Equity-Based Compensation (Notes)

12 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Equity-Based Compensation

EQUITY-BASED COMPENSATION

The Tesoro Logistics LP 2011 Long-Term Incentive Plan (the "LTIP") was adopted by the Tesoro Logistics GP, LLC Board of Directors in connection with the closing of the Initial Offering in April 2011 and provides for awards of options, restricted units, phantom units, distribution equivalent rights, substitute awards, unit appreciation rights and unit awards to be available for employees, consultants and directors of the general partner and any of their affiliates who perform services for the Partnership. The Partnership had 588,114 units available for future grants under the LTIP at December 31, 2012, assuming a 200% payout of performance phantom unit awards. When the awards granted under the LTIP vest we will issue new TLLP common units.

Unit-based compensation expense related to the Partnership that was included in our statements of combined consolidated operations was as follows (in thousands):

	Year ended December 31,
	2012		2011
Performance phantom units	$	961	$	333
Service phantom units	230		146
Total Unit-Based Compensation Expense	$	1,191	$	479

Performance Phantom Unit Awards. Our general partner granted performance phantom unit awards to certain officers in February 2012. These performance phantom unit awards represent the right to receive a TLLP common unit at the end of the approximate three-year performance period depending on the Partnership's achievement of pre-established performance measures. The value of the award ultimately paid will be based on our relative total unitholder return against the performance peer group over the performance period. The performance phantom unit awards can range from 0% to 200% of the targeted award value. Our estimated payout was 189% based on results through December 31, 2012. The fair value of each performance phantom unit award is estimated at the grant date using a Monte Carlo simulation model. The estimated fair value is amortized over a vesting period, generally three years, using the straight-line method. Total unrecognized compensation cost related to our nonvested performance phantom units totaled $1.3 million as of December 31, 2012, which is expected to be recognized over a weighted-average period of 1.7 years.

A summary of our performance phantom unit award activity for the year ended December 31, 2012, is set forth below:

	Number of Performance Phantom Units	Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2012	36,800	$	32.99
Granted	36,000	39.19
Nonvested at December 31, 2012	72,800	36.06

Expected volatilities are based on the historical volatility of peer companies over approximately the last three years, and factors in TLLP volatility from the date of the Initial Offering, which is indicative of the performance period for the awards. Expected dividend yield assumes dividends or distributions are incorporated into the unit price movements of the peer group. The risk-free rate for periods within the performance period is based on the U.S. Treasury yield curve in effect at the time of grant. A summary of weighted average assumptions as of the grant date is presented below:

	2012			2011
Expected volatility	30		%	41		%
Expected forfeiture rate	—		%	—		%
Risk-free interest rate	0.34		%	0.79		%
Unit price on date of grant	$	33.38		$	23.11

Service Phantom Unit Awards. During the year ended December 31, 2012, our general partner issued service phantom unit awards with tandem distribution equivalent rights ("DER") to certain directors under the LTIP. The fair value of each phantom unit and tandem DER on the grant date is equal to the market price of our common unit on that date. The estimated fair value of our phantom units is amortized over the vesting period using the straight-line method. Non-employee director awards vest at the end of a one-year service period and employee awards granted in 2011 vest ratably over a three-year service period. The total fair value of service phantom units vested was $0.2 million in the year ended December 31, 2012. No service phantom units vested in the years ended December 31, 2011 and 2010. Total unrecognized compensation cost related to our nonvested service phantom units totaled $0.1 million as of December 31, 2012, which is expected to be recognized over a weighted-average period of 0.9 years. The fair value of nonvested service phantom units outstanding as of December 31, 2012 totaled $0.4 million.

A summary of our service phantom unit award activity for the year ended December 31, 2012 is set forth below:

	Number of Service Phantom Units		Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2012	14,073		$	23.24
Granted	5,770		36.41
Vested	(6,993	)	23.33
Forfeited	(3,557	)	28.52
Nonvested at December 31, 2012	9,293		29.33

Sponsor's Stock-based Compensation. Certain Tesoro employees supporting the Predecessors' operations were historically granted long-term incentive compensation awards under Tesoro's stock-based compensation programs, which primarily consist of stock options, restricted common stock and stock appreciation rights. The Predecessors were allocated expenses for stock-based compensation costs. These costs are included in the Predecessors' general and administrative expenses in our statements of combined consolidated operations. The Predecessors' allocated expense was $0.1 million, $0.8 million and $0.4 million for the years ended December 31, 2012, 2011 and 2010, respectively. The Partnership has not been allocated these stock-based compensation costs as they are included with the services provided under the Second Amended Omnibus Agreement.