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TESORO CORPORATION REPORTS 2016 FIRST QUARTER RESULTS

(GLOBE NEWSWIRE via COMTEX) -- - Net earnings from continuing operations of $58 million, or $0.48 per diluted share

- Adjusted earnings, excluding special items, were $144 million, or $1.19 per diluted share

- Strong consumer demand drives 71% year-over-year growth in Marketing operating income

- Total Refining throughput increased 86 thousand barrels per day versus first quarter 2015

- Narrow crude oil differentials negatively impacted Refining results

- Continued growth in Logistics earnings

- Closed the acquisition of Great Northern Midstream LLC

SAN ANTONIO - May 4, 2016 - Tesoro Corporation TSO, -2.35% today reported first quarter net earnings from continuing operations of $58 million, or $0.48 per diluted share compared to net earnings from continuing operations of $145 million, or $1.15 per diluted share a year ago. First quarter 2016 earnings include a pre-tax charge of $147 million related to a lower of cost or market ("LCM") inventory adjustment, as well as a pre-tax benefit of $6 million for a legal settlement in Logistics. Earnings for the first quarter of 2015 included a pre-tax benefit of $42 million related to the LCM adjustment. Excluding these items, earnings from continuing operations for 2016 were $144 million, or $1.19 per diluted share and $124 million or $0.98 per diluted share in the first quarter of 2015. Adjusted EBITDA for the first quarter of 2016 was $541 million compared to $489 million last year.

 Three Months Ended March 31, ($ in millions, except per share data) 2016 2015 Operating Income (Loss) Refining $ (100 ) $ 187 TLLP 126 104 Marketing 227 133 Total Segment Operating Income $ 253 $ 424 Net Earnings From Continuing Operations Attributable to Tesoro $ 58 $ 145 Diluted EPS - Continuing Operations $ 0.48 $ 1.15 Diluted EPS - Discontinued Operations 0.09 - Total Diluted EPS $ 0.57 $ 1.15 Adjusted Diluted EPS - Continuing Operations $ 1.19 $ 0.98 

"Our highly integrated business model allowed us to deliver adjusted earnings growth versus last year in spite of narrow crude oil differentials during the quarter and a weak refining margin environment in February," said Greg Goff, Chairman and CEO. "Looking forward, consumer demand for gasoline remains strong and refining margins improved as the quarter ended, which benefits our outlook for the second quarter."

For the first quarter of 2016, the Company recorded segment operating income of $253 million compared to segment operating income of $424 million in the first quarter of 2015. Excluding special items in each period, total segment operating income was $394 million compared to $395 million last year. First quarter 2016 results reflect strong performance in Marketing and continued growth in Logistics, partially offset by lower refining crack spreads and narrow crude oil differentials.

Excluding the first quarter LCM adjustment for both periods, Refining's operating income was $47 million in the first quarter of 2016 compared to $145 million a year ago.

The Tesoro Index was $12.15 per barrel for the first quarter of 2016 with a realized gross refining margin of $9.66 per barrel or 80% of the Tesoro Index, compared to a realized gross refining margin of $11.62 per barrel or 70% of the Tesoro Index of $16.71 per barrel last year. Capture rates in the quarter were largely impacted by the narrowing of crude oil differentials, particularly the Bakken differentials, which narrowed by over $4 per barrel relative to WTI and by over $7 per barrel relative to ANS in the first quarter of 2015.

Total refinery throughput for the quarter was 782 thousand barrels per day, or 89% utilization. Manufacturing costs in the first quarter of 2016 decreased $0.78 per barrel over last year to $5.55 per barrel, due to the higher throughput basis in 2016 compared to 2015, which was impacted by a work stoppage.

Logistics operating income was $126 million in the first quarter of 2016 compared to $104 million in the first quarter of 2015. The increase was driven by volume growth in our crude oil gathering business, increased natural gas liquids processing throughput and the acquisition by Tesoro Logistics TLLP, +1.13% of the Los Angeles Refinery Storage and Pipeline Assets in fourth quarter of 2015.

Marketing operating income was $227 million, up substantially from $133 million a year ago. This segment's performance in the quarter benefited from a favorable market environment, continued high consumer demand in our regions and growth in our branded network of retail stations. Our branded retail network in the first quarter of 2016 grew by 178 stations over the same period last year.

Corporate and unallocated costs for the first quarter 2016 were $74 million. The effective tax rate was 23.4%, primarily due to a benefit of $13 million, or $0.11 per diluted share from a change in tax accounting rules for stock-based compensation, as well as the continued growth of TLLP's income in proportion to Tesoro income.

CAPITAL SPENDING AND LIQUIDITY

Capital spending for the first quarter of 2016 was $147 million for Tesoro Corporation and $41 million for TLLP. Turnaround expenditures for the first quarter were $115 million.

Tesoro ended the first quarter with $439 million in cash and cash equivalents compared to $942 million at the end of 2015. The reduction in the cash balance for the quarter largely reflects the purchase of Great Northern Midstream, LLC. Tesoro has $1.3 billion of availability under the Company's revolving credit facility. Excluding TLLP debt and equity, total debt was $1.2 billion or 19% of total capitalization at the end of the first quarter of 2016. On a consolidated basis total outstanding debt, net of unamortized issuance costs, was $4.1 billion.

The Company has reduced its 2016 capital spend outlook by approximately $500 million to approximately $1 billion. This includes approximately $700 million in capital for Tesoro and approximately $300 million in capital for Tesoro Logistics. The reduction for Tesoro is primarily related to the timing on large projects. The reduction for TLLP is due to deferrals of several gathering projects attributed to low commodity prices and the timing of spending related to the Los Angeles Refinery Interconnect Pipeline project.

Tesoro has $1.4 billion remaining under its previously approved share repurchase programs. The Company did not repurchase shares in the quarter largely due to funding the Great Northern Midstream LLC acquisition that was announced in the fourth quarter 2015. The company remains committed to its financial priorities of investing in high-return capital projects, returning cash to shareholders, and maintaining a strong balance sheet.

Tesoro Corporation today announced that the board of directors has approved a regular quarterly dividend of $0.50 per share payable on June 15, 2016, to all holders of record as of May 31, 2016.

STRATEGIC UPDATE

At Tesoro's 2015 Investor and Analyst Day, the Company laid out expectations for 2016. These expectations included a Tesoro index of $12 to $14 per barrel, marketing segment fuel margins of $0.11-$0.14 per gallon and crude oil differentials reflecting transportation costs. In addition, the Company committed to deliver $400 million to $500 million of improvements and growth in the logistics business, as well as $500 million to $600 million of year-over-year improvement from higher utilization and operational efficiencies following the labor disruption in 2015.

Through the end of the first quarter of 2016, the Tesoro Index, refining throughout, operational improvements and logistics growth are in line with our expectations. Marketing margins are at the high end of expectations, as fuel volumes continue to grow. However, crude oil differentials are significantly narrower than our expectations and this has resulted in lower capture rates and refining profitability.

In January, Tesoro closed the acquisition of Great Northern Midstream, a crude oil logistics provider which owns and operates a high-quality, recently constructed crude oil pipeline, gathering system, transportation, storage and rail loading facilities in the Williston Basin of North Dakota. This transaction provides Tesoro direct access to additional advantaged crude oil for its West Coast refineries and has the potential to reduce supply costs as the Company continues to strengthen its supply position. Additionally, the system provides ratable pipeline volumes that will ultimately benefit Tesoro Logistics once offered to the master limited partnership, which is expected in the second half of 2016.

Regarding the Vancouver Energy project, Washington State's Energy Facility Site Evaluation Council ("EFSEC") closed the public comment period in January of 2016. EFSEC is set to begin its adjudicative phase with hearings to be held from June 27, 2016 to July 29, 2016. We expect a final Environmental Impact Statement to be issued this fall, followed by a recommendation to the Governor of Washington.

PUBLIC INVITED TO LISTEN TO ANALYST AND INVESTOR CONFERENCE CALL

At 7:30 a.m. CT tomorrow morning, Tesoro will broadcast, live, its conference call with analysts regarding first 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.

Tesoro Corporation, a Fortune 100 company, is an independent refiner and marketer of petroleum products. Tesoro, through its subsidiaries, operates six refineries in the western United States with a combined capacity of over 875,000 barrels per day and ownership in a logistics business, which includes a 36% interest in Tesoro Logistics LP TLLP, +1.13% and ownership of its general partner. Tesoro's retail-marketing system includes over 2,400 retail stations under the ARCO(R), Shell(R), Exxon(R), Mobil(R), USA Gasoline(TM), Rebel(TM) and Tesoro(R) 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 continued strength and growth of consumer demand for gasoline supporting our financial results in the second quarter of 2016; plans to continue repurchasing shares in 2016; expectations about capital spending for both Tesoro and Tesoro Logistics; expectations for the Tesoro index, marketing segment fuel margins and crude oil differentials in 2016; expectations for achievement of targeted improvement objectives, logistics growth and year-over-year improvements from higher utilization and operational efficiencies for 2016; the expected benefits of the acquisition of Great Northern Midstream LLC and, the anticipated offer of those assets to Tesoro Logistics and the timing of such a transaction; timing of the permitting and approval process for the Vancouver Energy project; and expectations for throughput, manufacturing costs, depreciation, corporate expense and interest expense in the second quarter of 2016. 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.

Contact:

Investors:

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

Media:

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

TESORO CORPORATION

SECOND QUARTER 2016 GUIDANCE (Unaudited)

Throughput (Mbpd) California 500 - 525 Pacific Northwest 165 - 175 Mid-Continent 130 - 140 Consolidated 795 - 840 Manufacturing Cost ($/throughput barrel) California $5.50 - 5.75 Pacific Northwest $3.85 - 4.10 Mid-Continent $4.15 - 4.40 Consolidated $4.95 - 5.20 Corporate/System ($ millions) Refining depreciation $150 TLLP depreciation $45 Corporate expense (before depreciation) $80 - 90 Interest expense (before interest income) $58 Noncontrolling Interest $40 - 45 

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...


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