SAN ANTONIO--(BUSINESS WIRE)--Tesoro Corporation (NYSE:TSO) today reported second quarter 2008 net earnings of $4 million, or $0.03 per share. Net income for the second quarter of 2007 was $443 million, or $3.17 per share. After a marginal tax rate of 39%, unusual items in second quarter 2008 include:

In comparison to last year, lower gross refining margins and higher operating costs were met with reduced refining throughput. Bottom-of-the-barrel products continued their trend of lagging the rapid rise of crude oil prices. During the quarter, fuel oil on the West Coast traded at a $32/bbl discount to ANS crude versus $20/bbl in the first quarter. Total fuel oil production for the quarter was 60 mbpd (thousands of barrels per day) versus a 2007 full year average of 53 mbpd due primarily to planned maintenance activity at our Golden Eagle refinery during the 2008 second quarter. We estimate that our refining operating income was reduced by $71 million or $0.31/share after tax as a result of our refinery turnaround for the planned maintenance. Reported gross refining margins decreased 52% to $10.10/bbl in the second quarter of 2008 compared to $20.98/bbl from a year ago.

Manufacturing costs before depreciation and amortization were $297 million for the second quarter of 2008 versus $286 million a quarter ago. Higher energy cost of $27 million related to the increased use and price of natural gas, were offset by an $11 million accrual reversal primarily associated with the retirement of the Golden Eagle fluid coker and $3 million in lower repair and maintenance costs.

“The refining sector continues to be impacted by higher crude and energy costs, and lower demand compared to a year ago. Crude prices were up almost $60 per barrel in the quarter, compared to 2007, while preliminary industry data suggests that demand in California is down approximately 5-6%. As a result of these factors, the benchmark West Coast margin was down almost 40% in the quarter versus a year ago.

“Our opportunities in this type of environment lie in identifying and executing self-help initiatives such as effectively matching production and inventory levels to consumer demand, optimizing product mix towards more profitable diesel fuel and less discounted fuel oil, and reducing expenses,” said Bruce Smith, Tesoro’s Chairman, President and CEO. Operational improvements for the remainder of 2008 versus the first half of the year include:

In the first quarter, the company announced its goal to realize approximately $750 million to $1 billion of operating cash flow through reductions in operating costs, capital expenditures and working capital to fund short term debt reductions and the $870 million capital program, including turnarounds. As of July 30^th, there were no borrowings on the revolver and the company had a cash balance of approximately $100 million.

“The company has done an excellent job executing the plan to lower costs, inventories and capital expenditures without sacrificing safe and reliable operations, and we are positioned to realize further cost reduction initiatives,” said Smith.

Tesoro announced today that its Board of Directors has approved a regular quarterly cash dividend of $0.10 per share. The dividend is payable September 16^th, 2008 to shareholders of record as of September 2^nd, 2008.

At 7:30 a.m., CDT, Thursday, July 31^st, 2008 Tesoro will broadcast, live, its conference call with analysts regarding second quarter 2008 results and other business matters. Interested parties may listen to the live conference call over the Internet by logging on to Tesoro’s Internet site at http://www.tsocorp.com.

Tesoro Corporation, a Fortune 150 Company, is an independent refiner and marketer of petroleum products. Tesoro, through its subsidiaries, operates seven refineries in the western United States with a combined capacity of approximately 660,000 barrels per day. Tesoro's retail-marketing system includes over 900 branded retail stations, of which nearly 445 are company operated under the Tesoro®, Shell®, Mirastar® and USA Gasoline™ brands.

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

TESORO CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(In millions except per share amounts)

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2008			2007			2008			2007
Revenues	$	8,754		$	5,604		$	15,285		$	9,480
Costs and Expenses:
Costs of sales and operating expenses (a)		8,561			4,710			15,094			8,258
Selling, general and administrative expenses		58			73			110			142
Depreciation and amortization		99			89			189			158
Loss on asset disposals and impairments		9			3			23			5
Operating Income (Loss)		27			729			(131	)		917
Interest and Financing Costs		(34	)		(30	)		(61	)		(47	)
Interest Income		1			11			3			25
Other Income (b)		4			-			49			-
Earnings (Loss) Before Income Taxes		(2	)		710			(140	)		895
Income Tax Provision (Benefit)		(6	)		267			(62	)		336
Net Earnings (Loss)	$	4		$	443		$	(78	)	$	559
Net Earnings (Loss) Per Share:
Basic	$	0.03		$	3.26		$	(0.57	)	$	4.13
Diluted (c)	$	0.03		$	3.17		$	(0.57	)	$	4.02
Weighted Average Common Shares:
Basic		136.5			135.7			136.3			135.4
Diluted (c)		138.9			139.6			136.3			139.2

Note: Our 2007 results of operations include our Los Angeles refinery assets and retail stations since acquired in May 2007.

(a) During the 2008 second quarter, a reduction in inventory quantities resulted in a liquidation of applicable LIFO inventory quantities carried at lower costs in the prior year. This LIFO liquidation resulted in a decrease of costs of sales of $78 million for the three and six months ended June 30, 2008.

(b) Other income for the three and six months ended June 30, 2008 represents refunds received from the Trans Alaska Pipeline System in connection with rulings by the Regulatory Commission of Alaska concerning our protest of intrastate pipeline rates set between 1997 and 2003.

(c) The assumed conversion of common stock equivalents produced anti-dilutive results for the six months ended June 30, 2008 and was not included in the dilutive calculation.

TESORO CORPORATION
SELECTED OPERATING SEGMENT DATA
(Unaudited)
(In millions)

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2008			2007			2008			2007
Operating Income (Loss)
Refining	$	85		$	791		$	(2	)	$	1,047
Retail		(11	)		-			(39	)		(11	)
Total Segment Operating Income (Loss)		74			791			(41	)		1,036
Corporate and Unallocated Costs		(47	)		(62	)		(90	)		(119	)
Operating Income (Loss)		27			729			(131	)		917
Interest and Financing Costs		(34	)		(30	)		(61	)		(47	)
Interest Income		1			11			3			25
Other Income (b)		4			-			49			-
Earnings (Loss) Before Income Taxes	$	(2	)	$	710		$	(140	)	$	895

Depreciation and Amortization
Refining	$	83		$	79		$	156		$	141
Retail		10			7			22			11
Corporate		6			3			11			6
Depreciation and Amortization	$	99		$	89		$	189		$	158

Capital Expenditures
Refining	$	123		$	176		$	288		$	307
Retail		5			1			6			2
Corporate		8			12			17			20
Capital Expenditures	$	136		$	189		$	311		$	329

TESORO CORPORATION
OPERATING DATA
(Unaudited)


		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2008		2007		2008			2007
REFINING SEGMENT
Total Refining Segment
Throughput (thousand barrels per day) (d)
Heavy crude		184		140		180			119
Light crude		388		441		389			396
Other feedstocks		38		31		33			24
Total Throughput		610		612		602			539

Yield (thousand barrels per day)
Gasoline and gasoline blendstocks		280		299		282			246
Jet fuel		82		75		79			69
Diesel fuel		145		140		136			122
Heavy oils, residual products, internally produced fuel and other		135		128		134			123
Total Yield		642		642		631			560


Gross refining margin ($/throughput bbl) (e)	$	10.10	$	20.98	$	8.34		$	17.77
Manufacturing cost before depreciation and amortization ($/throughput bbl) (e)	$	5.35	$	4.09	$	5.32		$	4.22

Segment Operating Income ($ millions)
Gross refining margin (f)	$	561	$	1,168	$	914		$	1,733
Expenses
Manufacturing costs (g)		297		228		583			413
Other operating expenses (g)		76		59		146			111
Selling, general and administrative		12		8		21			16
Depreciation and amortization (h)		83		79		156			141
Loss on asset disposals and impairments		8		3		10			5
Segment Operating Income (Loss)	$	85	$	791	$	(2	)	$	1,047

Refined Product Sales (thousand barrels per day) (i)
Gasoline and gasoline blendstocks		334		326		332			289
Jet fuel		92		91		95			90
Diesel fuel		151		138		137			126
Heavy oils, residual products and other		104		99		98			93
Total Refined Product Sales		681		654		662			598

Refined Product Sales Margin ($/barrel) (i)
Average sales price	$	135.73	$	90.92	$	121.29		$	84.12
Average costs of sales		125.19		72.05		112.66			68.49
Refined Product Sales Margin	$	10.54	$	18.87	$	8.63		$	15.63

(d) In the 2007 fourth quarter, we redefined heavy crude oil as crude oil with an American Petroleum Institute gravity of 24 degrees or less. Previously, heavy crude oils were defined as crude oils with a gravity of 32 degrees or less. Heavy and light throughput volumes for the three and six months ended June 30, 2007 have been adjusted to conform to the 2008 presentation.

(e) In the 2007 fourth quarter, we revised the calculation of gross refining margin per throughput barrel to include the effect of inventory changes. Inventory changes are the result of selling a volume and mix of product that is different than actual volumes manufactured. The amounts for the three and six ended June 30, 2007 have been recalculated to conform to the 2008 presentation. Previously, gross refining margin per barrel was calculated based upon manufactured product volumes. Management uses gross refining margin per barrel to evaluate performance and compare profitability to other companies in the industry. Gross refining margin per barrel is calculated by dividing gross refining margin by total refining throughput and may not be calculated similarly by other companies. Gross refining margin is calculated as revenues less costs of feedstocks, purchased refined products, transportation and distribution. Management uses manufacturing costs per barrel to evaluate the efficiency of refinery operations. Manufacturing costs per barrel is calculated by dividing manufacturing costs by total refining throughput and may not be comparable to similarly titled measures used by other companies. 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 alternatives to segment operating income, revenues, costs of sales and operating expenses or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States of America.

(f) Consolidated gross refining margin totals gross refining margin for each of our regions adjusted for other costs not directly attributable to a specific region. Other costs resulted in an increase of $3 million and decrease of $13 million for the three months ended June 30, 2008 and 2007 and an increase of $4 million and decrease of $12 million for the six months ended June 30, 2008 and 2007, respectively. Gross refining margin includes the effect of intersegment sales to the retail segment at prices which approximate market. Gross refining margin approximates total refining throughput times gross refining margin per barrel.

(g) Beginning in 2008, we reclassified certain environmental expenses from manufacturing expenses to other operating expenses. We have reclassified $1 million and $3 million for the three and six months ended June 30, 2007, respectively, to conform to the 2008 presentation.

(h) Includes manufacturing depreciation and amortization per throughput barrel of approximately $1.41 and $1.34 for the three months ended June 30, 2008 and 2007, respectively, and $1.33 and $1.36 for the six months ended June 30, 2008 and 2007, respectively.

(i) Sources of total refined product sales included refined products manufactured at the refineries and refined products purchased from third parties. Total refined product sales margin includes margins on sales of manufactured and purchased refined products and the effects of inventory changes.

TESORO CORPORATION
OPERATING DATA
(Unaudited)


		Three Months Ended					Six Months Ended
		June 30,					June 30,
		2008			2007		2008			2007
Refining By Region
California (Golden Eagle and Los Angeles) (j)(k)
Throughput (thousand barrels per day) (d)
Heavy crude		144			119		151			95
Light crude		82			82		82			60
Other feedstocks		24			17		22			10
Total Throughput		250			218		255			165

Yield (thousand barrels per day)
Gasoline and gasoline blendstocks		129			128		136			85
Jet fuel		20			8		19			4
Diesel fuel		68			56		64			43
Heavy oils, residual products, internally produced fuel and other		53			43		53			43
Total Yield		270			235		272			175

Gross refining margin (e)	$	318		$	514	$	558		$	723
Gross refining margin ($/throughput bbl) (e)	$	13.98		$	25.96	$	12.04		$	24.23
Manufacturing cost before depreciation and amortization ($/throughput bbl)	$	7.87		$	6.90	$	7.54		$	7.73

Pacific Northwest (Alaska & Washington) (j)
Throughput (thousand barrels per day) (d)
Heavy crude		13			8		12			9
Light crude		153			177		149			163
Other feedstocks		9			9		7			11
Total Throughput		175			194		168			183

Yield (thousand barrels per day)
Gasoline and gasoline blendstocks		69			85		65			80
Jet fuel		31			33		31			30
Diesel fuel		36			37		32			34
Heavy oils, residual products, internally produced fuel and other		45			47		45			45
Total Yield		181			202		173			189

Gross refining margin (e)	$	138		$	341	$	167		$	537
Gross refining margin ($/throughput bbl) (e)	$	8.63		$	19.26	$	5.47		$	16.26
Manufacturing cost before depreciation and amortization ($/throughput bbl)	$	3.79		$	2.65	$	4.01		$	2.78

Mid-Pacific (Hawaii)
Throughput (thousand barrels per day) (d)
Heavy crude		27			13		17			15
Light crude		44			74		52			70
Total Throughput		71			87		69			85

Yield (thousand barrels per day)
Gasoline and gasoline blendstocks		16			21		17			21
Jet fuel		19			24		19			25
Diesel fuel		11			16		10			15
Heavy oils, residual products, internally produced fuel and other		27			27		25			25
Total Yield		73			88		71			86

Gross refining margin (e)	$	(41	)	$	54	$	(50	)	$	84
Gross refining margin ($/throughput bbl) (e)	$	(6.33	)	$	6.78	$	(3.97	)	$	5.40
Manufacturing cost before depreciation and amortization ($/throughput bbl)	$	3.15		$	1.90	$	3.11		$	1.98

(j) We experienced reduced throughput during scheduled turnarounds at the Golden Eagle refinery during the 2008 first and second quarters, the Washington refinery during the 2008 first quarter, the Los Angeles refinery during the 2007 second quarter and the Golden Eagle and Utah refineries during the 2007 first quarter.

(k) Volumes and margins for 2007 include the Los Angeles refinery since acquired in May 2007.

TESORO CORPORATION
OPERATING DATA
(Unaudited)


		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2008		2007		2008		2007
Mid-Continent (North Dakota & Utah) (j)
Throughput (thousand barrels per day) (d)
Light crude		109		108		106		103
Other feedstocks		5		5		4		3
Total Throughput		114		113		110		106

Yield (thousand barrels per day)
Gasoline and gasoline blendstocks		66		65		64		60
Jet fuel		12		10		10		10
Diesel fuel		30		31		30		30
Heavy oils, residual products, internally produced fuel and other		10		11		11		10
Total Yield		118		117		115		110

Gross refining margin (e)	$	143	$	272	$	235	$	401
Gross refining margin ($/throughput bbl) (e)	$	13.86	$	26.52	$	11.72	$	20.87
Manufacturing cost before depreciation and amortization ($/throughput bbl)	$	3.59	$	2.84	$	3.58	$	3.07

TESORO CORPORATION
OPERATING DATA
(Unaudited)


		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2008			2007 (l)			2008			2007 (l)
RETAIL SEGMENT
Number of Stations (end of period)
Company-operated		437			453			437			453
Branded jobber/dealer		496			438			496			438
Total Stations		933			891			933			891

Average Stations (during period)
Company-operated		440			353			443			273
Branded jobber/dealer		497			361			485			315
Total Average Retail Stations		937			714			928			588

Fuel Sales (millions of gallons)
Company-operated		270			187			557			244
Branded jobber/dealer		73			57			135			104
Total Fuel Sales		343			244			692			348

Fuel Margin ($/gallon) (m)	$	0.12		$	0.15		$	0.12		$	0.14
Merchandise Sales ($ millions)	$	58		$	53		$	111		$	84
Merchandise Margin ($ millions)	$	15		$	13		$	28		$	21
Merchandise Margin %		26	%		25	%		25	%		25	%

Segment Operating Income (Loss) ($ millions)
Gross Margins
Fuel (n)	$	41		$	37		$	82		$	49
Merchandise and other non-fuel margin		20			17			38			25
Total Gross Margins		61			54			120			74
Expenses
Operating expenses		56			41			114			61
Selling, general and administrative		6			6			12			13
Depreciation and amortization		10			7			22			11
Loss on asset disposals and impairments (o)		-			-			11			-
Segment Operating Income (Loss)	$	(11	)	$	-		$	(39	)	$	(11	)

(l) The retail operating data for 2007 includes the Shell® and USA Gasoline™ stations since acquired in May 2007.

(m) Management uses fuel margin per gallon to compare profitability to other companies in the industry. Fuel margin per gallon is calculated by dividing fuel gross margin by fuel sales volume and may not be calculated similarly by other companies. Investors and analysts use fuel margin per gallon to help analyze and compare companies in the industry on the basis of operating performance. This financial measure should not be considered as an alternative to segment operating income and revenues or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States of America.

(n) Includes the effect of intersegment purchases from the refining segment at prices which approximate market.

(o) Represents impairment charges of $11 million during the three months ended March 31, 2008 related to certain retail stations.

CONTACT:
Tesoro Corporation, San Antonio
Investors:
Scott Phipps, Director, Investor Relations, 210-283-2882
or
Media:
Sarah Simpson, Vice President, Corporate Communications,
210-283-2374

BALANCE SHEET DATA
(Unaudited)
(Dollars in millions)

		June 30,			December 31,
		2008			2007
Cash and Cash Equivalents	$	24		$	23
Total Assets	$	9,640		$	8,128
Total Debt	$	1,786		$	1,659
Total Stockholders' Equity	$	2,969		$	3,052
Total Debt to Capitalization Ratio		38	%		35	%