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Tesoro Petroleum: Tesoro Corporation Reports Record Third Quarter Results

The following excerpt is from the company's SEC filing.

Record net earnings from continuing operations of

$759 million

per diluted share

Adjusted earnings were

$802 million

per diluted share, excluding special items

Returned

$287 million

to shareholders and paid down

$398 million

of secured debt

S&P places both Tesoro and Tesoro Logistics on positive outlook

Board approves new

$1.0 billion

share repurchase program

Delivered over

$500 million

of business improvements year-to-date and

on track to deliver

$670 million

for full year 2015

- Tesoro Corporation (NYSE:TSO) today reported

quarter net earnings of

per diluted share compared to net earnings of

$396 million

per diluted share for the

quarter of 2014. Results in the third quarter include an inventory charge due to the lower of cost or market valuation of

per diluted share and a gain of

per diluted share related to an insurance settlement. Excluding these adjustments, net earnings from continuing operations were

per diluted share. Adjusted EBITDA for the

quarter was

$1.6 billion

$858 million

last year.

Three Months Ended

September 30,

Nine Months Ended

($ in millions, except per share data)

Operating Income

Refining

TLLP

Marketing

Total Segment Operating Income

Net Earnings From Continuing Operations Attributable

to Tesoro

Diluted EPS - Continuing Operations

Diluted EPS - Discontinued Operations

Total Diluted EPS

Adjusted Diluted EPS - Continuing Operations

“We reported very strong results for the third quarter, with an all-time record for EBITDA and earnings per share, driven by a favorable market environment and strong performance across all business segments,” said Greg Goff, Chairman and CEO. “We returned $287 million to shareholders in the quarter and also paid down

of secured debt. In addition, we continue to leverage our strong cash position and reinvest capital towards our growth initiatives and business improvement plans.”

For the

quarter 2015, the Company recorded segment operating income of

$1.4 billion

compared to segment operating income of

$777 million

quarter of 2014. The increase was primarily due to high utilization at our refineries, strong marketing sales and execution of our business improvement plans.

The refining segment’s operating income was

$895 million

for the quarter, compared to

$536 million

quarter of 2014. This is primarily attributable to a favorable margin environment, high operational reliability, and lower operating expenses.

Total refinery throughput for the quarter was

861 thousand

barrels per day, or

utilization. Manufacturing costs in the

decreased

/bbl over last year to

/bbl, primarily attributable to lower energy prices.

The Tesoro Index was

$23.09

/bbl for the

quarter of 2015 with a realized gross refining margin of

$20.49

/bbl or

of the Tesoro Index, compared to a realized gross refining margin of

$14.92

of the Tesoro Index last year. Capture rates in the quarter were impacted by the combination of weaker crude oil differentials and refinery maintenance.

The logistics segment’s operating income was

$112 million

quarter of 2015 compared to

$61 million

quarter of 2014. This growth was driven by contributions from the Rockies natural gas business, executing our organic growth plans and the additional crude oil volumes from the Connolly Gathering system in North Dakota.

The marketing segment’s operating income was

$379 million

, up from

$180 million

quarter of last year. The improvement was due to higher volumes driven by growth in consumer demand and a favorable market environment.

Corporate and unallocated costs for the

quarter 2015 were

$94 million

, including

$5 million

of corporate depreciation and variable stock-based compensation expense of

$22 million

Capital Spending and Liquidity

Capital spending for the

$167 million

for Tesoro Corporation and

$92 million

for TLLP. The Company estimates full year

capital spending, excluding TLLP, of

$745 million

. TLLP capital spending is estimated to be approximately $345 million. Turnaround expenditures for the

$66 million

. For the full year 2015, the Company expects to spend

$280 million

for turnarounds and

$50 million

for retail branding.

The Company ended the

quarter of 2015 with approximately

in cash and

$2.9 billion

of availability under the Company’s revolving credit facility with

current borrowings. Excluding TLLP debt and equity, total debt, net of unamortized issuance costs, was

$1.2 billion

of total capitalization at the end of the

. On a consolidated basis total outstanding debt, net of unamortized issuance costs, was

$3.8 billion

. TLLP ended the

quarter with

in borrowings under its separate revolving credit facility. In the third quarter of 2015, Tesoro also repaid

of its outstanding term loan and currently has no outstanding secured debt. On September 30th, S&P reaffirmed the credit ratings on both Tesoro and Tesoro Logistics while placing both entities on positive outlook.

Returning Cash to Shareholders

During the

quarter of 2015, Tesoro returned

to shareholders through the purchase of nearly

2.4 million

of the Company’s shares for

$225 million

and quarterly dividends of

$62 million

. In addition to the remaining authorization of $506 million for share repurchases, the board of directors has approved a new

share repurchase program.

Strategic Update

The Company is on track to achieve its 2015 plan to deliver approximately

of business improvements. During the first nine months of 2015, we estimate that we delivered

$505 million

of business improvement, including approximately

$130 million

related to West Coast improvements, approximately

$120 million

related to capturing margin improvements, and approximately

$255 million

from growing our logistics operations.

Through the first three quarters of 2015, the Rockies natural gas business delivered approximately $213 million of adjusted EBITDA, including $20 million of synergies. For the nine months of 2015, natural gas gathering volumes were up approximately 10%, fee-based processing volumes were up approximately 14% and natural gas liquids processing throughput was up approximately 24%.

Tesoro is in the final stages of offering Tesoro Logistics the opportunity to acquire crude oil and refined product storage and pipeline assets in Los Angeles. Tesoro expects these assets to deliver an annual EBITDA of $50 to $75 million to TLLP. This transaction is expected to close by the end of the year.

We expect the Washington State’s Energy Facility Site Evaluation Council (“EFSEC”) to release the Draft Environmental Impact Statement at the end of November and the Company expects that EFSEC will submit its recommendation to the governor of Washington once it completes the adjudicative phase. In addition, the Company is currently in the permitting phase of the Los Angeles Integration and Compliance Project at its Los Angeles, California refinery and the Clean Products Upgrade Project at its Anacortes, Washington refinery.

Analyst and Investor Presentation

Tesoro Corporation will be hosting its Analyst and Investor Presentation at Le Parker Meridian Hotel in New York City on December 9, 2015 at 9:00 a.m. ET. Because space is limited, reservations will be required to attend and accepted on a first-come, first-serve basis. Interested parties should contact the Investor Relations department via email at investorday@tsocorp.com. Interested parties may also access the presentation over the Internet by logging on to

http://www.tsocorp.com

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

results and other business matters. Interested parties may listen to the live conference call over the Internet by logging on to

Tesoro Corporation, a Fortune 100 company, is an independent refiner and marketer of petroleum products. Tesoro, through its subsidiaries, operates

refineries in the western United States with a combined capacity of over

850,000

barrels per day and ownership in a logistics business, which includes a

interest in Tesoro Logistics LP (NYSE: TLLP) and ownership of its general partner. Tesoro's retail-marketing system includes over

retail stations under the ARCO

, Shell

, Exxon

, Mobil

, USA Gasoline™ and Tesoro

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 expectations for achievement of targeted business improvement objectives for 2015; plans to continue leveraging our strong cash position and reinvest capital towards our growth initiatives and business improvement plans; expectations about capital spending, turnaround expenditures and branding costs; plans to offer crude oil and refined product storage and pipeline assets to TLLP, the related EBITDA to be generated by such assets, and the timing for completion 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 fourth quarter of 2015. 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

FOURTH QUARTER 2015 GUIDANCE

(Unaudited)

Throughput (Mbpd)

500-525

Pacific Northwest

160-170

Mid-Continent

120-130

Consolidated

780-825

Manufacturing Cost ($/throughput barrel)

$ 5.65 - 5.90

$ 4.55 - 4.80

$ 3.80 - 4.05

$ 5.10 - 5.35

Corporate/System ($ millions)

Refining depreciation

TLLP depreciation

Corporate expense (before depreciation)

Interest expense (before interest income)

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...


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