Investments) to secure the prompt and complete payment and performance of (i) the Secured Obligations in the case of the Borrower and (ii) the “Guaranteed Obligations” (as defined in the Guaranty) in the case of each other Grantor.

3. Consent. Subject to the satisfaction of the conditions precedent set forth in Section 4 below, and notwithstanding the terms of Section 6.25 of the Credit Agreement as in effect prior to the effectiveness of this Amendment, the Lenders party hereto and the Agent hereby consent to the Collection Account Transfers and agree that the Collection Account Transfers are deemed to have been, and any subsequent actions taken with respect to amounts on deposit in Collection Accounts shall hereafter be, subject to Section 6.25 of the Credit Agreement as amended pursuant to this Amendment.

4. Conditions of Effectiveness. This Amendment shall become effective and be deemed effective as of the date hereof, if, and only if:

(a) the Agent shall have received executed copies of this Amendment from the Borrower, the Subsidiary Grantors and all of the Lenders required to execute and deliver this Amendment pursuant to the terms of the Credit Agreement;

(b) the Agent shall have received those agreements, documents, instruments and other deliverables appearing in Annex A hereto; and

(c) the Borrower shall have paid all fees and expenses of the Agent (including, to the extent invoiced, attorneys’ fees and expenses) in connection with this Amendment.

5. Representations and Warranties of the Borrower and Subsidiary Grantors. The Borrower and each Subsidiary Grantor hereby represents and warrants as follows:

(a) The Credit Agreement and Security Agreement, each as previously executed and amended and as amended hereby constitutes the legal, valid and binding obligation of the Borrower and each Subsidiary Grantor party thereto, and is enforceable against the Borrower and each Subsidiary Grantor party thereto in accordance with its terms, except as enforceability may be limited by (i) bankruptcy, insolvency, fraudulent conveyances, reorganization or similar laws relating to or affecting the enforcement of creditors’ rights generally; (ii) general equitable principles (whether considered in a proceeding in equity or at law); and (iii) requirements of reasonableness, good faith and fair dealing.

(b) (i) The representations and warranties contained in Article V of the Credit Agreement and Article 3 of the Security Agreement are true and correct as of the date hereof, after giving effect to this Amendment, except (x) with respect to Sections 5.5 and 5.7 of the Credit Agreement, the representations and warranties set forth in such Sections shall have been true and correct on and as of the date of the most recent Form 10-K or Form 10-Q filing, as applicable, made by the Borrower with the

4

U.S. Securities and Exchange Commission, and (y) with respect to any other representation and warranty set forth in Article V of the Credit Agreement and Article 3 of the Security Agreement, to the extent such representation or warranty is stated to relate solely to an earlier date, such representation or warranty shall have been true and correct on and as of such earlier date and (ii) after giving effect to this Amendment, no event shall have occurred and then be continuing which constitutes a Default or an Unmatured Default.

(c) The modifications contemplated by this Amendment are permitted under the terms of indentures and other agreements referenced in Section 9.17 of the Credit Agreement that remain in effect as of the date hereof.

(d) The Borrower and each Subsidiary Grantor has the power and authority and legal right to execute and deliver this Amendment and to perform its obligations hereunder. The execution and delivery by the Borrower and each Subsidiary Grantor of this Amendment and the performance of its obligations hereunder have been duly authorized by proper proceedings and the Amendment has been duly executed and delivered by the Borrower and each Subsidiary Grantor. No order, consent, adjudication, approval, license, authorization, or validation of, or exemption by, any governmental or public body or authority, or any subdivision thereof, which has not been obtained by the Borrower or any Subsidiary Grantor, is required to be obtained by the Borrower or any Subsidiary Grantor in connection with the execution and delivery of the Amendment except where failure to obtain the same would not reasonably be expected to have a Material Adverse Effect.

6.Effect on the Credit Agreement and Security Agreement.

(a) Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Credit Agreement or the Security Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import shall mean and be a reference to the Credit Agreement or Security Agreement, as applicable, as amended and modified hereby.

(b) Except as specifically amended and modified above, the Credit Agreement, the Security Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect, and are hereby ratified and confirmed.

(c) The execution, delivery and effectiveness of this Amendment shall neither, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lenders or the Agent, nor constitute a waiver of any provision of the Credit Agreement, the Security Agreement or any other documents, instruments and agreements executed and/or delivered in connection therewith.

(d)For the avoidance of doubt, the parties hereto acknowledge and agree that this

Amendment constitutes a Loan Document as defined under the Credit Agreement.

7. Costs and Expenses. The Borrower agrees to pay all reasonable costs, fees and out-of-pocket expenses (including attorneys’ fees and expenses charged to the Agent) incurred by the Agent and the Lenders in connection with the preparation, arrangement, execution and enforcement of this Amendment.

8. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

9. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

5

10. Counterparts. This Amendment may be executed by one or more of the parties to the Amendment on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Amendment by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment.

11. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Amendment. In the event an ambiguity or question of intent or interpretation arises, this Amendment shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Amendment.

12. Reaffirmation. Each of the undersigned Subsidiary Grantors and each other Subsidiary Guarantor signatory hereto hereby acknowledges receipt of a copy of this Amendment, and the Borrower and each Subsidiary Grantor and Subsidiary Guarantor affirms the terms and conditions of each Loan Document executed by it, including, without limitation, the Security Agreement and each Guaranty to which it is a party, and acknowledges and agrees that each such Loan Document executed by it in connection with the Credit Agreement remains in full force and effect and is hereby reaffirmed, ratified and confirmed.

The remainder of this page is intentionally blank.

6

IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written.

TESORO CORPORATION,

as the Borrower

By: \s\ Brad S. Lakhia            

Name: Brad S. Lakhia

Title: Vice President and Treasurer

SUBSIDIARY GRANTORS:

TESORO WASATCH, LLC

TESORO COMPANIES, INC.

TESORO ALASKA COMPANY LLC (formerly known as

Tesoro Alaska Company)

TESORO REFINING & MARKETING COMPANY LLC

(formerly known as Tesoro Refining and Marketing Company)

TESORO WEST COAST COMPANY, LLC

TESORO SIERRA PROPERTIES, LLC

TESORO NORTHSTORE COMPANY

TESORO SOUTH COAST COMPANY, LLC

TESORO TRADING COMPANY

TESORO ENVIRONMENTAL RESOURCES COMPANY

TESORO AVIATION COMPANY

TESORO MARITIME COMPANY

TESORO FAR EAST MARITIME COMPANY

GOLD STAR MARITIME COMPANY

CARSON COGENERATION COMPANY

TESORO INSURANCE HOLDING COMPANY

TRANS-FORELAND PIPELINE COMPANY LLC

TESORO RENEWABLES COMPANY LLC

UINTA EXPRESS PIPELINE COMPANY LLC

TESORO SOCAL COGEN COMPANY LLC

By: \s\ Brad S. Lakhia        

Name: Brad S. Lakhia

Title: Vice President and Treasurer

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

SUBSIDIARY GRANTORS:

TREASURE FRANCHISE COMPANY LLC

By: \s\ ROBERT R. MOTLEY        

Name: Robert R.Motley

Title: President and Manager

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

Solely with respect to Section 12 hereof:

TESORO CANADA SUPPLY & DISTRIBUTION LTD.

TESORO PANAMA COMPANY, S.A.

By: \s\ BRAD S. LAKHIA        

Name: Brad S. Lakhia

Title: Vice President and Treasurer

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

JPMORGAN CHASE BANK, NATIONAL ASSOCIATION,

individually, as the Non-RatableLender and as Administrative

Agent

By: \s\ J. DEVIN MOCK        

Name: J. Devin Mock

Title: Authorized Officer

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

THE ROYAL BANK OF SCOTLAND PLC,

as a Lender

By: \s\ SIMON MOCKFORD        

Name: Simon Mockford

Title: Managing Director

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

WELLS FARGO BANK, N.A.,

as a Lender

By: \s\ MATT HARBOUR        

Name: Matt Harbour

Title: Duly Authorized Signer

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

BANK OF AMERICA, N.A.,

as a Lender

By: \s\ BRANDON WATKINS        

Name: Brandon Watkins

Title: Senior Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

BARCLAYS BANK PLC,

as a Lender

By: \s\ LUKE SYME            

Name: Luke Syme

Title: Assistant Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

THE BANK OF TOKYO MITSUIBISHI UFJ, LTD.,

as a Lender

By: \s\ TODD VAUBEL        

Name: Todd Vaubel

Title: Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

CITIBANK, N.A.,

as a Lender

By: \s\ BRENDAN MACKAY        

Name: Brendan Mackay

Title: Vice President and Director

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

CREDIT AGRICOLE CORPORATE & INVESTMENT BANK,

as a Lender

By: \s\ DARRELL STANLEY        

Name: Darrell Stanley

Title: Managing Director

By: \s\ MICHAEL WILLIS        

Name: Michael Willis

Title: Managing Director

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

MIZUHO BANK, LTD.,

as a Lender

By: \s\ DONNA DEMAGISTRIS        

Name: Donna DeMagistris

Title: Authorized Signatory

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

NATIXIS, NEW YORK BRANCH

as a Lender

By: \s\ JARRETT PRICE        

Name: Jarrett Price

Title: Director

By: \s\ CARLOS QUINTEROS    

Name: Carlos Quinteros

Title: Managing Director

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

BANCO BILBAO VIZCAYA ARGENTARIA S.A.,

NEW YORK BRANCH, as a Lender

By: \s\ NURYS MALEKI        

Name: Nurys Maleki

Title: Global Trade Finance

By: \s\ LUCA SACCHI        

Name: Luca Sacchi

Title: Managing Director

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

BNP PARIBAS,

as a Lender

By: \s\ NICOLAS ANBERREE        

Name: Nicolas Anberree

Title: Vice President

By: \s\ CLAUDIA ZARATE            

Name: Claudia Zarate

Title: Director

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

DEUTSCHE BANK AG NEW YORK BRANCH,

as a Lender

By: \s\ PETER CUCCHIARA        

Name: Peter Cucchiara

Title: Vice President

By: \s\ MICHAEL SHANNON            

Name: Michael Shannon

Title: Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

REGIONS BANK,

as a Lender

By: \s\ GREGORY GARBUZ        

Name: Gregory Garbuz

Title: Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

SUNTRUST BANK,

as a Lender

By: \s\ DAN CLUBB        

Name: Dan Clubb

Title: Director

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

UBS AG, STAMFORD BRANCH,

as a Lender

By: \s\ DARLENE ARIAS        

Name: Darlene Arias

Title: Director

By: \s\ CRAIG PEARSON        

Name: Craig Pearson

Title: Associate Director

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

THE BANK OF NOVA SCOTIA,

as a Lender

By: \s\ JOHN FRAZELL    

Name: John Frazell

Title: Director

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

ROYAL BANK OF CANADA,

as a Lender

By: \s\ JASON YORK        

Name: Jason York

Title: Authorized Signatory

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

CIBC INC.,

as a Lender

By: \s\ RICHARD ANTL        

Name: Richard Antl

Title: Authorized Signatory

By: \s\ TRUDY NELSON        

Name: Trudy Nelson

Title: Authorized Signatory

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

FIFTH THIRD BANK,

as a Lender

By: \s\ LARRY HAYES        

Name: Larry Hayes

Title: Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

SUMITOMO MITSUI BANKING CORPORATION,

as a Lender

By: \s\ JAMES D. WEINSTEIN        

Name: James D. Weinstein

Title: Managing Director

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

RB INTERNATIONAL FINANCE (USA), LLC,

as a Lender

By: \s\ JOHN A. VALISKA            

Name: John A. Valiska

Title: First Vice President

By: \s\ STEVEN VANSTEENBERGEN    

Name: Steven VanSteenbergen

Title: Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

PNC BANK, NATIONAL ASSOCIATION,

as a Lender

By: \s\ ART BOYLE            

Name: Art Boyle

Title: Officer

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

CAPITAL ONE, NATIONAL ASSOCIATION,

as a Lender

By: \s\ NANCY MAK        

Name: Nancy Mak

Title: Senior Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

HSBC BANK USA, NATIONAL ASSOCIATION,

as a Lender

By: \s\ WADIE C. HABIBY        

Name: Wadie C. Habiby

Title: Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

U.S. BANK NATIONAL ASSOCIATION,

as a Lender

By: \s\ ROD SWENSON        

Name: Rod Swenson

Title: Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

AMEGY BANK NATIONAL ASSOCIATION,

as a Lender

By: \s\ MARK A. SERICE        

Name: Mark A. Serice

Title: Senior Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

CITY NATIONAL BANK, a national banking association,

as a Lender

By: \s\ MIA BOLIN            

Name: Mia Bolin

Title: Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

FROST BANK,

as a Lender

By: \s\ SARAH CERNOSEK        

Name: Sarah Cernosek

Title: Senior Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

COMERICA BANK,

as a Lender

By: \s\ L. J. PERENYL        

Name: L. J. Perenyl

Title: Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,

as a Lender

By: \s\ MIKHAIL FAYBUSOVICH        

Name: Mikhail Faybusovich

Title: Authorized Signatory

By: \s\ GREGORY FANTERI        

Name: Gregory Fanteri

Title: Authorized Signatory

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

AMALGAMATED BANK,

as a Lender

By: \s\ MICHAEL L. LAMANES        

Name: Michael L. LaManes

Title: First Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

SIEMENS FINANCIAL SERVICES, INC.,

as a Lender

By: \s\ JEFFREY B. IERVESE        

Name: Jeffrey B. Iervese

Title: Vice President

By: \s\ JOHN FINORE        

Name: John Finore

Title: Vice President

SIGNATURE PAGE TO AMENDMENT NO.2 AND CONSENT

TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT AND

AMENDMENT NO. 3 TO

AMENDED AND RESTATED SECURITY AGREEMENT

ANNEX A

TO

OMNIBUS AMENDMENT

List of Closing Deliverables¹ 

1. Omnibus Amendment No. 2 to Sixth Amended and Restated Credit Agreement and Amendment No. 3 to Amended and Restated Security Agreement (the “Amendment”) by and among the Borrower, the Subsidiary Grantors, the Lenders signatory thereto and the Agent.

2. Evidence that the credit facility evidenced by that certain Term Loan Credit Agreement, dated as of January 28, 2013, among the Borrower, JPMorgan Chase Bank, National Association, as administrative agent and collateral agent, and the lenders party thereto, has been terminated and cancelled, and that all indebtedness thereunder shall have been fully repaid and any and all liens thereunder shall have been terminated.

3. UCC-1 Financing Statements naming each Credit Party as debtor and the Agent as secured party filed in the appropriate offices in the jurisdictions as described on Schedule I hereto.

4. Control Agreement with respect to the JPMorgan Money Market Mutual Fund Interests.

5. Opinion of Simpson Thacher & Bartlett LLP, special outside counsel to the Borrower and theSubsidiary Grantors addressed to the Agent and the Lenders.

6. Certificate of the Secretary or an Assistant Secretary of each Grantor certifying (i) that there have been no changes in the Articles or Certificate of Incorporation, Certificate of Formation or other analogous charter document of such Credit Party, either as attached thereto and as certified as of a recent date by the Secretary of State (or the equivalent thereof) of its jurisdiction of organization since the date of the certification thereof by such Secretary of State (or equivalent thereof) or as previously certified to the Agent as of a prior date pursuant to documentation delivered in connection with the closing of the Credit Agreement, (ii) that there has been no change to the By-Laws, Limited Liability Company Agreement, Partnership Agreement or other analogous organizational document of such Grantor as previously certified to the Agent as of a prior date pursuant to documentation delivered in connection with the closing of the Credit Agreement, (iii) resolutions of the Board of Directors, Board of Managers or other analogous governing body of such Grantor authorizing the execution, delivery and performance of the Amendment and the Credit Agreement and Security Agreement as amended thereby, and (iv) the names and true signatures of the incumbent officers of such Grantor authorized to sign the Amendment and, in the case of the Borrower, authorized to request a Borrowing and the issuance, amendment, renewal or extension of a Letter of Credit under the Credit Agreement.

___________________________

¹Items appearing in bold and italics shall be prepared and/or provided by the Borrower and/or Borrower’s counsel.

Schedule I

UCC-1 Financing Statements

Debtor	Secured Party	Filing Jurisdiction
Tesoro Corporation	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Carson Cogeneration Company	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Gold Star Maritime Company	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro Alaska Company LLC	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro Aviation Company	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro Companies, Inc.	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro Environmental Resources Company	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro Far East Maritime Company	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro Insurance Holding Company	JPMorgan Chase Bank, National Association, as	Secretary of State of Delaware

	Agent
Tesoro Maritime Company	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro Northstore Company	JPMorgan Chase Bank, National Association, as Agent	Department of Natural Resources of Alaska
Tesoro Refining & Marketing Company LLC	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro Renewables Company LLC	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro Sierra Properties, LLC	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro SoCal Cogen Company LLC	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro South Coast Company, LLC	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro Trading Company	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro Wasatch, LLC	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Tesoro West Coast Company, LLC	JPMorgan Chase Bank, National Association, as	Secretary of State of Delaware

	Agent
Trans-Foreland Pipeline Company LLC	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Treasure Franchise Company LLC	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware
Uinta Express Pipeline Company LLC	JPMorgan Chase Bank, National Association, as Agent	Secretary of State of Delaware

EX-10.4

Exhibit 10.4

TESORO CORPORATION

EXECUTIVE DEFERRED COMPENSATION PLAN

ARTICLE I

GENERAL PROVISIONS

1.1     Establishment and Purpose.

WHEREAS, Tesoro Corporation (the "Company") previously established the Tesoro Corporation Executive Deferred Compensation Plan (the "Plan"), as amended, primarily for the purpose of providing benefits for a select group of management and highly compensated employees of the Company and its Subsidiaries so as to provide benefits comparable to those not provided under the Tesoro Corporation Thrift Plan due to salary and deferral limitations imposed under the Code;

WHEREAS, the Plan is intended to qualify as a "top hat" plan under Sections 201(2), 301(a)(3) and 401(a)(l) of ERISA; and

WHEREAS, the Company previously amended and restated the Plan, effective January 1, 2009, to comply with Regulations under Section 409A of the Code and to clarify certain provisions of the Plan relating to Supplemental Discretionary Awards;

WHEREAS, the Company desires to amend and restate the Plan to incorporate Amendments No.1-4 and to effectuate certain design changes, effective for contributions made to the Plan on account of a Participant’s service on or after January 1, 2016;

WHEREAS, all contributions made to the Plan on account of a Participant’s service prior to January 1, 2016 shall remain subject to the Plan terms prior to this amended and restated Plan;

NOW, THEREFORE, the Company adopts this amended and restated Tesoro Corporation Executive Deferred Compensation Plan, effective January 1, 2016, as follows:

1.2     Definitions.

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

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

"Beneficiary" means the person or persons designated by a Participant as his beneficiary hereunder in accordance with the provisions of Article V.

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"Board" means the Board of Directors of the Company.

"Bonus Compensation" means, as determined in the sole discretion of the Committee, such annual bonus or other bonus paid to a Participant including, but not limited to, executive bonus and long-term incentive bonus, but excluding special compensation, bonuses paid because of service overseas, expense allowances, all other extraordinary compensation, and, except as permitted with the prior written consent of the Committee, excluding Sign-On Bonus and Retention Bonus. For the avoidance of doubt, the Committee shall have the sole discretion to determine at any time which types of Bonus Compensation are deferrable under the Plan.

"Chief Executive Officer" means the Chief Executive Officer of the Company.

"Code" means the Internal Revenue Code of 1986, as amended from time to time.

"Committee" means the Employee Benefits Committee appointed by the Compensation Committee of the Board, or such other committee designated by the Compensation Committee of the Board to discharge the duties of the Committee hereunder.

"Company" means Tesoro Corporation, a Delaware corporation, or any successor thereto.

"Company Matching Contribution" means the employer matching contributions allocated to the Participant's account under the Thrift Plan for the Plan Year.

"Compensation" shall, unless otherwise determined by the Committee, for purposes of Sections 2.1 and 2.2 of the Plan, have the meaning assigned thereto in the Thrift Plan (determined without regard to any limits imposed on Compensation by the Code, but including amounts voluntarily deferred under the terms of this Plan and any 401(k) deferrals under the Thrift Plan) and shall, as applicable, include Bonus Compensation.

"Corporate Change in Control" means (i) there shall be consummated (A) any consolidation or merger of Company in which Company is not the continuing or surviving corporation or pursuant to which shares of Company's Common Stock would be converted into cash, securities or other property, other than a merger of Company where a majority of the board of directors of the surviving corporation are, and for a one-year period after the merger continue to be, persons who were directors of Company immediately prior to the merger or were elected as directors, or nominated for election as director, by a vote of at least two-thirds of the directors then still in office who were directors of Company immediately prior to the merger, or (B) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Company, or (ii) the shareholders of Company shall approve any plan or proposal for the liquidation or dissolution of Company, or (iii) (A) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), other than Company or a Subsidiary or any employee benefit plan sponsored by Company or a Subsidiary, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of securities of Company representing 35 percent or more of the combined voting power of Company's then outstanding securities ordinarily (and apart from rights accruing in special

2

circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, and (B) at any time during a period of one-year thereafter, individuals who immediately prior to the beginning of such period constituted the Board shall cease for any reason to constitute at least a majority thereof, unless election or the nomination by the Board for election by Company's shareholders of each new director during such period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.

"Deferral Account" means the bookkeeping account(s) established on behalf of a Participant to track the Participant's supplemental benefits as described in Article II hereof. A Deferral Account can refer to either a Termination Account or Specified Date Account as defined herein.

"Deferral Election" means an election by a Participant to defer Compensation in accordance with the provisions of Section 2.1 of the Plan, including an election as to the Distribution Date and Distribution Option.

"Deferrals" shall have the meaning ascribed thereto in Section 2.1(b) hereof.

"Disability" means disability as determined under the Retirement Plan.

"Disability Date" means the date on which a Participant's Separation from Service due to Disability occurs.

"Distribution Date" means the date on which distribution of the applicable portion of a Participant's Deferral Account (other than the portion, if any, of such Deferral Account that is attributable to Supplemental Discretionary Awards) is to commence. Distribution Dates are determined according to each Participant's Deferral Elections for each Deferral Account or as otherwise provided under the terms of the Plan.

"Distribution Option" means the form in which distribution of the applicable portion of a Participant's Deferral Account (other than the portion, if any, of such Participant's Deferral Account that is attributable to Supplemental Discretionary Awards) is to be made. Distribution Options are determined according to each Participant's Deferral Elections for each Plan Year or as otherwise provided under the terms of the Plan.

"Earnings" shall have the meaning ascribed thereto in Section 2.4(b) of the Plan.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended

from time to time.

“409A Change in Control” means any of the following events: (i) a change in the ownership of the Company, (ii) a change in the effective control of the Company, or (iii) a change in the ownership of a substantial portion of the assets of the Company.

3

For purposes of this definition, a change in the ownership of the Company occurs on the date on which any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group constitutes more than 50% of the total fair market value or total voting power of the stock of the Company. A change in the effective control of the Company occurs on the date on which either: (i) a person, or more than one person acting as a group, acquires ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company, taking into account all such stock acquired during the 12-month period ending on the date of the most recent acquisition, or (ii) a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election, but only if no other corporation is a majority shareholder of the Company. A change in the ownership of a substantial portion of assets occurs on the date on which any one person, or more than one person acting as a group, other than a person or group of persons that is related to the Company, acquires assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions, taking into account all such assets acquired during the 12-month period ending on the date of the most recent acquisition.

An event constitutes a 409A Change in Control with respect to a Participant only if the Participant performs services for the Company that has experienced the 409A Change in Control, or the Participant’s relationship to the affected Company otherwise satisfies the requirements of Treasury Regulation Section 1.409A-3(i)(5)(ii). The determination as to the occurrence of a 409A Change in Control shall be based on objective facts and in accordance with the requirements of Section 409A of the Code.

"Insolvency" means, with respect to the Company: (1) an adjudication of bankruptcy; (2) an assignment for the benefit of creditors of or by the Company; (3) a material part or all of the property of the Company becomes subject to the control and direction of a receiver, which receivership is not dismissed within sixty (60) days of such receiver's appointment; or (4) the filing by the Company of a petition for relief under any federal or other bankruptcy or other insolvency law or for an arrangement with creditors.

"Participant" means any employee who has satisfied the eligibility requirements set forth in Section 1.4 of the Plan and has a credit to a Deferral Account or has completed a Deferral Election.

"Performance-Based Compensation" means the total amounts payable to a Participant as remuneration based upon the Participant's performance of services for the Company over a period of not less than twelve (12) months, the payment of which or the amount of which is contingent on the satisfaction of established organizational or individual performance criteria, and that otherwise meets the definition of "performance-based compensation", as that term is defined in Section 1.409A-2(a)(7) of the Regulations. For these purposes, Performance-Based Compensation shall be based upon criteria established no later than 90 days following commencement of the applicable performance period.

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"Person" means any individual, corporation, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

"Plan Year" means the twelve-month period beginning each January 1.

"Regulations" means the Treasury Regulations promulgated under the Code.

“Retention Bonus” means a cash-based award outside of an employee's regular compensation that is offered as an incentive to keep such employee on the job during a particularly important business cycle (such as a merger or acquisition).

"Retirement Plan" means the Tesoro Corporation Retirement Plan, as amended.

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

“Sign-On Bonus” means a cash-based award that is payable to an eligible individual pursuant to the terms and conditions of such individual’s offer of employment to induce him or her to become an employee of the Company, or any similar item of compensation.

“Specified Date Account” means a Deferral Account established by the Committee to record the amounts payable to a Participant at a future date as specified in such Participant’s Deferral Election or, as applicable, pursuant to a Supplemental Discretionary Award. Unless otherwise permitted by the Committee, a Participant may maintain no more than five Specified Date Accounts. A Specified Date Account may be identified herein and in enrollment materials as an “In-Service Account”, “Fixed Date Account” or such other name as established by the Committee without affecting the meaning thereof.

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

"Supplemental Discretionary Award" means a discretionary amount, if any, credited to a Participant's Deferral Account pursuant to Section 2.2(b).

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“Supplemental Discretionary Profit Sharing Award” means a discretionary amount, if any, credited to a Participant’s Deferral Account pursuant to Section 2.2(c).

"Supplemental Match" means an amount credited to the Participant's Deferral Account pursuant to Section 2.2(a).

“Termination Account” means a Deferral Account established by the Committee to record the amounts payable to a Participant upon Separation from Service. Unless a Specified Date Account has been established by or on behalf of a Participant, all Deferrals and Company contributions shall be allocated to a Termination Account on behalf of the Participant.

"Thrift Plan" means the Tesoro Corporation Thrift Plan, as amended.

"Unforeseeable Emergency" means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant's spouse, or a dependent (as determined under Section 152 of the Code, but without regard to subsections (b)(1), (b)(2) and (d)(1)(B) of Section 152) of the Participant, loss of the Participant's property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance), or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

1.3     Administration.

(a) The Committee shall administer the Plan and have sole and absolute authority and discretion to decide all matters relating to the administration of the Plan, including, without limitation, determining the rights and status of Participants or their Beneficiaries under the Plan. The Committee is authorized to interpret the Plan, to adopt administrative rules, regulations, and guidelines for the Plan, and may correct any defect, supply any omission or reconcile any inconsistency or conflict in the Plan. The Committee's determinations under the Plan need not be uniform among all Participants, or classes or categories of Participants, and may be applied to such Participants, or classes or categories of Participants, as the Committee, in its sole and absolute discretion, considers necessary, appropriate or desirable. All determinations by the Committee shall be final, conclusive and binding on the Company, the Participant and any and all interested parties.

(b) The Committee may delegate such of its powers and authority under the Plan to the Company's officers or such other person(s) as it deems necessary or appropriate. In the event of such delegation, all references to the Committee in this Plan shall be deemed references to such officers or such other person(s) as it relates to those aspects of the Plan that have been delegated.

(c) Any action taken by the Committee with respect to the rights or benefits under the Plan of any Participant shall be subject to correction by the Committee as to payments not yet made to such person, and acceptance of any deferred compensation benefits under the Plan constitutes acceptance of and agreement to the Committee's or the Company's

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making any appropriate adjustments in future payments to such person (or to recover from such person) any excess payment or underpayment previously made to him.

(d) Notwithstanding any provision of the Plan to the contrary, if any benefit provided under this Plan is subject to the provisions of Section 409A of the Code and the Regulations issued thereunder, the provisions of the Plan shall be administered, interpreted and construed in a manner necessary to comply with Section 409A and the Regulations issued thereunder (or disregarded to the extent such provision cannot be so administered, interpreted or construed).

1.4     Eligibility and Participation.

(a) Participation in the Plan is limited to those individuals who are eligible to participate in the Thrift Plan and are within the category of a select group of management and highly compensated employees as referred to in Sections 201(2), 301(a)(3) and 401(a)(l) of ERISA, and who are within those classifications of officers and key management employees of the Company and its Subsidiaries as determined in the sole discretion of the Compensation Committee of the Board for each Plan Year. Plan eligibility for new participants shall commence as of the first day of the Plan Year or the first day of the 7th month of the Plan Year (each, a "semi-annual entry date") as determined by the Compensation Committee of the Board. Employees hired, promoted or reclassified to a category of officer and key management employees of the Company and/or its Subsidiaries eligible for participation shall become eligible as of the semiannual entry date determined by the Compensation Committee of the Board. A newly eligible Participant shall make his or her Deferral Elections within the designated time periods as set forth in Section 2.1 hereof.

(b) A Participant shall cease to be a Participant upon receiving payment for the full amount of benefits to which the Participant is entitled under the Plan. A Participant who becomes ineligible to participate based on eligibility status as determined pursuant to Section 1.4(a) of this Plan shall become an ineligible Participant at the time determined by the Committee. Once a Participant is no longer eligible to actively participate in the Plan, he shall not be entitled to defer Compensation pursuant to Section 2.1 or receive a Supplemental Match, Supplemental Discretionary Profit Sharing Award or Supplemental Discretionary Award (except to the extent otherwise provided in an Award Agreement) under Section 2.2.

ARTICLE II

SUPPLEMENTAL BENEFITS

2.1     Supplemental Deferral Elections.

(a) Each Participant shall be eligible to elect to defer Compensation under the Plan with respect to a Plan Year in accordance with the terms of the Plan and the rules and procedures established by the Committee. Deferral Elections under the Plan are entirely voluntary and, with respect to the Plan Year to which they relate, following the end of the

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election period established under Section 2.1(b), are irrevocable, except as provided in Sections 2.1(e) and 3.5 hereof.

(b) A Participant may make a Deferral Election by filing a written or electronic election with the Committee or its designee directing the Company to reduce the Participant's Compensation, including as applicable, Bonus Compensation and to credit the amount of any such reduction (the "Deferrals") to the Deferral Account established and maintained for such Participant pursuant to Section 2.4 of the Plan. Each Deferral Election shall specify whether to allocate Deferrals to a Termination Account or one or more Specified Date Accounts (and if no such designation is made, Deferrals shall automatically be allocated to the Termination Account). Each Deferral Election shall be partitioned for each available deferral source (e.g. salary and each type of bonus). The Committee may, in its sole discretion, establish a minimum deferral period for the establishment of a Specified Date Account (e.g. the third Plan Year following the year that the Deferral is allocated to such account). Deferral Elections hereunder shall be made in accordance with the terms of the Plan and the rules established by the Committee and, except as provided below, must be filed not later than December 31 of the calendar year preceding the Plan Year to which the election relates (or at such earlier times as may be established by the Committee) (such period established by the Committee on an annual basis shall be the “Annual Enrollment Period”). With regard to Performance- Based Compensation, such Deferral Elections shall initially be permitted to be made in the Annual Enrollment Period preceding the Plan Year(s) to which such election relates and subsequently may be changed, elected or withdrawn on or before June 30 of the calendar year that coincides with the applicable performance period in accordance with Section 409A of the Code and the Regulations. A Participant may revoke or modify such election up until the end of the election period established by the Committee under this Section 2.1(b). Notwithstanding the preceding, for the first Plan Year in which a Participant is eligible to participate in the Plan, a Participant's initial Deferral Election may be made within thirty (30) days after the date the Participant becomes eligible to participate in the Plan and shall apply only to Compensation and Bonus Compensation paid for services to be performed after the election for such Plan Year in accordance with Section 409A of the Code. Unless otherwise determined by the Committee, a Deferral Election must be filed each Plan Year, and will not carry over from Plan Year to Plan Year.

(c) Deferrals shall be credited to each Participant's Deferral Account at such time or times as determined by the Committee; provided, however, that Deferrals shall be credited to each Participant's Deferral Account not later than thirty (30) days after the date on which such Compensation would have otherwise been paid, without regard to whether or not the Participant has reached the limit on 401(k) deferrals under the Thrift Plan. Deferrals shall be deemed to be invested in accordance with a Participant's investment designations as permitted under Section 2.4(b).

(d) Unless otherwise determined by the Committee, a Participant may elect to defer up to 50% of Compensation (exclusive of Bonus Compensation) and up to 100% of Bonus Compensation payable to the Participant. Notwithstanding the foregoing, the Committee may implement additional conditions with respect to a Participant’s Deferral Election,

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including but not limited to applying deferral percentages only to amounts in excess of certain thresholds.

(e) Notwithstanding the foregoing and unless otherwise determined by the Committee, a Deferral Election shall automatically terminate on the earliest to occur of: (1) the end of the Plan Year to which the Deferral Election applies; (2) the termination of a Participant's employment for any reason; (3) the Committee's determination that the Participant is no longer eligible to participate in the Plan; or (4) the termination or discontinuance of the Plan.

(f) Each Participant shall at all times be vested in the portion of his Deferral Account attributable to Deferrals, including Earnings thereon.

2.2 Supplemental Match, Discretionary Profit Sharing Awards and Discretionary Awards.

(a) With respect to each Plan Year and to the extent provided under this Section 2.2, the Company shall credit a supplemental matching award ("Supplemental Match") to each eligible Participant's Deferral Account. The Supplemental Match shall be in such percentage of the Participants’ Compensation (excluding Bonus Compensation) deferred under this Plan as shall be determined by the Compensation Committee of the Board in its sole discretion from year to year. The Supplemental Match shall apply to each Participant as of the first payroll period during the Plan Year in which such Participant’s Compensation (including Bonus Compensation) exceeds the limitations imposed under Section 401(a)(17) of the Code and shall be credited to the Participant’s Deferral Account for such payroll period and each subsequent payroll period during the Plan Year in which the Participant is eligible for the Supplemental Match. The Supplemental Match shall be credited to such Participant’s Termination Account or, as applicable, Specified Date Account (determined by the Deferral Election of such Participant for the Deferral to which such Supplemental Match relates) within thirty (30) days of such Deferral (recognizing that the Supplemental Match relates only to Deferrals of Compensation exceeding the statutory limit set forth above. Those Participants eligible to participate in the Company's Executive Security Plan, or who, through the terms of an individual employment agreement have an entitlement to supplemental retirement benefits, shall not be eligible to participate in the Supplemental Match. In the event a Participant subsequently loses eligibility to participate in the Executive Security Plan or his employment agreement is amended to eliminate supplemental retirement benefits, such Participant shall regain eligibility to share in the Supplemental Match for that portion of the Plan Year following such Participant's loss of eligibility to participate in the Executive Security Plan or elimination of supplemental retirement benefits as set forth herein. Participants who become eligible for participation in the Executive Security Plan, or who are granted supplemental retirement benefits through an individual employment agreement will be allowed to retain the Supplemental Match contributed up to such eligibility, subject to the normal vesting provisions in Section 2.2(e).

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(b) With respect to any Plan Year and to the extent provided under this Section 2.2, the Company may credit a Supplemental Discretionary Award (the "Supplemental Discretionary Award") to any eligible Participant's Deferral Account. The determination of a Participant to whom such Supplemental Discretionary Award applies, as well as the amount of such award, if any, shall be in the sole discretion of the Chief Executive Officer, pursuant to an agreement between the Company and such Participant (the "Award Agreement"), provided, however, that deferrals of Supplemental Discretionary Awards may be negotiated with a Participant prior to the date the Participant has a legally binding right to such award. A Supplemental Discretionary Award shall be credited to a Participant’s Termination Account or, as applicable, Specified Date Account in accordance with the provisions of the applicable Award Agreement.

(c) With respect to any Plan Year for which the Company makes a profit sharing contribution to the Thrift Plan and for which a Participant has Compensation (including Bonus Compensation) that exceeds the limitations imposed under Section 401(a)(17) of the Code, to the extent provided under this Section 2.2, the Company may credit to such Participant’s Deferral Account a discretionary profit sharing award. Such award, if any, shall be a percentage of such excess compensation that may or may not be equal to the percentage of compensation contributed for such Plan Year as a profit sharing contribution on behalf of participants in the Thrift Plan. Further, for any Plan Year in which a Participant is not able to receive the entire allocation to which such Participant would otherwise be entitled under the terms of the Thrift Plan due solely to the limitations of Section 415 of the Code, the Company may credit to such Participant’s Deferral Account the amount by which such Participant’s allocation to the Thrift Plan would otherwise exceed the limits of Section 415 for such Plan Year. Amounts, if any, credited under this section 2.2(c) shall be “Supplemental Discretionary Profit Sharing Awards”. Supplemental Discretionary Profit Sharing Awards, if any, will be credited to the Participant's Termination Account or, as applicable, Specified Date Account in accordance with the Deferral Election of such Participant for the Plan Year to which such Supplemental Discretionary Profit Sharing Award relates.

(d) Supplemental Match, Supplemental Discretionary Awards, and Supplemental Discretionary Profit Sharing Awards shall be credited to a Participant’s Termination Account or, as applicable, Specified Date Account as provided above and shall be deemed invested in the same manner in which the remainder of such account is deemed to be invested under Section 2.4(b).

(e) Subject to Section 2.3 and Exhibit 1 hereof, each Participant shall vest in the portion of his Deferral Account attributable to a Supplemental Match upon the completion of three (3) years of service and to that portion of his Deferral Account attributable to a Supplemental Discretionary Profit Sharing Award upon the completion of one (1) year of service. Years of service shall be determined in accordance with the methodology set forth in the Thrift Plan for determining years of service for vesting purposes thereunder. Each Participant shall vest in that portion of his Deferral Account attributable to a Supplemental Discretionary Award in accordance with the provisions of the Award Agreement pursuant to which such Supplemental Discretionary Award is credited.

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2.3     Change in Control.

In the event of a Corporate Change in Control, the portion of a Participant's Deferral Account attributable to any Supplemental Match, Supplemental Discretionary Profit Sharing Award, and any Supplemental Discretionary Award shall become fully vested. A Corporate Change in Control is not an event which triggers an automatic distribution of benefits.

2.4     Deferral Accounts/Earnings.

(a) Unless otherwise determined by the Committee, the Company shall maintain on behalf of each Participant separate Deferral Account(s), which shall consist of a Termination Account and, as applicable, Specified Date Accounts up to the maximum permitted under this Plan.

(b) The Participant's Termination Account and, as applicable, Specified Date Accounts shall be adjusted by an amount equal to the amount that would have been earned (or lost) if the Deferrals of such Participant and Company contributions credited on behalf of such Participant under this Plan had been invested in hypothetical investments designated by the Participant from time to time, based on a list of hypothetical investments provided by the Committee from time to time (such hypothetical earnings or losses shall be referred to as "Earnings"); provided, however, in no event shall the common stock of the Company or any Subsidiary ever constitute a hypothetical investment maintained under the Plan. The Participant shall designate the investments used to measure Earnings from the list of authorized investments provided by the Committee by completing the appropriate form (or electronically via the website made available for such purpose) or in such other manner as the Committee may designate from time to time. The Participant may change such designations at such times as are permitted by the Committee, provided that the Participant shall be entitled to change such designations at least quarterly. Earnings shall be credited to the Participant's Deferral Account at least annually (or more frequently at the discretion of the Committee). Earnings shall be credited to a Deferral Account until all payments with respect to such account have been made under this Plan. Neither the Company nor the Committee shall act as a guarantor, or be liable or otherwise responsible for the investment performance of the designated investments (including any losses sustained by a Participant) with respect to a Participant's Deferral Account.

(c) Each Participant shall be vested in his Deferral Account balances in accordance with the vesting designated in Sections 2.1(f), 2.2(e) and 2.3 hereof, or, as applicable, pursuant to Exhibit 1.

ARTICLE III

DISTRIBUTIONS

3.1     Termination Account Distribution Dates.

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Except in the event of death or a Separation from Service due to Disability, distributions of a Participant’s Termination Account upon such Participant’s Separation from Service shall be made or, as applicable, commence on (i) the first business day of the January immediately following such Separation from Service or (ii) if later, the first business day of the seventh month following the month in which such Separation from Service occurs. Notwithstanding the foregoing, distribution of that portion of a Participant's Termination Account that is attributable to Supplemental Discretionary Awards shall be made at such time as may be designated and set forth in the Award Agreement pursuant to which such Supplemental Discretionary Award is credited. Each distribution shall be valued as of the last business day of the month immediately

preceding the month in which such distribution occurs.

3.2     Termination Account Distribution Option/Manner of Payment.

The Distribution Option for a Participant’s Termination Account shall be determined in accordance with such election procedures as are established by the Committee and distributions shall, in accordance with such Participant’s Deferral Election, be paid in the form of a lump sum or in installments over a period of 2-to-15 years; provided, however, that the Distribution Option must be established at the time of such Participant's Deferral Election, in accordance with the requirements of Section 2.1 hereof, and must be in a form acceptable to the Committee as determined from time to time. Notwithstanding the preceding provisions of this Section 3.2, if a Participant fails to designate a form of distribution, or if the balance in the Participant's Deferral Account(s) in the aggregate is less than $100,000 at such Participant’s Separation from Service, the distribution will be paid in the form of a lump sum regardless of the Participant's Deferral Election. Notwithstanding the foregoing, distribution of that portion of a Participant's Termination Account that is attributable to Supplemental Discretionary Awards shall be made in such manner as may be designated and set forth in the Award Agreement pursuant to which such Supplemental Discretionary Award is credited. All payments under the Plan shall be made in cash.

3.3     Specified Date Account Distribution Dates.

Distribution Dates for a Participant's Specified Date Account(s) shall be established and determined in accordance with the Participant's Deferral Elections. A Participant must choose a designated Distribution Date for each Specified Date Account among the following: (i) benefits to be paid or, as applicable, commence on the designated Distribution Date regardless of whether such Participant’s employment status with the Company or any Affiliate (a “Future Date Account”) or (ii) benefits to be paid or, as applicable, commence at the earlier of the designated Distribution Date or such Participant’s Separation from Service (an “In-Service Account”). Notwithstanding the foregoing, distribution of that portion of a Participant's Specified Date Account that is attributable to Supplemental Discretionary Awards shall be made at such time as may be designated and set forth in the Award Agreement pursuant to which such Supplemental Discretionary Award is credited. Payment of each Specified Date Account will be made or, as applicable, commence on the first business day of the month immediately following the month in which the Distribution Date or, as applicable, the date set forth in the Award Agreement occurs and shall be valued as of the last business day of the month immediately preceding the month in which such distribution occurs.

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With respect to a Future Date Account, the vested portion of such account will be paid only in accordance with the Distribution Date elected by the Participant or, as applicable, the date set forth in the Award Agreement, notwithstanding any intervening Separation from Service of such Participant prior to such Distribution Date.

With respect to an In-Service Account, the vested portion of such account will be paid or, as applicable, commence in accordance with the Distribution Date elected by the Participant or, as applicable, the date set forth in the Award Agreement, unless there is an intervening Separation from Service of such Participant prior to the commencement of the distribution of such In-Service Account, in which case, such In-Service Account shall be paid at the same time as such Participant’s Termination Account.

Any Specified Date Account of a Participant for which distribution has commenced prior to such Participant’s Separation from Service shall continue distributions in the manner originally elected by the Participant for such account, or, as applicable, set forth in such Participant’s Award Agreement, notwithstanding any subsequent Separation from Service of such Participant.

3.4     Specified Date Account Distribution Option/Manner of Payment.

Subject to Section 3.3, a Participant’s Distribution Option for a Specified Date Account shall be determined in accordance with such election procedures as are established by the Committee and distributions shall, in accordance with such Participant’s Deferral Election, be paid in the form of a lump sum or in installments over a period of 2-to-5 years; provided, however, that the Distribution Option must be established at the time of the Participant's Deferral Election, in accordance with the requirements of Section 2.1 hereof, and must be in a form acceptable to the Committee as determined from time to time. Notwithstanding the preceding provisions of this Section 3.4, if a Participant fails to designate a form of distribution, or if the balance in the Participant's Deferral Account(s) in the aggregate is less than $100,000 at such Participant’s Separation from Service, the distribution will be paid in the form of a lump sum regardless of the Participant's Deferral Election. Notwithstanding the foregoing, distribution of that portion of a Participant's Specified Date Account that is attributable to Supplemental Discretionary Awards shall be made in such manner as may be designated and set forth in the Award Agreement pursuant to which such Supplemental Discretionary Award is credited. All payments under the Plan shall be made in cash.

3.5     Modification of Distribution Elections.

A Participant has the right to change any Distribution Date or Distribution Option associated with the Deferral Account previously designated by the Participant in one or more Deferral Elections pursuant to this Article III; provided, however, that: (1) the Participant must file an election designating the new Distribution Date and Distribution Option at least one year prior to the Distribution Date previously designated; (2) the new Distribution Option may extend, but not accelerate, payments; and (3) the new election must also provide that the new Distribution Date be a minimum of five years later than the existing Distribution Date. Any such election shall be made

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in accordance with such rules and procedures as are established by the Committee and shall not take effect for at least twelve (12) months after the date on which such election is made.

3.6     Separation from Service.

Notwithstanding the foregoing provisions, in the event of a Participant's Separation from Service for any reason other than death or Disability, the Participant will receive a payment of all vested amounts credited to the Participant's Deferral Accounts (other than Future Date Accounts and In-Service Accounts that have commenced distribution) as elected by the Participant pursuant to Section 3.2, subject to any modifications elected by the Participant pursuant to Section 3.5, or as otherwise provided in Section 3.2 hereof. Any portion of a Participant's Deferral Account attributable to a Supplemental Match, Supplemental Discretionary Profit Sharing Award, or a Supplemental Discretionary Award that is not vested on the date of such Participant's Separation from Service shall be forfeited by the Participant should he or she fail to satisfy the vesting conditions of Sections 2.1(f), 2.2(e) or 2.3. Such forfeited amount shall revert to the Company and shall remain a general corporate asset to be used for any purpose determined by the Company.

3.7     Death.

Notwithstanding the foregoing provisions, the Beneficiary or Beneficiaries of a Participant shall be entitled to receive the entire amount credited to such Participant's Deferral Accounts (including all Specified Date Accounts) at the time of such Participant's death, valued as of the last business day of the month in which such Participant’s death occurred. Any unvested amounts remaining in such Participant's Deferral Accounts shall immediately become fully vested upon the Participant's death. The value of the Participant's Deferral Accounts will be paid to the Participant's Beneficiary, including the Participant's estate if designated as the Beneficiary, in a lump sum within ninety (90) days following the Participant's death. The Participant shall designate his Beneficiary in accordance with the provisions of Article V hereof.

3.8     Disability.

Notwithstanding the foregoing provisions, in the event of Disability, a Participant shall continue to accrue vesting service until fully vested in his Deferral Accounts or, if earlier, until his Disability Date. The Participant will receive a payment of all vested amounts credited to such Participant's Deferral Accounts (including all Specified Date Accounts) as of his Disability Date, in the manner provided in his Deferral Election (or, as applicable Award Agreement) or, if earlier, on his Distribution Date. Any portion of a Participant's Deferral Account attributable to a Supplemental Match, Supplemental Discretionary Profit Sharing Award, or a Supplemental Discretionary Award that is not vested on such Participant's Disability Date shall be forfeited by the Participant should he or she fail to satisfy the vesting conditions of Sections 2.1(f), 2.2(e) or 2.3. Such forfeited amount shall revert to the Company and shall remain a general corporate asset to be used for any purpose determined by the Company.

3.9     Unforeseeable Emergency.

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The Committee may, upon request of a Participant, cause to be paid to such Participant an amount equal to all or any part of the amounts credited to such Participant's Deferral Account if the Committee determines, in its absolute discretion based on such reasonable evidence that it shall require, that such a payment or payments is necessary for the purpose of alleviating the consequences of an Unforeseeable Emergency occurring with respect to the Participant. The amounts distributed with respect to an Unforeseeable Emergency may not exceed the amount necessary to satisfy the emergency plus amounts necessary to pay taxes on the distribution, after taking into account the extent to which the hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant's assets (to the extent liquidation would not itself cause severe financial hardship). The amount of emergency payment shall be subtracted first from the vested portion of such Participant’s Termination Account until depleted and then from the vested portion of such Participant’s Specified Date Accounts, beginning with the Specified Date Account with the latest payment commencement date. Any such distribution upon an Unforeseeable Emergency shall result in a termination of Deferrals that would otherwise be credited on behalf of such Participant for the Plan Year in which the distribution on account of an Unforeseeable Emergency occurs, together with any Supplemental Match associated with such Deferrals.

3.10     Change in Time of Payments.

Notwithstanding any provision of this Article III to the contrary, the benefits payable hereunder may, to the extent expressly provided in this Section 3.10, be paid prior to or later than the date on which they would otherwise be paid to the Participant.

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

(b) Distribution Necessary to Satisfy Applicable Tax Withholding. If the Company is required to withhold amounts to pay the Participant’s portion of the Federal Insurance Contributions Act (FICA) tax imposed under Code Sections 3101, 3121(a) or 3121(v)(2) with respect to amounts that are or will be paid to the Participant under the Plan before they otherwise would be paid, the Committee may determine that such Participant shall receive a distribution from the Plan in an amount equal to the lesser of: (i) the amount in the Participant's Deferral Accounts or (ii) the aggregate of the FICA taxes imposed and the income tax withholding related to such amount.

(c) Delay for Payments in Violation of Federal Securities Laws or Other Applicable Law. In the event the Company reasonably anticipates that the payment of benefits as specified hereunder would violate Federal securities laws or other applicable law, the

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Committee may delay the payment under this Article III until the earliest date at which the Company reasonably anticipates that the making of such payment would not cause such violation.

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

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

(f) No Participant Election. Notwithstanding the foregoing provisions, if the period during which payment of benefits hereunder will be made occurs, or will occur, in two calendar years, the Participant shall not be permitted to elect the calendar year in which the payment shall be made.

3.11     409A Change in Control.

If a 409A Change in Control occurs before all Deferral Account(s) have been fully distributed, the remaining balance of all such Deferral Account(s) (including all Specified Date Accounts) shall be distributed in the form of a single lump sum payable at the end of the fifteenth (15th) month following the month in which such 409A Change in Control is effective, unless a Participant makes a timely election during the first three (3) months following the 409A Change in Control, in compliance with Section 3.5, to delay commencement of benefits from such Participant’s Deferral Account(s) by a minimum of five (5) years and to receive the benefits in the form of a lump sum, in which case distribution shall be made in accordance with such Participant’s modified election.

ARTICLE IV

FUNDING

4.1     Unsecured Obligation of Company.

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(a) Any benefit payable pursuant to this Plan shall be paid from the general assets of the Company. Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create a trust of any kind or a fiduciary relationship between any Participant (or any other interested person) and the Company or the Committee, or require the Company to maintain or set aside any specific funds for the purpose of paying any benefit hereunder. To the extent that a Participant or any other person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company.

(b) If the Company maintains a separate fund or makes specific investments, including the purchase of insurance on the life of the a Participant, to assure its ability to pay any benefits due under this Plan, neither the Participant nor the Participant's Beneficiary shall have any legal or equitable ownership interest in, or lien on, such fund, policy, investment or any other asset of the Company. The Company, in its sole discretion, may determine the exact nature and method of informal funding (if any) of the obligations under this Plan. If the Company elects to maintain a separate fund or makes specific investments to fund its obligations under this Plan, the Company reserves the right, in its sole discretion, to terminate such method of funding at any time, in whole or in part. In addition, the Company may, in its sole and absolute discretion, set aside or earmark funds in an amount, determined by the Committee, equal to the total amounts necessary to provide benefits under the Plan. The Committee may, at its discretion direct the Company to establish one or more grantor trusts to provide for the ultimate payment of the Company's obligations under this Plan, but the trust instrument for any such trust must specifically provide that its assets are subject to the claims of the Company's creditors. Such grantor trust may require that the Company fully fund said trust with respect to benefits accrued through the date of a Corporate Change in Control following such a Corporate Change in Control.

4.2     Cooperation of Participant.

If the Company, in its sole discretion, elects to invest in a life insurance, disability or

annuity policy on the life of a Participant to assist with the informal funding of its obligations

under this Plan, the Participant shall assist the Company, from time to time, promptly upon the

request of the Company, in obtaining such insurance policy by supplying any information

necessary to obtain such policy as well as submitting to any physical examinations required

therefore. The Company shall be responsible for the payment of all premiums with respect to

any whole life, variable, or universal life insurance policy purchased in connection with this Plan

unless otherwise expressly agreed.

ARTICLE V

BENEFICIARIES

5.1     Beneficiary Designations.

A designation of a Beneficiary hereunder may be made only by an instrument (in form acceptable to the Committee) signed by the Participant and filed with the Committee prior to the

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Participant's death. In the absence of such a designation and at any other time when there is no existing Beneficiary designated hereunder, the unpaid value of the Participant's Deferral Accounts to which the Participant was entitled at his death shall be distributed to the Participant's estate. A Beneficiary who dies or which ceases to exist shall not be entitled to any part of any payment thereafter to be made to the Participant's Beneficiary unless the Participant's designation specifically provides to the contrary. If two or more persons designated as a Participant's Beneficiary are in existence with respect to a single deferred compensation benefit, the amount of any payment to the Beneficiary under this Plan shall be divided equally among such persons, unless the Participant's designation specifically provides to the contrary.

5.2     Change in Beneficiary.

A Participant may, at any time and from time to time, change a Beneficiary designation hereunder without the consent of any existing Beneficiary or any other person. Any change in Beneficiary shall be made only by an instrument (in form acceptable to the Committee) signed by the Participant, and any change shall be effective only if received by the Committee prior to the death of the Participant.

ARTICLE VI

CLAIMS PROCEDURES

6.1     Claims for Benefits.

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

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

(a) the specific reasons for the denial;

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

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

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

6.2     Appeal Provisions.

A claimant whose claim is denied (or his duly authorized representative) may within 60 days after receipt of denial of a claim file with the Committee a written request for a review of

18

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

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

ARTICLE VII

MISCELLANEOUS

7.1     Withholding.

The Company shall be required to withhold from any distribution payable under the Plan an amount sufficient to satisfy all federal, state and local tax withholding requirements.

7.2     No Guarantee of Employment.

Nothing in this Plan shall be construed as guaranteeing future employment to any Participant. Without limiting the generality of the preceding sentence, except as otherwise set forth in a written agreement, a Participant continues to be an employee of the Company solely at the will of the Company subject to discharge at any time, with or without cause. The benefits provided for herein for a Participant shall not be deemed to modify, affect or limit any salary or salary increases, bonuses, profit sharing or any other type of compensation of a Participant in any manner whatsoever. Nothing contained in this Plan shall affect the right of a Participant to participate in or be covered by or under any qualified or nonqualified pension, profit sharing, group, bonus or other supplemental compensation, retirement or fringe benefit Plan constituting any part of the Company's compensation structure whether now or hereinafter existing.

7.3     Payment to Guardian.

If a benefit payable hereunder is payable to a minor, to a person declared incompetent or to a person incapable of handling the disposition of his property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Committee may require such proof of incompetency, minority, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit.

19

7.4     Assignment.

No right or interest under this Plan of any Participant or Beneficiary shall be assignable or transferable in any manner or be subject to alienation, anticipation, sale, pledge, encumbrance or other legal process or in any manner be liable for or subject to the debts or liabilities of the Participant or Beneficiary.

7.5     Severability.

If any provision of this Plan or the application thereof to any circumstance(s) or person(s) is held to be invalid by a court of competent jurisdiction, the remainder of the Plan and the application of such provision to other circumstances or persons shall not be affected thereby.

7.6     Amendment and Termination.

The Company may at any time (without the consent of any Participant) modify, amend or terminate any or all of the provisions of this Plan; provided, however, that no modification, amendment or termination of this Plan shall adversely affect the rights of a Participant under the Plan without the consent of such Participant. Notwithstanding the foregoing or any provision of the Plan to the contrary, the Company may at any time (without the consent of any Participant) modify, amend or terminate any or all of the provisions of this Plan to the extent necessary to conform the provisions of the Plan with Section 409A of the Code regardless of whether such modification, amendment or termination of this Plan shall adversely affect the rights of a Participant under the Plan. Any amendment or termination of the Plan shall be at the direction of the Compensation Committee of the Board. Notwithstanding the foregoing, the Plan shall automatically terminate, without further action of the Company, upon Insolvency of the Company.

7.7     Effect of Termination.

If the Plan is terminated, all deferrals shall thereupon cease, but Earnings shall continue to be credited to the Deferral Accounts in accordance with Section 2.4 hereof. Notwithstanding the foregoing, to the extent provided by the Company in accordance with Section 7.6, the Plan may be liquidated following a termination under any of the following circumstances:

(a) the termination and liquidation of the Plan within twelve (12) months of a complete dissolution of the Company taxed under Section 331 of the Code or with the approval of a bankruptcy court pursuant to 11 U.S.C. § 503(b)(1)(A); provided that the amounts deferred under this Plan are included in the Participants' gross incomes in the latest of the following years (or, if earlier, the taxable year in which the amount is actually or constructively received): (i) the calendar year in which the Plan is terminated; (ii) the first calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the payment is administratively practicable.

20

(b) the termination and liquidation of the Plan pursuant to irrevocable action taken by the Company within the thirty (30) days preceding or the twelve (12) months following a 409A Change of Control; provided that all Aggregated Plans are terminated and liquidated with respect to each Participant that experienced such change of control, so that under the terms of the termination and liquidation, all such Participants are required to receive all amounts of deferred compensation under this Plan and any other Aggregated Plans within twelve (12) months of the date the Company irrevocably takes all necessary action to terminate and liquidate this Plan and such other Aggregated Plans;

(c) the termination and liquidation of the Plan, provided that: (i) the termination and liquidation does not occur proximate to a downturn in the Company's financial health; (2) the Company terminates and liquidates all Aggregated Plans; (3) no payments in liquidation of this Plan are made within twelve (12) months of the date the Company irrevocably takes all necessary action to terminate and liquidate this Plan, other than payments that would be payable under the terms of this Plan if the action to terminate and liquidate this Plan had not occurred; (4) all payments are made within twenty four (24) months of the date on which the Company irrevocably takes all action necessary to terminate and liquidate this Plan; and (5) the Company does not adopt a new Aggregated Plan at any time within three (3) years following the date on which the Company irrevocably takes all action necessary to terminate and liquidate the Plan.

7.8     Exculpation and Indemnification.

The Company shall indemnify and hold harmless the members of the Committee from and against any and all liabilities, costs and expenses incurred by such persons as a result of any act, or omission to act, in connection with the performance of such person's duties, responsibilities and obligations under the Plan, other than such liabilities, costs and expenses as may result from the gross negligence, willful misconduct, and/or criminal acts of such persons.

7.9     Confidentiality.

In further consideration of the benefits available to each Participant under this Plan, each Participant shall agree that, except as such may be disclosed in financial statements and tax returns, or in connection with estate planning, all terms and provisions of this Plan, and any agreement between the Company and the Participant entered into pursuant this Plan, are and shall forever remain confidential until the death of Participant; and the Participant shall not reveal the terms and conditions contained in this Plan or any such agreement at any time to any person or entity, other than his respective financial and professional advisors unless required to do so by a court of competent jurisdiction or as otherwise may be required by law.

7.10     Gender and Number.

For purposes of interpreting the provisions of this Plan, the masculine gender shall be deemed to include the feminine, the feminine gender shall be deemed to include the masculine, and the singular shall include the plural unless otherwise clearly required by the context.

21

7.11     Governing Law.

Except as otherwise preempted by the laws of the United States, this Plan shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to its conflict of law provisions.

7.12     Effective Date.

Executed this _______ day of _________________, 2015, to be effective January 1, 2016.

TESORO CORPORATION

By:

Name:

Title:

22

TESORO CORPORATION

EXECUTIVE DEFERRED COMPENSATION PLAN

Exhibit 1

Notwithstanding any provision of the Plan to the contrary, each Participant who was

employed by Tesoro Hawaii, LLC as of September 25, 2013, the date of the sale by the

Company of all of its interest in Tesoro Hawaii, LLC, shall be immediately 100% vested in his

Deferral Account as of such date.

4815-1583-0558v.8 47436-12

23

EX-14.1

Exhibit 14.1

Code of Business Conduct and Ethics for Senior Financial

Executives (Overview)

General Policy

It is the policy of Tesoro Corporation and its subsidiaries (the “Company”) to conduct its business in accordance with the highest standards of honesty and integrity, the provisions of this Code of Business Conduct and Ethics for Senior Financial Executives (the “Code”), the Company’s Code of Business Conduct; other Company policies and all applicable laws and regulations of the United States, and the states, counties, cities and other jurisdictions in which the Company operates.

The specific policy and application of the Company’s commitment to assuring ethical and lawful conduct for all employees, officers, directors and independent agents acting on behalf of the Company (“associates”) is contained in the Company’s Code of Business Conduct.

In addition to the requirements and expectations contained in the Company’s Code of Business Conduct, the Company believes that senior financial executives shall abide by a further code of ethics to ensure that the Company maintains the highest integrity with respect to the preparation and reporting of financial information related to the Company. Accordingly, this Code shall apply to the following: Chief Executive Officer; Chief Financial Officer; head of Finance; Controller; and persons performing similar functions (the “Senior Financial Executives”).

All illegal and/or unethical acts are prohibited under this Code.

Commitment and Focus

The Company is committed to complying with all standards of ethical and lawful conduct. This commitment goes beyond compliance. We believe that ethical and lawful conduct is the foundation for our success. Integrity in everything we do is a requirement in all business operations. It is the foundation for mutually beneficial relationships with our customers, suppliers, and communities in which we live and work. All Associates have assigned responsibilities in the operation of our business. Yet, there is another that we all share - responsibility of acting with integrity in all business practices and relationships. This unanimity of purpose allows us to move quickly in exploring new ground; to act boldly in the face of competition; and to take risks whenever they are

justified.

This Code is intended as a codification of standards that are reasonably designed to deter wrongdoing and to promote and reinforce the following:

•Honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest between personal and professional relationships.

•Full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with or submits to regulatory authorities or releases to the public.

•Compliance with applicable governmental laws, rules and regulations.

•The prompt reporting to an appropriate person or persons identified in this Code of violations of the Code.

Tesoro Corporation Amended Date: October 27, 2015

•Accountability for adherence to this Code.

Disclosure Controls

Each Senior Financial Executive shall endeavor, through actions which include, without limitation, the establishment, maintenance and periodic evaluation of appropriate disclosure controls and procedures and internal controls, to ensure that, with respect to each quarterly or annual report required by law to be filed by the Company (each a “Report”):

•The Report does not contain any untrue statements of material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading.

•The financial statements, and other financial information contained in each Report fairly present in all material respects the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

•The Report discloses financial information relating to the Company in a full, fair, accurate, timely and understandable manner.

Each Senior Financial Executive shall endeavor to design disclosure controls and procedures and internal controls to ensure that material information relating to the Company and its consolidated subsidiaries is made known to such Senior Financial Executives by others within the Company.

Accuracy and Completeness

Senior Financial Executives, as the primary executives responsible for the complete and accurate financial reporting of the Company, to the best of their ability, shall not permit the reporting of any financial information of the Company which they believe is false or misleading in any material respect.

Should any Senior Financial Executive have reason to believe that the Company has reported or may be intending to report any false or misleading financial information, he/she shall promptly advise the Chief Executive Officer of the Company. If having done so, such Senior Financial Executive believes that appropriate action will not be taken to prevent such reporting, then the Senior Financial Executive shall report the matter to the Chairman of the Audit Committee of the Tesoro Corporation Board of Directors (the “Board”).

Prior Employment

Each Senior Financial Executive shall fully disclose to the Chairman of the Audit Committee of the Board any prior employment of such executive with any accounting firm which the Company has engaged or proposes to engage, to perform auditing services.

Tesoro Corporation Amended Date: October 27, 2015

Such Senior Financial Executive shall also fully disclose the scope of any work performed for the Company while employed by such accounting firm, and the time period during which such work was performed.

Questionable Transactions

No Senior Financial Executive, shall, directly or indirectly, through any business entity in which he/she or any of such executive’s family members have an interest or otherwise, engage in any transaction with the Company which is required to be reported in, or requires the exercise of any judgment as to whether it is required to be reported in, the financial records or statements of the Company.

The following are exceptions:

•Regular compensation, including bonuses, and employee benefits received in such executive’s capacity as an executive and employee of the Company.

•Transactions in goods and services routinely engaged in by the Company with its unaffiliated clients or customers on terms, subject to customary employee discounts and benefits, generally offered to its unaffiliated clients and customers.

•Transactions with publicly held entities in which the executive has less than 1.0 percent equity interest and with respect to which transactions such executive has no decision-making role on behalf of such entity.

•Transactions fully disclosed to and approved in advance by the Audit Committee of the Board.

Prompt Disclosure

Each Senior Financial Executive shall promptly disclose to the Company’s independent auditors and to the Chairman of the Audit Committee of the Board his/her knowledge of the following:

•All significant deficiencies in the design or operation of the Company’s internal controls which could adversely affect the Company’s ability to record, process, summarize, and report financial data.

•Any material weakness in the Company’s internal controls.

•Any fraud, whether or not material, that involves the Company’s management or other employees who have a significant role in the Company’s internal controls.

The Senior Financial Executives shall ensure that each Report fully, accurately and timely discloses whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls in connection with such Report, including any corrective actions with regard to significant deficiencies and material weakness.

Each Senior Financial Executive shall promptly report to the Chairman of the Audit Committee of the Board any violations of this Code.

Reporting Violations

In the event any Senior Financial Executive shall believe that the Company has engaged or is about to engage in any activity which violates any foreign, federal, state, or local law, rule or

Tesoro Corporation Amended Date: October 27, 2015

regulations, such Senior Financial Executive shall promptly advise the Chief Executive Officer, the Chief Financial Officer, or the General Counsel (Compliance

Officer) in person or by telephone, letter, or electronic mail as follows:

•By Letter:

Tesoro Corporation

19100 Ridgewood Parkway

San Antonio, Texas 78259

•By Telephone:

o Direct Telephone 210-626-6000

o Toll Free Telephone 866-876-2455

o Toll Free Hotline 877-782-3763

If this is uncomfortable or inappropriate, or if having done so, such Senior Financial Executive believes that appropriate action will not be taken to address the violation or potential violation, then such Senior Financial Executive shall report the matter to the Chairman of the Audit Committee of the Board.

The Company will not permit retaliation of any kind by or on behalf of the Company, as a result of a good faith report of an actual or suspected violation of this Code or any standard of ethical and lawful conduct by a Senior Financial Executive. Retaliation is itself a violation of this Code. Any such retaliation shall be reported using the reporting procedures outlined above.

Enforcement

If a Senior Financial Executive is found to be in violation of this Code, the Company shall take appropriate action up to and including recoupment of incentive payments previously made to the Senior Financial Executive pursuant to the Company’s Policy on Recoupment of Incentive Payments for Material Financial Restatement (commonly referred to as the “clawback” policy), discharge and, if warranted, legal proceedings.

To the extent possible, investigations of allegations of violations of this Code will be maintained in confidence. The Company will inform only those individuals who have a need to know of the report in order to conduct a full and fair investigation of the allegations that have been made.

The Compliance Officer may assist in the investigation and resolution of such alleged violation of this Code.

Amendment, Modification, Waiver and Intent

This Code may be amended, modified or waived by the Board of Directors and waivers may also be granted by the Governance Committee of the Board subject to the disclosure and other provisions of the Securities Exchange Act of 1934, and the rules thereunder and the applicable rules of the New York Stock Exchange.

Tesoro Corporation Amended Date: October 27, 2015

This Code is intended as a directive for the efficient and professional performance of all Senior Financial Executives. Nothing herein contained shall be construed to be a contract between Tesoro Corporation and the Senior Financial Executives. Additionally, this Code is not to be construed as containing binding terms and conditions of employment. This employment relationship with the Company is “at will” and the Company retains the absolute right to terminate any Senior Financial Executive, at any time, with or without cause.

The Company shall immediately disclose, by means of the filing of a Current Report on

Form 8-K or by such other means as the Securities and Exchange Commission may

require, any amendments to or any waiver of this Code.

Tesoro Corporation Amended Date: October 27, 2015

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Gregory J. Goff, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:	October 29, 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:	October 29, 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 September 30, 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

October 29, 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 September 30, 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

October 29, 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 Ownership Interest (Details) $ in Millions				9 Months Ended	12 Months Ended
	Jul. 22, 2015 shares	Apr. 06, 2015	Dec. 02, 2014 shares	Sep. 30, 2015 USD ($) shares	Dec. 31, 2014
Variable Interest Entity
Percentage ownership of Tesoro Logistics LP				33.00%	36.00%
Limited partner common units outstanding (units)				28,181,748
Merger agreement date		Apr. 06, 2015
Effective date of merger completion	Jul. 22, 2015
Limited Partnership interests Common Units, Conversion Ratio	0.3088
TLLP Common units issued to QEPM unitholders	7,100,000
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 | $				$ 2,516
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%

XML

Debt Tesoro Debt Repayments (Details) $ in Millions	9 Months Ended
	Sep. 30, 2015 USD ($)
Term Loan Facility
Line of Credit Facility
Repayments of borrowings	$ 398

XML

Derivative Assets and Liabilities (Details) - USD ($) $ in Millions		Sep. 30, 2015	Dec. 31, 2014
Derivatives, Fair Value
Gross derivative assets		$ 907	$ 1,204
Gross derivative liabilities		871	1,027
Derivative asset amount offset against collateral and netting arrangements	[1],[2]	(859)	(1,136)
Derivative liability amount offset against collateral and netting arrangements	[1],[2]	(870)	(1,024)
Net derivative assets		48	68
Net derivative liabilities		1	3
Derivative, Collateral
Cash collateral outstanding		11
Counterparty cash collateral			(112)
Commodity Futures Contracts | Prepayments and other current assets
Derivatives, Fair Value
Gross derivative assets		902	1,201
Gross derivative liabilities		870	1,025
Commodity OTC Swap Contracts | Receivables
Derivatives, Fair Value
Gross derivative assets		3	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 September 30, 2015, we had provided cash collateral amounts of $11 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.

[2] Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously. As of September 30, 2015, we had provided cash collateral amounts of $11 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.

XML

Benefit Plans (Details) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015 USD ($) pension_plans plans	Sep. 30, 2014 USD ($)	Sep. 30, 2015 USD ($) pension_plans plans	Sep. 30, 2014 USD ($)
Pension Benefits
General Discussion of Pension Plan
Number of defined benefit plans sponsored (plans) | plans	4		4
Pension Contributions
Employer contributions to employee retirement plan			$ 60
Components of Net Periodic Benefit Expense and Other Postretirement Expense (Income):
Service cost	$ 11	$ 12	34	$ 38
Interest cost	7	7	22	24
Expected return on plan assets	(7)	(6)	(20)	(21)
Amortization of prior service cost (credit)	1	0	1	1
Recognized net actuarial loss	6	3	18	10
Net Periodic Benefit Expense (Income)	18	16	55	52
Other Postretirement Benefits
Components of Net Periodic Benefit Expense and Other Postretirement Expense (Income):
Service cost	0	0	2	2
Interest cost	1	1	2	2
Amortization of prior service cost (credit)	(8)	(8)	(25)	(25)
Recognized net actuarial loss	1	1	3	4
Net Periodic Benefit Expense (Income)	$ (6)	$ (6)	$ (18)	$ (17)
Funded Qualified Employee Retirement Plan
General Discussion of Pension Plan
Number of defined benefit plans sponsored (plans) | pension_plans	1		1
Unfunded Nonqualified Executive Plan
General Discussion of Pension Plan
Number of defined benefit plans sponsored (plans) | pension_plans	3		3

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Property, Plant and Equipment (Details) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Property Plant and Equipment, at cost
Property, Plant and Equipment, at Cost	$ 12,341	$ 11,633
Accumulated depreciation	(2,914)	(2,588)
Net Property, Plant and Equipment	9,427	9,045
Refining
Property Plant and Equipment, at cost
Property, Plant and Equipment, at Cost	7,449	6,994
TLLP
Property Plant and Equipment, at cost
Property, Plant and Equipment, at Cost	3,789	3,551
Marketing
Property Plant and Equipment, at cost
Property, Plant and Equipment, at Cost	842	834
Corporate
Property Plant and Equipment, at cost
Property, Plant and Equipment, at Cost	$ 261	$ 254

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 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 September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Stock appreciation rights (a)	$	10	$	4	$	20	$	(2	)
Performance share awards (b)	3		3		9		7
Market stock units (c)	7		4		19		12
Other stock-based awards (d)	2		1		9		3
Total Stock-Based Compensation Expense	$	22	$	12	$	57	$	20

____________________

(a) We paid cash of $37 million and $22 million to settle 0.5 million and 0.8 million SARs that were exercised during the nine months ended September 30, 2015 and 2014, respectively. We had $43 million and $60 million recorded in accrued liabilities associated with our SARs awards at September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2015.

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

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Commitments and Contingencies, Washington Refinery Fire (Details) - Washington Refinery Fire $ in Millions			1 Months Ended									9 Months Ended
	Jul. 21, 2015	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 USD ($)	Apr. 30, 2010 employees	Sep. 30, 2015
Loss Contingencies
Incident date											April 2010
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
Loss Contingency, Allegations												44
Loss Contingency, citation Allegations hearing start date	Jul. 21, 2015
Notice of Violation (NOV) date		Nov. 20, 2013
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. The EPA conducted an investigation of the refinery in 2011, following the April 2010 fire in the naphtha hydrotreater unit.
previous owner, notification of indemnity demand date					January 2015
Arbitration proceedings against previous owner claim, initiation date			March 2015
Judicial Ruling Rejected Allegations
Loss Contingencies
Loss Contingency, Allegations												33
Remaining Allegations
Loss Contingencies
Loss Contingency, Allegations												11

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2015

Earnings Per Share [Abstract]

Schedule of Basic and Diluted Shares Outstanding

Our share calculations are presented below (in millions):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2015	2014	2015	2014
Weighted average common shares outstanding	122.5	127.9	124.3	129.5
Common stock equivalents	1.3	1.8	1.4	2.2
Total Diluted Shares	123.8	129.7	125.7	131.7

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Open Long (Short) Positions (Details) bu in Thousands, bbl in Thousands, T in Thousands, CAD in Millions	9 Months Ended
	Sep. 30, 2015 CAD T bbl bu
Derivative
Derivative, notional amount | CAD	CAD 20
Maturity date of foreign currency derivatives	Oct. 26, 2015
Crude oil, refined products and blending products (in barrels) | Futures | Short | 2015
Derivative
Contract volumes	(5,311)
Crude oil, refined products and blending products (in barrels) | Futures | Short | 2016
Derivative
Contract volumes	(1,050)
Crude oil, refined products and blending products (in barrels) | Futures | Short | 2017
Derivative
Contract volumes	0
Crude oil, refined products and blending products (in barrels) | OTC Swaps | Long | 2015
Derivative
Contract volumes	1,100
Crude oil, refined products and blending products (in barrels) | OTC Swaps | Long | 2016
Derivative
Contract volumes	900
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	250
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 credits (in tons) | Futures | Long | 2015
Derivative
Contract volumes | T	175
Carbon credits (in tons) | Futures | Long | 2016
Derivative
Contract volumes | T	1,000
Carbon credits (in tons) | Futures | Long | 2017
Derivative
Contract volumes | T	1,000
Corn (in bushels) | Futures | Short | 2015
Derivative
Contract volumes | bu	(4,270)
Corn (in bushels) | Futures | Short | 2016
Derivative
Contract volumes | bu	0
Corn (in bushels) | Futures | Short | 2017
Derivative
Contract volumes | bu	0

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Earnings Per Share (Details) - shares shares in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Earnings Per Share [Abstract]
Weighted average common shares outstanding	122.5	127.9	124.3	129.5
Common stock equivalents	1.3	1.8	1.4	2.2
Total Diluted Shares	123.8	129.7	125.7	131.7

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Basis of Presentation Discontinued Operations (Details) MBbls / d in Thousands, $ in Millions		3 Months Ended		9 Months Ended
	Sep. 25, 2013 MBbls / d	Sep. 30, 2015 USD ($)	Sep. 30, 2014 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2014 USD ($)
Discontinued Operations
Loss from discontinued operations, net of tax		$ 0	$ (1)	$ (4)	$ (2)
Hawaii Operations
Discontinued Operations
Disposal date	Sep. 25, 2013
Capacity (bpd) | MBbls / d	94
Revenues		0	0	0	0
Loss from discontinued operations, before tax		0	(2)	(6)	(3)
Loss from discontinued operations, net of tax		$ 0	$ (1)	(4)	(2)
Net Cash Used in Discontinued Operations				$ 2	$ 2

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Total Debt (Details) - USD ($) $ in Millions		9 Months Ended
		Sep. 30, 2015	Dec. 31, 2014
Debt Instrument
Total Debt	[1]	$ 3,873	$ 4,255
Unamortized issuance costs	[2],[3]	(76)	(88)
Current maturities		(6)	(6)
Debt, net of current maturities and unamortized issuance costs		3,791	4,161
TLLP
Debt Instrument
Total Debt		$ 2,600	2,600
5.875% Senior Notes Due 2020
Debt Instrument
Debt instrument interest rate		5.875%
Debt instrument, maturity date		Oct. 01, 2020
Unamortized premium		$ 4	$ 5

[1] Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was $2.6 billion at both September 30, 2015 and December 31, 2014.

[2] Includes unamortized premium associated with TLLP’s 5.875% Senior Notes due 2020 of $4 million and $5 million as of September 30, 2015 and December 31, 2014, respectively.

[3] The Company adopted ASU 2015-03 in the first quarter of 2015 and applied the changes retrospectively to the prior period presented. See Note 1 for further discussion.

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Condensed Consolidating Financial Information, Balance Sheet (Details) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014	Sep. 30, 2014	Dec. 31, 2013
Current Assets
Cash and cash equivalents	$ 959	$ 1,000	$ 1,530	$ 1,238
Receivables, net of allowance for doubtful accounts	1,016	1,435
Short-term receivables from affiliates	0	0
Inventories	2,507	2,439
Prepayments and other current assets	176	200
Total Current Assets	4,658	5,074
Net Property, Plant and Equipment	9,427	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	1,190	1,222
Other, net	1,326	1,150
Total Other Noncurrent Assets, Net	2,516	2,372
Total Assets	16,601	16,491
Current Liabilities:
Accounts payable	1,789	2,470
Short-term payables to affiliates	0	0
Other current liabilities	1,063	996
Total Current Liabilities	2,852	3,466
Long-Term Payables to Affiliates	0	0
Deferred Income Taxes	1,256	1,098
Other Noncurrent Liabilities	843	790
Debt, net of unamortized issuance costs	3,791	4,161
Long-Term Intercompany Note Payable	0	0
Equity-Tesoro Corporation	5,370	4,454
Equity-Noncontrolling Interest	2,489	2,522
Total Liabilities and Equity	16,601	16,491
Parent
Current Assets
Cash and cash equivalents	0	0	0	0
Receivables, net of allowance for doubtful accounts	0	6
Short-term receivables from affiliates	0	0
Inventories	0	0
Prepayments and other current assets	51	71
Total Current Assets	51	77
Net Property, Plant and Equipment	0	0
Investment in Subsidiaries	8,125	6,592
Long-Term Receivables from Affiliates	1,653	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	9,835	9,102
Current Liabilities:
Accounts payable	26	1
Short-term payables to affiliates	0	0
Other current liabilities	208	148
Total Current Liabilities	234	149
Long-Term Payables to Affiliates	0	0
Deferred Income Taxes	1,256	1,098
Other Noncurrent Liabilities	411	447
Debt, net of unamortized issuance costs	1,188	1,578
Long-Term Intercompany Note Payable	1,376	1,376
Equity-Tesoro Corporation	5,370	4,454
Equity-Noncontrolling Interest	0	0
Total Liabilities and Equity	9,835	9,102
Guarantor Subsidiaries
Current Assets
Cash and cash equivalents	926	943	1,438	1,161
Receivables, net of allowance for doubtful accounts	802	912
Short-term receivables from affiliates	73	84
Inventories	2,315	2,088
Prepayments and other current assets	107	115
Total Current Assets	4,223	4,142
Net Property, Plant and Equipment	5,926	5,666
Investment in Subsidiaries	449	362
Long-Term Receivables from Affiliates	0	0
Long-Term Intercompany Note Receivable	0	0
Other Noncurrent Assets
Acquired intangibles, net	237	249
Other, net	1,085	893
Total Other Noncurrent Assets, Net	1,322	1,142
Total Assets	11,920	11,312
Current Liabilities:
Accounts payable	1,546	1,779
Short-term payables to affiliates	0	0
Other current liabilities	705	717
Total Current Liabilities	2,251	2,496
Long-Term Payables to Affiliates	1,587	2,399
Deferred Income Taxes	0	0
Other Noncurrent Liabilities	380	296
Debt, net of unamortized issuance costs	34	39
Long-Term Intercompany Note Payable	0	0
Equity-Tesoro Corporation	7,668	6,082
Equity-Noncontrolling Interest	0	0
Total Liabilities and Equity	11,920	11,312
Non- Guarantors
Current Assets
Cash and cash equivalents	33	57	92	77
Receivables, net of allowance for doubtful accounts	214	517
Short-term receivables from affiliates	0	0
Inventories	192	351
Prepayments and other current assets	18	16
Total Current Assets	457	941
Net Property, Plant and Equipment	3,501	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	953	973
Other, net	235	251
Total Other Noncurrent Assets, Net	1,188	1,224
Total Assets	6,522	6,920
Current Liabilities:
Accounts payable	217	690
Short-term payables to affiliates	73	84
Other current liabilities	150	133
Total Current Liabilities	440	907
Long-Term Payables to Affiliates	66	28
Deferred Income Taxes	0	0
Other Noncurrent Liabilities	52	47
Debt, net of unamortized issuance costs	2,569	2,544
Long-Term Intercompany Note Payable	0	0
Equity-Tesoro Corporation	906	872
Equity-Noncontrolling Interest	2,489	2,522
Total Liabilities and Equity	6,522	6,920
Consolidating Adjustments
Current Assets
Cash and cash equivalents	0	0	$ 0	$ 0
Receivables, net of allowance for doubtful accounts	0	0
Short-term receivables from affiliates	(73)	(84)
Inventories	0	0
Prepayments and other current assets	0	(2)
Total Current Assets	(73)	(86)
Net Property, Plant and Equipment	0	0
Investment in Subsidiaries	(8,574)	(6,954)
Long-Term Receivables from Affiliates	(1,653)	(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	(11,676)	(10,843)
Current Liabilities:
Accounts payable	0	0
Short-term payables to affiliates	(73)	(84)
Other current liabilities	0	(2)
Total Current Liabilities	(73)	(86)
Long-Term Payables to Affiliates	(1,653)	(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	(8,574)	(6,954)
Equity-Noncontrolling Interest	0	0
Total Liabilities and Equity	$ (11,676)	$ (10,843)

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Stock-Based Compensation (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Stock-Based Compensation Arrangement by Stock-based Payment Award
Total Stock-Based Compensation Expense		$ 22	$ 12	$ 57	$ 20
Income tax benefit (expense) for stock-based compensation arrangements		8	7	22	9
Tax benefit realized from exercise of stock-based compensation arrangements		8	7	71	41
Stock appreciation rights
Stock-Based Compensation Arrangement by Stock-based Payment Award
Total Stock-Based Compensation Expense	[1]	10	4	20	(2)
Performance share awards
Stock-Based Compensation Arrangement by Stock-based Payment Award
Total Stock-Based Compensation Expense	[2]	3	3	9	7
Market stock units
Stock-Based Compensation Arrangement by Stock-based Payment Award
Total Stock-Based Compensation Expense	[3]	7	4	19	12
Other stock-based awards
Stock-Based Compensation Arrangement by Stock-based Payment Award
Total Stock-Based Compensation Expense	[4]	$ 2	$ 1	$ 9	$ 3

[1] We paid cash of $37 million and $22 million to settle 0.5 million and 0.8 million SARs that were exercised during the nine months ended September 30, 2015 and 2014, respectively. We had $43 million and $60 million recorded in accrued liabilities associated with our SARs awards at September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2015.

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

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Property, Plant and Equipment Narrative (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Property, Plant and Equipment [Abstract]
Capitalized interest	$ 9	$ 7	$ 27	$ 17

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Inventories (Notes)

9 Months Ended

Sep. 30, 2015

Inventory Disclosure [Abstract]

INVENTORIES

INVENTORIES

Components of inventories were as follows (in millions):

	September 30, 2015		December 31, 2014
Domestic crude oil and refined products	$	2,125	$	1,930
Foreign subsidiary crude oil	190		351
Other inventories	192		158
Total Inventories	$	2,507	$	2,439

Due to a lower crude oil and refined product pricing environment experienced since the end of 2014, we recorded a lower of cost or market adjustment to cost of sales of $83 million at September 30, 2015 for our crude oil, refined products, oxygenates and by-product inventories. At December 31, 2014, we recorded a $42 million lower of cost or market adjustment for the same type of inventories, which was reversed in the first quarter of 2015 as the inventories associated with the adjustment at the end of 2014 were sold or used during the first quarter of 2015.

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Stock-Based Compensation Stock Appreciation Rights, Performance Share Awards and Market Stock Units(Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Stock appreciation rights
Stock-Based Compensation Arrangement by Stock-based Payment Award
Cash paid to settle awards	$ 37	$ 22
Exercised stock appreciation rights (shares)	0.5	0.8
Accrued liabilities	$ 43		$ 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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Earnings Per Share Narrative (Details) - shares shares in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Earnings Per Share [Abstract]
Anti-dilutive securities (shares)	0.1	0.1	0.6	0.1

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 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):

	September 30, 2015
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	896	$	6	$	—	$	(859	)	$	43
Commodity OTC Swap Contracts	—		3		—		—			3
Commodity Forward Contracts	—		2		—		—			2
Total Assets	$	896	$	11	$	—	$	(859	)	$	48
Liabilities:
Commodity Futures Contracts	$	867	$	3	$	—	$	(870	)	$	—
Commodity Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		17		—		—			17
Total Liabilities	$	867	$	21	$	—	$	(870	)	$	18

	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 September 30, 2015, we had provided cash collateral amounts of $11 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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Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 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 September 30, 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	September 30, 2015			December 31, 2014			September 30, 2015			December 31, 2014
Commodity Futures Contracts	Prepayments and other current assets	$	902		$	1,201		$	870		$	1,025
Commodity OTC Swap    Contracts	Receivables	3			—			—			—
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		907			1,204			871			1,027
Less: Counterparty Netting and    Cash Collateral (a)		(859		)	(1,136		)	(870		)	(1,024		)
Total Net Fair Value of Derivatives		$	48		$	68		$	1		$	3

________________

(a) Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously. As of September 30, 2015, we had provided cash collateral amounts of $11 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 and nine months ended September 30, 2015 and 2014 were as follows (in millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Commodity Futures Contracts	$	145		$	167		$	102		$	90
Commodity OTC Swap Contracts	7			(2		)	5			(5		)
Commodity Forward Contracts	1			1			15			5
Foreign Currency Forward Contracts	(3		)	(3		)	(5		)	(3		)
Total Gain on Mark-to-Market Derivatives	$	150		$	163		$	117		$	87

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues	$	30		$	6		$	28		$	7
Cost of sales	123			160			94			83
Other expense, net	(3		)	(3		)	(5		)	(3		)
Total Gain on Mark-to-Market Derivatives	$	150		$	163		$	117		$	87

Schedule of open long (short) positions

The information below presents the net volume of outstanding commodity and other contracts by type of instrument, year of maturity and unit of measure as of September 30, 2015 (units in thousands):

	Contract Volumes by Year of Maturity			Unit of Measure
Mark-to-Market Derivative Instrument	2015	2016	2017
Crude oil, refined products and blending products:
Futures - short	(5,311)	(1,050)	—	Barrels
OTC Swaps - long	1,100	900	—	Barrels
Forwards - long	250	—	—	Barrels
Carbon emissions credits:
Futures - long	175	1,000	1,000	Tons
Corn:
Futures - short	(4,270)	—	—	Bushels

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Commitments and Contingencies, Environmental Liabilities (Details) $ in Millions		9 Months Ended
	Jul. 10, 2015	Sep. 30, 2015 USD ($) entities	Dec. 31, 2014 USD ($)
Environmental Liabilities
Environmental liability accrual		$ 229	$ 274
Martinez refinery
Environmental Liabilities
Environmental liability accrual		$ 196	216
Loss Contingency, coverage denial date	Jul. 10, 2015
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
Number of previous owners (owners) | entities		2
TLLP
Environmental Liabilities
Environmental liability accrual		$ 15	$ 32

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Inventories (Details) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Inventory Disclosure [Abstract]
Domestic crude oil and refined products	$ 2,125	$ 1,930
Foreign subsidiary crude oil	190	351
Other inventories	192	158
Total Inventories	$ 2,507	$ 2,439

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Debt (Tables)

9 Months Ended

Sep. 30, 2015

Debt Disclosure [Abstract]

Schedule of Debt

Our debt balance, net of unamortized issuance costs, at September 30, 2015 and December 31, 2014 was as follows (in millions):

	September 30, 2015			December 31, 2014
Total debt (a)	$	3,873		$	4,255
Unamortized issuance costs (b) (c)	(76		)	(88		)
Current maturities	(6		)	(6		)
Debt, Net of Current Maturities and Unamortized Issuance Costs	$	3,791		$	4,161

________________

(a) Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was $2.6 billion at both September 30, 2015 and December 31, 2014.

(b) Includes unamortized premium associated with TLLP’s 5.875% Senior Notes due 2020 of $4 million and $5 million as of September 30, 2015 and December 31, 2014, respectively.

(c) The Company adopted ASU 2015-03 in the first quarter of 2015 and applied the changes retrospectively to the prior period presented. See Note 1 for further discussion.

Schedule of Line of Credit Facilities

We had available capacity under our credit facilities as follows at September 30, 2015 (in millions):

	Total Capacity		Amount Borrowed as of September 30, 2015		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (a)	$	3,000	$	—	$	76	$	2,924	November 18, 2019
TLLP Revolving Credit Facility	900		280		—		620		December 2, 2019
Letter of Credit Facilities	1,895		—		189		1,706
Total Credit Facilities	$	5,795	$	280	$	265	$	5,250

________________

(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.

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Benefit Plans (Tables)

9 Months Ended

Sep. 30, 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 and nine months ended September 30, 2015 and 2014 were (in millions):

	Pension Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Service cost	$	11		$	12		$	34		$	38
Interest cost	7			7			22			24
Expected return on plan assets	(7		)	(6		)	(20		)	(21		)
Amortization of prior service cost	1			—			1			1
Recognized net actuarial loss	6			3			18			10
Net Periodic Benefit Expense	$	18		$	16		$	55		$	52
	Other Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Service cost	$	—		$	—		$	2		$	2
Interest cost	1			1			2			2
Amortization of prior service credit	(8		)	(8		)	(25		)	(25		)
Recognized net actuarial loss	1			1			3			4
Net Periodic Benefit Income	$	(6	)	$	(6	)	$	(18	)	$	(17	)

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Earnings Per Share (Notes)

9 Months Ended

Sep. 30, 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 September 30,		Nine Months Ended September 30,
	2015	2014	2015	2014
Weighted average common shares outstanding	122.5	127.9	124.3	129.5
Common stock equivalents	1.3	1.8	1.4	2.2
Total Diluted Shares	123.8	129.7	125.7	131.7

Potentially dilutive common stock equivalents are excluded from the calculation of diluted earnings per share if the effect of including such securities in the calculation would have been anti-dilutive. Anti-dilutive securities were 0.1 millionfor both the three months ended September 30, 2015 and 2014, and 0.6 millionand 0.1 million for the nine months ended September 30, 2015 and 2014, respectively.

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2015

Stockholders' Equity Attributable to Parent [Abstract]

Stockholders' equity and noncontrolling interest

Changes to equity during the nine months ended September 30, 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	1,486			121			1,607
Purchases of common stock	(494		)	—			(494		)
Dividend payments	(169		)	—			(169		)
Net effect of amounts related to equity-based compensation (b)	34			4			38
Net proceeds from issuance of Tesoro Logistics LP common units	—			71			71
Distributions to noncontrolling interest	—			(135		)	(135		)
Transfers to (from) Tesoro paid-in capital related to:
TLLP’s issuance of common units	59			(94		)	(35		)
Balance at September30, 2015 (a)	$	5,370		$	2,489		$	7,859

________________

(a) We have 5.0 million shares of preferred stock authorized with no par value per share. No shares of preferred stock were outstanding as of September 30, 2015 and December 31, 2014.

(b) We issued approximately 0.3 million shares and 0.5 million shares during the nine months ended September 30, 2015 and 2014 for proceeds of $12 million and $14 million, respectively, primarily for stock option exercises under our equity-based compensation plans. See Note 12 for more information on stock-based compensation.

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Tesoro Logistics LP Preliminary Acquisition Date Purchase Price Allocation (Details) - Rockies Natural Gas Business $ in Millions	Sep. 30, 2015 USD ($)
Preliminary acquisition date purchase price allocation
Cash	$ 32
Accounts receivable	120
Prepayments and other	8
Property, plant and equipment	1,735
Acquired intangibles	976
Other noncurrent assets	228	[1]
Accounts payable	(67)
Other current liabilities	(51)
Other noncurrent liabilities	(33)
Noncontrolling interest	(432)
Total Purchase Price	2,516
Goodwill	$ 148

[1] Other noncurrent assets include $148 million of goodwill.

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Revolving Credit Facilities (Details) $ in Millions	9 Months Ended
	Sep. 30, 2015 USD ($)
Credit facilities
Total capacity	$ 5,795
Amount Borrowed as of September 30, 2015	280
Outstanding Letters of Credit	265
Available Capacity	5,250
Tesoro Corporation Revolving Credit Facility
Credit facilities
Total capacity	3,000	[1]
Amount Borrowed as of September 30, 2015	0	[1]
Outstanding Letters of Credit	76	[1]
Available Capacity	$ 2,924	[1]
Expiration	Nov. 18, 2019	[1]
Maximum available capacity	$ 3,000
Line of credit facility, remaining borrowing capacity percentage	97.00%
TLLP Revolving Credit Facility
Credit facilities
Total capacity	$ 900
Amount Borrowed as of September 30, 2015	280
Outstanding Letters of Credit	0
Available Capacity	$ 620
Expiration	Dec. 02, 2019
Maximum available capacity	$ 1,500
Line of credit facility, remaining borrowing capacity percentage	69.00%
Weighted average interest rate	2.69%
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 Rendezvous Gas Services L.L.C., 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	$ 1,895
Amount Borrowed as of September 30, 2015	0
Outstanding Letters of Credit	189
Available Capacity	$ 1,706
Minimum | Letter of Credit Facilities
Credit facilities
Tesoro Corporation, letter of credit outstanding fees	0.40%
Maximum | Letter of Credit Facilities
Credit facilities
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.

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Condensed Statements of Consolidated Operations (Unaudited) - USD ($) shares in Millions, $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Income Statement [Abstract]
Revenues (a)		$ 7,743	$ 11,151	$ 22,438	$ 32,188
Costs and Expenses:
Cost of sales (a)		5,571	9,594	17,309	28,409
Operating expenses		589	624	1,676	1,813
Selling, general and administrative expenses		95	86	247	209
Depreciation and amortization expense		192	144	553	409
(Gain) loss on asset disposals and impairments		4	1	12	(2)
Operating Income		1,292	702	2,641	1,350
Interest and financing costs, net	[1]	(54)	(50)	(163)	(168)
Other income, net	[2]	19	11	21	13
Earnings Before Income Taxes		1,257	663	2,499	1,195
Income tax expense		458	249	888	437
Net Earnings from Continuing Operations		799	414	1,611	758
Loss from discontinued operations, net of tax		0	(1)	(4)	(2)
Net Earnings		799	413	1,607	756
Less: Net earnings from continuing operations attributable to noncontrolling interest		40	17	121	58
Net Earnings Attributable to Tesoro Corporation		759	396	1,486	698
Net Earnings (Loss) Attributable to Tesoro Corporation
Continuing operations		759	397	1,490	700
Discontinued operations		0	(1)	(4)	(2)
Total		$ 759	$ 396	$ 1,486	$ 698
Net Earnings (Loss) per Share - Basic:
Continuing operations		$ 6.19	$ 3.11	$ 11.98	$ 5.41
Discontinued operations		0.00	(0.01)	(0.03)	(0.02)
Total		$ 6.19	$ 3.10	$ 11.95	$ 5.39
Weighted average common shares outstanding - Basic		122.5	127.9	124.3	129.5
Net Earnings (Loss) per Share - Diluted:
Continuing operations		$ 6.13	$ 3.06	$ 11.85	$ 5.32
Discontinued operations		0.00	(0.01)	(0.03)	(0.02)
Total		$ 6.13	$ 3.05	$ 11.82	$ 5.30
Weighted average common shares outstanding - Diluted		123.8	129.7	125.7	131.7
Dividends per Share		$ 0.50	$ 0.30	$ 1.35	$ 0.80
Supplemental Information:
(a) Includes excise taxes collected by our marketing segment		$ 137	$ 148	$ 423	$ 441

[1] Includes charges totaling $41 million for premiums and unamortized debt issuance costs associated with the redemption of the 5.50% Senior Notes due 2019 during the nine months ended September 30, 2014.

[2] During the three and nine months ended September 30, 2015, we recorded a gain of $11 million as other income for insurance proceeds related to the settlement of claims associated with the Washington Refinery Fire.

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Inventories Narrative (Details) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Inventory Disclosure [Abstract]
Lower of cost or market adjustment	$ 83	$ 42

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Basis of Presentation (Notes)

9 Months Ended

Sep. 30, 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.

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”) and 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 and nine months ended September 30, 2015 and 2014, consolidated statements of comprehensive income have been omitted.

We changed our operating segment presentation in the second quarter of 2015 to include refining, TLLP and a new marketing segment. Comparable prior period information has been recast to reflect our revised segment presentation. See Note 13 for additional information.

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 54% and 55% of TLLP’s total revenues for the three and nine months ended September 30, 2015 and 86% and 87% for the three and nine months ended September 30, 2014. 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 and nine months ended September 30, 2015 and 2014. There were no revenues for either the three and nine months ended September 30, 2015 or 2014. There were no recorded losses, before and after tax, respectively, for the three months ended September 30, 2015 and $6 million and $4 million, respectively, for the nine months ended September 30, 2015. We recorded losses, before and after tax, of $2 million and $1 million, respectively, for the three months ended September 30, 2014 and $3 million and $2 million, respectively, for the nine months ended September 30, 2014 related to the Hawaii Business. Cash flows used in operating activities were $2 million for both the nine months ended September 30, 2015 and September 30, 2014, respectively. 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. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which provides accounting guidance for all revenue arising from contracts to provide goods or services to customers. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017 given the FASB’s recent deferral of ASU 2014-09’s effective date. Entities may choose to early adopt ASU 2014-09 as of the original effective date. The standard allows for either full retrospective adoption or modified retrospective adoption. At this time, we are evaluating the standard to determine the method of adoption and the impact of ASU 2014-09 on our financial statements and related disclosures.

Consolidation.  In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis” (“ASU 2015-02”). This standard modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities.  ASU 2015-02 is effective for interim and annual periods beginning after December 15, 2015, and requires either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. At this time, we are evaluating the potential impact of this standard on our financial statements, as well as the available transition methods.

Debt Issuance Costs. In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest” (“ASU 2015-03”), which will simplify the presentation of debt issuance costs. Under ASU 2015-03, 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 reflects a reclassification of unamortized debt issuance costs from other noncurrent assets to debt. ASU 2015-03 is effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. We adopted this standard in the first quarter of 2015 and applied the changes retrospectively to prior periods presented. The adoption of this standard 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$80 millionare recorded as a reduction to debt on the balance sheet at September 30, 2015.

Business Combinations. In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). The standard requires an acquirer to recognize the cumulative impact of adjustments to provisional purchase price amounts that are identified during the measurement period in the reporting period, in which the adjustment amounts are determined. The standard also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for interim and annual periods beginning after beginning after December 15, 2015 and must be applied prospectively to adjustments that occur after the effective date. Early application is permitted for financial statements that have not been issued.

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Stockholders' Equity, Changes to Equity (Details) - USD ($) $ / shares in Units, $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Total Equity
Balance at December 31, 2014	[1]			$ 6,976
Net earnings		$ 799	$ 413	1,607	$ 756
Purchases of common stock				(494)	$ (350)
Dividend payments				(169)
Net effect of amounts related to equity-based compensation	[2]			38
Net proceeds from issuance of Tesoro Logistics LP common units				71
Distributions to noncontrolling interest				(135)
TLLP’s issuance of common units				(35)
Balance at September 30, 2015	[1]	$ 7,859		$ 7,859
Preferred Stock, Shares Authorized		5,000,000		5,000,000		5,000,000
Preferred Stock, Par or Stated Value Per Share		$ 0		$ 0		$ 0
Preferred Stock, Shares Issued		0		0		0
Shares issued for equity-based compensation plans (shares)				300,000	500,000
Stock issued during period, value, primarily stock Options exercised				$ 12	$ 14
Tesoro Corporation Stockholders’ Equity
Total Equity
Balance at December 31, 2014	[1]			4,454
Net earnings				1,486
Purchases of common stock				(494)
Dividend payments				(169)
Net effect of amounts related to equity-based compensation	[2]			34
Net proceeds from issuance of Tesoro Logistics LP common units				0
Distributions to noncontrolling interest				0
TLLP’s issuance of common units				59
Balance at September 30, 2015	[1]	$ 5,370		5,370
Noncontrolling Interest
Total Equity
Balance at December 31, 2014	[1]			2,522
Net earnings				121
Purchases of common stock				0
Dividend payments				0
Net effect of amounts related to equity-based compensation	[2]			4
Net proceeds from issuance of Tesoro Logistics LP common units				71
Distributions to noncontrolling interest				(135)
TLLP’s issuance of common units				(94)
Balance at September 30, 2015	[1]	$ 2,489		$ 2,489

[1] We have 5.0 million shares of preferred stock authorized with no par value per share. No shares of preferred stock were outstanding as of September 30, 2015 and December 31, 2014.

[2] We issued approximately 0.3 million shares and 0.5 million shares during the nine months ended September 30, 2015 and 2014 for proceeds of $12 million and $14 million, respectively, primarily for stock option exercises under our equity-based compensation plans. See Note 12 for more information on stock-based compensation.

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Condensed Consolidating Financial Information (Tables)

9 Months Ended

Sep. 30, 2015

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Consolidating Statement of Operations

Condensed Consolidating Statement of Operations

for the Three Months EndedSeptember 30, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Revenues	$	—		$	8,574		$	1,054		$	(1,885	)	$	7,743
Costs and Expenses:
Cost of sales	—			6,574			748			(1,751		)	5,571
Operating, selling, general and administrative expenses	2			679			137			(134		)	684
Depreciation and amortization expense	—			147			45			—			192
Loss on asset disposals and impairments	—			4			—			—			4
Operating Income (Loss)	(2		)	1,170			124			—			1,292
Equity in earnings of subsidiaries	776			38			—			(814		)	—
Interest and financing costs, net	(11		)	(17		)	(26		)	—			(54		)
Other income, net	—			17			2			—			19
Earnings Before Income Taxes	763			1,208			100			(814		)	1,257
Income tax expense (a)	4			443			11			—			458
Net Earnings	759			765			89			(814		)	799
Less: Net earnings from continuing operations attributable    to noncontrolling interest	—			—			40			—			40
Net Earnings Attributable to Tesoro Corporation	$	759		$	765		$	49		$	(814	)	$	759
Comprehensive Income
Total comprehensive income	$	759		$	765		$	89		$	(814	)	$	799
Less: Noncontrolling interest in comprehensive income	—			—			40			—			40
Comprehensive Income Attributable to Tesoro    Corporation	$	759		$	765		$	49		$	(814	)	$	759

_________________

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

Condensed Consolidating Statement of Operations

for the Three Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Revenues	$	—		$	12,528		$	1,671		$	(3,048	)	$	11,151
Costs and Expenses:
Cost of sales	—			11,076			1,504			(2,986		)	9,594
Operating, selling, general and administrative expenses	2			692			78			(62		)	710
Depreciation and amortization expense	—			125			19			—			144
Loss on asset disposals and impairments	—			1			—			—			1
Operating Income (Loss)	(2		)	634			70			—			702
Equity in earnings of subsidiaries	405			11			—			(416		)	—
Interest and financing costs, net	(10		)	(22		)	(18		)	—			(50		)
Other income, net	—			11			—			—			11
Earnings Before Income Taxes	393			634			52			(416		)	663
Income tax expense (benefit) (a)	(3		)	241			11			—			249
Net Earnings from Continuing Operations	396			393			41			(416		)	414
Loss from discontinued operations, net of tax	—			(1		)	—			—			(1		)
Net Earnings	396			392			41			(416		)	413
Less: Net earnings from continuing operations attributable    to noncontrolling interest	—			—			17			—			17
Net Earnings Attributable to Tesoro Corporation	$	396		$	392		$	24		$	(416	)	$	396
Comprehensive Income
Total comprehensive income	$	396		$	392		$	41		$	(416	)	$	413
Less: Noncontrolling interest in comprehensive income	—			—			17			—			17
Comprehensive Income Attributable to Tesoro    Corporation	$	396		$	392		$	24		$	(416	)	$	396

_________________

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

Condensed Consolidating Statement of Operations

for the Nine Months EndedSeptember 30, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Revenues	$	—		$	24,573		$	2,718		$	(4,853	)	$	22,438
Costs and Expenses:
Cost of sales	—			19,903			1,874			(4,468		)	17,309
Operating, selling, general and administrative expenses	8			1,905			395			(385		)	1,923
Depreciation and amortization expense	—			417			136			—			553
Loss on asset disposals and impairments	—			12			—			—			12
Operating Income (Loss)	(8		)	2,336			313			—			2,641
Equity in earnings of subsidiaries	1,523			102			—			(1,625		)	—
Interest and financing costs, net	(32		)	(52		)	(79		)	—			(163		)
Other income (expense), net	1			14			6			—			21
Earnings Before Income Taxes	1,484			2,400			240			(1,625		)	2,499
Income tax expense (benefit) (a)	(2		)	863			27			—			888
Net Earnings from Continuing Operations	1,486			1,537			213			(1,625		)	1,611
Loss from discontinued operations, net of tax	—			(4		)	—			—			(4		)
Net Earnings	1,486			1,533			213			(1,625		)	1,607
Less: Net earnings from continuing operations attributable    to noncontrolling interest	—			—			121			—			121
Net Earnings Attributable to Tesoro Corporation	$	1,486		$	1,533		$	92		$	(1,625	)	$	1,486
Comprehensive Income
Total comprehensive income	$	1,486		$	1,533		$	213		$	(1,625	)	$	1,607
Less: Noncontrolling interest in comprehensive income	—			—			121			—			121
Comprehensive Income Attributable to Tesoro    Corporation	$	1,486		$	1,533		$	92		$	(1,625	)	$	1,486

_________________

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

Condensed Consolidating Statement of Operations

for the Nine Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Revenues	$	—		$	36,821		$	5,110		$	(9,743	)	$	32,188
Costs and Expenses:
Cost of sales	—			33,312			4,668			(9,571		)	28,409
Operating, selling, general and administrative expenses	6			1,981			207			(172		)	2,022
Depreciation and amortization expense	—			355			54			—			409
(Gain) loss on asset disposals and impairments	—			3			(5		)	—			(2		)
Operating Income (Loss)	(6		)	1,170			186			—			1,350
Equity in earnings of subsidiaries	722			38			—			(760		)	—
Interest and financing costs, net	(27		)	(105		)	(36		)	—			(168		)
Other income, net	2			11			—			—			13
Earnings Before Income Taxes	691			1,114			150			(760		)	1,195
Income tax expense (benefit) (a)	(7		)	419			25			—			437
Net Earnings from Continuing Operations	698			695			125			(760		)	758
Loss from discontinued operations, net of tax	—			(2		)	—			—			(2		)
Net Earnings	698			693			125			(760		)	756
Less: Net earnings from continuing operations attributable    to noncontrolling interest	—			—			58			—			58
Net Earnings Attributable to Tesoro Corporation	$	698		$	693		$	67		$	(760	)	$	698
Comprehensive Income
Total comprehensive income	$	698		$	693		$	125		$	(760	)	$	756
Less: Noncontrolling interest in comprehensive income	—			—			58			—			58
Comprehensive Income Attributable to Tesoro    Corporation	$	698		$	693		$	67		$	(760	)	$	698

_________________

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

Condensed Consolidating Balance Sheet

Condensed Consolidating Balance Sheet as of September 30, 2015

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	926	$	33	$	—		$	959
Receivables, net of allowance for doubtful accounts	—		802		214		—			1,016
Short-term receivables from affiliates	—		73		—		(73		)	—
Inventories	—		2,315		192		—			2,507
Prepayments and other current assets	51		107		18		—			176
Total Current Assets	51		4,223		457		(73		)	4,658
Net Property, Plant and Equipment	—		5,926		3,501		—			9,427
Investment in Subsidiaries	8,125		449		—		(8,574		)	—
Long-Term Receivables from Affiliates	1,653		—		—		(1,653		)	—
Long-Term Intercompany Note Receivable	—		—		1,376		(1,376		)	—
Other Noncurrent Assets:
Acquired intangibles, net	—		237		953		—			1,190
Other, net	6		1,085		235		—			1,326
Total Other Noncurrent Assets, Net	6		1,322		1,188		—			2,516
Total Assets	$	9,835	$	11,920	$	6,522	$	(11,676	)	$	16,601
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	26	$	1,546	$	217	$	—		$	1,789
Short-term payables to affiliates	—		—		73		(73		)	—
Other current liabilities	208		705		150		—			1,063
Total Current Liabilities	234		2,251		440		(73		)	2,852
Long-Term Payables to Affiliates	—		1,587		66		(1,653		)	—
Deferred Income Taxes	1,256		—		—		—			1,256
Other Noncurrent Liabilities	411		380		52		—			843
Debt, net of unamortized issuance costs	1,188		34		2,569		—			3,791
Long-Term Intercompany Note Payable	1,376		—		—		(1,376		)	—
Equity-Tesoro Corporation	5,370		7,668		906		(8,574		)	5,370
Equity-Noncontrolling Interest	—		—		2,489		—			2,489
Total Liabilities and Equity	$	9,835	$	11,920	$	6,522	$	(11,676	)	$	16,601

Condensed Consolidating Balance Sheet as of December 31, 2014

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Consolidating Adjustments			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 Nine Months EndedSeptember 30, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities	$	(14	)	$	1,462		$	399		$	—		$	1,847
Cash Flows From (Used In) Investing Activities
Capital expenditures	—			(530		)	(243		)	—			(773		)
Acquisitions	—			—			(6		)	—			(6		)
Intercompany notes, net	1,075			—			—			(1,075		)	—
Other investing activities	—			(4		)	—			—			(4		)
Net cash from (used in) investing activities	1,075			(534		)	(249		)	(1,075		)	(783		)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	—			—			346			—			346
Repayments on revolving credit agreements	—			—			(326		)	—			(326		)
Repayments of debt	(398		)	(4		)	—			—			(402		)
Dividend payments	(169		)	—			—			—			(169		)
Net proceeds from issuance of Tesoro Logistics LP    common units	—			—			71			—			71
Distributions to noncontrolling interest	—			—			(135		)	—			(135		)
Purchases of common stock	(494		)	—			—			—			(494		)
Net intercompany repayments	—			(996		)	(79		)	1,075			—
Distributions to TLLP unitholders and general partner	33			18			(51		)	—			—
Other financing activities	(33		)	37			—			—			4
Net cash from (used in) financing activities	(1,061		)	(945		)	(174		)	1,075			(1,105		)
Decrease in Cash And Cash Equivalents	—			(17		)	(24		)	—			(41		)
Cash and Cash Equivalents, Beginning of Period	—			943			57			—			1,000
Cash and Cash Equivalents, End of Period	$	—		$	926		$	33		$	—		$	959

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

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities	$	(31	)	$	926		$	152		$	—		$	1,047
Cash Flows From (Used In) Investing Activities
Capital expenditures	—			(341		)	(136		)	—			(477		)
Acquisitions	—			(17		)	—			—			(17		)
Intercompany notes, net	261			—			—			(261		)	—
Other investing activities	—			1			10			—			11
Net cash from (used in) investing activities	261			(357		)	(126		)	(261		)	(483		)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	—			—			295			—			295
Proceeds from debt offering	300			—			—			—			300
Repayments on revolving credit agreements	—			—			(52		)	—			(52		)
Repayments of debt	(300		)	(2		)	(131		)	—			(433		)
Dividend payments	(104		)	—			—			—			(104		)
Net proceeds from issuance of Tesoro Logistics LP    common units	—			—			156			—			156
Distributions to noncontrolling interest	—			—			(63		)	—			(63		)
Purchases of common stock	(350		)	—			—			—			(350		)
Net intercompany repayments	—			(324		)	63			261			—
Borrowings from general partner	243			—			(243		)	—			—
Distributions to TLLP unitholders and general partner	13			15			(28		)	—			—
Other financing activities	(32		)	19			(8		)	—			(21		)
Net cash used in financing activities	(230		)	(292		)	(11		)	261			(272		)
Increase in Cash And Cash Equivalents	—			277			15			—			292
Cash and Cash Equivalents, Beginning of Period	—			1,161			77			—			1,238
Cash and Cash Equivalents, End of Period	$	—		$	1,438		$	92		$	—		$	1,530

XML

Condensed Consolidating Financial Information, Narrative (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Guarantor Information
Percentage ownership of Tesoro Logistics LP	33.00%	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

XML

Derivative Instruments (Policies)

9 Months Ended

Sep. 30, 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.

XML

Basis of Presentation (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Variable Interest Entity
Percentage of TLLP's revenues from Tesoro	54.00%	86.00%	55.00%	87.00%

XML

Tesoro Logistics LP (Tables)

9 Months Ended

Sep. 30, 2015

Variable Interest Entity, Measure of Activity [Abstract]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

The table below reflects the preliminary acquisition date purchase price allocation as of September 30, 2015 (in millions):

Cash	$	32
Accounts receivable	120
Prepayments and other	8
Property, plant and equipment	1,735
Acquired intangibles	976
Other noncurrent assets (a)	228
Accounts payable	(67		)
Other current liabilities	(51		)
Other noncurrent liabilities	(33		)
Noncontrolling interest	(432		)
Total Purchase Price	$	2,516

____________________

(a) Other noncurrent assets include $148 million of goodwill.

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Condensed Consolidating Financial Information, Cash Flows (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities			$ 1,847	$ 1,047
Cash Flows From (Used In) Investing Activities
Capital expenditures			(773)	(477)
Acquisitions			(6)	(17)
Intercompany notes, net			0	0
Other investing activities			(4)	11
Net cash used in investing activities			(783)	(483)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements			346	295
Proceeds from debt offering			0	300
Repayments on revolving credit agreements			(326)	(52)
Repayments of debt			(402)	(433)
Dividend payments	$ (62)	$ (39)	(169)	(104)
Net proceeds from issuance of Tesoro Logistics LP common units			71	156
Distributions to noncontrolling interest			(135)	(63)
Purchases of common stock			(494)	(350)
Net intercompany borrowings (repayments)			0	0
Borrowings from general partner				0
Distributions to TLLP unitholders and general partner			0	0
Other financing activities			4	(21)
Net cash used in financing activities			(1,105)	(272)
Increase (Decrease) in Cash And Cash Equivalents			(41)	292
Cash and Cash Equivalents, Beginning of Period			1,000	1,238
Cash and Cash Equivalents, End of Period	959	1,530	959	1,530
Parent
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities			(14)	(31)
Cash Flows From (Used In) Investing Activities
Capital expenditures			0	0
Acquisitions			0	0
Intercompany notes, net			1,075	261
Other investing activities			0	0
Net cash used in investing activities			1,075	261
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements			0	0
Proceeds from debt offering				300
Repayments on revolving credit agreements			0	0
Repayments of debt			(398)	(300)
Dividend payments			(169)	(104)
Net proceeds from issuance of Tesoro Logistics LP common units			0	0
Distributions to noncontrolling interest			0	0
Purchases of common stock			(494)	(350)
Net intercompany borrowings (repayments)			0	0
Borrowings from general partner				243
Distributions to TLLP unitholders and general partner			33	13
Other financing activities			(33)	(32)
Net cash used in financing activities			(1,061)	(230)
Increase (Decrease) in Cash And Cash Equivalents			0	0
Cash and Cash Equivalents, Beginning of Period			0	0
Cash and Cash Equivalents, End of Period	0	0	0	0
Guarantor Subsidiaries
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities			1,462	926
Cash Flows From (Used In) Investing Activities
Capital expenditures			(530)	(341)
Acquisitions			0	(17)
Intercompany notes, net			0	0
Other investing activities			(4)	1
Net cash used in investing activities			(534)	(357)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements			0	0
Proceeds from debt offering				0
Repayments on revolving credit agreements			0	0
Repayments of debt			(4)	(2)
Dividend payments			0	0
Net proceeds from issuance of Tesoro Logistics LP common units			0	0
Distributions to noncontrolling interest			0	0
Purchases of common stock			0	0
Net intercompany borrowings (repayments)			(996)	(324)
Borrowings from general partner				0
Distributions to TLLP unitholders and general partner			18	15
Other financing activities			37	19
Net cash used in financing activities			(945)	(292)
Increase (Decrease) in Cash And Cash Equivalents			(17)	277
Cash and Cash Equivalents, Beginning of Period			943	1,161
Cash and Cash Equivalents, End of Period	926	1,438	926	1,438
Non- Guarantors
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities			399	152
Cash Flows From (Used In) Investing Activities
Capital expenditures			(243)	(136)
Acquisitions			(6)	0
Intercompany notes, net			0	0
Other investing activities			0	10
Net cash used in investing activities			(249)	(126)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements			346	295
Proceeds from debt offering				0
Repayments on revolving credit agreements			(326)	(52)
Repayments of debt			0	(131)
Dividend payments			0	0
Net proceeds from issuance of Tesoro Logistics LP common units			71	156
Distributions to noncontrolling interest			(135)	(63)
Purchases of common stock			0	0
Net intercompany borrowings (repayments)			(79)	63
Borrowings from general partner				(243)
Distributions to TLLP unitholders and general partner			(51)	(28)
Other financing activities			0	(8)
Net cash used in financing activities			(174)	(11)
Increase (Decrease) in Cash And Cash Equivalents			(24)	15
Cash and Cash Equivalents, Beginning of Period			57	77
Cash and Cash Equivalents, End of Period	33	92	33	92
Consolidating Adjustments
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities			0	0
Cash Flows From (Used In) Investing Activities
Capital expenditures			0	0
Acquisitions			0	0
Intercompany notes, net			(1,075)	(261)
Other investing activities			0	0
Net cash used in investing activities			(1,075)	(261)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements			0	0
Proceeds from debt offering				0
Repayments on revolving credit agreements			0	0
Repayments of debt			0	0
Dividend payments			0	0
Net proceeds from issuance of Tesoro Logistics LP common units			0	0
Distributions to noncontrolling interest			0	0
Purchases of common stock			0	0
Net intercompany borrowings (repayments)			1,075	261
Borrowings from general partner				0
Distributions to TLLP unitholders and general partner			0	0
Other financing activities			0	0
Net cash used in financing activities			1,075	261
Increase (Decrease) in Cash And Cash Equivalents			0	0
Cash and Cash Equivalents, Beginning of Period			0	0
Cash and Cash Equivalents, End of Period	$ 0	$ 0	$ 0	$ 0

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Tesoro Logistics LP (Notes)

9 Months Ended

Sep. 30, 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 provides us with various pipeline transportation, trucking, terminal distribution, storage and petroleum-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.

Tesoro Logistics GP, LLC (“TLGP”), our wholly-owned subsidiary, serves as the general partner of TLLP. We held an approximate 33% and 36% interest in TLLP at September 30, 2015 and December 31, 2014, respectively, including an approximate 2% general partner interest and all of the incentive distribution rights. This interest at September 30, 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. At the acquisition date, QEPFS held an approximate 56% limited partner interest in QEP Midstream Partners, LP (“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 held 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 with TLGP, QEPFS, TLLP Merger Sub LLC (“Merger Sub”), QEPM, and QEPM GP. TLLP and QEPM completed the transaction, in which the Merger Sub merged with and into QEPM, with QEPM surviving the merger as a wholly owned subsidiary of TLLP (the “Merger”). The Merger transaction was completed on July 22, 2015. Following the Merger, QEPM GP remains the general partner of QEPM, and all outstanding common units representing limited partnership interests in QEPM other than QEPM Common Units held by QEPFS (the “QEPM Common Units”) were converted into the right to receive 0.3088 common units representing limited partnership interests in TLLP (the “TLLP Common Units”). As a result of the Merger, TLLP issued approximately 7.1 million TLLP Common Units to QEPM unitholders. No fractional TLLP Common Units were issued in the Merger, and holders of QEPM Common Units other than QEPFS received cash in lieu of fractional TLLP Common Units. There was no impact to the purchase price allocation as a result of the Merger.

TLLP’s allocation of the Rockies Natural Gas Business acquisition’s $2.5 billion purchase price remains preliminary as of September 30, 2015. During the nine months ended September 30, 2015, the original purchase price was increased by $6 million for the settlement of acquisition date net working capital amounts. 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 September 30, 2015 (in millions):

Cash	$	32
Accounts receivable	120
Prepayments and other	8
Property, plant and equipment	1,735
Acquired intangibles	976
Other noncurrent assets (a)	228
Accounts payable	(67		)
Other current liabilities	(51		)
Other noncurrent liabilities	(33		)
Noncontrolling interest	(432		)
Total Purchase Price	$	2,516

____________________

(a) Other noncurrent assets include $148 million of goodwill.

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Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Millions		Sep. 30, 2015	Dec. 31, 2014
Current Assets
Cash and cash equivalents		$ 959	$ 1,000
Receivables, net of allowance for doubtful accounts		1,016	1,435
Inventories		2,507	2,439
Prepayments and other current assets		176	200
Total Current Assets		4,658	5,074
Net Property, Plant and Equipment		9,427	9,045
Other Noncurrent Assets
Acquired intangibles, net		1,190	1,222
Other, net		1,326	1,150
Total Other Noncurrent Assets, Net		2,516	2,372
Total Assets		16,601	16,491
Current Liabilities
Accounts payable		1,789	2,470
Other current liabilities		1,063	996
Total Current Liabilities		2,852	3,466
Deferred Income Taxes		1,256	1,098
Other Noncurrent Liabilities		843	790
Debt, Net of Unamortized Issuance Costs		$ 3,791	$ 4,161
Commitments and Contingencies (Note 10)
Tesoro Corporation Stockholders’ Equity
Common stock, par value $0.162/3; authorized 200,000,000 shares; 158,429,940 shares issued (156,627,604 in 2014)		$ 26	$ 26
Additional paid-in capital		1,392	1,255
Retained earnings		5,959	4,642
Treasury stock, 37,666,223 common shares (31,677,195 in 2014), at cost		(1,858)	(1,320)
Accumulated other comprehensive loss		(149)	(149)
Total Tesoro Corporation Stockholders’ Equity		5,370	4,454
Noncontrolling Interest		2,489	2,522
Total Equity	[1]	7,859	6,976
Total Liabilities and Equity		$ 16,601	$ 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 September 30, 2015 and December 31, 2014.

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Stock-Based Compensation (Notes)

9 Months Ended

Sep. 30, 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 September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Stock appreciation rights (a)	$	10	$	4	$	20	$	(2	)
Performance share awards (b)	3		3		9		7
Market stock units (c)	7		4		19		12
Other stock-based awards (d)	2		1		9		3
Total Stock-Based Compensation Expense	$	22	$	12	$	57	$	20

____________________

(a) We paid cash of $37 million and $22 million to settle 0.5 million and 0.8 million SARs that were exercised during the nine months ended September 30, 2015 and 2014, respectively. We had $43 million and $60 million recorded in accrued liabilities associated with our SARs awards at September 30, 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 nine months ended September 30, 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 nine months ended September 30, 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 $8 million and $7 million for the three months ended September 30, 2015 and 2014, respectively, and a benefit of $22 million and $9 million for the nine months ended September 30, 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 $8 million and $7 million for the three months ended September 30, 2015 and 2014, respectively, and $71 million and $41 million for the nine months ended September 30, 2015 and 2014, respectively.

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Oct. 26, 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	Sep. 30, 2015
Amendment Flag	false
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		120,390,425

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Operating Segments (Notes)

9 Months Ended

Sep. 30, 2015

Segment Reporting [Abstract]

OPERATING SEGMENTS

OPERATING SEGMENTS

Our branded operations represented the assets and operations that were previously shown as the retail segment. In previous periods, a portion of our marketing business related to sales in unbranded or wholesale channels that were presented within our refining operating segment. Upon considering the changes in our business, including the transition from company-owned retail operations to multi-site operator model, we assessed how our chief operating decision maker evaluates the business, assesses performance and allocates resources. From this analysis, we believed the presentation of a marketing segment inclusive of both unbranded and branded marketing operations was appropriate. As of the second quarter 2015, we revised our operating segments to include refining, TLLP and a realigned marketing segment. Comparable prior period information has been recast to reflect our revised segment presentation. No other changes were deemed necessary to our refining and TLLP segments.

Our refining segment owns and operates 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, to our marketing segment 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 marketing segment sells gasoline and diesel fuel through branded MSOs and jobber/dealers in 16 states as well as unbranded or wholesale channels through terminal facilities and other locations. 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. TLLP and marketing revenues include intersegment transactions with our refining segment. Income taxes, other income, net, interest and financing costs, net, corporate depreciation and corporate general and administrative expenses are excluded from segment operating income.

Segment information related to continuing operations is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(In millions)
Revenues
Refining:
Refined products	$	6,966		$	10,363		$	20,293		$	30,353
Crude oil resales and other	172			434			780			1,060
TLLP:
Gathering	87			32			253			84
Processing	71			—			205			—
Terminalling and transportation	124			118			362			326
Marketing:
Fuel (a)	5,144			6,501			14,143			18,814
Other non-fuel (b)	16			73			48			203
Intersegment sales	(4,837		)	(6,370		)	(13,646		)	(18,652		)
Total Revenues	$	7,743		$	11,151		$	22,438		$	32,188
Segment Operating Income
Refining (c)	$	895		$	536		$	1,831		$	1,074
TLLP (d)	112			61			329			169
Marketing (c)	379			180			724			292
Total Segment Operating Income	1,386			777			2,884			1,535
Corporate and unallocated costs (e)	(94		)	(75		)	(243		)	(185		)
Operating Income	1,292			702			2,641			1,350
Interest and financing costs, net (f)	(54		)	(50		)	(163		)	(168		)
Other income, net (g)	19			11			21			13
Earnings Before Income Taxes	$	1,257		$	663		$	2,499		$	1,195
Depreciation and Amortization Expense
Refining	$	132		$	112		$	373		$	317
TLLP	44			18			132			51
Marketing	11			10			34			30
Corporate	5			4			14			11
Total Depreciation and Amortization Expense	$	192		$	144		$	553		$	409
Capital Expenditures
Refining	$	153		$	118		$	485		$	280
TLLP	92			63			235			137
Marketing	8			9			20			27
Corporate	6			4			16			20
Total Capital Expenditures	$	259		$	194		$	756		$	464

______________________

(a) Federal and state motor fuel taxes on sales by our marketing segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $137 million and $148 million for the three months ended September 30, 2015 and 2014, respectively, and $423 million and $441 million for the nine months ended September 30, 2015 and 2014, respectively.

(b) Primarily includes rental income for the three and nine months ended September 30, 2015 and primarily merchandise revenue for the three and nine months ended September 30, 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 marketing 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 marketing 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 marketing segments for the three or nine month periods ended September 30, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $35 million and $94 million with a corresponding increase to operating income in our marketing segment for the three and nine months ended September 30, 2014, respectively.

(d) We present TLLP’s segment operating income net of general and administrative expenses totaling $16 million and $6 million representing TLLP’s corporate costs for the three months ended September 30, 2015 and 2014, respectively, and $43 million and $14 million for the nine months ended September 30, 2015 and 2014, respectively that are not allocated by TLLP to its operating segments.

(e) Includes stock-based compensation expense of $22 million and $12 million for the three months ended September 30, 2015 and 2014, respectively, and $57 million and $20 million for the nine months ended September 30, 2015 and 2014, respectively. The significant impact to stock-based compensation expense during the three and nine months ended September 30, 2015 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

(f) Includes charges totaling $41 million for premiums and unamortized debt issuance costs associated with the redemption of the 5.50% Senior Notes due 2019 during the nine months ended September 30, 2014.

(g) During the three and nine months ended September 30, 2015, we recorded a gain of $11 million as other income for insurance proceeds related to the settlement of claims associated with the Washington Refinery Fire.

The following table details our identifiable assets related to continuing operations:

	September 30, 2015		December 31, 2014
Identifiable Assets Related to Continuing Operations:	(In millions)
Refining	$	9,521	$	9,467
TLLP	4,851		4,765
Marketing	1,115		1,048
Corporate	1,114		1,211
Total Assets	$	16,601	$	16,491

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Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - USD ($) $ in Millions	Sep. 30, 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)	158,429,940	156,627,604
Treasury stock, common shares (shares)	37,666,223	31,667,195
Current Assets
Cash and cash equivalents	$ 959	$ 1,000
Property, Plant and Equipment, Net
Net Property, Plant and Equipment	9,427	9,045
Other Noncurrent Assets
Acquired intangibles, net	1,190	1,222
Other, net	1,326	1,150
Long-term Debt, Net of Unamortized Issuance Costs
Debt, Net of Unamortized Issuance Costs	3,791	4,161
Tesoro Logistics LP
Current Assets
Cash and cash equivalents	11	19
Property, Plant and Equipment, Net
Net Property, Plant and Equipment	3,432	3,306
Other Noncurrent Assets
Acquired intangibles, net	952	973
Other, net	236	251
Long-term Debt, Net of Unamortized Issuance Costs
Debt, Net of Unamortized Issuance Costs	$ 2,569	$ 2,544

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Fair Value Measurements (Notes)

9 Months Ended

Sep. 30, 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 using quoted prices in active markets for identical assets and liabilities. Level 2 instruments are valued using 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. Our level 2 instruments include derivatives valued using market quotations from independent price reporting agencies, third-party brokers and commodity exchange price curves that are corroborated with market data. Level 3 instruments are valued using significant unobservable inputs that are not supported by sufficient market activity. We do not have any financial assets or liabilities classified as level 3 at September 30, 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):

	September 30, 2015
	Level 1		Level 2		Level 3		Netting and Collateral (a)			Total
Assets:
Commodity Futures Contracts	$	896	$	6	$	—	$	(859	)	$	43
Commodity OTC Swap Contracts	—		3		—		—			3
Commodity Forward Contracts	—		2		—		—			2
Total Assets	$	896	$	11	$	—	$	(859	)	$	48
Liabilities:
Commodity Futures Contracts	$	867	$	3	$	—	$	(870	)	$	—
Commodity Forward Contracts	—		1		—		—			1
Environmental Credit Obligations	—		17		—		—			17
Total Liabilities	$	867	$	21	$	—	$	(870	)	$	18

	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 September 30, 2015, we had provided cash collateral amounts of $11 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.

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 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”) and the TLLP senior secured revolving credit agreement (the “TLLP Revolving 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$3.9 billion and $4.3 billion at September 30, 2015 and December 31, 2014, respectively, and the fair values of our debt were approximately $3.8 billion and $4.3 billion at September 30, 2015 and December 31, 2014, respectively. These carrying and fair values of our debt do not consider the unamortized issuance costs, which are netted against our total debt.

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Derivative Instruments (Notes)

9 Months Ended

Sep. 30, 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, marketing 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 September 30, 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	September 30, 2015			December 31, 2014			September 30, 2015			December 31, 2014
Commodity Futures Contracts	Prepayments and other current assets	$	902		$	1,201		$	870		$	1,025
Commodity OTC Swap    Contracts	Receivables	3			—			—			—
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		907			1,204			871			1,027
Less: Counterparty Netting and    Cash Collateral (a)		(859		)	(1,136		)	(870		)	(1,024		)
Total Net Fair Value of Derivatives		$	48		$	68		$	1		$	3

________________

(a) Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously. As of September 30, 2015, we had provided cash collateral amounts of $11 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 and nine months ended September 30, 2015 and 2014 were as follows (in millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Commodity Futures Contracts	$	145		$	167		$	102		$	90
Commodity OTC Swap Contracts	7			(2		)	5			(5		)
Commodity Forward Contracts	1			1			15			5
Foreign Currency Forward Contracts	(3		)	(3		)	(5		)	(3		)
Total Gain on Mark-to-Market Derivatives	$	150		$	163		$	117		$	87

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues	$	30		$	6		$	28		$	7
Cost of sales	123			160			94			83
Other expense, net	(3		)	(3		)	(5		)	(3		)
Total Gain on Mark-to-Market Derivatives	$	150		$	163		$	117		$	87

Open Long (Short) Positions

The information below presents the net volume of outstanding commodity and other contracts by type of instrument, year of maturity and unit of measure as of September 30, 2015 (units in thousands):

	Contract Volumes by Year of Maturity			Unit of Measure
Mark-to-Market Derivative Instrument	2015	2016	2017
Crude oil, refined products and blending products:
Futures - short	(5,311)	(1,050)	—	Barrels
OTC Swaps - long	1,100	900	—	Barrels
Forwards - long	250	—	—	Barrels
Carbon emissions credits:
Futures - long	175	1,000	1,000	Tons
Corn:
Futures - short	(4,270)	—	—	Bushels

At September 30, 2015, we had open Forward Contracts to purchase CAD $20 million that were settled on October 26, 2015.

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Fair Value Measurements (Policies)

9 Months Ended

Sep. 30, 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 using quoted prices in active markets for identical assets and liabilities. Level 2 instruments are valued using 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. Our level 2 instruments include derivatives valued using market quotations from independent price reporting agencies, third-party brokers and commodity exchange price curves that are corroborated with market data. Level 3 instruments are valued using significant unobservable inputs that are not supported by sufficient market activity.

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Condensed Consolidating Financial Information (Notes)

9 Months Ended

Sep. 30, 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 September 30, 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 33% ownership interest as of September 30, 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 and nine months ended September 30, 2015 and 2014.

Condensed Consolidating Statement of Operations

for the Three Months EndedSeptember 30, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Revenues	$	—		$	8,574		$	1,054		$	(1,885	)	$	7,743
Costs and Expenses:
Cost of sales	—			6,574			748			(1,751		)	5,571
Operating, selling, general and administrative expenses	2			679			137			(134		)	684
Depreciation and amortization expense	—			147			45			—			192
Loss on asset disposals and impairments	—			4			—			—			4
Operating Income (Loss)	(2		)	1,170			124			—			1,292
Equity in earnings of subsidiaries	776			38			—			(814		)	—
Interest and financing costs, net	(11		)	(17		)	(26		)	—			(54		)
Other income, net	—			17			2			—			19
Earnings Before Income Taxes	763			1,208			100			(814		)	1,257
Income tax expense (a)	4			443			11			—			458
Net Earnings	759			765			89			(814		)	799
Less: Net earnings from continuing operations attributable    to noncontrolling interest	—			—			40			—			40
Net Earnings Attributable to Tesoro Corporation	$	759		$	765		$	49		$	(814	)	$	759
Comprehensive Income
Total comprehensive income	$	759		$	765		$	89		$	(814	)	$	799
Less: Noncontrolling interest in comprehensive income	—			—			40			—			40
Comprehensive Income Attributable to Tesoro    Corporation	$	759		$	765		$	49		$	(814	)	$	759

_________________

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

Condensed Consolidating Statement of Operations

for the Three Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Revenues	$	—		$	12,528		$	1,671		$	(3,048	)	$	11,151
Costs and Expenses:
Cost of sales	—			11,076			1,504			(2,986		)	9,594
Operating, selling, general and administrative expenses	2			692			78			(62		)	710
Depreciation and amortization expense	—			125			19			—			144
Loss on asset disposals and impairments	—			1			—			—			1
Operating Income (Loss)	(2		)	634			70			—			702
Equity in earnings of subsidiaries	405			11			—			(416		)	—
Interest and financing costs, net	(10		)	(22		)	(18		)	—			(50		)
Other income, net	—			11			—			—			11
Earnings Before Income Taxes	393			634			52			(416		)	663
Income tax expense (benefit) (a)	(3		)	241			11			—			249
Net Earnings from Continuing Operations	396			393			41			(416		)	414
Loss from discontinued operations, net of tax	—			(1		)	—			—			(1		)
Net Earnings	396			392			41			(416		)	413
Less: Net earnings from continuing operations attributable    to noncontrolling interest	—			—			17			—			17
Net Earnings Attributable to Tesoro Corporation	$	396		$	392		$	24		$	(416	)	$	396
Comprehensive Income
Total comprehensive income	$	396		$	392		$	41		$	(416	)	$	413
Less: Noncontrolling interest in comprehensive income	—			—			17			—			17
Comprehensive Income Attributable to Tesoro    Corporation	$	396		$	392		$	24		$	(416	)	$	396

_________________

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

Condensed Consolidating Statement of Operations

for the Nine Months EndedSeptember 30, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Revenues	$	—		$	24,573		$	2,718		$	(4,853	)	$	22,438
Costs and Expenses:
Cost of sales	—			19,903			1,874			(4,468		)	17,309
Operating, selling, general and administrative expenses	8			1,905			395			(385		)	1,923
Depreciation and amortization expense	—			417			136			—			553
Loss on asset disposals and impairments	—			12			—			—			12
Operating Income (Loss)	(8		)	2,336			313			—			2,641
Equity in earnings of subsidiaries	1,523			102			—			(1,625		)	—
Interest and financing costs, net	(32		)	(52		)	(79		)	—			(163		)
Other income (expense), net	1			14			6			—			21
Earnings Before Income Taxes	1,484			2,400			240			(1,625		)	2,499
Income tax expense (benefit) (a)	(2		)	863			27			—			888
Net Earnings from Continuing Operations	1,486			1,537			213			(1,625		)	1,611
Loss from discontinued operations, net of tax	—			(4		)	—			—			(4		)
Net Earnings	1,486			1,533			213			(1,625		)	1,607
Less: Net earnings from continuing operations attributable    to noncontrolling interest	—			—			121			—			121
Net Earnings Attributable to Tesoro Corporation	$	1,486		$	1,533		$	92		$	(1,625	)	$	1,486
Comprehensive Income
Total comprehensive income	$	1,486		$	1,533		$	213		$	(1,625	)	$	1,607
Less: Noncontrolling interest in comprehensive income	—			—			121			—			121
Comprehensive Income Attributable to Tesoro    Corporation	$	1,486		$	1,533		$	92		$	(1,625	)	$	1,486

_________________

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

Condensed Consolidating Statement of Operations

for the Nine Months EndedSeptember 30, 2014

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Revenues	$	—		$	36,821		$	5,110		$	(9,743	)	$	32,188
Costs and Expenses:
Cost of sales	—			33,312			4,668			(9,571		)	28,409
Operating, selling, general and administrative expenses	6			1,981			207			(172		)	2,022
Depreciation and amortization expense	—			355			54			—			409
(Gain) loss on asset disposals and impairments	—			3			(5		)	—			(2		)
Operating Income (Loss)	(6		)	1,170			186			—			1,350
Equity in earnings of subsidiaries	722			38			—			(760		)	—
Interest and financing costs, net	(27		)	(105		)	(36		)	—			(168		)
Other income, net	2			11			—			—			13
Earnings Before Income Taxes	691			1,114			150			(760		)	1,195
Income tax expense (benefit) (a)	(7		)	419			25			—			437
Net Earnings from Continuing Operations	698			695			125			(760		)	758
Loss from discontinued operations, net of tax	—			(2		)	—			—			(2		)
Net Earnings	698			693			125			(760		)	756
Less: Net earnings from continuing operations attributable    to noncontrolling interest	—			—			58			—			58
Net Earnings Attributable to Tesoro Corporation	$	698		$	693		$	67		$	(760	)	$	698
Comprehensive Income
Total comprehensive income	$	698		$	693		$	125		$	(760	)	$	756
Less: Noncontrolling interest in comprehensive income	—			—			58			—			58
Comprehensive Income Attributable to Tesoro    Corporation	$	698		$	693		$	67		$	(760	)	$	698

_________________

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

Condensed Consolidating Balance Sheet as of September 30, 2015

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	926	$	33	$	—		$	959
Receivables, net of allowance for doubtful accounts	—		802		214		—			1,016
Short-term receivables from affiliates	—		73		—		(73		)	—
Inventories	—		2,315		192		—			2,507
Prepayments and other current assets	51		107		18		—			176
Total Current Assets	51		4,223		457		(73		)	4,658
Net Property, Plant and Equipment	—		5,926		3,501		—			9,427
Investment in Subsidiaries	8,125		449		—		(8,574		)	—
Long-Term Receivables from Affiliates	1,653		—		—		(1,653		)	—
Long-Term Intercompany Note Receivable	—		—		1,376		(1,376		)	—
Other Noncurrent Assets:
Acquired intangibles, net	—		237		953		—			1,190
Other, net	6		1,085		235		—			1,326
Total Other Noncurrent Assets, Net	6		1,322		1,188		—			2,516
Total Assets	$	9,835	$	11,920	$	6,522	$	(11,676	)	$	16,601
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	26	$	1,546	$	217	$	—		$	1,789
Short-term payables to affiliates	—		—		73		(73		)	—
Other current liabilities	208		705		150		—			1,063
Total Current Liabilities	234		2,251		440		(73		)	2,852
Long-Term Payables to Affiliates	—		1,587		66		(1,653		)	—
Deferred Income Taxes	1,256		—		—		—			1,256
Other Noncurrent Liabilities	411		380		52		—			843
Debt, net of unamortized issuance costs	1,188		34		2,569		—			3,791
Long-Term Intercompany Note Payable	1,376		—		—		(1,376		)	—
Equity-Tesoro Corporation	5,370		7,668		906		(8,574		)	5,370
Equity-Noncontrolling Interest	—		—		2,489		—			2,489
Total Liabilities and Equity	$	9,835	$	11,920	$	6,522	$	(11,676	)	$	16,601

Condensed Consolidating Balance Sheet as of December 31, 2014

(In millions)

	Parent		Guarantor Subsidiaries		Non- Guarantors		Consolidating Adjustments			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 Nine Months EndedSeptember 30, 2015

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities	$	(14	)	$	1,462		$	399		$	—		$	1,847
Cash Flows From (Used In) Investing Activities
Capital expenditures	—			(530		)	(243		)	—			(773		)
Acquisitions	—			—			(6		)	—			(6		)
Intercompany notes, net	1,075			—			—			(1,075		)	—
Other investing activities	—			(4		)	—			—			(4		)
Net cash from (used in) investing activities	1,075			(534		)	(249		)	(1,075		)	(783		)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	—			—			346			—			346
Repayments on revolving credit agreements	—			—			(326		)	—			(326		)
Repayments of debt	(398		)	(4		)	—			—			(402		)
Dividend payments	(169		)	—			—			—			(169		)
Net proceeds from issuance of Tesoro Logistics LP    common units	—			—			71			—			71
Distributions to noncontrolling interest	—			—			(135		)	—			(135		)
Purchases of common stock	(494		)	—			—			—			(494		)
Net intercompany repayments	—			(996		)	(79		)	1,075			—
Distributions to TLLP unitholders and general partner	33			18			(51		)	—			—
Other financing activities	(33		)	37			—			—			4
Net cash from (used in) financing activities	(1,061		)	(945		)	(174		)	1,075			(1,105		)
Decrease in Cash And Cash Equivalents	—			(17		)	(24		)	—			(41		)
Cash and Cash Equivalents, Beginning of Period	—			943			57			—			1,000
Cash and Cash Equivalents, End of Period	$	—		$	926		$	33		$	—		$	959

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

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Consolidating Adjustments			Consolidated
Cash Flows From (Used In) Operating Activities
Net cash from (used in) operating activities	$	(31	)	$	926		$	152		$	—		$	1,047
Cash Flows From (Used In) Investing Activities
Capital expenditures	—			(341		)	(136		)	—			(477		)
Acquisitions	—			(17		)	—			—			(17		)
Intercompany notes, net	261			—			—			(261		)	—
Other investing activities	—			1			10			—			11
Net cash from (used in) investing activities	261			(357		)	(126		)	(261		)	(483		)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	—			—			295			—			295
Proceeds from debt offering	300			—			—			—			300
Repayments on revolving credit agreements	—			—			(52		)	—			(52		)
Repayments of debt	(300		)	(2		)	(131		)	—			(433		)
Dividend payments	(104		)	—			—			—			(104		)
Net proceeds from issuance of Tesoro Logistics LP    common units	—			—			156			—			156
Distributions to noncontrolling interest	—			—			(63		)	—			(63		)
Purchases of common stock	(350		)	—			—			—			(350		)
Net intercompany repayments	—			(324		)	63			261			—
Borrowings from general partner	243			—			(243		)	—			—
Distributions to TLLP unitholders and general partner	13			15			(28		)	—			—
Other financing activities	(32		)	19			(8		)	—			(21		)
Net cash used in financing activities	(230		)	(292		)	(11		)	261			(272		)
Increase in Cash And Cash Equivalents	—			277			15			—			292
Cash and Cash Equivalents, Beginning of Period	—			1,161			77			—			1,238
Cash and Cash Equivalents, End of Period	$	—		$	1,438		$	92		$	—		$	1,530

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Commitments and Contingencies (Notes)

9 Months Ended

Sep. 30, 2015

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

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$229 million and $274 million at September 30, 2015 and December 31, 2014, respectively, including $15 millionand $32 million for TLLP, respectively. These accruals include $196 million and $216 million at September 30, 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.

On July 10, 2015, a federal court issued an order denying coverage pursuant to insurance policies for environmental remediation liabilities at our Martinez refinery and those liabilities are included in our accruals above. The insurer had filed a declaratory relief action challenging coverage of the primary policy assigned to us when we acquired the refinery. The policies provide for coverage up to $190 million for expenditures in excess of $50 million in self-insurance. We have not recognized possible insurance recoveries under the policies and have appealed the order.

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 a citation 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 (“BIIA”) Judge granted partial summary judgment in our favor rejecting 33 of the original 44 allegations in the citation as lacking legal or evidentiary support. A hearing on the remaining 11 allegations started on July 21, 2015, and we expect the Judge to issue a recommended decision for the BIIA’s review in 2016. While we cannot currently estimate the final amount or timing of the resolution of this matter, we have established an accrual based on our best estimate at this time.

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 the damages they incurred in the civil litigation involving us and the previous owner brought by the families of those fatally wounded in the April 2010 refinery fire. We settled our involvement in the civil litigation in 2012. Arbitration proceedings concerning the demand for indemnity 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 of these 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 us, 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, results of operations 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 based on our best estimate at this time 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.

Unrecognized tax benefits increased by approximately $150 million in the second quarterof 2015 for tax positions taken on amended returns filed for 2006-2010. The positions taken exclude certain tax credits, for blending biofuels into refined products, from taxable income. These tax credits were received from the federal government during the years being amended. However, due to the complex and uncertain nature of the issue, we are unable to conclude that it is more likely than not that we will sustain the claims. Therefore, we have neither recognized a tax benefit, nor recorded a receivable for this item.

It is reasonably possible that unrecognized tax benefits may decrease by as much as $8 million in the next twelve months, related primarily to state apportionment matters. However, since the tax was fully paid in prior years, the unrecognized tax benefit would be eliminated without impacting expense.

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Stockholders' Equity Stockholders' Equity, Share Repurchases and Dividends (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions		3 Months Ended				9 Months Ended
	Oct. 27, 2015	Sep. 30, 2015	Jun. 30, 2015	Sep. 30, 2014	Jun. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Number of shares purchased (shares)						5.5	6.2
Share repurchases, value						$ 494	$ 350
Dividend payments		$ 62		$ 39		$ 169	$ 104
Dividends declared (dollars per share)		$ 0.50	$ 0.425	$ 0.30	$ 0.25	$ 1.35	$ 0.80
Subsequent Event
Dividends declared (dollars per share)	$ 0.50
Dividends payable, date declared	Oct. 27, 2015
Dividends, date to be paid	Dec. 15, 2015
Dividends, date of record	Nov. 30, 2015

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Debt (Notes)

9 Months Ended

Sep. 30, 2015

Debt Disclosure [Abstract]

DEBT

DEBT

Our debt balance, net of unamortized issuance costs, at September 30, 2015 and December 31, 2014 was as follows (in millions):

	September 30, 2015			December 31, 2014
Total debt (a)	$	3,873		$	4,255
Unamortized issuance costs (b) (c)	(76		)	(88		)
Current maturities	(6		)	(6		)
Debt, Net of Current Maturities and Unamortized Issuance Costs	$	3,791		$	4,161

________________

(a) Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was $2.6 billion at both September 30, 2015 and December 31, 2014.

(b) Includes unamortized premium associated with TLLP’s 5.875% Senior Notes due 2020 of $4 million and $5 million as of September 30, 2015 and December 31, 2014, respectively.

(c) The Company adopted ASU 2015-03 in the first quarter of 2015 and applied the changes retrospectively to the prior period presented. See Note 1 for further discussion.

Revolving Credit Facilities

We had available capacity under our credit facilities as follows at September 30, 2015 (in millions):

	Total Capacity		Amount Borrowed as of September 30, 2015		Outstanding Letters of Credit		Available Capacity		Expiration
Tesoro Corporation Revolving Credit Facility (a)	$	3,000	$	—	$	76	$	2,924	November 18, 2019
TLLP Revolving Credit Facility	900		280		—		620		December 2, 2019
Letter of Credit Facilities	1,895		—		189		1,706
Total Credit Facilities	$	5,795	$	280	$	265	$	5,250

________________

(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.

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 97% of the eligible borrowing base at September 30, 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.

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 $189 million outstanding as of September 30, 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 September 30, 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 Rendezvous Gas Services L.L.C., 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 $280 million in borrowings outstanding under the TLLP Revolving Credit Facility, which incurred interest at a weighted average interest rate of 2.69% at September 30, 2015. TLLP had unused credit availability of approximately 69% of the borrowing capacity at September 30, 2015.

Tesoro Debt Repayments

During August 2015, we voluntarily repaid our obligation of$398 million under the Term Loan Facility in its entirety with available cash on hand. The Term Loan Facility originally funded a portion of the acquisition of BP’s integrated Southern California refining, marketing and logistics business (“The Los Angeles Acquisition”) and was scheduled to mature on May 30, 2016. Amounts paid on the Term Loan Facility cannot be re-borrowed.

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Benefit Plans (Notes)

9 Months Ended

Sep. 30, 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 $60 million during the nine months ended September 30, 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 and nine months ended September 30, 2015 and 2014 were (in millions):

	Pension Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Service cost	$	11		$	12		$	34		$	38
Interest cost	7			7			22			24
Expected return on plan assets	(7		)	(6		)	(20		)	(21		)
Amortization of prior service cost	1			—			1			1
Recognized net actuarial loss	6			3			18			10
Net Periodic Benefit Expense	$	18		$	16		$	55		$	52
	Other Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Service cost	$	—		$	—		$	2		$	2
Interest cost	1			1			2			2
Amortization of prior service credit	(8		)	(8		)	(25		)	(25		)
Recognized net actuarial loss	1			1			3			4
Net Periodic Benefit Income	$	(6	)	$	(6	)	$	(18	)	$	(17	)

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Stockholders' Equity (Notes)

9 Months Ended

Sep. 30, 2015

Stockholders' Equity Attributable to Parent [Abstract]

STOCKHOLDERS' EQUITY

STOCKHOLDERS’ EQUITY

Changes to equity during the nine months ended September 30, 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	1,486			121			1,607
Purchases of common stock	(494		)	—			(494		)
Dividend payments	(169		)	—			(169		)
Net effect of amounts related to equity-based compensation (b)	34			4			38
Net proceeds from issuance of Tesoro Logistics LP common units	—			71			71
Distributions to noncontrolling interest	—			(135		)	(135		)
Transfers to (from) Tesoro paid-in capital related to:
TLLP’s issuance of common units	59			(94		)	(35		)
Balance at September30, 2015 (a)	$	5,370		$	2,489		$	7,859

________________

(a) We have 5.0 million shares of preferred stock authorized with no par value per share. No shares of preferred stock were outstanding as of September 30, 2015 and December 31, 2014.

(b) We issued approximately 0.3 million shares and 0.5 million shares during the nine months ended September 30, 2015 and 2014 for proceeds of $12 million and $14 million, respectively, primarily for stock option exercises under our equity-based compensation plans. See Note 12 for more information on stock-based compensation.

Share Repurchases

We are authorized by our Board of Directors (the “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 5.5 million shares and 6.2 million shares of our common stock for approximately $494 million and $350 million during the nine months ended September 30, 2015 and 2014, respectively.

Cash Dividends

We paid cash dividends totaling $62 million and $169 million for the three and nine months ended September 30, 2015, respectively, based on a $0.50 per share and $0.425 per share quarterly cash dividend on common stock in the third and first two quarters, respectively. We paid cash dividends totaling $39 million and $104 million for the three and nine months ended September 30, 2014, respectively, based on a $0.30 per share and $0.25 per share quarterly cash dividend on common stock in the third quarter and first two quarters respectively. On October 27, 2015, our Board declared a cash dividend of $0.50 per share payable on December 15, 2015 to shareholders of record on November 30, 2015.

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Operating Segments, Results (Details) - USD ($) $ in Millions					3 Months Ended		9 Months Ended
		Jan. 01, 2015	Jan. 01, 2014	Apr. 01, 2013	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Segment Reporting Information
Total Revenues					$ 7,743	$ 11,151	$ 22,438	$ 32,188
OPERATING INCOME					1,292	702	2,641	1,350
Reconciliation of Operating Income from Segments to Consolidated
Total Segment Operating Income					1,386	777	2,884	1,535
Corporate and unallocated costs	[1]				(94)	(75)	(243)	(185)
Segment Reporting Information, Income before Income Taxes
Interest and financing costs, net	[2]				(54)	(50)	(163)	(168)
Other income, net	[3]				19	11	21	13
Earnings Before Income Taxes					1,257	663	2,499	1,195
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense					192	144	553	409
Total Capital Expenditures					259	194	756	464
Total Assets					16,601		16,601		$ 16,491
Segment Reporting Table Footnotes
Federal and state motor fuel taxes on sales by the marketing segment					137	148	423	441
Intersegment pricing methodology effective date	[4]			Apr. 01, 2013
Intersegment pricing methodology, new inclusion effective date	[4]	Jan. 01, 2015
Debt redemption charges							(1)	(41)
Continuing Operations
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Assets					16,601		16,601		16,491
Refining
Segment Reporting Information
OPERATING INCOME	[4]				895	536	1,831	1,074
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense					132	112	373	317
Total Capital Expenditures					153	118	485	280
Refining | Refined products
Segment Reporting Information
Total Revenues					6,966	10,363	20,293	30,353
Refining | Crude oil resales and other
Segment Reporting Information
Total Revenues					172	434	780	1,060
Refining | Continuing Operations
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Assets					9,521		9,521		9,467
TLLP
Segment Reporting Information
OPERATING INCOME	[5]				112	61	329	169
Reconciliation of Operating Income from Segments to Consolidated
Corporate and unallocated costs					(16)	(6)	(43)	(14)
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense					44	18	132	51
Total Capital Expenditures					92	63	235	137
TLLP | Gathering
Segment Reporting Information
Total Revenues					87	32	253	84
TLLP | Processing
Segment Reporting Information
Total Revenues					71	0	205	0
TLLP | Terminalling and transportation
Segment Reporting Information
Total Revenues					124	118	362	326
TLLP | Continuing Operations
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Assets					4,851		4,851		4,765
Marketing
Segment Reporting Information
OPERATING INCOME	[4]				379	180	724	292
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense					11	10	34	30
Total Capital Expenditures					8	9	20	27
Marketing | Fuel
Segment Reporting Information
Total Revenues	[6]				5,144	6,501	14,143	18,814
Marketing | Other Non-fuel
Segment Reporting Information
Total Revenues	[7]				16	73	48	203
Marketing | Continuing Operations
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Assets					1,115		1,115		1,048
Intersegment sales
Segment Reporting Information
Total Revenues					(4,837)	(6,370)	(13,646)	(18,652)
Corporate
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Depreciation and Amortization Expense					5	4	14	11
Total Capital Expenditures					6	4	16	20
Segment Reporting Table Footnotes
Stock-based compensation expense (benefit)					22	$ 12	57	$ 20
Corporate | Continuing Operations
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments
Total Assets					1,114		1,114		$ 1,211
5.5% Senior Notes due 2019
Segment Reporting Table Footnotes
Debt redemption charges							$ 41
Debt instrument interest rate						5.50%		5.50%
Debt instrument, maturity date							Oct. 15, 2019
Pro Forma
Segment Reporting Table Footnotes
Intersegment pricing methodology, new inclusion effective date	[4]		Jan. 01, 2014
Pro Forma | Refining
Segment Reporting Information
OPERATING INCOME	[4]					$ 35		$ 94
Washington Refinery Fire
Segment Reporting Table Footnotes
(Gain) on insurance settlement claims					$ (11)		$ (11)

[1] Includes stock-based compensation expense of $22 million and $12 million for the three months ended September 30, 2015 and 2014, respectively, and $57 million and $20 million for the nine months ended September 30, 2015 and 2014, respectively. The significant impact to stock-based compensation expense during the three and nine months ended September 30, 2015 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

[2] Includes charges totaling $41 million for premiums and unamortized debt issuance costs associated with the redemption of the 5.50% Senior Notes due 2019 during the nine months ended September 30, 2014.

[3] During the three and nine months ended September 30, 2015, we recorded a gain of $11 million as other income for insurance proceeds related to the settlement of claims associated with the Washington Refinery Fire.

[4] 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 marketing 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 marketing 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 marketing segments for the three or nine month periods ended September 30, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $35 million and $94 million with a corresponding increase to operating income in our marketing segment for the three and nine months ended September 30, 2014, respectively.

[5] We present TLLP’s segment operating income net of general and administrative expenses totaling $16 million and $6 million representing TLLP’s corporate costs for the three months ended September 30, 2015 and 2014, respectively, and $43 million and $14 million for the nine months ended September 30, 2015 and 2014, respectively that are not allocated by TLLP to its operating segments.

[6] Federal and state motor fuel taxes on sales by our marketing segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $137 million and $148 million for the three months ended September 30, 2015 and 2014, respectively, and $423 million and $441 million for the nine months ended September 30, 2015 and 2014, respectively.

[7] ncludes rental income for the three and nine months ended September 30, 2015 and primarily merchandise revenue for the three and nine months ended September 30, 2014.

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Condensed Consolidating Financial Information, Statement of Operations (Details) - USD ($) $ in Millions		3 Months Ended				9 Months Ended
		Sep. 30, 2015		Sep. 30, 2014		Sep. 30, 2015		Sep. 30, 2014
Condensed Financial Statements, captions
Revenues		$ 7,743		$ 11,151		$ 22,438		$ 32,188
Costs and Expenses:
Cost of sales		5,571		9,594		17,309		28,409
Operating, selling, general and administrative expenses		684		710		1,923		2,022
Depreciation and amortization expense		192		144		553		409
(Gain) loss on asset disposals and impairments		4		1		12		(2)
Operating Income		1,292		702		2,641		1,350
Equity in earnings of subsidiaries		0		0		0		0
Interest and financing costs, net	[1]	(54)		(50)		(163)		(168)
Other income (expense), net	[2]	19		11		21		13
Earnings Before Income Taxes		1,257		663		2,499		1,195
Income tax expense (benefit)		458		249		888		437
Net Earnings from Continuing Operations		799		414		1,611		758
Loss from discontinued operations, net of tax		0		(1)		(4)		(2)
Net Earnings		799		413		1,607		756
Less: Net earnings from continuing operations attributable to noncontrolling interest		40		17		121		58
Net Earnings Attributable to Tesoro Corporation		759		396		1,486		698
Comprehensive Income
Total comprehensive income		799		413		1,607		756
Less: Noncontrolling interest in comprehensive income		40		17		121		58
Comprehensive Income Attributable to Tesoro Corporation		759		396		1,486		698
Parent
Condensed Financial Statements, captions
Revenues		0		0		0		0
Costs and Expenses:
Cost of sales		0		0		0		0
Operating, selling, general and administrative expenses		2		2		8		6
Depreciation and amortization expense		0		0		0		0
(Gain) loss on asset disposals and impairments		0		0		0		0
Operating Income		(2)		(2)		(8)		(6)
Equity in earnings of subsidiaries		776		405		1,523		722
Interest and financing costs, net		(11)		(10)		(32)		(27)
Other income (expense), net		0		0		1		2
Earnings Before Income Taxes		763		393		1,484		691
Income tax expense (benefit)		4	[3]	(3)	[4]	(2)	[5]	(7)	[6]
Net Earnings from Continuing Operations				396		1,486		698
Loss from discontinued operations, net of tax				0		0		0
Net Earnings		759		396		1,486		698
Less: Net earnings from continuing operations attributable to noncontrolling interest		0		0		0		0
Net Earnings Attributable to Tesoro Corporation		759		396		1,486		698
Comprehensive Income
Total comprehensive income		759		396		1,486		698
Less: Noncontrolling interest in comprehensive income		0		0		0		0
Comprehensive Income Attributable to Tesoro Corporation		759		396		1,486		698
Guarantor Subsidiaries
Condensed Financial Statements, captions
Revenues		8,574		12,528		24,573		36,821
Costs and Expenses:
Cost of sales		6,574		11,076		19,903		33,312
Operating, selling, general and administrative expenses		679		692		1,905		1,981
Depreciation and amortization expense		147		125		417		355
(Gain) loss on asset disposals and impairments		4		1		12		3
Operating Income		1,170		634		2,336		1,170
Equity in earnings of subsidiaries		38		11		102		38
Interest and financing costs, net		(17)		(22)		(52)		(105)
Other income (expense), net		17		11		14		11
Earnings Before Income Taxes		1,208		634		2,400		1,114
Income tax expense (benefit)		443	[3]	241	[4]	863	[5]	419	[6]
Net Earnings from Continuing Operations				393		1,537		695
Loss from discontinued operations, net of tax				(1)		(4)		(2)
Net Earnings		765		392		1,533		693
Less: Net earnings from continuing operations attributable to noncontrolling interest		0		0		0		0
Net Earnings Attributable to Tesoro Corporation		765		392		1,533		693
Comprehensive Income
Total comprehensive income		765		392		1,533		693
Less: Noncontrolling interest in comprehensive income		0		0		0		0
Comprehensive Income Attributable to Tesoro Corporation		765		392		1,533		693
Non- Guarantors
Condensed Financial Statements, captions
Revenues		1,054		1,671		2,718		5,110
Costs and Expenses:
Cost of sales		748		1,504		1,874		4,668
Operating, selling, general and administrative expenses		137		78		395		207
Depreciation and amortization expense		45		19		136		54
(Gain) loss on asset disposals and impairments		0		0		0		(5)
Operating Income		124		70		313		186
Equity in earnings of subsidiaries		0		0		0		0
Interest and financing costs, net		(26)		(18)		(79)		(36)
Other income (expense), net		2		0		6		0
Earnings Before Income Taxes		100		52		240		150
Income tax expense (benefit)		11	[3]	11	[4]	27	[5]	25	[6]
Net Earnings from Continuing Operations				41		213		125
Loss from discontinued operations, net of tax				0		0		0
Net Earnings		89		41		213		125
Less: Net earnings from continuing operations attributable to noncontrolling interest		40		17		121		58
Net Earnings Attributable to Tesoro Corporation		49		24		92		67
Comprehensive Income
Total comprehensive income		89		41		213		125
Less: Noncontrolling interest in comprehensive income		40		17		121		58
Comprehensive Income Attributable to Tesoro Corporation		49		24		92		67
Consolidating Adjustments
Condensed Financial Statements, captions
Revenues		(1,885)		(3,048)		(4,853)		(9,743)
Costs and Expenses:
Cost of sales		(1,751)		(2,986)		(4,468)		(9,571)
Operating, selling, general and administrative expenses		(134)		(62)		(385)		(172)
Depreciation and amortization expense		0		0		0		0
(Gain) loss on asset disposals and impairments		0		0		0		0
Operating Income		0		0		0		0
Equity in earnings of subsidiaries		(814)		(416)		(1,625)		(760)
Interest and financing costs, net		0		0		0		0
Other income (expense), net		0		0		0		0
Earnings Before Income Taxes		(814)		(416)		(1,625)		(760)
Income tax expense (benefit)		0	[3]	0	[4]	0	[5]	0	[6]
Net Earnings from Continuing Operations				(416)		(1,625)		(760)
Loss from discontinued operations, net of tax				0		0		0
Net Earnings		(814)		(416)		(1,625)		(760)
Less: Net earnings from continuing operations attributable to noncontrolling interest		0		0		0		0
Net Earnings Attributable to Tesoro Corporation		(814)		(416)		(1,625)		(760)
Comprehensive Income
Total comprehensive income		(814)		(416)		(1,625)		(760)
Less: Noncontrolling interest in comprehensive income		0		0		0		0
Comprehensive Income Attributable to Tesoro Corporation		$ (814)		$ (416)		$ (1,625)		$ (760)

[1] Includes charges totaling $41 million for premiums and unamortized debt issuance costs associated with the redemption of the 5.50% Senior Notes due 2019 during the nine months ended September 30, 2014.

[2] During the three and nine months ended September 30, 2015, we recorded a gain of $11 million as other income for insurance proceeds related to the settlement of claims associated with the Washington Refinery Fire.

[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.

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

[5] 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.

[6] 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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Operating Segments (Details)	9 Months Ended
	Sep. 30, 2015 states refineries
Segment Reporting Information
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.
Change in basis of segmentation, description	As of the second quarter 2015, we revised our operating segments to include refining, TLLP and a realigned marketing segment. Comparable prior period information has been recast to reflect our revised segment presentation. No other changes were deemed necessary to our refining and TLLP segments.
Refining
Segment Reporting Information
Number of refineries (refineries) | refineries	6
Segment reporting description	Our refining segment owns and operates 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, to our marketing segment through terminal facilities and other locations and opportunistically export refined products to foreign markets.
TLLP
Segment Reporting Information
Segment reporting description	TLLP’s assets and operations include certain crude oil gathering assets, 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.
Marketing
Segment Reporting Information
Number of states with retail sites (states)	16
Segment reporting description	Our marketing segment sells gasoline and diesel fuel through branded MSOs and jobber/dealers in 16 states as well as unbranded or wholesale channels through terminal facilities and other locations.

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Operating Segments (Tables)

9 Months Ended

Sep. 30, 2015

Segment Reporting [Abstract]

Schedule of segment reporting information, by segment

Segment information related to continuing operations is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(In millions)
Revenues
Refining:
Refined products	$	6,966		$	10,363		$	20,293		$	30,353
Crude oil resales and other	172			434			780			1,060
TLLP:
Gathering	87			32			253			84
Processing	71			—			205			—
Terminalling and transportation	124			118			362			326
Marketing:
Fuel (a)	5,144			6,501			14,143			18,814
Other non-fuel (b)	16			73			48			203
Intersegment sales	(4,837		)	(6,370		)	(13,646		)	(18,652		)
Total Revenues	$	7,743		$	11,151		$	22,438		$	32,188
Segment Operating Income
Refining (c)	$	895		$	536		$	1,831		$	1,074
TLLP (d)	112			61			329			169
Marketing (c)	379			180			724			292
Total Segment Operating Income	1,386			777			2,884			1,535
Corporate and unallocated costs (e)	(94		)	(75		)	(243		)	(185		)
Operating Income	1,292			702			2,641			1,350
Interest and financing costs, net (f)	(54		)	(50		)	(163		)	(168		)
Other income, net (g)	19			11			21			13
Earnings Before Income Taxes	$	1,257		$	663		$	2,499		$	1,195
Depreciation and Amortization Expense
Refining	$	132		$	112		$	373		$	317
TLLP	44			18			132			51
Marketing	11			10			34			30
Corporate	5			4			14			11
Total Depreciation and Amortization Expense	$	192		$	144		$	553		$	409
Capital Expenditures
Refining	$	153		$	118		$	485		$	280
TLLP	92			63			235			137
Marketing	8			9			20			27
Corporate	6			4			16			20
Total Capital Expenditures	$	259		$	194		$	756		$	464

______________________

(a) Federal and state motor fuel taxes on sales by our marketing segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $137 million and $148 million for the three months ended September 30, 2015 and 2014, respectively, and $423 million and $441 million for the nine months ended September 30, 2015 and 2014, respectively.

(b) Primarily includes rental income for the three and nine months ended September 30, 2015 and primarily merchandise revenue for the three and nine months ended September 30, 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 marketing 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 marketing 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 marketing segments for the three or nine month periods ended September 30, 2014. Had we made this change effective January 1, 2014, operating income in our refining segment would have been reduced by $35 million and $94 million with a corresponding increase to operating income in our marketing segment for the three and nine months ended September 30, 2014, respectively.

(d) We present TLLP’s segment operating income net of general and administrative expenses totaling $16 million and $6 million representing TLLP’s corporate costs for the three months ended September 30, 2015 and 2014, respectively, and $43 million and $14 million for the nine months ended September 30, 2015 and 2014, respectively that are not allocated by TLLP to its operating segments.

(e) Includes stock-based compensation expense of $22 million and $12 million for the three months ended September 30, 2015 and 2014, respectively, and $57 million and $20 million for the nine months ended September 30, 2015 and 2014, respectively. The significant impact to stock-based compensation expense during the three and nine months ended September 30, 2015 compared to the prior period is primarily a result of changes in Tesoro’s stock price.

(f) Includes charges totaling $41 million for premiums and unamortized debt issuance costs associated with the redemption of the 5.50% Senior Notes due 2019 during the nine months ended September 30, 2014.

(g) During the three and nine months ended September 30, 2015, we recorded a gain of $11 million as other income for insurance proceeds related to the settlement of claims associated with the Washington Refinery Fire.

The following table details our identifiable assets related to continuing operations:

	September 30, 2015		December 31, 2014
Identifiable Assets Related to Continuing Operations:	(In millions)
Refining	$	9,521	$	9,467
TLLP	4,851		4,765
Marketing	1,115		1,048
Corporate	1,114		1,211
Total Assets	$	16,601	$	16,491

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Fair Value Measurements (Details) - USD ($) $ in Millions		Sep. 30, 2015	Dec. 31, 2014
Fair Value Measurements
Gross derivative assets		$ 907	$ 1,204
Derivative asset amount offset against collateral and netting arrangements	[1],[2]	(859)	(1,136)
Net derivative assets		48	68
Gross derivative liabilities		871	1,027
Derivative liability amount offset against collateral and netting arrangements	[1],[2]	(870)	(1,024)
Net derivative liabilities		18	23
Cash collateral posted		11
Counterparty cash collateral			(112)
Debt carrying value		3,900	4,300
Debt fair value		3,800	4,300
Level 1
Fair Value Measurements
Gross derivative assets		896	1,165
Gross derivative liabilities		867	1,011
Level 2
Fair Value Measurements
Gross derivative assets		11	39
Gross derivative liabilities		21	36
Level 3
Fair Value Measurements
Gross derivative assets		0	0
Gross derivative liabilities		0	0
Commodity Futures Contracts
Fair Value Measurements
Derivative asset amount offset against collateral and netting arrangements	[2]	(859)	(1,136)
Net derivative assets		43	65
Derivative liability amount offset against collateral and netting arrangements	[2]	(870)	(1,024)
Net derivative liabilities		0	1
Commodity Futures Contracts | Level 1
Fair Value Measurements
Gross derivative assets		896	1,165
Gross derivative liabilities		867	1,011
Commodity Futures Contracts | Level 2
Fair Value Measurements
Gross derivative assets		6	36
Gross derivative liabilities		3	14
Commodity Futures Contracts | Level 3
Fair Value Measurements
Gross derivative assets		0	0
Gross derivative liabilities		0	0
Commodity OTC Swap Contracts
Fair Value Measurements
Derivative asset amount offset against collateral and netting arrangements	[2]	0
Net derivative assets		3
Derivative liability amount offset against collateral and netting arrangements	[2]		0
Net derivative liabilities			1
Commodity OTC Swap Contracts | Level 1
Fair Value Measurements
Gross derivative assets		0
Gross derivative liabilities			0
Commodity OTC Swap Contracts | Level 2
Fair Value Measurements
Gross derivative assets		3
Gross derivative liabilities			1
Commodity OTC Swap Contracts | Level 3
Fair Value Measurements
Gross derivative assets		0
Gross derivative liabilities			0
Commodity Forward Contracts
Fair Value Measurements
Derivative asset amount offset against collateral and netting arrangements	[2]	0	0
Net derivative assets		2	3
Derivative liability amount offset against collateral and netting arrangements	[2]	0	0
Net derivative liabilities		1	1
Commodity Forward Contracts | Level 1
Fair Value Measurements
Gross derivative assets		0	0
Gross derivative liabilities		0	0
Commodity Forward Contracts | Level 2
Fair Value Measurements
Gross derivative assets		2	3
Gross derivative liabilities		1	1
Commodity Forward Contracts | Level 3
Fair Value Measurements
Gross derivative assets		0	0
Gross derivative liabilities		0	0
Environmental Credit Obligations
Fair Value Measurements
Derivative liability amount offset against collateral and netting arrangements	[2]	0	0
Net derivative liabilities		17	20
Environmental Credit Obligations | Level 1
Fair Value Measurements
Gross derivative liabilities		0	0
Environmental Credit Obligations | Level 2
Fair Value Measurements
Gross derivative liabilities		17	20
Environmental Credit Obligations | Level 3
Fair Value Measurements
Gross derivative liabilities		$ 0	$ 0

[1] Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously. As of September 30, 2015, we had provided cash collateral amounts of $11 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.

[2] Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously. As of September 30, 2015, we had provided cash collateral amounts of $11 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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Property, Plant and Equipment (Policies)

9 Months Ended

Sep. 30, 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)

9 Months Ended

Sep. 30, 2015

Inventory Disclosure [Abstract]

Schedule of inventory, current

Components of inventories were as follows (in millions):

	September 30, 2015		December 31, 2014
Domestic crude oil and refined products	$	2,125	$	1,930
Foreign subsidiary crude oil	190		351
Other inventories	192		158
Total Inventories	$	2,507	$	2,439

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Derivative Gains and Losses (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	$ 150	$ 163	$ 117	$ 87
Revenues
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	30	6	28	7
Cost of sales
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	123	160	94	83
Other expense, net
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	(3)	(3)	(5)	(3)
Commodity Futures Contracts
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	145	167	102	90
Commodity OTC Swap Contracts
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	7	(2)	5	(5)
Commodity Forward Contracts
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	1	1	15	5
Foreign Currency Forward Contracts
Derivative Instruments, Gain (Loss)
Total Gain (Loss) on Mark-to-Market Derivatives	$ (3)	$ (3)	$ (5)	$ (3)

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Tesoro Logistics LP Preliminary Acquisition Date Purchase Price Allocation Narrative (Details) - Rockies Natural Gas Business $ in Millions	9 Months Ended
	Sep. 30, 2015 USD ($)
Variable Interest Entity
Purchase price	$ 2,516
Purchase price adjustment	$ 6

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Condensed Statements of Consolidated Cash Flows (Unaudited) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Cash Flows From (Used In) Operating Activities
Net earnings	$ 1,607	$ 756
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization expense	553	409
Debt redemption charges	1	41
Stock-based compensation expense	57	20
Deferred income taxes	157	227
Turnaround and branding charges	(248)	(119)
Other non-cash operating activities	(33)	(59)
Changes in current assets and current liabilities	(247)	(228)
Net cash from operating activities	1,847	1,047
Cash Flows From (Used In) Investing Activities
Capital expenditures	(773)	(477)
Acquisitions	(6)	(17)
Other investing activities	(4)	11
Net cash used in investing activities	(783)	(483)
Cash Flows From (Used In) Financing Activities
Borrowings under revolving credit agreements	346	295
Repayments on revolving credit agreements	(326)	(52)
Proceeds from debt offering	0	300
Repayments of debt	(402)	(433)
Dividend payments	(169)	(104)
Net proceeds from issuance of Tesoro Logistics LP common units	71	156
Distributions to noncontrolling interest	(135)	(63)
Purchases of common stock	(494)	(350)
Other financing activities	4	(21)
Net cash used in financing activities	(1,105)	(272)
Increase (Decrease) in Cash and Cash Equivalents	(41)	292
Cash and Cash Equivalents, Beginning of Period	1,000	1,238
Cash and Cash Equivalents, End of Period	$ 959	$ 1,530

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Property, Plant and Equipment (Notes)

9 Months Ended

Sep. 30, 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):

	September 30, 2015			December 31, 2014
Refining	$	7,449		$	6,994
TLLP	3,789			3,551
Marketing	842			834
Corporate	261			254
Property, Plant and Equipment, at Cost	12,341			11,633
Accumulated depreciation	(2,914		)	(2,588		)
Net Property, Plant and Equipment	$	9,427		$	9,045

We capitalize interest as part of the cost of major projects during the construction period. Capitalized interest totaled $9 million and $7 million for the three months ended September 30, 2015 and 2014, respectively, and $27 million and $17 million for the nine months ended September 30, 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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Commitments and Contingencies, Tax Matters (Details) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2015 USD ($)	Sep. 30, 2015 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Unrecognized tax benefits, increase Resulting from for tax positions taken on amended returns	$ 150
Possible decrease in unrecognized tax benefits in the next twelve months	$ 8	$ 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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Property, Plant and Equipment (Tables)

9 Months Ended

Sep. 30, 2015

Property, Plant and Equipment [Abstract]

Property, plant and equipment

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

	September 30, 2015			December 31, 2014
Refining	$	7,449		$	6,994
TLLP	3,789			3,551
Marketing	842			834
Corporate	261			254
Property, Plant and Equipment, at Cost	12,341			11,633
Accumulated depreciation	(2,914		)	(2,588		)
Net Property, Plant and Equipment	$	9,427		$	9,045

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Basis of Presentation New Accounting Standards and Disclosures (Details) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
New Accounting Pronouncement, Early Adoption, Effect
New Accounting Pronouncement, Early Adoption
Unamortized debt issuance costs	$ (80)	$ (93)

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Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 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.

New Accounting Pronouncements, Policy

New Accounting Standards and Disclosures

Revenue Recognition. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which provides accounting guidance for all revenue arising from contracts to provide goods or services to customers. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017 given the FASB’s recent deferral of ASU 2014-09’s effective date. Entities may choose to early adopt ASU 2014-09 as of the original effective date. The standard allows for either full retrospective adoption or modified retrospective adoption. At this time, we are evaluating the standard to determine the method of adoption and the impact of ASU 2014-09 on our financial statements and related disclosures.

Consolidation.  In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis” (“ASU 2015-02”). This standard modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities.  ASU 2015-02 is effective for interim and annual periods beginning after December 15, 2015, and requires either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. At this time, we are evaluating the potential impact of this standard on our financial statements, as well as the available transition methods.

Debt Issuance Costs. In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest” (“ASU 2015-03”), which will simplify the presentation of debt issuance costs. Under ASU 2015-03, 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 reflects a reclassification of unamortized debt issuance costs from other noncurrent assets to debt. ASU 2015-03 is effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. We adopted this standard in the first quarter of 2015 and applied the changes retrospectively to prior periods presented. The adoption of this standard 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$80 millionare recorded as a reduction to debt on the balance sheet at September 30, 2015.

Business Combinations. In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). The standard requires an acquirer to recognize the cumulative impact of adjustments to provisional purchase price amounts that are identified during the measurement period in the reporting period, in which the adjustment amounts are determined. The standard also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for interim and annual periods beginning after beginning after December 15, 2015 and must be applied prospectively to adjustments that occur after the effective date. Early application is permitted for financial statements that have not been issued.