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News Release

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TESORO CORPORATION REPORTS 2016 THIRD QUARTER RESULTS
  • Net earnings from continuing operations of $170 million, or $1.43 per diluted share, consolidated net earnings of $201 million and EBITDA of $577 million
  • Total Refining throughput was 873 thousand barrels per day and utilization was 98%
  • Logistics operating income grew 25% year-over-year to $133 million
  • Marketing operating income of $273 million; total branded stations increased by 178 year-over-year
  • Returned $215 million to shareholders; $150 million in share repurchases and $65 million in dividends
  • Closed sale of Alaska Storage and Terminalling Assets to TLLP for $444 million

SAN ANTONIO - October 31, 2016 - Tesoro Corporation (NYSE: TSO) today reported third quarter net earnings from continuing operations of $170 million, or $1.43 per diluted share, compared to net earnings from continuing operations of $759 million, or $6.13 per diluted share a year ago. Consolidated net earnings were $201 million for the third quarter 2016 compared to $799 million for the same period last year. EBITDA for the third quarter of 2016 was $577 million compared to $1.5 billion last year.

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
(In millions, except per share data) 2016   2015   2016   2015
Segment Operating Income              
  Refining $ 52     $ 899     $ 475     $ 1,843  
  TLLP 133     106     381     312  
  Marketing 273     379     661     724  
Total Segment Operating Income $ 458     $ 1,384     $ 1,517     $ 2,879  
Net Earnings From Continuing Operations Attributable to
  Tesoro
$ 170     $ 759     $ 646     $ 1,490  
               
Diluted EPS - Continuing Operations $ 1.43     $ 6.13     $ 5.37     $ 11.85  
Diluted EPS - Discontinued Operations (0.01 )   -     0.08     (0.03 )
Total Diluted EPS $ 1.42     $ 6.13     $ 5.45     $ 11.82  

"We are pleased with the results for the quarter, which are attributable to our integrated business model and the continued execution of our operating improvements," said Greg Goff, Chairman and CEO. "Our refining operational reliability was very strong, resulting in 98% utilization. Combined with our continued growth in logistics and marketing business, this resulted in strong operating cash flows. Also, we returned $215 million to shareholders in the form of share repurchases and dividends. We are successfully delivering the improvements to operating income that we identified as part of our 2016 plan and remain committed to meeting or exceeding our target of $400 to $500 million."

For the third quarter, the Company recorded segment operating income of $458 million compared to segment operating income of $1.4 billion in the third quarter of 2015. Operating income in the third quarter 2016 grew in Logistics but was lower year-over-year in Refining and Marketing due to a stronger than normal market environment in 2015.

SEGMENT RESULTS
REFINING. Refining operating income was $52 million for the third quarter 2016 compared to $899 million in 2015 and segment EBITDA was $204 million compared to $1.0 billion in 2015. Third quarter 2016 operating income and segment EBITDA include a pre-tax benefit of $20 million related to a lower of cost or market (LCM) inventory adjustment offset by a $14 million charge related to a contract dispute with a supplier.

The Tesoro Index(a) was $12.45 per barrel for the third quarter with a gross refining margin of $9.08 per barrel or 73% capture of the Tesoro Index. For the year ago period, the Tesoro Index was $23.09 per barrel with a gross refining margin of $19.43 per barrel or 84% capture of the Tesoro Index. Refining margins in the third quarter 2016 were negatively impacted by rising RINs prices and the resulting transfer price to Marketing, and by a reduction of inventory in the quarter. Total refinery throughput for the quarter was 873 thousand barrels per day, or 98% utilization. Manufacturing costs in the third quarter of 2016 increased $0.27 per barrel over last year to $5.11 per barrel primarily due to the addition of the Dickinson Refinery and the Tesoro Great Plains assets in 2016.

LOGISTICS. Logistics operating income increased to $133 million in the third quarter 2016 from $106 million in 2015 and segment EBITDA increased to $181 million from $153 million last year. This performance was driven by year-over-year growth in Tesoro Logistics LP (NYSE: TLLP) crude oil gathering, terminalling and transportation throughput as well as contributions from the acquisitions of Los Angeles Storage and Pipeline Assets last year and the Alaska Storage and Terminalling Assets completed during the quarter.

MARKETING. Marketing operating income was $273 million, segment EBITDA was $285 million and fuel margins were 14.9 cents per gallon in the third quarter 2016. This compares to operating income of $379 million, segment EBITDA of $390 million and fuel margins of 20.5 cents per gallon a year ago. The year-over-year comparison to operating results reflect the stronger than normal market conditions in 2015. However, consumer demand remained strong in the third quarter 2016 and the Company's total branded stations increased by 178 over the year ago period.

CORPORATE AND OTHER
Corporate and unallocated costs for the third quarter 2016 were $98 million. Net interest was $70 million, which includes a $6 million write-off for the unamortized financing costs related to refinancing Tesoro's revolving credit facility in the quarter. The effective tax rate was 32% for the quarter.

BALANCE SHEET AND CASH FLOW
Tesoro ended the third quarter with $1.4 billion in cash and cash equivalents compared to $942 million at the end of 2015. Tesoro has $2.0 billion of availability under its new revolving credit facility. Total debt, net of unamortized issuance costs, was $4.7 billion or 36% of total capitalization at the end of the third quarter. Excluding TLLP debt and equity, total debt was $1.3 billion or 19% of total capitalization.

Capital spending for the third quarter was $185 million for Tesoro and $42 million for TLLP. Turnaround expenditures for the third quarter were $42 million.

The Company executed 1.9 million of share repurchases for approximately $150 million in the third quarter and paid cash dividends of $65 million. Tesoro today announced that its board of directors has declared a quarterly cash dividend of $0.55 per share payable on December 15, 2016 to all holders of record as of November 30, 2016. Tesoro continues to maintain a strong balance sheet while investing in high-return capital projects and acquisitions as well as returning cash to shareholders.

STRATEGIC UPDATE
During the quarter, Tesoro closed both portions of the sale of the Alaska Storage and Terminalling Assets to TLLP for a total consideration of $444 million, which included cash proceeds of $400 million and the issuance of common and general partner units to Tesoro, valued at approximately $44 million.

Also during the quarter, the Company closed the acquisition of Virent, Inc., an innovative renewable fuels and chemicals company that supports Tesoro's renewable fuels strategy of developing high-quality, lower-carbon, renewable feedstocks and blendstocks that can either be co-processed in existing refineries or blended seamlessly with traditional fuels. By generating valuable credits, this strategy may lower Tesoro's compliance costs with the federal renewable fuel standard and California's low carbon fuel standard.

On September 30, 2016, the Company entered into a new $2.0 billion senior secured revolving credit agreement. This new four-year cash flow credit facility replaces Tesoro's previous $3.0 billion asset based credit facility, which was scheduled to mature in November 2019. While the new credit facility is currently guaranteed by certain Tesoro subsidiaries and collateral, these will be released and the facility will become unsecured upon Tesoro achieving an investment grade credit rating from either Moody's Investors Service or S&P Global Ratings.

On October 14, 2016, S&P Global Ratings upgraded TLLP's credit rating to BB+ with a stable outlook from the previous rating of BB. This rating is now the same rating as that of Tesoro and one level below investment grade.

At Tesoro's 2015 Investor and Analyst Day, the Company provided its expectations for 2016. These included a Tesoro Index of $12 to $14 per barrel, Marketing segment fuel margins of 11¢ to 14¢ per gallon and crude oil differentials reflecting transportation costs. Through the first nine months of 2016, the Tesoro Index and Marketing fuel margins are in line with expectations. Crude oil differentials continue to be significantly narrower than expectations and have resulted in lower capture rates and lower refining profitability than the Company's expectations. Tesoro continues to expect year-over-year improvements from higher utilization and operational efficiencies of $400 to $500 million.

The Company committed to delivering $400 to $500 million of annual improvements to operating income in 2016, consisting of $200 to $250 million in Refining, $175 to $200 million in Logistics and $25 to $50 million in Marketing. Even in the current challenging market environment, Tesoro remains confident in delivering these annual improvements to operating income. Through the first nine months of the year, estimated Refining and Marketing improvements are trending above the range. However, estimated Logistics improvements are trending slightly below the range, primarily due to the weak commodity price environment, which has impacted organic growth and volumes.

PUBLIC INVITED TO LISTEN TO ANALYST AND INVESTOR CONFERENCE CALL
Tesoro will live broadcast its conference call at 7:30 a.m. CT tomorrow morning to discuss third quarter 2016 results and other business matters. Interested parties may listen to the live conference call over the Internet by logging on to http://www.tsocorp.com.

2016 INVESTOR AND ANALYST DAY
Tesoro Corporation will host its 2016 Investor and Analyst Day at The St. Regis Hotel in New York City on December 6, 2016 at 9:00 a.m. ET. Because space is limited, reservations are required to attend and will be accepted on a first-come, first-serve basis. Interested parties can request an invitation by contacting the Investor Relations department via email at irelations@tsocorp.com. The presentation will also be webcast live at http://www.tsocorp.com.

ABOUT TESORO CORPORATION
Tesoro Corporation, a Fortune 100 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 over 895,000 barrels per day and ownership in a logistics business, which includes an interest in Tesoro Logistics LP (NYSE: TLLP) and ownership of its general partner. Tesoro's retail-marketing system includes over 2,400 retail stations under the ARCO®, Shell®, Exxon®, Mobil®, USA Gasoline(TM), Rebel(TM) and Tesoro® brands.

This earnings release contains "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, including without limitation statements concerning: our operational, financial and growth strategies, including maintaining a strong balance sheet, investing in high-return capital projects and acquisitions, returning cash to our shareholders, and delivering our targeted annual improvements to operating income; our ability to successfully effect those strategies and the expected timing and results thereof; our financial and operational outlook, and ability to fulfill that outlook; our financial position, liquidity and capital resources; the expected benefits to us of our recent acquisition of Virent, Inc.; and expectations regarding annual improvements to operating income, including expectations with respect to each segment. For more information concerning factors that could affect these statements, see our annual report on Form 10-K, quarterly reports on Form 10-Q, and other public filings and press releases, available at www.tsocorp.com. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.

Contact:
Investors:
Sam Ramraj, Vice President, Investor Relations, (210) 626-4757

Media:
Tesoro Media Relations, media@tsocorp.com, (210) 626-7702

(a)   As a performance benchmark, we utilize crack spreads and the Tesoro Index to measure the difference between market prices for crude oil and refined products. Crack spreads are a commonly used proxy within the industry to estimate or identify trends in gross refining margins, while the Tesoro Index is more specifically designed around Tesoro's assets. Crack spreads and the Tesoro Index can fluctuate significantly over time as a result of market conditions and supply and demand balances. For example, The West Coast 321 crack spread is calculated using three barrels of Alaska North Slope crude oil (ANS) producing two barrels of Los Angeles CARB gasoline and one barrel of Los Angeles CARB diesel. In comparison the Tesoro Index uses several crude oils and approximately 8 to 10 products to provide a potentially closer representation of the trends in the available margin. Our actual gross refining margins differ from these crack spreads and the Tesoro Index based on the actual slate of crude oil we run at our refineries and the products we produce or yield.
TESORO CORPORATION
2016 FOURTH QUARTER GUIDANCE (Unaudited)


Throughput (Mbpd)  
California 500 - 525
Pacific Northwest 180 - 190
Mid-Continent 125 - 140
Consolidated 805 - 855
   
Manufacturing Cost ($/throughput barrel)  
California $6.20 - 6.45
Pacific Northwest $3.90 - 4.15
Mid-Continent $4.65 - 4.90
Consolidated $5.45 - 5.70
   
Corporate/System ($ millions)  
Refining depreciation $150
TLLP depreciation $50
Corporate expense (before depreciation) $95 - 105
Interest expense (before interest income) $72
Noncontrolling Interest $35 - 40

2016 CAPITAL OUTLOOK (Unaudited) (in millions)


  2016 Capital Expenditures Outlook
Capital Expenditures  
Tesoro Corporation $ 700  
Tesoro Logistics LP 200  
Total Capital Expenditures $ 900  


ITEMS IMPACTING COMPARABILITY

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

NON-GAAP MEASURES

Our management uses certain performance "non-GAAP" measures to analyze operating segment performance. Our management also uses additional measures that are known as "non-GAAP" financial measures in its evaluation of past performance and prospects for the future to supplement our financial information presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). These financial non-GAAP measures are important factors in assessing our operating results and profitability and include the following:

  • U.S. GAAP-based net earnings before interest, income taxes, and depreciation and amortization expenses ("EBITDA");
  • Segment EBITDA is defined as a segment's U.S. GAAP operating income before depreciation and amortization expenses plus equity in earnings (loss) of equity method investments and other income (expense), net; and
  • Debt to capitalization ratio excluding TLLP, reflects the ratio achieved by dividing the net result of our consolidated debt less all debt owed by TLLP (both net of unamortized issuance costs) by the sum of our consolidated debt less TLLP's total debt (both net of unamortized issuance costs) and our total equity less noncontrolling interest associated with the public ownership of TLLP.

We present the measures defined above because we believe these measures help us analyze our results of operations and liquidity in conjunction with our U.S. GAAP results. Investors, analysts, lenders and ratings agencies may use these measures to help analyze our results of operations and liquidity in conjunction with our U.S. GAAP results, including but not limited to the following:

  • our operating performance as compared to other publicly traded companies in the refining, logistics and marketing industries, without regard to historical cost basis or financing methods;
  • our ability to incur and service debt and fund capital expenditures; and
  • the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

In addition, these measures are used by management to assess internal performance. We believe these measures, when supplemental to information presented under U.S. GAAP, may provide meaningful information to the users of our financial statements. Each of the performance measures should not be used in isolation from their comparable U.S. GAAP measure and thus should not be considered as alternatives to any U.S. GAAP measure. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income.


TESORO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions)


  September 30,
 2016
  December 31,
 2015
ASSETS      
Current Assets      
Cash and cash equivalents (TLLP: $497 and $16, respectively) $ 1,387     $ 942  
Receivables, net of allowance for doubtful accounts 1,037     792  
Inventories, net (b) 2,317     2,302  
Prepayments and other current assets 364     271  
Total Current Assets 5,105     4,307  
Property, Plant and Equipment, Net (TLLP: $3,129 and $3,467, respectively) 9,769     9,541  
Other Noncurrent Assets, Net (TLLP: $1,447 and $1,190, respectively) 3,131     2,484  
Total Assets $ 18,005     $ 16,332  
       
LIABILITIES AND EQUITY      
Current Liabilities      
Accounts payable $ 1,547     $ 1,568  
Other current liabilities 1,146     962  
Total Current Liabilities 2,693     2,530  
Deferred Income Taxes 1,438     1,222  
Other Noncurrent Liabilities 1,012     773  
Debt, Net of Unamortized Issuance Costs (TLLP: $3,382 and $2,844, respectively) 4,667     4,067  
Equity 8,195     7,740  
Total Liabilities and Equity $ 18,005     $ 16,332  

(b)   We recorded a lower of cost or market ("LCM") reserve of $123 million and $359 million at September 30, 2016 and December 31, 2015, respectively, to cost of sales for our crude oil, refined products, oxygenates and by-product inventories to adjust carrying value of our inventories to reflect replacement cost as of those reporting dates.


TESORO CORPORATION
RESULTS OF CONSOLIDATED OPERATIONS (Unaudited) (in millions, except per share amounts)


  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2016   2015   2016   2015
Revenues $ 6,544     $ 7,743     $ 17,930     $ 22,438  
Costs and Expenses:              
Cost of sales (excluding the lower of cost or market inventory valuation adjustment) 5,232     5,429     14,114     17,090  
Lower of cost or market inventory valuation adjustment (b) (20 )   83     (236 )   41  
Operating expenses 652     640     1,872     1,816  
Selling, general and administrative expenses (c) 107     103     283     285  
Depreciation and amortization expenses 211     192     633     553  
Loss on asset disposals and impairments 2     4     7     12  
Operating Income 360     1,292     1,257     2,641  
Interest and financing costs, net (70 )   (54 )   (190 )   (163 )
Equity in earnings of equity method investments 7     6     12     9  
Other income, net (d) -     13     32     12  
Earnings Before Income Taxes 297     1,257     1,111     2,499  
Income tax expense 95     458     362     888  
Net Earnings From Continuing Operations 202     799     749     1,611  
Earnings (loss) from discontinued operations, net of tax (1 )   -     10     (4 )
Net Earnings 201     799     759     1,607  
Less: Net earnings from continuing operations attributable to noncontrolling interest 32     40     103     121  
Net Earnings Attributable to Tesoro Corporation $ 169     $ 759     $ 656     $ 1,486  
Net Earnings (Loss) Attributable to Tesoro Corporation:              
Continuing operations $ 170     $ 759     $ 646     $ 1,490  
Discontinued operations (1 )   -     10     (4 )
Total $ 169     $ 759     $ 656     $ 1,486  
Net Earnings (Loss) Per Share - Basic:              
Continuing operations $ 1.44     $ 6.19     $ 5.43     $ 11.98  
Discontinued operations (0.01 )   -     0.08     (0.03 )
Total $ 1.43     $ 6.19     $ 5.51     $ 11.95  
Weighted average common shares outstanding - Basic 118.2     122.5     119.1     124.3  
Net Earnings (Loss) Per Share - Diluted:              
Continuing operations $ 1.43     $ 6.13     $ 5.37     $ 11.85  
Discontinued operations (0.01 )   -     0.08     (0.03 )
Total $ 1.42     $ 6.13     $ 5.45     $ 11.82  
Weighted average common shares outstanding - Diluted 119.3     123.8     120.4     125.7  

(c)    Includes stock-based compensation expense of $13 million and $22 million for the three months ended September 30, 2016 and 2015, respectively, and expense of $21 million and $57 million for the nine months ended September 30, 2016 and 2015, respectively. The significant impact to stock-based compensation expense is primarily a result of changes in Tesoro's stock price.
(d)   Other income, net for the nine months ended September 30, 2016 included insurance proceeds related to a shipment of contaminated crude oil that was received in 2014 as well as a refund of certain tariff charges that were disputed. Additionally, a gain recognized by TLLP on a settlement of amounts disputed by one of its customers on the annual calculation of the natural gas gathering rate is included for the nine months ended September 30, 2016. 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.


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


  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2016   2015   2016   2015
Earnings Before Income Taxes              
Refining $ 52     $ 899     $ 475     $ 1,843  
TLLP 133     106     381     312  
Marketing 273     379     661     724  
Total Segment Operating Income 458     1,384     1,517     2,879  
Corporate and unallocated costs (c) (98 )   (92 )   (260 )   (238 )
Operating Income 360     1,292     1,257     2,641  
Interest and financing costs, net (70 )   (54 )   (190 )   (163 )
Equity in earnings of equity method investments 7     6     12     9  
Other income, net (d) -     13     32     12  
Earnings Before Income Taxes $ 297     $ 1,257     $ 1,111     $ 2,499  
Depreciation and Amortization Expenses              
Refining $ 148     $ 133     $ 445     $ 373  
TLLP 45     45     134     133  
Marketing 12     11     36     34  
Corporate 6     3     18     13  
Total Depreciation and Amortization Expenses $ 211     $ 192     $ 633     $ 553  
Segment EBITDA              
Refining $ 204     $ 1,036     $ 947     $ 2,219  
TLLP 181     153     531     451  
Marketing 285     390     697     758  
Total Segment EBITDA $ 670     $ 1,579     $ 2,175     $ 3,428  
Capital Expenditures              
Refining $ 153     $ 152     $ 409     $ 483  
TLLP 42     93     125     237  
Marketing 3     8     22     20  
Corporate 29     6     68     16  
Total Capital Expenditures $ 227     $ 259     $ 624     $ 756  


TESORO CORPORATION
RECONCILIATION OF AMOUNTS REPORTED UNDER U.S. GAAP (Unaudited) (in millions)


  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2016   2015   2016   2015
Reconciliation of Net Earnings to EBITDA              
Net earnings $ 201     $ 799     $ 759     $ 1,607  
Depreciation and amortization expenses 211     192     633     553  
Interest and financing costs, net 70     54     190     163  
Income tax expense 95     458     362     888  
EBITDA $ 577     $ 1,503     $ 1,944     $ 3,211  

Reconciliation of Refining Operating Income to Refining Segment EBITDA              
Operating income $ 52     $ 899     $ 475     $ 1,843  
Depreciation and amortization expenses 148     133     445     373  
Equity in earnings of equity method investments 4     4     2     3  
Other income, net (d) -     -     25     -  
Segment EBITDA $ 204     $ 1,036     $ 947     $ 2,219  
               
Reconciliation of TLLP Operating Income to TLLP Segment EBITDA              
Operating income $ 133     $ 106     $ 381     $ 312  
Depreciation and amortization expenses 45     45     134     133  
Equity in earnings of equity method investments 3     2     10     6  
Other income, net (d) -     -     6     -  
Segment EBITDA $ 181     $ 153     $ 531     $ 451  
               
Reconciliation of Marketing Operating Income to Marketing Segment EBITDA              
Operating income $ 273     $ 379     $ 661     $ 724  
Depreciation and amortization expenses 12     11     36     34  
Segment EBITDA $ 285     $ 390     $ 697     $ 758  


TESORO CORPORATION
OTHER SUMMARY FINANCIAL INFORMATION (Unaudited) (in millions)


  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2016   2015   2016   2015
Cash Flows From (Used in):              
Operating activities $ 573     $ 940     $ 1,201     $ 1,847  
Investing activities (214 )   (235 )   (1,020 )   (783 )
Financing activities (93 )   (724 )   264     (1,105 )
Increase (Decrease) in Cash and Cash Equivalents $ 266     $ (19 )   $ 445     $ (41 )
               
          September 30,
 2016
  December 31,
 2015
Working capital (current assets less current liabilities)         $ 2,412     $ 1,777  
Total market value of TLLP common units held by Tesoro (e)         $ 1,608     $ 1,633  

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2016   2015   2016   2015
Cash distributions received from TLLP (f):              
For common units held $ 27     $ 20     $ 79     $ 58  
For general partner units held 38     18     95     48  
Total Cash Distributions Received from TLLP $ 65     $ 38     $ 174     $ 106  

TESORO CORPORATION
RECONCILIATION OF AMOUNTS REPORTED UNDER U.S. GAAP (Unaudited) (in millions, except percentages)


  September 30,
 2016
  December 31,
 2015
Tesoro consolidated debt (g) $ 4,682     $ 4,073  
TLLP debt (g) 3,382     2,844  
Tesoro Debt Excluding TLLP (g) $ 1,300     $ 1,229  
       
Total equity $ 8,195     $ 7,740  
Noncontrolling interest 2,695     2,527  
Tesoro Corporation Stockholders' Equity $ 5,500     $ 5,213  
       
Tesoro debt, net of unamortized issuance costs, to capitalization ratio (g) 36 %   34 %
Tesoro debt, net of unamortized issuance costs, to capitalization ratio excluding
  TLLP and noncontrolling interest (g)
19 %   19 %

(e)   Represents market value of the 33,194,109 and 32,445,115 common units held by Tesoro at September 30, 2016 and December 31, 2015, respectively. The market values were $48.44 and $50.32 per unit based on the closing unit price at September 30, 2016 and December 31, 2015, respectively.
(f)    Represents distributions received from TLLP during the three and nine months ended September 30, 2016 and 2015 on common units and general partner units held by Tesoro.
(g)   These amounts and calculations are shown net of unamortized issuance costs.


TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS (Unaudited) (dollars in millions, except per barrel amounts)


  Three Months Ended
September 30,
  Nine Months Ended
September 30,
REFINING SEGMENT 2016   2015   2016   2015
Total Refining Segment              
Throughput (Mbpd)              
Heavy crude (h) 186     178     176     150  
Light crude 636     635     595     575  
Other feedstocks 51     48     49     56  
Total Throughput 873     861     820     781  
Yield (Mbpd)              
Gasoline and gasoline blendstocks 455     438     449     405  
Diesel fuel 202     195     183     166  
Jet fuel 133     122     117     119  
Heavy fuel oils, residual products, internally produced fuel and other 143     158     126     140  
Total Yield 933     913     875     830  
Refined Product Sales (Mbpd) (i)              
Gasoline and gasoline blendstocks 531     530     527     510  
Diesel fuel 215     213     204     198  
Jet fuel 158     148     145     153  
Heavy fuel oils, residual products and other 112     101     105     91  
Total Refined Product Sales 1,016     992     981     952  
               
Revenues              
Refined products (j) $ 5,641     $ 6,817     $ 15,434     $ 19,867  
Crude oil resales and other 257     172     710     780  
Refining Revenues 5,898     6,989     16,144     20,647  
Cost of Sales              
Cost of sales (excluding lower of cost or market adjustments) 5,189     5,367     13,965     16,934  
Lower of cost or market adjustments (b) (20 )   83     (236 )   41  
Refining cost of sales 5,169     5,450     13,729     16,975  
Gross refining margin (k) 729     1,539     2,415     3,672  
Expenses              
Operating expenses              
Manufacturing costs 412     383     1,172     1,177  
Other operating expenses 116     117     318     259  
Selling, general and administrative expenses 1     5     5     12  
Depreciation and amortization expenses 148     133     445     373  
Loss on asset disposals and impairments -     2     -     8  
Segment Operating Income $ 52     $ 899     $ 475     $ 1,843  
               
Gross Refining Margin ($/throughput barrel) (l) (m) $ 9.08     $ 19.43     $ 10.75     $ 17.22  
Manufacturing Cost before Depreciation and Amortization Expenses ($/throughput barrel) (l) $ 5.11     $ 4.84     $ 5.22     $ 5.53  

(h)   We define heavy crude oil as crude oil with an American Petroleum Institute gravity of 24 degrees or less.
(i)    Sources of total refined product sales include refined products manufactured at our refineries and refined products purchased from third parties.
(j)    Refined product sales include intersegment sales to our Marketing segment of $3.6 billion and $4.5 billion for the three months ended September 30, 2016 and 2015, respectively, and $10.2 billion and $12.8 billion for the nine months ended September 30, 2016 and 2015, respectively.
(k)    Gross refining margin approximates total refining throughput multiplied by the gross refining margin per barrel. Consolidated gross refining margin combines gross refining margin for each of our regions adjusted for other amounts not directly attributable to a specific region. Gross refining margin includes the effect of intersegment sales to the Marketing segment and services provided by TLLP. Gross refining margin reflects the incremental expense or benefit associated with the LCM adjustments for all periods presented.
(l)    Management uses various measures to evaluate performance and efficiency and to compare profitability to other companies in the industry, including gross refining margin per barrel, manufacturing costs before depreciation and amortization expenses ("Manufacturing Costs") per barrel. We calculate gross refining margin per barrel by dividing gross refining margin (revenues for manufactured refined products sold less costs of feedstocks, purchased refined products, transportation and distribution) by total refining throughput. We calculate Manufacturing Costs per barrel by dividing Manufacturing Costs by total refining throughput.
(m)  Gross refining margin per throughput barrel on a consolidated and regional basis includes the incremental expense or benefit associated with the LCM adjustments for all periods presented.


TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS (Unaudited) (dollars in millions, except per barrel amounts)


  Three Months Ended
September 30,
  Nine Months Ended
September 30,
Refining By Region 2016   2015   2016   2015
California (Martinez and Los Angeles)              
Throughput (Mbpd)              
Heavy crude (h) 177     172     170     144  
Light crude 321     328     301     313  
Other feedstocks 35     34     33     37  
Total Throughput 533     534     504     494  
               
Yield (Mbpd)              
Gasoline and gasoline blendstocks 297     279     293     265  
Diesel fuel 120     111     107     98  
Jet fuel 79     76     71     76  
Heavy fuel oils, residual products, internally produced fuel and other 86     109     78     94  
Total Yield 582     575     549     533  
               
Revenues              
Refined products (j) $ 3,680     $ 4,525     $ 10,358     $ 13,501  
Crude oil resales and other (n) 55     94     157     233  
Regional Revenue 3,735     4,619     10,515     13,734  
Cost of Sales              
Cost of sales (excluding LCM) (n) 3,292     3,547     9,076     11,296  
LCM (10 )   56     (154 )   26  
Regional Cost of Sales 3,282     3,603     8,922     11,322  
Gross refining margin (k) 453     1,016     1,593     2,412  
Expenses              
Manufacturing costs 285     284     823     851  
Other operating expenses 57     78     152     164  
Selling, general and administrative expenses 1     5     4     11  
Depreciation and amortization expenses 95     88     285     249  
Loss on asset disposals and impairments -     1     -     3  
Operating Income $ 15     $ 560     $ 329     $ 1,134  
               
Gross Refining Margin ($/throughput barrel) (l) (m) $ 9.24     $ 20.68     $ 11.54     $ 17.88  
Manufacturing Cost before Depreciation and Amortization Expenses ($/throughput barrel) (l) $ 5.79     $ 5.79     $ 5.97     $ 6.32  
Capital Expenditures $ 91     $ 85     $ 244     $ 198  

TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS (Unaudited) ($ in millions, except per barrel amounts)


  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2016   2015   2016   2015
Pacific Northwest (Washington and Alaska)              
Throughput (Mbpd)              
Heavy crude (h) 9     6     6     6  
Light crude 171     177     161     147  
Other feedstocks 11     9     11     15  
Total Throughput 191     192     178     168  
               
Yield (Mbpd)              
Gasoline and gasoline blendstocks 79     84     79     74  
Diesel fuel 37     41     34     31  
Jet fuel 40     36     34     33  
Heavy fuel oils, residual products, internally produced fuel and other 42     38     36     36  
Total Yield 198     199     183     174  
               
Revenues              
Refined products (j) $ 1,146     $ 1,332     $ 2,934     $ 3,771  
Crude oil resales and other (n) 89     53     175     314  
Regional Revenue 1,235     1,385     3,109     4,085  
Cost of Sales              
Cost of sales (excluding LCM) (n) 1,117     1,129     2,778     3,434  
LCM (8 )   18     (60 )   10  
Regional Cost of Sales 1,109     1,147     2,718     3,444  
Gross refining margin (k) 126     238     391     641  
Expenses              
Manufacturing costs 69     59     190     181  
Other operating expenses 16     20     43     48  
Selling, general and administrative expenses -     -     1     -  
Depreciation and amortization expenses 24     24     69     64  
Loss on asset disposals and impairments -     1     -     1  
Operating Income $ 17     $ 134     $ 88     $ 347  
               
Gross Refining Margin ($/throughput barrel) (l) (m) $ 7.17     $ 13.47     $ 8.02     $ 13.98  
Manufacturing Cost before Depreciation and Amortization Expenses ($/throughput barrel) (l) $ 3.87     $ 3.35     $ 3.87     $ 3.97  
Capital Expenditures $ 29     $ 32     $ 95     $ 87  

(n)   Certain of our foreign operations that are typically reported with our Pacific Northwest region were erroneously reported in our California region during the three and six months ended June 30, 2016 and 2015 with no impact on regional or consolidated gross refining margins presented for those periods. For the three and nine month periods ended September 30, 2016 and 2015 presented above, those foreign operations are reported in the correct regions impacting comparability period over period.

TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS (Unaudited) ($ in millions, except per barrel amounts)


  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2016   2015   2016   2015
Mid-Continent (North Dakota and Utah)              
Throughput (Mbpd)              
Light crude 144     130     133     115  
Other feedstocks 5     5     5     4  
Total Throughput 149     135     138     119  
               
Yield (Mbpd)              
Gasoline and gasoline blendstocks 79     75     77     66  
Diesel fuel 45     43     42     37  
Jet fuel 14     10     12     10  
Heavy fuel oils, residual products, internally produced fuel and other 15     11     12     10  
Total Yield 153     139     143     123  
               
Revenues              
Refined products (j) $ 815     $ 960     $ 2,142     $ 2,595  
Crude oil resales and other 113     25     378     233  
Regional Revenue 928     985     2,520     2,828  
Cost of Sales              
Cost of sales (excluding LCM) 780     691     2,111     2,204  
LCM (2 )   9     (22 )   5  
Regional Cost of Sales 778     700     2,089     2,209  
Gross refining margin (k) 150     285     431     619  
Expenses              
Manufacturing costs 58     40     159     145  
Other operating expenses 43     19     123     47  
Selling, general and administrative expenses -     -     -     1  
Depreciation and amortization expenses 29     21     91     60  
Loss on asset disposals and impairments -     -     -     4  
Operating Income $ 20     $ 205     $ 58     $ 362  
               
Gross Refining Margin ($/throughput barrel) (l) (m) $ 10.94     $ 22.95     $ 11.40     $ 19.05  
Manufacturing Cost before Depreciation and Amortization Expenses ($/throughput barrel) (l) $ 4.27     $ 3.19     $ 4.21     $ 4.45  
Capital Expenditures $ 33     $ 35     $ 70     $ 198  


TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS (Unaudited) (dollars in millions, except per barrel and MMBtu amounts)


  Three Months Ended
September 30,
  Nine Months Ended
September 30,
TLLP SEGMENT 2016   2015   2016   2015
Gathering              
Gas gathering throughput (thousands of MMBtu/day) (o) 887     1,115     881     1,069  
Average gas gathering revenue per MMBtu (o) $ 0.48     $ 0.45     $ 0.51     $ 0.44  
Crude oil gathering pipeline throughput (Mbpd) 206     199     210     182  
Average crude oil gathering pipeline revenue per barrel $ 1.71     $ 1.71     $ 1.73     $ 1.77  
Crude oil trucking volume (Mbpd) 32     34     30     42  
Average crude oil trucking revenue per barrel $ 3.25     $ 3.14     $ 3.26     $ 3.24  
Processing              
NGLs processing throughput (Mbpd) 6.7     7.8     7.4     7.5  
Average keep-whole fee per barrel of NGLs $ 38.35     $ 35.75     $ 36.58     $ 34.26  
Fee-based processing throughput (thousands of MMBtu/
  day)
625     767     648     742  
Average fee-based processing revenue per MMBtu $ 0.50     $ 0.39     $ 0.45     $ 0.40  
Terminalling and Transportation              
Terminalling throughput (Mbpd) 1,023     964     998     932  
Average terminalling revenue per barrel $ 1.33     $ 1.05     $ 1.27     $ 1.08  
Pipeline transportation throughput (Mbpd) 908     838     866     819  
Average pipeline transportation revenue per barrel $ 0.38     $ 0.40     $ 0.39     $ 0.39  
               
Segment Operating Income              
Revenues              
Gathering              
Gas gathering $ 39     $ 46     $ 122     $ 128  
Crude oil gathering pipeline 33     31     100     88  
Crude oil trucking 9     10     27     37  
Other 1     -     6     -  
Processing              
NGLs processing 23     26     74     71  
Fee-based processing 29     28     80     81  
Other processing 17     17     54     53  
Terminalling and transportation              
Terminalling 125     93     345     275  
Pipeline transportation 32     31     93     87  
TLLP Revenues (p) 308     282     901     820  
Expenses              
Operating expenses (q) 104     103     313     294  
General and administrative expenses (r) 24     28     70     81  
Depreciation and amortization expenses 45     45     134     133  
Gain on asset disposals and impairments 2     -     3     -  
Segment Operating Income $ 133     $ 106     $ 381     $ 312  

(o)   Prior to the deconsolidation of Rendezvous Gas Services, L.L.C. ("RGS") as of January 1, 2016, fees paid by TLLP to RGS were eliminated upon consolidation and third-party transactions, including revenue and throughput volumes, were included in TLLP's results of operations. Third party volumes associated with RGS, included in gas gathering volume for the three and nine months ended September 30, 2015, were 142 thousand and 145 thousand MMBtu/d and reduced our average gas gathering revenue per MMBtu for both periods by $0.05.
(p)   TLLP segment revenues from services provided to our Refining segment were $184 million and $152 million for the three months ended September 30, 2016 and 2015, respectively, and $521 million and $454 million for the nine months ended September 30, 2016 and 2015, respectively. These amounts are eliminated upon consolidation.
(q)   TLLP segment operating expenses include amounts billed by Tesoro for services provided to TLLP under various operational contracts. Amounts billed by Tesoro totaled $40 million and $33 million for the three months ended September 30, 2016 and 2015, respectively, and $113 million and $93 million for the nine months ended September 30, 2016 and 2015, respectively. Operating expenses also include imbalance gains and reimbursements pursuant to the Amended Omnibus Agreement of $5 million and $12 million for the three months ended September 30, 2016 and 2015, respectively, and $17 million and $31 million for the nine months ended September 30, 2016 and 2015, respectively. These amounts are eliminated upon consolidation. TLLP segment third-party operating expenses related to the transportation of crude oil and refined products related to Tesoro's sale of those refined products during the ordinary course of business are reclassified to cost of sales in our condensed statements of consolidated operations upon consolidation.
(r)    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 $18 million and $16 million for the three months ended September 30, 2016 and 2015, respectively, and $51 million for both the nine months ended September 30, 2016 and 2015, respectively, and are eliminated upon consolidation. General and administrative expenses are reclassified to cost of sales as it relates to Tesoro's sale of refined products in our condensed statements of consolidated operations upon consolidation.


TESORO CORPORATION
SEGMENT OPERATING DATA AND RESULTS (Unaudited) (dollars in millions, except cents per gallon)


  Three Months Ended
September 30,
  Nine Months Ended
September 30,
MARKETING SEGMENT 2016   2015   2016   2015
Revenues              
Fuel $ 4,118     $ 5,144     $ 11,493     $ 14,143  
Other non-fuel 23     16     65     48  
Total Revenues 4,141     5,160     11,558     14,191  
Cost of Sales              
Fuel 3,773     4,684     10,612     13,192  
Other non-fuel 5     -     13     3  
Total Cost of Sales 3,778     4,684     10,625     13,195  
Gross Margin              
Fuel (s) 345     460     881     951  
Other non-fuel 18     16     52     45  
Total Gross Margins 363     476     933     996  
Expenses              
Operating expenses 73     82     221     223  
Selling, general and administrative expenses 5     3     12     12  
Depreciation and amortization expenses 12     11     36     34  
Loss on asset disposals and impairments -     1     3     3  
Segment Operating Income $ 273     $ 379     $ 661     $ 724  
               
Fuel Sales (millions of gallons) 2,311     2,249     6,698     6,408  
Fuel Margin (¢/gallon) (s) 14.9 ¢   20.5 ¢   13.2 ¢   14.8 ¢
               
Number of Branded Stations (at the end of the period)              
MSO operated         590     579  
Jobber/Dealer operated         1,877     1,710  
Total Stations         2,467     2,289  

(s)    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 and different companies may calculate it in different ways. We calculate fuel margin per gallon by dividing fuel gross margin by fuel sales volumes. Fuel margin and fuel margin per gallon include the effect of intersegment purchases from the Refining segment.


TESORO CORPORATION
RECONCILIATION OF AMOUNTS REPORTED UNDER U.S. GAAP (Unaudited) (in millions)


  Northern California
Assets Acquisition
Reconciliation of Projected Net Earnings to Projected Annual EBITDA:  
Projected net earnings $  28 - 33
Add: Depreciation and amortization expenses 8  
Add: Interest and financing costs, net 9  
Expected Annual EBITDA $  45 - 50

  TLLP 2017 Annual Expected Segment EBITDA
Reconciliation of Projected Operating Income to Projected Annual Segment EBITDA:  
Projected operating income $ 820  
Add: Depreciation and amortization expenses 180  
Projected Annual Segment EBITDA $ 1,000