10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

(Mark One)

R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

OR

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ………………to …………………

Commission File Number 1‑3473

TESORO CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	95‑0862768
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
19100 Ridgewood Pkwy, San Antonio, Texas 78259-1828
(Address of principal executive offices) (Zip Code)
210‑626-6000
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  R   No  £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes R No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer," "accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer   R Accelerated filer   £ Non-accelerated filer   £ Smaller reporting company  £

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   £    No  R

There were 143,885,371 shares of the registrant's Common Stock outstanding at July 31, 2011.

TESORO CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - June 30, 2011 and December 31, 2010	3
Condensed Statements of Consolidated Operations - Three and Six Months Ended June 30, 2011 and 2010	4
Condensed Statements of Consolidated Cash Flows - Six Months Ended June 30, 2011 and 2010	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3. Quantitative and Qualitative Disclosures About Market Risk	52
Item 4. Controls and Procedures	54
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	55
Item 1A. Risk Factors	55
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 5. Other Information	57
Item 6. Exhibits	58
SIGNATURES	60
EXHIBIT INDEX	61

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TESORO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2011			December 31, 2010
	(Dollars in millions except per share amounts)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	607		$	648
Receivables, less allowance for doubtful accounts	1,376			908
Inventories	1,855			1,257
Prepayments and other	205			115
Total Current Assets	4,043			2,928
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost	6,860			6,847
Less accumulated depreciation and amortization	(1,785		)	(1,677		)
Net Property, Plant and Equipment	5,075			5,170
OTHER NONCURRENT ASSETS
Acquired intangibles, net	237			246
Other, net	383			388
Total Other Noncurrent Assets	620			634
Total Assets	$	9,738		$	8,732
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	2,295		$	1,852
Accrued liabilities	539			492
Current maturities of debt	57			152
Total Current Liabilities	2,891			2,496
DEFERRED INCOME TAXES	773			616
OTHER NONCURRENT LIABILITIES	562			562
DEBT	1,666			1,843
COMMITMENTS AND CONTINGENCIES (Note J)
EQUITY
TESORO CORPORATION STOCKHOLDERS' EQUITY
Common stock, par value $0.162/3; authorized 200,000,000 shares; 149,918,449 shares issued (149,105,570 in 2010)	25			25
Additional paid-in capital	988			970
Retained earnings	2,723			2,398
Treasury stock, 6,079,310 common shares (5,925,541 in 2010), at cost	(132		)	(128		)
Accumulated other comprehensive loss	(50		)	(50		)
Total Tesoro Corporation Stockholders' Equity	3,554			3,215
NONCONTROLLING INTEREST	292			—
Total Equity	3,846			3,215
Total Liabilities and Stockholders' Equity	$	9,738		$	8,732

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

TESORO CORPORATION

CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(In millions except per share amounts)
REVENUES (a)	$	7,963		$	5,143		$	14,489		$	9,750
COSTS AND EXPENSES:
Cost of sales (a)	6,985			4,492			12,720			8,739
Operating expenses	372			348			743			721
Selling, general and administrative expenses	27			42			122			109
Depreciation and amortization expense	106			108			209			208
Loss on asset disposals and impairments	54			10			57			32
OPERATING INCOME (LOSS)	419			143			638			(59		)
Interest and financing costs	(60		)	(37		)	(103		)	(74		)
Foreign currency exchange gain (loss)	(2		)	1			(1		)	1
EARNINGS (LOSS) BEFORE INCOME TAXES	357			107			534			(132		)
Income tax expense (benefit)	135			40			205			(44		)
NET EARNINGS (LOSS)	222			67			329			(88		)
Less net income attributable to noncontrolling interest	4			—			4			—
NET EARNINGS (LOSS) ATTRIBUTABLE TO TESORO CORPORATION	$	218		$	67		$	325		$	(88	)
NET EARNINGS (LOSS) PER SHARE:
Basic	$	1.54		$	0.48		$	2.29		$	(0.63	)
Diluted	$	1.52		$	0.47		$	2.26		$	(0.63	)
WEIGHTED AVERAGE COMMON SHARES:
Basic	142.6			140.5			142.1			140.0
Diluted	144.4			142.5			144.2			140.0
SUPPLEMENTAL INFORMATION:
(a) Includes excise taxes collected by our retail segment	$	92		$	71		$	183		$	139

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

TESORO CORPORATION

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)

	Six Months Ended
	June 30,
	2011			2010
	(Dollars in millions)
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings (loss)	$	329		$	(88	)
Adjustments to reconcile net earnings (loss) to net cash from (used in) operating activities:
Depreciation and amortization expense	209			208
Amortization of debt issuance costs and discounts	10			8
Loss on asset disposals and impairments	57			32
Equity-based compensation expense	35			14
Write-off of unamortized debt issue costs and discounts	13			—
Deferred income taxes	156			(41		)
Excess tax benefits from equity-based compensation arrangements	(7		)	(2		)
Other changes in non-current assets and liabilities	(50		)	(91		)
Changes in current assets and current liabilities:
Receivables	(469		)	96
Inventories	(597		)	(450		)
Prepayments and other	(75		)	(44		)
Accounts payable and accrued liabilities	478			297
Net cash from (used in) operating activities	89			(61		)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	(112		)	(159		)
Proceeds from asset sales	1			1
Net cash used in investing activities	(111		)	(158		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	115			66
Repayments on revolving credit agreements	(160		)	(66		)
Repayments of debt	(244		)	(1		)
Proceeds from stock options exercised	7			3
Proceeds from issuance of common units -Tesoro Logistics LP	288			—
Repurchases of common stock	(7		)	(3		)
Excess tax benefits from equity-based compensation arrangements	7			2
Financing costs and other	(25		)	(4		)
Net cash used in financing activities	(19		)	(3		)
DECREASE IN CASH AND CASH EQUIVALENTS	(41		)	(222		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	648			413
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	607		$	191
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid, net of capitalized interest	$	62		$	57
Income taxes paid (refunded), net	$	61		$	(105	)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
Capital expenditures included in accounts payable and accrued liabilities at end of period	$	16		$	19

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A – BASIS OF PRESENTATION

As used in this report, the terms “Tesoro,” “we,” “us,” or “our” may refer to Tesoro Corporation, one or more of its consolidated subsidiaries or all of them taken as a whole. The words "we," "us," or "our" generally include Tesoro Logistics LP ("TLLP") and its subsidiaries as consolidated subsidiaries of Tesoro Corporation with certain exceptions where there are transactions or obligations between TLLP and Tesoro Corporation or its other subsidiaries. When used in descriptions of agreements and transactions, "TLLP" or the "Partnership" refers to TLLP and its consolidated subsidiaries.

The interim condensed consolidated financial statements and notes thereto of Tesoro Corporation and its subsidiaries have been prepared by management without audit according to the rules and regulations of the Securities and Exchange Commission ("SEC"). The accompanying condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of results for the periods presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed.

The consolidated balance sheet at December 31, 2010, has been condensed from the audited consolidated financial statements at that date. Certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC's rules and regulations. However, management believes that the disclosures presented herein are adequate to fairly present the information. The accompanying condensed consolidated financial statements and notes should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010.

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, to disclose contingent assets and liabilities at the date of the financial statements and to report revenues and expenses for the periods presented. We review our estimates on an ongoing basis using currently available information. Changes in facts and circumstances may result in revised estimates and actual results could differ from those estimates. The results of operations for any interim period are not necessarily indicative of results for the full year. Certain prior year balances have been disaggregated in order to conform to the current year presentation.

Our consolidated financial statements include TLLP, a variable interest entity. As the general partner of TLLP, we have the sole ability to direct the activities of TLLP that most significantly impact its economic performance. We are also considered to be the primary beneficiary for accounting purposes.

New Accounting Standards

Presentation of Comprehensive Income

The Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update ("ASU") in June 2011 regarding the presentation of comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income, which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This standard is effective for interim and annual periods beginning after December 15, 2011. We are reviewing the impact of this ASU on the presentation of our financial statements but do not believe the adoption of this standard will have a material impact on our consolidated financial statements.

6

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fair Value Measurements and Disclosures

The FASB issued an ASU in May 2011 related to fair value measurements and disclosures to achieve common fair value measurements and additional consistency of disclosures between GAAP and International Financial Reporting Standards. This standard includes amendments that clarify the intent about the application of existing fair value measurements and disclosures, while other amendments change a principle or requirement for fair value measurements or disclosures. Some of the changes include (1) the application of the highest and best use and valuation premise concepts, (2) measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity, and (3) quantitative information required for fair value measurements categorized within level 3 of the fair value hierarchy. In addition, this standard requires additional disclosure for level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. This standard is effective for interim and annual periods beginning after December 15, 2011. We do not believe the adoption of this standard will have a material impact on our consolidated financial statements.

NOTE B – TESORO LOGISTICS LP

Tesoro Logistics LP, is a publicly traded limited partnership that was formed to own, operate, develop and acquire crude oil and refined products logistics assets. Its assets are integral to the success of Tesoro's refining and marketing operations and are used to gather, transport and store crude oil and to distribute, transport and store refined products. The initial assets consist of a crude oil gathering system in the Bakken Shale/Williston Basin area of North Dakota and Montana, eight refined products terminals in the midwestern and western United States, and a crude oil and refined products storage facility and five related short-haul pipelines in Utah.

Initial Public Offering

On April 26, 2011, TLLP completed the initial public offering (the "Offering") of 14,950,000 common units at a price of $21.00 per unit, which included a 1,950,000 unit over-allotment option that was exercised by the underwriters. Net proceeds to TLLP from the sale of the units were approximately $286 million, net of offering expenses (the "Offering Costs") and debt issuance costs. As of June 30, 2011, we owned a 52% interest in TLLP, including the 2% general partner interest. We are TLLP's primary beneficiary and therefore we consolidate TLLP into our financial results. The initial public offering represented the sale by us of a 48% interest in TLLP. Our interest includes 304,890 common units, 15,254,890 subordinated units and 622,649 general partner units. All intercompany transactions with TLLP are eliminated in our consolidated balances.

The following table is a reconciliation of proceeds from the offering (in millions):

Reconciliation of Cash Proceeds
Total proceeds from the Offering	$	314
Less: Offering Costs, net of debt issuance costs	(26		)
Proceeds from the Offering, net of Offering Costs	288
Less: Debt issuance costs	(2		)
Net proceeds from the Offering	286
Less: Cash retained by TLLP	(3		)
Net proceeds distributed to Tesoro from the Offering	283
Add: Borrowings under the TLLP Revolving Credit Facility	50
Distribution to Tesoro	$	333

Effective on the closing date of the offering, TLLP entered into a senior secured revolving credit agreement ("TLLP Revolving Credit Facility") with a syndicate of banks and financial institutions, which will provide for borrowings under a revolving credit facility with total loan availability of $150 million. At the closing of the offering, TLLP borrowed $50 million under the TLLP Revolving Credit Facility. The TLLP Revolving Credit Facility is non-recourse to Tesoro, except for Tesoro Logistics GP (which is TLLP's general partner), and is guaranteed by all of TLLP's subsidiaries and secured by substantially all of TLLP's assets. TLLP is an excluded subsidiary under our Revolving Credit Facility. For additional information regarding our credit facilities, see Note G.

7

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Commercial Agreements

TLLP generates revenue by charging fees for gathering, transporting and storing crude oil and for terminalling, transporting and storing refined products. We do not provide financial or equity support through any liquidity arrangements and/or financial guarantees to TLLP.

TLLP provides us with various pipeline transportation, trucking, terminal distribution and storage services under the following long-term, fee-based commercial agreements:

• a 10-year pipeline transportation services agreement under which TLLP provides crude oil gathering and transportation services within the High Plains system;

• a two-year crude oil trucking transportation services agreement under which TLLP will provide trucking related services and scheduling and dispatching services through the High Plains truck-based crude oil gathering operation;

• a 10-year master terminalling services agreement under which TLLP will provide terminalling services at eight refined products terminals;

• a 10-year pipeline transportation services agreement under which TLLP will transport crude oil and refined products through short-haul pipelines in Salt Lake City ("SLC"); and

• a 10-year storage and transportation services agreement under which TLLP will provide crude oil and refined product storage and transportation between our Utah refinery and the storage facility.

Each of these agreements, other than the SLC storage and transportation services agreement, contain minimum volume commitments. Fees under the SLC storage and transportation services agreement are for the exclusive use of the existing shell capacity at the SLC storage facility and the pipelines connecting the storage facility to our Utah refinery. The fees under each agreement are indexed for inflation and, except for the trucking transportation services agreement, give us the option to renew for two five-year terms. The trucking transportation services agreement will renew automatically for up to four successive two-year terms unless earlier terminated by us or TLLP. Additionally, these agreements include provisions that permit us to suspend, reduce or terminate our obligations under the applicable agreement if certain events occur after one year of continuing minimum payments.

In addition to the commercial agreements described above, we also entered into the following agreements with TLLP:

Omnibus Agreement. Weentered into an omnibus agreement with TLLP at the closing of the offering under which we agree not to compete with TLLP under certain circumstances. It also grants a right of first offer to TLLP for certain of our retained logistics assets, including certain terminals, pipelines, docks, storage facilities and other related assets located in California, Alaska and Washington. Further, the omnibus agreement addresses the payment of an annual fee to us, initially in the amount of $2.5 million, for the provision of various general and administrative services. We also will reimburse TLLP for certain maintenance and expansion capital expenditures and indemnify them for certain matters, including environmental, title and tax matters.

Operational Services Agreement. We entered into an operational services agreement with TLLP at the closing of the offering under which TLLP will reimburse us for the provision of certain operational services in support of their pipelines, terminals and storage facility.

8

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

TLLP is a consolidated variable interest entity. The TLLP condensed consolidated balance sheets as of June 30, 2011 and December 31, 2010 are as follows:

	June 30, 2011		December 31, 2010
	(In millions)
ASSETS
Cash and cash equivalents (a)	$	10	$	—
Receivables, less allowance for doubtful accounts
Trade (a)	—		—
Affiliate	8		4
Other current assets (a)	1		—
Net Property, Plant and Equipment (a)	134		132
Other Noncurrent Assets (a)	2		—
TOTAL ASSETS	$	155	$	136
LIABILITIES
Accounts payable
Trade (a)	$	1	$	2
Affiliate	4		—
Accrued liabilities (a)	2		3
Other Noncurrent Liabilities (a)	—		2
Debt (a)	50		—
Equity	98		129
TOTAL LIABILITIES AND EQUITY	$	155	$	136

(a)    Included in the condensed consolidated balance sheet of Tesoro Corporation.

NOTE C – EARNINGS (LOSS) PER SHARE

We compute basic earnings (loss) per share by dividing net earnings (loss) attributable to Tesoro Corporation shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share include the effects of potentially dilutive shares, principally consisting of common stock options and unvested restricted stock outstanding during the period.

Share and per share calculations are presented below (in millions except per share amounts):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Basic:
Net earnings (loss) attributable to Tesoro Corporation stockholders	$	218	$	67	$	325	$	(88	)
Weighted average common shares outstanding	142.6		140.5		142.1		140.0
Basic Earnings (Loss) Per Share	$	1.54	$	0.48	$	2.29	$	(0.63	)
Diluted:
Net earnings (loss) attributable to Tesoro Corporation stockholders	$	218	$	67	$	325	$	(88	)
Weighted average common shares outstanding	142.6		140.5		142.1		140.0
Common stock equivalents	1.8		2.0		2.1		0.0
Total diluted shares	144.4		142.5		144.2		140.0
Diluted Earnings (Loss) Per Share	$	1.52	$	0.47	$	2.26	$	(0.63	)

9

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Potentially dilutive common stock equivalents that were excluded from the calculation of diluted earnings (loss) per share, as the effect of including such securities would have been anti-dilutive, were as follows (in millions):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2011	2010	2011	2010
Common stock equivalents (a)	—	—	—	1.7
Stock options (b)	3.1	6.0	3.1	5.7

________________

(a) For the six months ended June 30, 2010, common stock equivalents, including stock options, were excluded as a result of the net loss reported during the period.

(b) Common stock options presented above were excluded as the exercise prices were greater than the average market price of the common stock during each respective reporting period.

NOTE D – INVENTORIES

Components of inventories were as follows (in millions):

	June 30, 2011		December 31, 2010
Domestic crude oil and refined products	$	1,337	$	954
Foreign subsidiary crude oil	385		177
Oxygenates and by-products	35		30
Merchandise	14		14
Materials and supplies	84		82
Total Inventories	$	1,855	$	1,257

We use the last-in, first-out (“LIFO”) cost method as the primary method to determine the carrying value of domestic crude oil and refined product inventories in our refining and retail segments. We determine the carrying value of inventories of oxygenates, by-products, and foreign subsidiary-owned crude oil, using the first-in, first-out (“FIFO”) cost method. The total carrying value of our crude oil and refined product inventories was less than replacement cost by approximately $1.9 billion and $1.4 billion at June 30, 2011 and December 31, 2010, respectively.

NOTE E – FAIR VALUE MEASUREMENTS

We classify financial assets and financial liabilities into the following fair value hierarchy:

• level 1 - quoted prices in active markets for identical assets and liabilities;

• level 2 - quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability; and

• level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We measure fair value using level 1 inputs, when available, because they provide the most reliable evidence of fair value. Derivative instruments are our only financial assets and financial liabilities measured at fair value on a recurring basis. See Note F for further information on the Company's derivative instruments.

10

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our derivative instruments consist primarily of options, exchange-traded futures (“Futures Contracts”), over-the-counter swaps and options (“OTC Swap Contracts” and “OTC Option Contracts,” respectively), and physical commodity forward purchase and sale contracts (“Forward Contracts”). Options are valued using quoted prices from exchanges and are categorized in level 1 of the fair value hierarchy. Futures Contracts are valued based on quoted prices from exchanges and are categorized in level 1 or level 2 of the fair value hierarchy based on the liquidity of the instrument. OTC Swap Contracts, OTC Option Contracts and Forward Contracts are valued using third-party broker quotes, industry pricing services and price curves derived from commodity exchange postings, with consideration of counterparty credit risk. These quotes are corroborated with market data and are categorized in level 2 of the fair value hierarchy. We did not have any derivative assets or liabilities classified as level 3 at June 30, 2011 or December 31, 2010.

The fair values of our derivative assets and liabilities by level within the fair value hierarchy were as follows (in millions):

	June 30, 2011		Level 1		Level 2			Level 3
Assets:
Commodity Futures Contracts	$	25	$	25	$	—		$	—
Commodity OTC Swap Contracts	2		—		2			—
Commodity Forward Contracts	—		—		—			—
Total Assets	27		25		2			—
Liabilities:
Commodity Futures Contracts	3		—		3			—
Commodity OTC Swap Contracts	6		—		6			—
Commodity Forward Contracts	2		—		2			—
Total Liabilities	11		—		11			—
Net Assets (Liabilities)	$	16	$	25	$	(9	)	$	—

	December 31, 2010			Level 1			Level 2		Level 3
Assets:
Commodity Futures Contracts	$	6		$	—		$	6	$	—
Commodity OTC Swap Contracts	1			—			1		—
Commodity Forward Contracts	1			—			1		—
Total Assets	8			—			8		—
Liabilities:
Commodity Futures Contracts	17			17			—		—
Total Liabilities	17			17			—		—
Net Assets (Liabilities)	$	(9	)	$	(17	)	$	8	$	—

Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We have elected to offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously.

The physical inventory associated with the futures contracts included in the above table and selected for fair value hedge accounting treatment is adjusted to fair value at the end of the period. At December 31, 2010, the fair value adjustment related to the physical inventory was approximately $4 million. There were no material fair value adjustments to the physical inventory at June 30, 2011.

11

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The carrying value of our financial instruments, including cash and cash equivalents, receivables, accounts payable and certain accrued liabilities approximate fair value because of the short maturities of these instruments. The fair value of our debt was estimated primarily using quoted market prices. The carrying value and fair value of our debt at June 30, 2011, were approximately $1.7 billion and $1.8 billion, respectively. Both the carrying value and fair value of our debt at December 31, 2010, were approximately $2.0 billion.

The fair value of certain nonfinancial assets measured on a non-recurring basis as of June 30, 2011 and December 31, 2010 were as follows (in millions):

	June 30, 2011		Level 1	Level 2	Level 3	Total Losses
Assets:
Refining equipment and engineering costs	$	9	—	—	9	$	48

	December 31, 2010		Level 1	Level 2	Level 3	Total Losses
Assets:
Refining equipment, materials and engineering costs	$	4	—	—	4	$	20
Goodwill	$	36	—	—	36	$	10

We continue to evaluate the recoverability of the value of certain capital projects currently in progress. For one project at our Los Angeles refinery, regulations issued by California's South Coast Air Quality Management District (the "District") required emission of nitrogen oxides to be reduced by the end of 2010 at our Los Angeles refinery. Our initial plan in 2007 to meet this regulation was to replace our power cogeneration units and steam boilers with more efficient equipment. We began construction for this project in 2008. In 2009, we determined that air emissions credits could be used to meet this requirement in the short-term, which would allow us to defer capital expenditures related to this project and we incurred a $12 million impairment charge to cancel an equipment order. In 2010, we revised our capital plan to further defer certain components of this project and during the first quarter of 2010, incurred an impairment charge of $20 million related to this change in scope. Equipment, materials and related unrecoverable engineering costs specifically manufactured and uniquely configured for this project were written down from a carrying value of $24 million to a fair value of $4 million.

During the second quarter of 2011, we concluded that we now expect to sell, rather than use, specific equipment related to the change in scope of this capital project. The equipment and related unrecoverable engineering costs specifically manufactured and uniquely configured for this project were written down from a carrying value of $57 million to a fair value of $9 million during the three months ended June 30, 2011, resulting in a $48 million loss included in loss on asset disposals and impairments. The estimated fair value was based on amounts recoverable if sold to an end user, in the principal or most advantageous market for the assets, in an orderly transaction. The amounts presented represent our estimates for unobservable inputs that require significant judgment, for which there is little or no market data.

We reviewed the recorded value of goodwill for impairment during the fourth quarter of 2010 as part of our annual goodwill impairment test. This review resulted in a write-off related to our Hawaii refinery included in loss on asset disposals and impairments. There were no material goodwill impairments, asset retirement obligations or indefinite lived intangible assets that were measured at fair value during the six months ended June 30, 2011.

NOTE F - DERIVATIVE INSTRUMENTS

The timing, direction and overall change in refined product prices versus crude oil prices impacts profit margins and has a significant impact on our earnings and cash flows. Consequently, we periodically use non-trading derivative instruments to manage exposure to commodity price risks associated with the purchase or sale of feedstocks, products and energy supplies to or from the Company's refineries, terminals, retail operations and customers. We may also use non-trading derivative instruments to manage price risks associated with inventories above or below our target levels. To achieve our objectives, we may use derivative instruments such as options, Futures Contracts, OTC Swap Contracts, OTC Option Contracts, and Forward Contracts, all generally with maturity dates of less than one year. We believe that there is minimal credit risk with respect to our counterparties.

12

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We may use our excess storage capacity in Panama to take advantage of contango markets when the future price of crude oil is higher than the current spot price. We use commodity derivatives to manage price risk and hedge crude oil held in connection with these arbitrage opportunities.

The accounting for changes in the fair value of a commodity derivative depends on whether the derivative has been designated in a hedging relationship and whether we have elected the normal purchases and normal sales exception. The accounting for the change in fair value can be summarized as follows:

Derivative Treatment	Accounting Method
Normal purchases and normal sales exception	Accrual accounting
Designated in qualifying hedging relationship	Hedge accounting
All other derivatives	Mark-to-market accounting

The primary derivative instruments that we use have the following characteristics. Option contracts provide the right, but not the obligation to buy or sell the commodity at a specified price in the future. Futures Contracts include a requirement to buy or sell the commodity at a fixed price in the future. OTC Swap Contracts, OTC Option Contracts and Forward Contracts require cash settlement for the commodity based on the difference between a fixed or floating price and the market price on the settlement date. Certain of these contracts require cash collateral if our liability position exceeds specified thresholds. At June 30, 2011, we had approximately $6 million of cash collateral outstanding related to our OTC Swap Contracts.

The following table presents the fair value (in millions) of our derivative instruments as of June 30, 2011 and December 31, 2010. Net derivative assets and net derivative liabilities are presented in prepayments and other and accrued liabilities in the consolidated balance sheet, respectively. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements. As a result, the asset and liability amounts below will not agree with the amounts presented in our consolidated balance sheet, nor will they agree with the fair value information presented in Note E.

	Derivative Assets				Derivative Liabilities
Derivatives Not Designated as Hedging Instruments:	June 30, 2011		December 31, 2010		June 30, 2011			December 31, 2010
Commodity Futures Contracts	$	197	$	88	$	(175	)	$	(96	)
Commodity OTC Swap Contracts	3		3		(7		)	(2		)
Commodity Forward Contracts	1		2		(3		)	(1		)
Total Derivative Instruments	$	201	$	93	$	(185	)	$	(99	)

	Derivative Assets				Derivative Liabilities
Derivatives Designated as Fair Value Hedging Instruments:	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010
Commodity Futures Contracts	$	—	$	—	$	—	$	(3	)
Total Derivative Instruments	$	—	$	—	$	—	$	(3	)

13

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Gains (losses) for our non-hedging derivative instruments for the three and six months ended June 30, 2011 and 2010, were as follows (in millions):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
Derivatives Not Designated as Hedging Instruments (a):	2011			2010		2011			2010
Commodity Futures Contracts	$	88		$	10	$	32		$	(2	)
Commodity OTC Swap Contracts	2			8		1			8
Commodity Forward Contracts	(8		)	—		(1		)	—
Total Non-Hedging Derivative Instruments	$	82		$	18	$	32		$	6

________________

(a) Derivative gains (losses) are recognized in either revenues or cost of sales depending on the purpose for acquiring and holding the derivative. All derivative gains for the three and six months ended June 30, 2010, were recorded in cost of sales. Derivative gains recognized during the three months ended June 30, 2011, recorded in revenues and cost of sales, were $12 million and $70 million, respectively. Derivative gains recognized during the six months ended June 30, 2011, recorded in cost of sales was $32 million. There were no amounts recognized in revenues for the six months ended June 30, 2011.

Gains (losses) on our fair value hedging derivative instruments during the three and six months ended June 30, 2011, were as follows (in millions). We did not acquire any fair value hedging derivative instruments during the three and six months ended June 30, 2010.

Derivatives Designated as Fair Value Hedging Instruments:	Amount of Gain Recognized in Income on Derivatives		Amount of Loss Recognized in Income on Hedged Item			Amount of Loss Recognized in Income on Ineffective Portion of Derivative (c)
Three months ended June 30, 2011
Commodity Futures Contracts (b)	$	4	$	(4	)	$	—
Six months ended June 30, 2011
Commodity Futures Contracts (b)	$	3	$	(4	)	$	(1	)

________________

(b) Gains (losses) recognized in income on the derivative and the hedged item are included in cost of sales in the statements of consolidated operations.

(c) For fair value hedges, no component of the derivative instruments' gains or losses was excluded from the assessment of hedges effectiveness. No amounts were recognized in income for hedged firm commitments that no longer qualify as fair value hedges.

Open Long (Short) Positions

All of our open positions are scheduled to mature within the next twelve months. The information below presents the net volume of outstanding contracts by type of instrument and year of maturity as of June 30, 2011 (volumes in thousands of barrels):

Fair value hedges		Mark-to-market derivatives
Derivative instrument and Year of maturity	Long (Short) Contract Volumes	Derivative instrument and Year of maturity	Long (Short) Contract Volumes
Swaps		Swaps
2011	—	2011	6,080
2012	—	2012	—
Futures		Futures
2011	(59)	2011	(5,571)
2012	—	2012	(51)
Forwards		Forwards
2011	—	2011	(2,270)

14

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE G – DEBT

Our Total Debt at June 30, 2011 and December 31, 2010, was comprised of the following (in millions):

Debt, including current maturities:	June 30, 2011		December 31, 2010
Tesoro Corporation Revolving Credit Facility	$	—	$	—
Tesoro Panama Company Sociedad Anonima ("TPSA") Revolving Credit Facility	55		150
Tesoro Logistics LP ("TLLP") Revolving Credit Facility	50		—
Junior subordinated notes due 2012 (net of unamortized discount of $16)	—		134
6¼% Senior Notes Due 2012	356		450
65/8% Senior Notes Due 2015	450		450
6½% Senior Notes Due 2017	500		500
9¾% Senior Notes Due 2019 (net of unamortized discount of $10)	290		290
Capital lease obligations and other	22		21
Total Debt	$	1,723	$	1,995

For additional information regarding our outstanding debt, see “Capital Resources and Liquidity” in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 2.

6 1/4% Senior Notes due 2012

From time to time, we may purchase our 6 1/4% Senior Notes due 2012 in the open market or in privately negotiated transactions. The timing and amount of debt repurchases, if any, will depend on available cash, market conditions and other considerations.

During the second quarter of 2011, we repurchased $94 million of principal related to these notes through the open market for an aggregate purchase price of $100 million, including accrued interest and premiums, which are included in interest and financing costs in the consolidated statement of operations for the three and six months ended June 30, 2011.

Junior Subordinated Notes due 2012

We redeemed the $150 million Junior Subordinated Notes due 2012 in May 2011. Upon redemption, we recorded a $13 million charge to write-off the remaining unamortized discount associated with the Notes, which is included in interest and financing costs in the consolidated statement of operations for the three and six months ended June 30, 2011.

Credit Facilities Overview

Our credit facilities as of June 30, 2011 were subject to the following expenses and fees.

Credit Facility	Eurodollar Rate	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Tesoro Corporation Revolving Credit Facility ($1.85 billion)	0.19%	1.75%	3.25%	—%	0.375%
TPSA Revolving Credit Facility ($500 million)	0.19%	2.75%	3.25%	1.75%	—%
TLLP Revolving Credit Facility ($150 million)	0.19%	2.50%	3.25%	1.50%	0.50%

15

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tesoro Corporation Revolving Credit Facility (“Revolving Credit Facility”)

We amended our Revolving Credit Facility in March 2011. The total available capacity was changed to $1.85 billion, which, subject to receiving increased commitments from the lending group, can be increased up to an aggregate $2.25 billion. Additionally, there were reductions in borrowing rates and the easing of certain covenants. The Revolving Credit Facility is guaranteed by substantially all of Tesoro's active domestic subsidiaries, excluding Tesoro Logistics GP, Tesoro Logistics LP and its subsidiaries, and is secured by substantially all of the crude oil and refined product inventories, cash and receivables of Tesoro's active domestic subsidiaries. TPSA is not a guarantor of the Revolving Credit Facility. For additional information regarding Tesoro Logistics LP, see Note B.

At June 30, 2011, our Revolving Credit Facility provided for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base of approximately $3.1 billion, consisting of Tesoro's eligible cash and cash equivalents, receivables and petroleum inventories (based upon a West Texas Intermediate crude oil price of $103 per barrel), net of the standard reserve as defined, or the Revolving Credit Facility's total capacity of $1.85 billion. As of June 30, 2011, we had no borrowings and $772 million in letters of credit outstanding under the Revolving Credit Facility, resulting in total unused credit availability of approximately $1.1 billion or 58% of the eligible borrowing base.

Our committed Revolving Credit Facility is scheduled to mature on March 16, 2016. The Revolving Credit Facility will terminate if the Company does not (a) refinance or pay in full, the Company's 6 1/4% notes due November 2012 on or prior to the stated maturity date, or (b) refinance or pay in full, the Company's 6 5/8% notes due November 2015 on or prior to the stated maturity date.

Our Revolving Credit Agreement and senior notes each limit our restricted payments (as defined) including our ability to pay cash dividends, repurchase stock or make voluntary repayments of subordinate debt. The aggregate amount of restricted payments cannot exceed an amount defined in each of the debt agreements. The indentures for our senior notes also limit our subsidiaries ability to make certain payments and distributions.

Letter of Credit Agreements

The Revolving Credit Facility allows us to obtain letters of credit under separate letter of credit agreements for foreign crude oil purchases. At June 30, 2011, we had three separate letter of credit agreements with a total capacity of $490 million, of which $222 million was outstanding. Letters of credit outstanding under these agreements incur fees and are secured by the petroleum inventories for which they are issued. The letter of credit agreements may be terminated by either party, at any time.

TPSA Revolving Credit Facility

TPSA, a directly and wholly owned subsidiary of Tesoro, entered into a 364-day uncommitted, secured revolving credit agreement that expires in October 2011. TPSA is an excluded and unrestricted subsidiary from the Revolving Credit Facility and outstanding indentures. The TPSA Revolving Credit Facility is non-recourse to Tesoro and is guaranteed by TPSA's assets. The TPSA Revolving Credit Facility includes two uncommitted facilities, which provide for revolving borrowings, swing line loans and daylight overdraft loans and letters of credit.

At June 30, 2011, our TPSA Revolving Credit Facility provided for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base consisting of TPSA eligible receivables and petroleum inventories, net of reserves, or the agreement's capacity based on the net worth of TPSA. In June 2011, we increased the maximum capacity of these facilities from $350 million to $500 million, consisting of $350 million under the first facility and $150 million under the second facility, and amended this facility to modify certain terms of the collateral pool calculation. The two facilities maximum capacities were increased from $245 million and $105 million, respectively. Our total capacity under the TPSA facilities can be further increased up to $700 million provided the facilities' maximum amounts do not exceed $550 million and $350 million, respectively. At June 30, 2011, we had $55 million in borrowings outstanding under this agreement and letters of credit outstanding of $95 million.

16

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

TLLP Revolving Credit Facility

On April 26, 2011, TLLP entered into a senior secured revolving credit agreement with a syndicate of banks and financial institutions, including Bank of America, N.A. as administrative agent. The TLLP Revolving Credit Facility provides for total available revolving capacity of $150 million and allows for TLLP to request that the capacity be increased up to an aggregate of $300 million, subject to receiving increased commitments from the lenders. At the closing of the offering, TLLP borrowed $50 million under the TLLP Revolving Credit Facility.

The TLLP Revolving Credit Facility is non-recourse to Tesoro, except for Tesoro Logistics GP (which is TLLP's general partner), and is guaranteed by all of TLLP's subsidiaries and secured by substantially all of its assets. Borrowings available under the TLLP Revolving Credit Facility are up to the total available revolving capacity of the facility. The TLLP Revolving Credit Facility is scheduled to mature three years from execution and will terminate on April 25, 2014.

NOTE H - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, is as follows (in millions):

	June 30, 2011			December 31, 2010
Refining	$	5,997		$	5,984
Retail	659			659
Corporate	204			204
Property, plant and equipment, at cost	6,860			6,847
Accumulated depreciation	(1,785		)	(1,677		)
Net property, plant and equipment	$	5,075		$	5,170

See discussion of impairments of long-lived assets in Note E.

17

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE I – BENEFIT PLANS

Tesoro sponsors the following four defined benefit pension plans: the funded qualified employee retirement plan, the unfunded nonqualified executive security plan, the unfunded nonqualified restoration retirement plan and the unfunded nonqualified supplemental executive retirement plan. Although our funded employee retirement plan fully meets all funding requirements under applicable laws and regulations, during the six months ended June 30, 2011, we voluntarily contributed $24 million to improve the funded status of the plan.

The components of pension benefit expense and other postretirement benefit expense included in the condensed statements of consolidated operations for the three and six months ended June 30, 2011 and 2010, were (in millions):

	Pension Benefits
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Service cost	$	7		$	10		$	14		$	20
Interest cost	8			7			15			14
Expected return on plan assets	(5		)	(5		)	(10		)	(10		)
Amortization of prior service cost	—			1			—			2
Recognized net actuarial loss	5			4			10			7
Recognized curtailment loss	1			3			3			4
Net Periodic Benefit Expense	$	16		$	20		$	32		$	37

	Other Postretirement Benefits
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Service cost	$	2		$	4		$	3		$	8
Interest cost	1			5			2			11
Amortization of prior service credit	(10		)	—			(19		)	—
Recognized net actuarial loss	3			1			6			1
Recognized curtailment gain	—			(48		)	—			(48		)
Net Periodic Benefit Income	$	(4	)	$	(38	)	$	(8	)	$	(28	)

NOTE J - COMMITMENTS AND CONTINGENCIES

Environmental and Tax Matters

We are a party to various litigation and contingent loss situations, including environmental and income tax matters, arising in the ordinary course of business. Although we cannot predict the ultimate outcomes of these matters with certainty, we have accrued for the estimated liabilities when appropriate. We believe that the outcome of these matters will not materially impact our liquidity and consolidated financial position, although the resolution of certain of these matters could have a material impact on interim or annual results of operations. Additionally, if applicable, we accrue receivables for probable insurance or other third-party recoveries.

We are subject to extensive federal, state and local environmental laws and regulations. These laws, which change frequently, regulate the discharge of materials into the environment and may require us to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites, install additional controls, or make other modifications to certain emission sources, equipment or facilities.

18

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We are subject to extensive federal, state and foreign tax laws and regulations. Newly enacted tax laws and regulations, and changes in existing tax laws and regulations, could result in increased expenditures in the future. We are also subject to audits by federal, state and foreign taxing authorities in the normal course of business. It is possible that tax audits could result in claims against us in excess of recorded liabilities. We believe that resolution of any such claim(s) would not materially affect our consolidated financial position or results of operations. We believe it is possible that unrecognized tax benefits could decrease by as much as $10 million in the next twelve months through settlements or other conclusions, primarily regarding state tax issues.

Environmental Liabilities

We are incurring and expect to continue to incur expenses for environmental liabilities at a number of currently and previously owned or operated refining, pipeline, terminal and retail station properties. We have accrued liabilities for these expenses and believe these accruals are adequate. At June 30, 2011 and December 31, 2010, our accruals for environmental expenditures totaled $98 million and $108 million, respectively. Our environmental accruals are based on estimates including engineering assessments, and it is possible that our estimates will change and that additional costs will be recorded as more information becomes available.

We received $58.5 million in a settlement with a prior owner of our Golden Eagle refinery in 2007 in exchange for assuming responsibility for certain environmental liabilities arising from operations at the refinery prior to August 2000. These environmental liabilities totaled $58 million and $62 million at June 30, 2011 and December 31, 2010, respectively. We cannot reasonably determine the full extent of remedial activities that may be required at the Golden Eagle refinery. Therefore, it is possible that we will identify additional remediation costs as more information becomes available. We have filed insurance claims under environmental insurance policies that provide coverage up to $190 million for expenditures in excess of $50 million in self-insurance. We have not recognized possible insurance recoveries related to this matter.

We have investigated conditions at certain active wastewater treatment units at our Golden Eagle Refinery.  The investigation was driven by an order from the San Francisco Bay Regional Water Quality Control Board that named us as well as two previous owners of the Golden Eagle Refinery.  We cannot currently estimate the amount of the ultimate resolution of the order, but we believe it will not have a material adverse impact on our consolidated financial position, results of operations or liquidity.

Washington Refinery Fire

In April 2010, the naphtha hydrotreater unit at our Washington refinery was involved in a fire, which fatally injured seven employees and rendered the unit inoperable. The Washington State Department of Labor & Industries (“L&I”), the U.S. Chemical Safety and Hazard Investigation Board (“CSB”) and the U.S. Environmental Protection Agency (“EPA”) initiated separate investigations of the incident. In October 2010, L&I completed its investigation, issued citations and assessed a $2.4 million fine, which we appealed. L&I reassumed jurisdiction of the citation and affirmed the allegations in December 2010. We disagree with L&I's characterizations of Tesoro's operations at our Washington refinery and believe, based on available evidence and scientific reviews, that many of the agency's conclusions are mistaken. In January 2011, we filed an appeal of the citation. The EPA and CSB investigations are ongoing. We have incurred charges related to the incident of $4 million and $27 million during the six months ended June 30, 2011 and the year ended December 31, 2010, respectively. These amounts do not include insurance recoveries.

In February 2011, Tesoro Corporation, Tesoro Refining and Marketing Company and other defendants were named in a lawsuit brought by the estates and families of the seven fatally injured employees arising from the April 2010 incident. In addition, a third-party truck driver has alleged damages in the lawsuit. The lawsuit includes allegations of negligence, premises liability, strict liability, product liability and seeks unspecified compensatory and punitive damages. This case, Donald and Peggy Zimmerman et al. v. Tesoro Corporation and Tesoro Refining and Marketing et al., is proceeding in the Superior Court of the State of Washington, Skagit County. The Company believes that it has defenses to the allegations contained in the lawsuit. While we cannot currently estimate the amount or timing of the resolution of this matter, and currently believe that the outcome of this matter will not materially impact our liquidity and consolidated financial position, the ultimate resolution could have a material impact on our interim and annual results of operations.

19

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our business interruption insurance deductible is satisfied after we have exceeded both 60 days of operational disruption and $25 million in losses primarily based on the operating plan that existed prior to the incident. Our property damage insurance has a $10 million deductible. We have filed business interruption insurance claims and property damage claims related to this incident. We collected $87 million in business interruption insurance recoveries that relate to downtime from the incident, which were recorded as an offset to cost of sales in the consolidated statement of operations. Of the $87 million collected, $32 million was recorded in second quarter of 2011 and $55 million was recorded in 2010. We received $17 million to settle the property damage claim filed for this incident, which was recorded as a reduction to operating expense. Of the $17 million, $5 million was recorded in the second quarter of 2011 and $12 million was recorded in the fourth quarter of 2010.

Other Matters

In the ordinary course of business, we become party to lawsuits, administrative proceedings and governmental investigations, including environmental, regulatory and other matters. Large, and sometimes unspecified, damages or penalties may be sought from us in some matters. As a result, we have not established accruals for these matters unless a likelihood of loss may be reasonably possible and the amount of loss is currently estimable. On the basis of existing information, we believe that the resolution of these matters, individually or in the aggregate, will not have a material adverse impact on our financial position, results of operations or liquidity.

Legal

During 2009, Chevron filed a lawsuit against us claiming they are entitled to a share of the refunds we received in 2008 from the owners of the Trans Alaska Pipeline System (“TAPS”). We received $50 million in 2008, net of contingent legal fees, for excessive intrastate rates charged by TAPS during 1997 through 2000, and the period of 2001 through June 2003. Chevron is asserting that it is entitled to a share of its portion of the refunds for retroactive price adjustments under our previous crude oil contracts with them. In September 2010, the trial court judge granted Chevron's motion for summary judgment and awarded them $16 million, including interest. We disagree with the trial court and have appealed the decision to the Alaska Supreme Court in which the proceeding is now pending. We have established an accrual for this matter and believe that the outcome will not materially impact our consolidated financial position, results of operations or liquidity.

Environmental

In May 2011 and again in July 2011, we met with the U.S. Department of Justice ("DOJ") and the U.S. Environmental Protection Agency ("EPA") to discuss potential claims by the EPA under the Clean Air Act concerning our Alaska, Washington, Golden Eagle, Hawaii and Utah refineries. At these meetings, the DOJ and EPA alleged that we have violated the Clean Air Act, regulations under the Clean Air Act and/or Clean Air Act permits at each of these refineries. We previously received a notice of violation ("NOV") in March 2011 from the EPA alleging violations of Title V of the Clean Air Act at our Alaska refinery. The alleged violations in the NOV arise from a 2007 state of Alaska inspection and inspections by the EPA in 2008 and 2010. We also previously received NOV's in 2005 and 2008 alleging violations of the Clean Air Act at our Washington refinery. We are evaluating all of these allegations. The ultimate resolution of this matter could require us to incur material capital expenditures and/or civil penalties. While we cannot currently estimate the amount or timing of the resolution of this matter, and currently believe that the outcome of this matter will not materially impact our liquidity and consolidated financial position, the ultimate resolution could have a material impact on our interim or annual results of operations.

On February 5, 2010, the EPA filed suit against us alleging violations of the Clean Air Act and corresponding regulatory requirements concerning the testing and reporting of transportation fuels and fuel additives. In February 2009, we received a NOV from the EPA for alleged violations arising from a compliance review conducted by the EPA in 2006, for the years 2003 through the time of the review in 2006. We are discussing the alleged violations contained in the suit with the EPA and the U.S. Department of Justice and have not established an accrual for this matter. On the basis of existing information, we believe that the resolution of this matter will not have a material adverse impact on our consolidated financial position, results of operations or liquidity.

20

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE K - STOCKHOLDERS' EQUITY

See Note L for information relating to stock-based compensation and common stock reserved for exercise of options. Changes to equity during the six months ended June 30, 2011 are presented below:

	Tesoro Corporation Stockholders' Equity			Noncontrolling Interest		Total Equity
Balance at December 31, 2010	$	3,215		$	—	$	3,215
Net earnings	325			4		329
Net proceeds from issuance of common units - TLLP	—			288		288
Shares issued for equity-based compensation awards and benefit plans	7			—		7
Excess tax benefits from equity-based compensation arrangements	6			—		6
Stock option and restricted common stock amortization	6			—		6
Repurchases of common stock (a)	(7		)	—		(7		)
Other	2			—		2
Balance at June 30, 2011	$	3,554		$	292	$	3,846

_________________

(a) Represents shares purchased under the terms of restricted stock agreements to provide funds for the payment of payroll and income taxes due at vesting of restricted stock.

NOTE L - STOCK-BASED COMPENSATION

Stock-based compensation expense included in our condensed statements of consolidated operations was as follows (in millions):    

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011		2010
Stock appreciation rights	$	(13	)	$	(4	)	$	22	$	1
Phantom stock options	(5		)	(2		)	6		1
Restricted common stock	2			4			4		7
Restricted stock units	1			1			1		1
Performance share awards	1			—			1		—
Market stock units	1			—			1		—
Stock options	—			2			—		4
Total Stock-Based Compensation Expense (Credit)	$	(13	)	$	1		$	35	$	14

We have aggregated expenses for certain award types as they are not considered significant. The income tax benefit recognized in the income statement for stock-based compensation was $12 million and $6 million for the six months ended June 30, 2011 and 2010, respectively. The income tax benefit recognized from tax deductions resulting from exercises and vestings under all of our stock-based compensation arrangements totaled $15 million and $5 million for the six months ended June 30, 2011 and 2010, respectively.

Stock Appreciation Rights

A stock appreciation right (“SAR”) entitles an employee to receive cash in an amount equal to the excess of the fair market value of one share of common stock on the date of exercise over the grant price of the SAR. The fair value of each SAR is estimated at the end of each reporting period using the Black-Scholes option-pricing model. We did not grant SARs to our employees during the six months ended June 30, 2011. We have accrued $53 million and $39 million in liabilities associated with our SARs awards at June 30, 2011 and December 31, 2010, respectively.

21

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A summary of our stock appreciation right activity for the six months ended June 30, 2011, is set forth below (shares in thousands):

	Number of SARs		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at January 1, 2011	7,372		$	22.34	4.6 years
Exercised	(723	)
Forfeited	(150	)
Outstanding at June 30, 2011	6,499		$	23.25	4.1 years
Vested or expected to vest at June 30, 2011	6,498		$	23.25	4.1 years
Exercisable at June 30, 2011	4,731		$	26.74	3.8 years

Executive Phantom Stock Options

The fair value of each phantom stock option is estimated at the end of each reporting period using the Black-Scholes option-pricing model. We did not grant phantom stock options to our executive officers during the six months ended June 30, 2011. We have accrued $17 million and $15 million in other noncurrent liabilities associated with these executive phantom stock option awards at June 30, 2011 and December 31, 2010, respectively.

A summary of our executive phantom stock option activity is set forth below (shares in thousands):

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at January 1, 2011	1,487		$	14.13	8.1 years
Exercised	(256	)
Forfeited	(65	)
Outstanding at June 30, 2011	1,166		$	14.13	7.6 years
Vested or expected to vest at June 30, 2011	1,166		$	14.13	7.6 years
Exercisable at June 30, 2011	1,166		$	14.13	7.6 years

Performance Share Awards

In May 2011, we granted performance share awards under the 2011 Long-Term Incentive Plan. The vesting percentages of these equity awards, range from 0-200%, and are tied to certain performance measures or market conditions over a three year performance period. Both types of performance share awards vest at the end of the performance period. The fair value of each performance share award is estimated using a Monte Carlo simulation. The estimated fair value of these performance share awards is generally amortized over a three year vesting period using the straight-line method. The value of the award ultimately paid will be based on relative total shareholder return, which is measured against the performance peer group and the S&P 500 Index, or return on capital employed, which is measured against the performance peer group. Total unrecognized compensation cost related to non-vested performance share awards totaled $7 million as of June 30, 2011, which is expected to be recognized over a weighted average period of 2.8 years. As of June 30, 2011, the fair value of each outstanding non-vested performance share award was $22.91. A summary of our performance share award activity is set forth below (units in thousands):

	Number of Shares	Weighted Average Grant-Date Fair Value
Nonvested at January 1, 2011	—	$	—
Granted	264	$	31.90
Nonvested at June 30, 2011	264	$	31.90

22

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Market Stock Units

In May 2011, we granted market stock units under the 2011 Long-Term Incentive Plan. These market stock units represent the right to receive a target number of shares that will vest at the end of a three year performance period. The number of shares ultimately issued will be based on Tesoro's stock price changes over the performance period. The market stock units' potential payout can range from 50-200% of targeted award value, unless the average closing stock price at vesting has decreased more than 50% from the average closing stock price at grant date, then no market stock units will be paid out. The fair value of each market stock unit is estimated on the grant date using a Monte Carlo simulation. The estimated fair value of these market stock units is amortized over a three year vesting period using the straight-line method. Total unrecognized compensation cost related to non-vested market stock units totaled $13 million as of June 30, 2011, which is expected to be recognized over a weighted average period of 2.8 years. A summary of our market stock unit award activity is set forth below (units in thousands):

	Number of Units	Weighted Average Grant-Date Fair Value		Intrinsic Value
				(In millions)
Nonvested at January 1, 2011	—	$	—	$	—
Granted	426	$	34.45
Nonvested at June 30, 2011	426	$	34.45	$	8

NOTE M - OPERATING SEGMENTS

The Company's revenues are derived from two operating segments, refining and retail. We own and operate seven petroleum refineries located in California, Washington, Alaska, Hawaii, North Dakota and Utah. These refineries manufacture gasoline and gasoline blendstocks, jet fuel, diesel fuel, residual fuel oil and other refined products. We sell these refined products, together with refined products purchased from third-parties, at wholesale through terminal facilities and other locations. Our refining segment also sells refined products to unbranded marketers and occasionally exports refined products to foreign markets. Our retail segment sells gasoline, diesel fuel and convenience store items through company-operated retail stations and branded jobber/dealers in 18 states from Minnesota to Alaska and Hawaii. We do not have significant operations in foreign countries. Therefore, revenue in foreign countries and long-lived assets located in foreign countries are not material to our operations.

We evaluate the performance of our segments based primarily on segment operating income. Segment operating income includes those revenues and expenses that are directly attributable to management of the respective segment. Intersegment sales from refining to retail are made at prevailing market rates. Income taxes, other income, foreign currency exchange gain (loss), interest and financing costs, interest income, corporate depreciation and corporate general and administrative expenses are excluded from segment operating income. Identifiable assets are those used by the segments, whereas corporate assets are principally cash and other assets that are not associated with a specific operating segment.

23

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Segment information is as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Revenues	(In millions)
Refining:
Refined products	$	7,635		$	4,661		$	13,905		$	8,906
Crude oil resales and other	186			351			341			588
Retail:
Fuel (a)	1,354			886			2,469			1,700
Merchandise and other	57			57			109			110
Intersegment sales from Refining to Retail	(1,269		)	(812		)	(2,335		)	(1,554		)
Total Revenues	$	7,963		$	5,143		$	14,489		$	9,750
Segment Operating Income (Loss)
Refining (b)	$	399		$	150		$	702		$	(19	)
Retail	38			30			40			54
Total Segment Operating Income	437			180			742			35
Corporate and unallocated costs	(18		)	(37		)	(104		)	(94		)
Operating Income (Loss) (c)	419			143			638			(59		)
Interest and financing costs	(60		)	(37		)	(103		)	(74		)
Foreign currency exchange gain (loss)	(2		)	1			(1		)	1
Earnings (Loss) Before Income Taxes	$	357		$	107		$	534		$	(132	)
Depreciation and Amortization Expense
Refining	$	94		$	93		$	185		$	178
Retail	10			10			19			20
Corporate	2			5			5			10
Total Depreciation and Amortization Expense	$	106		$	108		$	209		$	208
Capital Expenditures
Refining	$	55		$	75		$	93		$	140
Retail	4			2			7			4
Corporate	4			—			5			—
Total Capital Expenditures	$	63		$	77		$	105		$	144

______________

(a) Federal and state motor fuel taxes on sales by our retail segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $92 million and $71 million for the three months ended June 30, 2011 and 2010, respectively, and $183 million and $139 million for the six months ended June 30, 2011 and 2010, respectively.

(b) Includes impairment charges related to the change in scope of a capital project at our Los Angeles refinery of $48 million for the three and six months ended June 30, 2011, and $20 million for the six months June 30, 2010. Includes charges related to the Washington refinery incident of $12 million for the three and six months ended June 30, 2010. The loss on asset disposals and impairments is included in refining segment operating income but excluded from the regional operating costs per barrel.

(c) Includes a $48 million gain for the three and six months ended June 30, 2010, from the elimination of postretirement life insurance benefits for current and future retirees, and $37 million in business interruption and property damage recoveries for the three and six months ended June 30, 2011.

24

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	June 30,		December 31,
	2011		2010
Identifiable Assets:
Refining	$	8,259	$	7,303
Retail	643		619
Corporate	836		810
Total Assets	$	9,738	$	8,732

NOTE N - SUBSEQUENT EVENTS

Stock-based Compensation Dilution Management Program

On August 3, 2011, our Board of Directors approved a program designed to offset the dilutive effect of 2011 and future stock-based compensation awards. The Board authorized the repurchase of approximately 0.7 million shares related to 2011 awards granted and described in Note L to offset their potential dilutive effect. The Board also authorized a program to repurchase additional shares in subsequent years to offset the dilutive effect of future stock-based compensation programs.

NOTE O - CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Separate condensed consolidating financial information of Tesoro Corporation (the "Parent"), subsidiary guarantors and non-guarantors are presented below. Tesoro and certain subsidiary guarantors have fully and unconditionally guaranteed our 6 1/4% senior notes due 2012, 6 5/8% senior notes due 2015, 6 1/2% senior notes due 2017, and 9 3/4% senior notes due 2019. TLLP, in which we have a 52% ownership interest, and other subsidiaries have not guaranteed these obligations. As a result of these guarantee arrangements, we are required to present the following condensed consolidating financial information. The following condensed consolidating financial information should be read in conjunction with the accompanying condensed consolidated financial statements and notes. The following condensed consolidating financial information is provided as an alternative to providing separate financial statements for guarantor subsidiaries. Separate financial statements of Tesoro's subsidiary guarantors are not included because the guarantees are full and unconditional and these subsidiary guarantors are 100% owned and jointly and severally liable for Tesoro's outstanding senior notes. The information is presented using the equity method of accounting for investments in subsidiaries.

25

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Balance Sheet as of June 30, 2011

(In millions)

	Parent		Guarantor Subsidiaries			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	562		$	45		$	—		$	607
Receivables, less allowance for doubtful accounts	6		1,252			118			—			1,376
Inventories	—		1,470			385			—			1,855
Prepayments and other	65		124			16			—			205
Total Current Assets	71		3,408			564			—			4,043
Net Property, Plant and Equipment	—		4,853			222			—			5,075
Investment in Subsidiaries	4,217		(251		)	216			(4,182		)	—
Long-Term Receivables from Affiliates	2,115		—			—			(2,115		)	—
Other Noncurrent Assets	46		572			52			(50		)	620
Total Assets	$	6,449	$	8,582		$	1,054		$	(6,347	)	$	9,738
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	89	$	2,342		$	403		$	—		$	2,834
Current maturities of debt	—		2			55			—			57
Total Current Liabilities	89		2,344			458			—			2,891
Long-Term Payables to Affiliates	—		2,063			52			(2,115		)	—
Debt	1,647		19			50			(50		)	1,666
Other Noncurrent Liabilities	1,159		177			(1		)	—			1,335
Equity-Tesoro Corporation	3,554		3,979			203			(4,182		)	3,554
Equity-Noncontrolling interest	—		—			292			—			292
Total Liabilities and Stockholders' Equity	$	6,449	$	8,582		$	1,054		$	(6,347	)	$	9,738

26

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Balance Sheet as of December 31, 2010

(In millions)

	Tesoro Corporation		Guarantor Subsidiaries			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	612		$	36		$	—		$	648
Receivables, less allowance for doubtful accounts	8		719			181			—			908
Inventories	—		1,080			177			—			1,257
Prepayments and other	29		78			8			—			115
Total Current Assets	37		2,489			402			—			2,928
Net Property, Plant and Equipment	—		5,008			162			—			5,170
Investment in Subsidiaries	4,011		(147		)	(5		)	(3,859		)	—
Long-Term Receivables from Affiliates	2,037		—			88			(2,125		)	—
Other Noncurrent Assets	34		597			3			—			634
Total Assets	$	6,119	$	7,947		$	650		$	(5,984	)	$	8,732
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	76	$	1,940		$	328		$	—		$	2,344
Current maturities of debt	—		2			150			—			152
Total Current Liabilities	76		1,942			478			—			2,496
Long-Term Payables to Affiliates	—		2,125			—			(2,125		)	—
Debt	1,823		20			—			—			1,843
Other Noncurrent Liabilities	1,005		174			(1		)	—			1,178
Equity-Tesoro Corporation	3,215		3,686			173			(3,859		)	3,215
Total Liabilities and Stockholders' Equity	$	6,119	$	7,947		$	650		$	(5,984	)	$	8,732

27

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Operations for the Three Months EndedJune 30, 2011

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	9,964		$	960		$	(2,961	)	$	7,963
Costs and expenses	1			9,557			947			(2,961		)	7,544
OPERATING INCOME (LOSS)	(1		)	407			13			—			419
Equity in earnings (loss) of subsidiaries	224			(5		)	21			(240		)	—
Other expense	—			(58		)	(4		)	—			(62		)
EARNINGS (LOSS) BEFORE INCOME TAXES	223			344			30			(240		)	357
Income tax expense (a)	1			133			1			—			135
NET EARNINGS (LOSS)	222			211			29			(240		)	222
Less net income attributable to noncontrolling interest	—			—			4			—			4
NET INCOME (LOSS) ATTRIBUTABLE TO TESORO CORPORATION STOCKHOLDERS	$	222		$	211		$	25		$	(240	)	$	218

_______________

(a) The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners' share of partnership income.

Condensed Consolidating Statement of Operations for the Three Months EndedJune 30, 2010

(In millions)

	Tesoro Corporation			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	6,657		$	526		$	(2,040	)	$	5,143
Costs and expenses	1			6,513			526			(2,040		)	5,000
OPERATING INCOME (LOSS)	(1		)	144			—			—			143
Equity in earnings (loss) of subsidiaries	67			(7		)	—			(60		)	—
Other expense	—			(36		)	—			—			(36		)
EARNINGS (LOSS) BEFORE INCOME TAXES	66			101			—			(60		)	107
Income tax expense (benefit) (a)	(1		)	40			1			—			40
NET EARNINGS (LOSS)	$	67		$	61		$	(1	)	$	(60	)	$	67

_______________

(a) The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from subsidiaries.

28

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Operations for the Six Months EndedJune 30, 2011

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	18,205		$	1,648		$	(5,364	)	$	14,489
Costs and expenses	5			17,580			1,630			(5,364		)	13,851
OPERATING INCOME (LOSS)	(5		)	625			18			—			638
Equity in earnings (loss) of subsidiaries	333			(17		)	21			(337		)	—
Other expense	—			(98		)	(6		)	—			(104		)
EARNINGS (LOSS) BEFORE INCOME TAXES	328			510			33			(337		)	534
Income tax expense (benefit) (a)	(1		)	204			2			—			205
NET EARNINGS (LOSS)	329			306			31			(337		)	329
Less net income attributable to noncontrolling interest	—			—			4			—			4
NET INCOME (LOSS) ATTRIBUTABLE TO TESORO CORPORATION STOCKHOLDERS	$	329		$	306		$	27		$	(337	)	$	325

_______________

(a) The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners' share of partnership income.

Condensed Consolidating Statement of Operations for the Six Months EndedJune 30, 2010

(In millions)

	Tesoro Corporation			Guarantor Subsidiaries			Non- Guarantors		Eliminations			Consolidated
REVENUES	$	—		$	12,481		$	1,085	$	(3,816	)	$	9,750
Costs and expenses	3			12,540			1,082		(3,816		)	9,809
OPERATING INCOME (LOSS)	(3		)	(59		)	3		—			(59		)
Equity in earnings (loss) of subsidiaries	(87		)	(14		)	—		101			—
Other expense	—			(73		)	—		—			(73		)
EARNINGS (LOSS) BEFORE INCOME TAXES	(90		)	(146		)	3		101			(132		)
Income tax expense (benefit) (a)	(2		)	(44		)	2		—			(44		)
NET EARNINGS (LOSS)	$	(88	)	$	(102	)	$	1	$	101		$	(88	)

_______________

(a) The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from subsidiaries.

29

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Cash Flows for the Six Months EndedJune 30, 2011

(In millions)

	Parent			Guarantor Subsidiaries			Non-Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	31		$	162		$	(104	)	$	—		$	89
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(111		)	(1		)	—			(112		)
Proceeds from asset sales	—			1			—			—			1
Intercompany notes, net	59			—			—			(59		)	—
Net cash from (used in) investing activities	59			(110		)	(1		)	(59		)	(111		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolver	—			—			115			—			115
Repayments under revolver	—			—			(160		)	—			(160		)
Repayments of debt	(243		)	(1		)	—			—			(244		)
Proceeds from stock options exercised	7			—			—			—			7
Excess tax benefits from equity-based compensation arrangements	—			7			—			—			7
Repurchases of common stock	(7		)	—			—			—			(7		)
Proceeds from issuance of common units-Tesoro Logistics LP	—			—			288			—			288
Net intercompany borrowings (repayments)	—			(265		)	206			59			—
Distributions to General Partner	50			—			(50		)	—			—
Distributions to Common unitholders	31			39			(70		)	—			—
Distributions to Subordinated unitholders	95			118			(213		)	—			—
Financing costs and other	(23		)	—			(2		)	—			(25		)
Net cash from (used in) financing activities	(90		)	(102		)	114			59			(19		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	—			(50		)	9			—			(41		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			612			36			—			648
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	562		$	45		$	—		$	607

30

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Cash Flows for the Six Months EndedJune 30, 2010

(In millions)

	Tesoro Corporation			Guarantor Subsidiaries			Non-Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	3		$	199		$	(263	)	$	—		$	(61	)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(158		)	(1		)	—			(159		)
Proceeds from asset sales	—			1			—			—			1
Intercompany notes, net	1			—			—			(1		)	—
Net cash from (used in) investing activities	1			(157		)	(1		)	(1		)	(158		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolver	66			—			—			—			66
Repayments under revolver	(66		)	—			—			—			(66		)
Repayments of debt	—			(1		)	—			—			(1		)
Proceeds from stock options exercised	3			—			—			—			3
Repurchases of common stock	(3		)	—			—			—			(3		)
Excess tax benefits from stock-based compensation arrangements	—			2			—			—			2
Net intercompany borrowings (repayments)	—			(272		)	271			1			—
Financing costs and other	(4		)	—			—			—			(4		)
Net cash from (used in) financing activities	(4		)	(271		)	271			1			(3		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	—			(229		)	7			—			(222		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			411			2			—			413
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	182		$	9		$	—		$	191

31

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Those statements in this section that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See “Important Information Regarding Forward-Looking Statements” on page 51 for a discussion of the factors that could cause actual results to differ materially from those projected in these statements. This section should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2010.

BUSINESS STRATEGY AND OVERVIEW

Strategy and Goals

Our vision is to be the premier low-cost supplier of transportation fuels in the refining and marketing business within our markets, providing value for our customers while delivering industry leading returns for our shareholders and conducting ourselves responsibly in the communities in which we operate. To achieve these goals we are pursuing the following strategic priorities:

• improve operational efficiency and effectiveness by focusing on safety and reliability, system improvements and cost leadership;

• drive commercial excellence by strengthening our supply and trading activities to provide additional value to the business;

• strengthen our financial position by exercising capital discipline and focusing on improving our liquidity; and

• capture value-driven growth through a focus on our logistics assets and growing our marketing business.

During the first half of 2011, the improved margin environment, more reliable refinery utilization, increased throughputs and focus on commercial excellence have contributed to higher total operating income. We continue to implement our strategy and goals discussed above to strengthen our financial position in 2011. Relative to these goals, during the first half of 2011 we:

• announced plans to expand the crude oil throughput capacity at our Mandan, North Dakota refinery from 58 thousand barrels per day ("Mbpd") to 68 Mbpd. The current expected capital investment for the expansion will be approximately $35 million, and is expected to be completed by the second quarter of 2012;

• announced plans to supply crude oil by rail from the Bakken Shale/Williston Basin area in eastern Montana and western North and South Dakota to our Washington refinery. The project includes loading and unloading facilities and dedicated rail cars called a unit train and is expected to deliver up to 30 thousand barrels per day of Bakken crude oil into the refinery. Bakken crude oil is high quality and cost advantaged and will allow the Company to decrease dependence on foreign waterborne feedstocks and declining Alaska North Slope production. The Company intends to offer these assets to Tesoro Logistics LP (“TLLP”). The current expected capital investment for the facility will be approximately $50 million and is expected to take approximately one year to complete;

• announced plans to replace the vacuum distillation unit at our Los Angeles refinery. The new unit will increase the refinery's clean product yield and reduce petroleum coke production at current crude rates. Additionally, the project will allow the refinery to reduce overall greenhouse gas emissions. The capital investment for the unit upgrade is expected to be approximately $40 million, and is currently scheduled to be completed by the third quarter of 2012, subject to permitting requirements;

• re-paid the $150 million Junior Subordinated Notes in May 2011 and reduced our debt outstanding related to our 6 1/4% Senior Notes due 2012 by $94 million through open market repurchases of our debt;

• amended and extended the maturity of the Tesoro Corporation Revolving Credit Facility to 2016. The amended facility includes reductions in borrowing rates and easing of certain covenants; and

• expanded our marketing presence through the addition of wholesale supply contracts on the west coast and in the mid-continent region including the addition of approximately 300 branded stations.

Tesoro Logistics LP

As part of our business strategy, we formed TLLP to own, operate, develop and acquire crude oil and refined products logistics assets. In April 2011, the initial public offering of 14,950,000 common units at a price of $21.00 per unit, which included a 1,950,000 share over-allotment option that was exercised by the underwriters, was completed. Tesoro Logistics GP, LLC, a 100% consolidated subsidiary, serves as the general partner of TLLP. Headquartered in San Antonio, Texas, TLLP's initial assets consist of a crude oil gathering system in the Bakken Shale/Williston Basin area, eight refined products terminals in the western United States, a crude oil and refined products storage facility and five related short-haul pipelines in Utah.

32

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

TLLP intends to expand its business by acquiring assets from us and third parties through organic growth, including constructing new assets and increasing the utilization of existing assets. Although we have historically operated our logistics assets primarily to support our refining and marketing business, we intend to grow our logistics operations in order to maximize the integrated value of our assets within the midstream and downstream value chain. TLLP believes they are well positioned to achieve their primary business objectives and execute business strategies based on the following competitive strengths: long-term fee-based contracts, their relationship with us, assets positioned in the high demand Bakken Shale/Williston Basin area and financial flexibility.

We hold an approximately 52% interest in TLLP, including the interest of the general partner. This interest includes 304,890 common units, 15,254,890 subordinated units and 622,649 general partner units. We received net proceeds of approximately $283 million from this offering, after deducting offering expenses (the "Offering Costs") and debt issuance costs. TLLP retained $3 million for working capital purposes and paid $2 million in connection with entering into their revolving credit facility.

Effective on the closing date of the offering, TLLP entered into a senior secured revolving credit agreement ("TLLP Revolving Credit Facility") with a syndicate of banks and financial institutions, which will provide for borrowings under a revolving credit facility with total loan availability of $150 million. At the closing of the offering, TLLP borrowed $50 million under the TLLP Revolving Credit Facility. TLLP distributed total proceeds to us of $333 million, which includes $283 million from the offering and $50 million from the TLLP Revolving Credit Facility, in consideration of assets contributed and to reimburse us for certain capital expenditures incurred with respect to these assets. The TLLP Revolving Credit Facility is non-recourse to Tesoro, except for Tesoro Logistics GP (which is TLLP's general partner), and is guaranteed by all of TLLP's subsidiaries and secured by substantially all of TLLP's assets. For additional information regarding our credit facilities, see "Capital Resources and Liquidity."

Reconciliation of Cash Proceeds (In millions)
Total proceeds from the Offering	$	314
Less: Offering Costs, net of debt issuance costs	(26		)
Proceeds from the Offering, net of Offering Costs	288
Less: Debt issuance costs	(2		)
Net proceeds from the Offering	286
Less: Cash retained by TLLP	(3		)
Net proceeds distributed to Tesoro from the Offering	283
Add: Borrowings under the TLLP Revolving Credit Facility	50
Distribution to Tesoro	$	333

Industry Overview

Our profitability is heavily influenced by the cost of crude oil and the aggregate value of the products we make from that crude oil and is affected by changes in economic conditions. Product values and crude oil costs are set by the market and are outside of the control of independent refiners.

33

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Crude Oil and Product Price Analysis

Average Key Commodity Prices and Differentials

(Dollars per barrel)

The U.S. economy continues its gradual recovery despite commodity price volatility, geopolitical risk concerns and European financial market uncertainty. The slow pace of employment growth over the past year is one of the main reasons for the gradual recovery. The nationwide unemployment rate increased by 0.4% in the second quarter of 2011 to 9.2%. In California, a key market area for Tesoro, the state's unemployment rate fell by only 0.2%, to 11.8%, from March 2011 to June 2011.

Stronger economic growth has been seen in emerging Asian markets, where recovery started over a year ago. U.S. refined product exports remained above historical averages for both West and Gulf Coast refiners in the first and beginning of the second quarters of 2011 due to economic and weather-related oil demand strength in certain Latin American markets and stronger Asian refined product prices. Net U.S. exports of the three principle light products (gasoline, jet, diesel) reached record levels in April with over 1 million barrels per day exported.

These exports have been led primarily by distillate as the recovery in Asian markets has improved global middle distillate values. Strong Asian refining crack spreads and continued strength in U.S. light product exports provided additional support during the quarter. During the second quarter of 2011, U.S. West Coast benchmark diesel fuel and gasoline margins remained relatively flat compared to the first quarter of 2011. However, U.S. West Coast benchmark diesel fuel margins were up nearly 40% from the 2010 second quarter, while U.S. West Coast benchmark gasoline margins fell approximately 12% as compared to the 2010 second quarter. Higher consumer gasoline prices combined with the slow economic recovery continued to keep gasoline demand growth from recovering and continued to weaken gasoline margins. Rising retail gasoline prices, which peaked in May, had a negative impact on gasoline demand.

The price spread between mid-continent crudes and world crudes continues to widen in an unprecedented manner. As of January 1, 2011, the West Texas Intermediate ("WTI") to Brent differential was $1.11 per barrel. As of June 30, 2011, this differential had increased to $16.54 per barrel reflecting the dislocation of WTI due to mid-continent crude oil logistics constraints and global supply issues. This has decreased the crude costs for inland refineries in the mid-continent region and contributed to strong refining margins for that sector.

In June 2011, the U.S. government, in concert with other world agencies, announced the release of a total of 60 million barrels of crude oil and oil products into the global markets, 30 million is being released by the U.S. during the third quarter of 2011. Although the immediate impact of this announcement was a decline in oil prices, by the end of June, prices had recovered to their pre-announcement levels.

34

TESORO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Outlook

The U.S. economy is expected to continue its recovery with high unemployment continuing to be a barrier to the rate of recovery. The growing economies in the developing world are expected to continue to provide positive pressure on distillate margins, though gasoline margins, which are more driven by U.S. consumers, are expected to remain in seasonal ranges. Internationally, several recent events, both natural and geopolitical, have created interruptions in the supply chain for oil and other industries, which are causing readjustments in the market place. The effects of events in Japan earlier this year are continuing to impact fuel oil prices in the Pacific Basin markets. The Libyan oil export disruption has increased uncertainty related to the supply of crude oil despite increased production by certain OPEC member countries.

In addition to current market conditions, there are long-term factors that may impact the supply and demand of refined products in the U.S. including:

• world crude oil prices;

• increased federal fuel efficiency standards for motor vehicles;

• increased volumes of renewable fuels, mandated by the federal Clean Air Act;

• various regulations of greenhouse gas emissions from stationary and mobile sources by the U.S. EPA pursuant to the Federal Clean Air Act and California statute;

• potential enactment of federal climate change legislation,

• possible promulgation of national regulations relative to gasoline content and ozone standards as authorized by the federal Clean Air Act; and

• increased refinery capacity being built both in the U.S. and overseas.

35

RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDEDJUNE 30, 2011, COMPARED WITH THREE AND SIX MONTHS ENDEDJUNE 30, 2010

A discussion and analysis of the factors contributing to our results of operations is presented below. The accompanying condensed consolidated financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance. Revenue and income generated by TLLP was not significant to consolidated results of operations for Tesoro Corporation.

Summary

Our net earnings were $218 million ($1.52 per diluted share) for the three months ended June 30, 2011 (“2011 Quarter”), compared with net earnings of $67 million ($0.47 per diluted share) for the three months ended June 30, 2010 (“2010 Quarter”). The increase in net earnings of $1.05 per diluted share during the 2011 Quarter was primarily due to the following:

• significantly higher gross refining margins in the Pacific Northwest and mid-continent regions of $122 million and $139 million, respectively, driven by feedstock advantages and increased throughputs; and

• $37 million of property and business interruption insurance recoveries related to the 2010 Washington refinery incident collected in the 2011 Quarter.

The increase in net earnings during the 2011 Quarter relative to the 2010 Quarter was partially offset by the following:

• a $48 million impairment charge during the 2011 Quarter related to the change in scope of a capital project at our Los Angeles refinery;

• a $48 million gain primarily related to the elimination of postretirement life insurance benefits for current and future retirees in the 2010 Quarter; and

• a $23 million increase in interest expense due to the write-off of the remaining unamortized discount associated with the early redemption of our Junior Subordinated Notes due 2012 and premiums paid in connection with the repurchase of a portion of our 6 1/4% Senior Notes.

For the year-to-date periods, our net income was $325 million ($2.26 per diluted share) for the six months ended June 30, 2011 ("2011 Period"), compared to a net loss of $88 million ($0.63 per diluted share) for the six months ended June 30, 2010 ("2010 Period"). The increase in net earnings of $2.89 per diluted share during the 2011 Period was primarily due to the following:

• significantly higher gross refining margins in the Pacific Northwest and mid-continent regions of $221 million and $270 million, respectively, driven by feedstock advantages and increased throughputs; and

• $37 million of property and business interruption insurance recoveries related to the 2010 Washington refinery incident collected in the 2011 Period.

The increase in net earnings during the 2011 Period relative to the 2010 Period was partially offset by the following:

• a $48 million impairment charge in the 2011 Period as compared to a $20 million impairment in the 2010 Period related to a change in scope of a capital project at our Los Angeles refinery;

• a $48 million gain recognized in the 2010 Period, primarily from the elimination of postretirement life insurance benefits for the current and future retirees;

• a $29 million increase in interest expense due to the write-off of the remaining unamortized discount associated with the early redemption of our Junior Subordinated Notes due 2012 and premiums paid in connection with the repurchase of a portion of our 6 1/4% Senior Notes; and

• a $26 million increase in incentive and stock-based compensation expense primarily related to our stock appreciation rights.

There were no material impacts to our consolidated results of operations as a result of the offering of TLLP in April 2011.

36

Refining Segment

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(Dollars in millions except per barrel amounts)
Revenues
Refined products (a)	$	7,635		$	4,661		$	13,905		$	8,906
Crude oil resales and other (b)	186			351			341			588
Total Revenues	$	7,821		$	5,012		$	14,246		$	9,494
Throughput (thousand barrels per day)
Heavy crude (c)	160			193			173			180
Light crude	382			251			360			263
Other feedstocks	36			30			37			29
Total Throughput	578			474			570			472
% Heavy Crude Oil of Total Refining Throughput (c)	28		%	41		%	30		%	38		%
Yield (thousand barrels per day)
Gasoline and gasoline blendstocks	276			222			283			227
Jet fuel	77			64			78			67
Diesel fuel	131			103			128			98
Heavy oils, residual products, internally produced fuel and other	124			112			112			108
Total Yield	608			501			601			500
Gross refining margin ($/throughput barrel) (d)	$	16.61		$	12.89		$	15.49		$	9.65

________________

(a) Refined products sales includes intersegment sales to our retail segment at prices, which approximate market of $1.3 billion and $812 million for the three months ended June 30, 2011 and 2010, respectively, and $2.3 billion and $1.6 billion for the six months ended June 30, 2011 and 2010, respectively.

(b) Crude oil resales and other includes revenues earned by TLLP. Segment operating income for the refining segment includes $9 million and $4 million of operating income from TLLP for the three and six months ended June 30, 2011, respectively, and $6 million and $10 million of operating loss from TLLP for the three and six months ended June 30, 2010, respectively. Amounts recorded for TLLP are included in our regional refining operating data.

(c) We define heavy crude oil as crude oil with an American Petroleum Institute gravity of 24 degrees or less.

(d) Management uses gross refining margin per barrel to evaluate performance and compare profitability to other companies in the industry. There are a variety of ways to calculate gross refining margin per barrel; different companies may calculate it in different ways. We calculate gross refining margin per barrel by dividing gross refining margin (revenue less costs of feedstocks, purchased refined products, transportation and distribution) by total refining throughput. Management uses manufacturing costs per barrel to evaluate the efficiency of refining operations. There are a variety of ways to calculate manufacturing costs per barrel; different companies may calculate it in different ways. We calculate manufacturing costs per barrel by dividing manufacturing costs by total refining throughput. 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 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 (“U.S. GAAP”).

37

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(Dollars in millions except per barrel amounts)
Segment Operating Income (Loss)
Gross refining margin (e)	$	873	$	555	$	1,597	$	825
Expenses
Manufacturing costs	269		248		533		500
Other operating expenses	51		50		107		122
Selling, general and administrative expenses	8		7		16		16
Depreciation and amortization expense (f)	94		93		185		178
Loss on asset disposals and impairments	52		7		54		28
Segment Operating Income (Loss) (b)	$	399	$	150	$	702	$	(19	)
Refined Product Sales (thousand barrels per day) (g)
Gasoline and gasoline blendstocks	344		277		334		281
Jet fuel	89		97		87		93
Diesel fuel	139		113		135		105
Heavy oils, residual products and other	85		77		80		77
Total Refined Product Sales	657		564		636		556
Refined Product Sales Margin ($/barrel) (g)
Average sales price	$	128.67	$	90.91	$	121.29	$	89.03
Average costs of sales	117.01		82.00		108.82		82.40
Refined Product Sales Margin	$	11.66	$	8.91	$	12.47	$	6.63

_______________

(e) Consolidated gross refining margin combines gross refining margin for each of our regions adjusted for other amounts not directly attributable to a specific region. Other amounts resulted in an increase of $5 million and a decrease of $2 million for the three months ended June 30, 2011 and 2010, respectively, and an increase of $10 million for the six months ended June 30, 2011. 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 multiplied by the gross refining margin per barrel.

(f) Includes manufacturing depreciation and amortization expense per throughput barrel of approximately $1.70 and $2.05 for the three months ended June 30, 2011 and 2010, respectively, and $1.71 and $1.97 for the six months ended June 30, 2011 and 2010, respectively.

(g) Sources of total refined product sales includes refined products manufactured at our refineries and refined products purchased from third-parties. Total refined product sales margins include margins on sales of manufactured and purchased refined products.

38

Refining Data by Region

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(Dollars in millions except per barrel amounts)
California (Golden Eagle and Los Angeles)
Refining throughput (thousand barrels per day) (h)	227		239		238		214
Gross refining margin	$	316	$	293	$	688	$	425
Gross refining margin ($/throughput barrel) (d)	$	15.25	$	13.48	$	15.98	$	10.95
Manufacturing cost before depreciation and amortization expense (d) ($/throughput bbl)	$	7.72	$	7.01	$	7.18	$	7.82
Pacific Northwest (Washington and Alaska)
Refining throughput (thousand barrels per day) (h)	168		84		152		103
Gross refining margin	$	220	$	98	$	383	$	162
Gross refining margin ($/throughput barrel) (d)	$	14.39	$	12.78	$	13.95	$	8.69
Manufacturing cost before depreciation and amortization expense (d) ($/throughput bbl)	$	3.04	$	5.98	$	3.50	$	5.02
Mid-Pacific (Hawaii)
Refining throughput (thousand barrels per day)	68		67		68		67
Gross refining margin	$	60	$	33	$	41	$	33
Gross refining margin ($/throughput barrel) (d)	$	9.76	$	5.35	$	3.33	$	2.74
Manufacturing cost before depreciation and amortization expense (d) ($/throughput bbl)	$	3.97	$	2.92	$	4.33	$	2.85
Mid-Continent (North Dakota and Utah)
Refining throughput (thousand barrels per day) (h)	115		84		112		88
Gross refining margin	$	272	$	133	$	475	$	205
Gross refining margin ($/throughput barrel) (d)	$	26.07	$	17.38	$	23.51	$	12.80
Manufacturing cost before depreciation and amortization expense (d) ($/throughput bbl)	$	3.73	$	4.18	$	3.69	$	4.26

____________________

(h) We experienced reduced throughput due to scheduled turnarounds at our Golden Eagle refinery during the 2011 second quarter, at our Golden Eagle and Utah refineries during the 2010 first quarter, and our North Dakota refinery during the 2010 second quarter. We temporarily shut-down processing at the Washington refinery subsequent to the incident in April 2010.

Three Months EndedJune 30, 2011 Compared with Three Months EndedJune 30, 2010

Overview. Operating income for our refining segment increased by $249 million, or 166%, to $399 million during the 2011 Quarter as compared to the 2010 Quarter. The increase is primarily due to an improved margin environment and higher refinery throughput during the 2011 Quarter.

Gross Refining Margins. Our gross refining margin per barrel increased by $3.72 per barrel, or 29%, to $16.61 per barrel in the 2011 Quarter as compared to the 2010 Quarter, reflecting stronger industry margins across all regions. Industry distillate margins on the U.S. West Coast increased approximately 40%, while gasoline margins on the U.S. West Coast declined approximately 12% during the 2011 Quarter as compared to the 2010 Quarter. Our margins were driven by advantaged crude cost relative to industry benchmarks and increased throughput during the quarter. Mid-continent crude oil logistic constraints continued to increase the price spread between crude oil priced off WTI and waterborne crude oil benchmarks. This has decreased the crude costs for our mid-continent refineries and contributed to strong refining margins for that region. The significantly higher gross refining margin per barrel positively impacted total gross refining margins by $318 million during the 2011 Quarter as compared to the 2010 Quarter. Our mid-pacific gross refining margin per barrel increased by $4.41 per barrel to $9.76 per barrel in the 2011 Quarter as compared to the 2010 Quarter, due to the combined effects of lower crude oil costs and lagging refined product prices. Additionally, we recorded business interruption insurance recoveries of $32 million during the 2011 Quarter related to the 2010 Washington refinery incident in costs of sales.

39

We periodically use non-trading derivative instruments to manage exposure to commodity price risks associated with the purchase or sale of crude oil and finished products. We may also use non-trading derivative instruments to manage price risks associated with inventories above or below our target levels. Gains or losses associated with our derivative instruments are included in gross refining margin. Our gains totaled $86 million during the 2011 Quarter and $18 million during the 2010 Quarter as crude oil prices decreased throughout the 2011 Quarter as compared to more marginal decreases during the 2010 Quarter.

Refining Throughput. Total refining throughput increased 104 Mbpd, or 22%, to 578 Mbpd during the 2011 Quarter as compared to the 2010 Quarter. Our Washington refinery operated at a significantly higher utilization of 88% during the 2011 Quarter, while during the 2010 Quarter, it was temporarily shut-down subsequent to the April 2010 incident. Additionally, our North Dakota refinery operated at higher rates during the 2011 Quarter, after running at reduced rates due to a turnaround in the 2010 Quarter.

Refined Products Sales. Revenues from sales of refined products increased $3.0 billion, or 64% to $7.6 billion in the 2011 Quarter as compared to the 2010 Quarter, primarily due to significantly higher average refined product sales prices and increased refined product sales volumes. Our average product sales price increased $37.76 per barrel, or 42%, to $128.67 per barrel in the 2011 Quarter as compared to the 2010 Quarter, as higher crude oil prices put upward pressure on product prices. Total refined product sales increased by 93 Mbpd, or 16%, to 657 Mbpd in the 2011 Quarter as compared to the 2010 Quarter. Refined product sales volumes were impacted by increased demand for diesel fuel and gasoline and additional branded marketing supply agreements.

Costs of Sales and Expenses. Our average costs of sales increased by $35.01 per barrel, or 43%, to $117.01 per barrel during the 2011 Quarter as compared to the 2010 Quarter, reflecting higher crude oil prices impacted by global market events discussed in “Business Strategy and Overview.” Manufacturing and other operating expenses increased by $22 million, or 7%, to $320 million in the 2011 Quarter as compared to the 2010 Quarter due to higher utilities costs, primarily natural gas, and increased throughput volumes. We recorded business interruption insurance and property insurance recoveries of $32 million and $5 million, respectively, related to the 2010 Washington refinery incident that were recorded in cost of sales and operating expenses, respectively. Additionally, the changes to our postretirement medical and pension benefit programs resulted in a $36 million gain during the 2010 Quarter. The loss on asset disposals and impairments includes a $48 million charge for the impairment of equipment related to the change in scope of a capital project at our Los Angeles refinery in the 2011 Quarter.

Six Months EndedJune 30, 2011 Compared with Six Months EndedJune 30, 2010

Overview. Operating income for our refining segment increased by $721 million to $702 million during the 2011 Period as compared to the 2010 Period. The increase is primarily due to an improved margin environment and higher refinery throughput during the 2011 Period.

Gross Refining Margins. Our gross refining margin per barrel increased by $5.84 per barrel, or 61%, to $15.49 per barrel in the 2011 Period as compared to the 2010 Period, reflecting stronger industry margins in both the mid-continent and west coast markets. Industry distillate and gasoline margins on the U.S. West Coast increased approximately 76% and 6%, respectively. Our margins were driven by advantaged crude cost relative to industry benchmarks and increased throughput. Mid-continent crude oil logistic constraints continued to increase the price spread between crude oil priced off WTI and waterborne crude oil benchmarks.This has decreased the crude costs for our mid-continent refineries and contributed to strong refining margins for that region. The significantly higher gross refining margin per barrel positively impacted total gross refining margins by $772 million during the 2011 Period as compared to the 2010 Period. Additionally, we recorded business interruption insurance recoveries of $32 million during the 2011 Period related to the 2010 Washington refinery incident.

We periodically use non-trading derivative instruments to manage exposure to commodity price risks associated with the purchase or sale of crude oil and finished products. We may also use non-trading derivative instruments to manage price risks associated with inventories above or below our target levels. Gains or losses associated with our derivative instruments are included in gross refining margin. Our gains totaled $35 million during the 2011 Period and $6 million during the 2010 Period due to the increased volatility of crude oil prices during the 2011 Period compared to the marginal price increases during the 2010 Period.

Refining Throughput. Total refining throughput increased 98 Mbpd, or 21%, to 570 Mbpd during the 2011 Period as compared to the 2010 Period due to favorable market conditions and turnarounds at our Golden Eagle, Utah and North Dakota refineries in the 2010 Period. Additionally, our Washington refinery was fully operational throughout the 2011 Period, as compared to the 2010 Period when we temporarily shut-down processing at our Washington refinery subsequent to the April 2010 incident.

40

Refined Products Sales. Revenues from sales of refined products increased $5.0 billion, or 56% to $13.9 billion in the 2011 Period as compared to the 2010 Period, primarily due to significantly higher average refined product sales prices and increased refined product sales volumes. Our average product sales price increased $32.26 per barrel, or 36%, to $121.29 per barrel in the 2011 Period as compared to the 2010 Period, as higher crude oil prices put upward pressure on product prices. Total refined product sales increased by 80 Mbpd, or 14%, to 636 Mbpd in the 2011 Period as compared to the 2010 Period. Refined product sales volumes were impacted by increased demand for diesel fuel and gasoline and additional branded marketing supply agreements.

Costs of Sales and Expenses. Our average costs of sales increased by $26.42 per barrel, or 32%, to $108.82 per barrel during the 2011 Period as compared to the 2010 Period, reflecting higher crude oil prices impacted by global market events discussed in “Business Strategy and Overview.” Manufacturing and other operating expenses increased by $18 million, or 3%, to $640 million in the 2011 Period as compared to the 2010 Period related to higher utilities costs, primarily natural gas, and increased throughput volumes. We recorded business interruption insurance and property insurance recoveries during the 2011 Period of $32 million and $5 million, respectively, related to the 2010 Washington refinery incident that were recorded in cost of sales and operating expenses, respectively. Additionally, the changes to our postretirement medical and pension benefit programs resulted in a $36 million gain during the 2010 Period. The losses on asset disposals and impairments in the 2011 and 2010 Periods primarily relate to a change in scope of a capital project at our Los Angeles refinery, which resulted in a write-down to fair value of equipment of $48 million in the 2011 Period and $20 million in the 2010 Period.

Retail Segment

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(Dollars in millions except per gallon amounts)
Revenues
Fuel	$	1,354		$	886		$	2,469		$	1,700
Merchandise and other	57			57			109			110
Total Revenues	$	1,411		$	943		$	2,578		$	1,810
Fuel Sales (millions of gallons)	379			333			734			649
Fuel Margin ($/gallon) (a) (b)	$	0.23		$	0.22		$	0.18		$	0.23
Merchandise Margin (in millions)	$	13		$	14		$	25		$	26
Merchandise Margin (percent of revenues)	25		%	27		%	26		%	27		%
Average Number of Stations (during the period)
Company-operated	377			384			378			385
Branded jobber/dealer (c)	808			500			757			499
Total Average Retail Stations	1,185			884			1,135			884
Segment Operating Income
Gross Margins
Fuel (b)	$	85		$	75		$	134		$	147
Merchandise and other non-fuel	20			21			38			39
Total Gross Margins	105			96			172			186
Expenses
Operating expenses	51			50			102			99
Selling, general and administrative expenses	4			3			8			9
Depreciation and amortization expense	10			10			19			20
Loss on asset disposals and impairments	2			3			3			4
Segment Operating Income	$	38		$	30		$	40		$	54

_________

(a) Management uses fuel margin per gallon to compare profitability to other companies in the industry. There are a variety of ways to calculate fuel margin per gallon; different companies may calculate it in different ways. We calculate fuel margin per gallon by dividing fuel gross margin by fuel sales volumes. 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 U.S. GAAP.

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

(c) Reflects the phased expansion of our branded marketing presence through the addition of approximately 300 wholesale supply contracts predominantly in the mid-continent region during 2011.

41

Three Months EndedJune 30, 2011 Compared with Three Months EndedJune 30, 2010

Operating Income. Operating income for our retail segment increased $8 million, or 27%, to $38 million during the 2011 Quarter as compared to the 2010 Quarter. This was primarily related to a 46 million gallon, or 14%, increase in fuel sales volumes during the 2011 Quarter as compared to the 2010 Quarter primarily attributable to the addition of branded marketing supply contracts in the mid-continent region, which transitioned in the 2011 first quarter. Total gross margin increased $9 million, or 9%, to $105 million during the 2011 Quarter as compared to the 2010 Quarter. Fuel margin per gallon increased slightly during the 2011 Quarter. Merchandise and other non-fuel gross margin remained relatively stable at $20 million during the 2011 Quarter as compared to $21 million during the 2010 Quarter.

Fuel sales revenues increased $468 million, or 53%, to $1.4 billion in the 2011 Quarter as compared to $886 million in the 2010 Quarter, reflecting significantly higher average sales prices and increased fuel sales volumes. Costs of sales increased from the 2010 Quarter due to higher prices for purchased fuel. Our other expenses remained relatively consistent as compared to the 2010 Quarter.

Six Months EndedJune 30, 2011 Compared with Six Months EndedJune 30, 2010

Operating Income. Operating income for our retail segment decreased $14 million, or 26%, to $40 million during the 2011 Period as compared to the 2010 Period. Retail fuel margin per gallon decreased 22% to $0.18 per gallon during the 2011 Period leading fuel gross margins to decrease $13 million from the 2010 Period. During the 2011 Period, rapidly rising wholesale fuel costs outpaced increases in retail street prices, which negatively impacted retail margins. This was partially offset by an 85 million gallon, or 13%, increase in fuel sales volumes during the 2011 Period as compared to the 2010 Period led by the addition of branded marketing supply contracts in the mid-continent region, which transitioned in the 2011 first quarter. Merchandise and other non-fuel gross margin remained stable at $38 million during the 2011 Period compared to $39 million during the 2010 Period. As a result, total gross margin decreased $14 million, or 8%, to $172 million during the 2011 Period as compared to the 2010 Period.

Fuel sales revenues increased $769 million, or 45%, to $2.5 billion in the 2011 Period as compared to $1.7 billion in the 2010 Period, reflecting significantly higher average sales prices and increased fuel sales volumes. Costs of sales increased from the 2010 Period due to higher prices for purchased fuel. Our other expenses remained relatively consistent compared to the 2010 Period.

Consolidated Results of Operations

Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased $15 million, or 36% to $27 million in the 2011 Quarter from $42 million in the 2010 Quarter. The decrease was primarily due to the impact of lower stock prices on stock-based compensation expense recorded for our stock appreciation rights and phantom stock options, which decreased by $9 million and $3 million, respectively. Our stock appreciation rights and phantom stock options are adjusted to fair value at the end of each reporting period using a Black-Scholes method where stock price is a significant assumption. Our stock price decreased 15% during the 2011 Quarter.

Our selling, general and administrative expenses increased $13 million, or 12%, to $122 million in the 2011 Period from $109 million in the 2010 Period. The increase was primarily due to the impact of higher stock prices throughout 2011, resulting in an increase in stock-based compensation expense recorded for our stock appreciation rights and phantom stock options, which increased by $21 million and $5 million, respectively. Our stock appreciation rights and phantom stock options are adjusted to fair value at the end of each reporting period using a Black-Scholes method where stock price is a significant assumption. Our stock price increased approximately 24% during the 2011 Period.

Interest and Financing Costs. Interest and financing costs increased $23 million, or 62%, to $60 million in the 2011 Quarter from $37 million during the 2010 Quarter. The increase reflects a $13 million charge to write-off the unamortized discount on the Junior Subordinated Notes, which were redeemed during the 2011 Quarter, a $6 million charge related to accrued interest and premiums paid associated with the repurchase of our 6 1/4% Notes, and interest on borrowings outstanding under the Tesoro Panama Company Sociedad Anonima ("TPSA") Revolving Credit Facility, which was entered into in October 2010.

Interest and financing costs increased $29 million, or 39%, to $103 million in the 2011 Period from $74 million during the 2010 Period. The increase reflects a $13 million charge to write-off the unamortized discount on the Junior Subordinated Notes, which were redeemed during the 2011 Quarter, $6 million charge related to accrued interest and premiums paid associated with the repurchase of our 6 1/4% Notes, and interest on borrowings outstanding under the TPSA Revolving Credit Facility, which was entered into in October 2010.

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Income Tax Provision. Our income tax expense totaled $135 million in the 2011 Quarter versus $40 million in the 2010 Quarter. In the 2011 Period, the income tax expense totaled $205 million versus a benefit of $44 million in the 2010 Period. The combined federal and state effective income tax rate was 38% and 33% during the 2011 Period and the 2010 Period, respectively. The 2010 Period benefit was reduced by $7 million of income tax expense related to health care legislation enacted in 2010.

CAPITAL RESOURCES AND LIQUIDITY

Overview

We operate in an environment where our capital resources and liquidity are impacted by changes in the price of crude oil and refined products, availability of trade credit, market uncertainty and a variety of additional factors beyond our control. These factors include the level of consumer demand for transportation fuels, weather conditions, fluctuations in seasonal demand, governmental regulations, geo-political conditions and overall market and global economic conditions. See "Important Information Regarding Forward-Looking Statements" on page 51 for further information related to risks and other factors. Future capital expenditures, as well as borrowings under our credit agreement and other sources of capital, may be affected by these conditions.

Credit Facilities Overview

Our primary sources of liquidity have been cash flows from operations and borrowing availability under revolving lines of credit. We ended the second quarter of 2011 with $607 million of cash and cash equivalents, no borrowings under the Tesoro Corporation Revolving Credit Facility, $55 million in borrowings under the TPSA Revolving Credit Facility, and $50 million in borrowings under the TLLP Revolving Credit Facility. We believe available capital resources will be adequate to meet our capital expenditure, working capital and debt service requirements. We had borrowing ability under our credit agreements as follows (in millions):

	Total Capacity		Amount Borrowed to date		Outstanding Letters of Credit		Available Capacity
Tesoro Corporation Revolving Credit Facility (a)	$	1,850	$	—	$	772	$	1,078
Letter of Credit Agreements	490		—		222		268
TPSA Revolving Credit Facility	500		55		95		350
TLLP Revolving Credit Facility	150		50		—		100
Total credit agreements	$	2,990	$	105	$	1,089	$	1,796

_________

(a)Borrowing base is the lesser of the amount of the periodically adjusted borrowing base or the agreement's total capacity.

Our credit facilities as of June 30, 2011 were subject to the following expenses and fees.

Credit Facility	Eurodollar Rate	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Tesoro Corporation Revolving Credit Facility ($1.85 billion)	0.19%	1.75%	3.25%	—%	0.375%
TPSA Revolving Credit Facility ($500 million)	0.19%	2.75%	3.25%	1.75%	—%
TLLP Revolving Credit Facility ($150 million)	0.19%	2.50%	3.25%	1.50%	0.500%

Tesoro Corporation Revolving Credit Facility (“Revolving Credit Facility”)

We amended our Revolving Credit Facility in March 2011. The total available capacity was changed to $1.85 billion, which, subject to receiving increased commitments from the lending group, can be increased up to an aggregate $2.25 billion. Additionally, there were reductions in borrowing rates and the easing of certain covenants. The Revolving Credit Facility is guaranteed by substantially all of Tesoro's active domestic subsidiaries, excluding Tesoro Logistics GP, Tesoro Logistics LP and its subsidiaries, and is secured by substantially all of the crude oil and refined product inventories, cash and receivables of Tesoro's active domestic subsidiaries. TPSA is not a guarantor of the Revolving Credit Facility.

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Our Revolving Credit Facility and senior notes impose various restrictions and covenants that could potentially limit our ability to respond to market conditions, raise additional debt or equity capital, pay cash dividends, or repurchase stock. The indentures for our senior notes contain covenants and restrictions, which are customary for notes of this nature. These covenants and restrictions limit, among other things, our ability to:

• pay dividends and make other distributions with respect to our capital stock and purchase, redeem or retire our capital stock;

• incur additional indebtedness and issue preferred stock;

• sell assets unless the proceeds from those sales are used to repay debt or are reinvested in our business;

• incur liens on assets to secure certain debt;

• engage in certain business activities;

• make certain payments and distributions from our subsidiaries;

• engage in certain mergers or consolidations and transfers of assets; and

• enter into transactions with affiliates.

Borrowing availability under the Revolving Credit Facility is based on a minimum fixed charge coverage ratio. In addition, we have a default covenant, which requires us to maintain specified levels of tangible net worth. We were in compliance with our debt covenants for the six months ended June 30, 2011.

At June 30, 2011, our Revolving Credit Facility provided for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base of approximately $3.1 billion, consisting of Tesoro's eligible cash and cash equivalents, receivables and petroleum inventories (based upon a West Texas Intermediate crude oil price of $103 per barrel), net of the standard reserve as defined, or the Revolving Credit Facility's total capacity of $1.85 billion. As of June 30, 2011, we had unused credit availability of approximately 58% of the eligible borrowing base.

Our committed Revolving Credit Facility is scheduled to mature on March 16, 2016. The Revolving Credit Facility will terminate if the Company does not (a) refinance or pay in full, the Company's 6 1/4% notes due November 2012 on or prior to the stated maturity date, or (b) refinance or pay in full, the Company's 6 5/8% notes due November 2015 on or prior to the stated maturity date.

Letter of Credit Agreements

The Revolving Credit Facility allows us to obtain letters of credit under separate letter of credit agreements for foreign crude oil purchases. At June 30, 2011, we had three separate letter of credit agreements. Letters of credit outstanding under these agreements incur fees and are secured by the petroleum inventories for which they are issued. The letter of credit agreements may be terminated by either party, at any time.

TPSA Revolving Credit Facility

As part of our business strategy, we formed TPSA, a directly and wholly owned subsidiary of Tesoro, to further utilize our leased pipeline and tank facilities in Panama. TPSA, entered into a 364-day uncommitted, secured revolving credit agreement that expires in October 2011. TPSA is an excluded and unrestricted subsidiary from the Revolving Credit Facility and outstanding indentures. The TPSA Revolving Credit Facility is non-recourse to Tesoro and is guaranteed by TPSA's assets. The TPSA Revolving Credit Facility includes two uncommitted facilities, which provide for revolving borrowings, swing line loans and daylight overdraft loans and letters of credit.

At June 30, 2011, our TPSA Revolving Credit Facility provided for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base consisting of TPSA eligible receivables and petroleum inventories, net of reserves, or the agreement's capacity based on the net worth of TPSA. In June 2011, we increased the maximum capacity of these facilities from $350 million to $500 million, consisting of $350 million under the first facility and $150 million under the second facility, and amended this facility to modify certain terms of the collateral pool calculation. The two facilities maximum capacities were increased from $245 million and $105 million, respectively. Our total capacity under the TPSA facilities can be further increased up to $700 million provided the facilities' maximum amounts do not exceed $550 million and $350 million, respectively. During the 2011 Quarter we reduced our borrowings under this facility by $25 million.

The TPSA Revolving Credit Facility contains certain default covenants and conditions relative to TPSA's financial results that, among other things, limit TPSA's ability to incur indebtedness or carry inventory levels above certain defined maximums. TPSA is also required to maintain specified levels of adjusted tangible net worth (as defined), and adjusted net working capital (as defined). We were in compliance with all TPSA Revolving Credit Facility covenants and conditions as of June 30, 2011.

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TLLP Revolving Credit Facility

On April 26, 2011, TLLP entered into a senior secured revolving credit agreement (“TLLP Revolving Credit Facility”) with a syndicate of banks and financial institutions, including Bank of America, N.A. as administrative agent. The TLLP Revolving Credit Facility provides for total available revolving capacity of $150 million and allows for TLLP to request that the capacity be increased up to an aggregate of $300 million, subject to receiving increased commitments from the lenders. At the closing of the offering, TLLP borrowed $50 million under the TLLP Revolving Credit Facility.

The TLLP Revolving Credit Facility is non-recourse to Tesoro, except for Tesoro Logistics GP (which is TLLP's general partner), and is guaranteed by all of TLLP's subsidiaries and secured by substantially all of its assets. Borrowings available under the TLLP Revolving Credit Facility are up to the total available revolving capacity of the facility. The TLLP Revolving Credit Facility is scheduled to mature three years from execution and will terminate on April 25, 2014.

The TLLP Revolving Credit Facility contains affirmative and negative covenants that, among other things, limit or restrict TLLP's ability (as well as those of TLLP's subsidiaries) to:

• incur additional indebtedness and incur liens on assets to secure certain debt;

• pay and make certain restricted payments;

• make distributions from its subsidiaries;

• dispose of assets unless the proceeds from those sales are used to repay debt or are reinvested in its business;

• make certain amendments, modifications or supplements to organization documents and material contracts;

• engage in certain business activities;

• engage in certain mergers or consolidations and transfers of assets; and

• enter into transactions with affiliates.

Additionally, covenants require TLLP to maintain certain interest coverage and leverage ratios. We were in compliance with all TLLP Revolving Credit Facility covenants and conditions as of June 30, 2011.

Junior Subordinated Notes due 2012

We redeemed the $150 million Junior Subordinated Notes due 2012 in May 2011. Upon redemption, we recorded a $13 million charge to write-off the remaining unamortized discount associated with the Notes, which is included in interest and financing costs in the consolidated statement of operations for the three and six months ended June 30, 2011.

6 1/4% Senior Notes due 2012

From time to time, we may purchase our 6 1/4% Senior Notes due 2012 in the open market or in privately negotiated transactions. The timing and amount of debt repurchases, if any, will depend on available cash, market conditions and other considerations.

During the second quarter of 2011, we repurchased $94 million of principal related to these notes through the open market for an aggregate purchase price of $100 million, including accrued interest and premiums, which are included in interest and financing costs in the consolidated statement of operations for the three and six months ended June 30, 2011.

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Capitalization

Our capital structure at June 30, 2011, was comprised of the following (in millions):

Debt, including current maturities:
Tesoro Corporation Revolving Credit Facility	$	—
TPSA Revolving Credit Facility	55
TLLP Revolving Credit Facility	50
6¼% Senior Notes Due 2012	356
65/8% Senior Notes Due 2015	450
6½% Senior Notes Due 2017	500
9¾% Senior Notes Due 2019 (net of unamortized discount of $10 million)	290
Capital lease obligations and other	22
Total Debt	1,723
Stockholders' Equity	3,846
Total Capitalization	$	5,569

At June 30, 2011, our debt to capitalization ratio decreased to 31% compared to 38% at year-end 2010, reflecting earnings during the first half of 2011 and a reduction in outstanding borrowings of $150 million related to the Junior subordinated notes, $94 million from the repurchase of the 6 1/4% Senior Notes and $25 million on the TPSA Revolving Credit Facility.

Stock-based Compensation Dilution Management Program

On August 3, 2011, our Board of Directors approved a program designed to offset the dilutive effect of 2011 and future stock-based compensation awards. The Board authorized the repurchase of approximately 0.7 million shares related to 2011 awards granted and described in Note L to offset their potential dilutive effect. The Board also authorized a program to repurchase additional shares in subsequent years to offset the dilutive effect of future stock-based compensation programs.

Cash Flow Summary

Components of our cash flows are set forth below (in millions):

	Six Months Ended
	June 30,
	2011			2010
Cash Flows From (Used in):
Operating activities	$	89		$	(61	)
Investing activities	(111		)	(158		)
Financing activities	(19		)	(3		)
Decrease in Cash and Cash Equivalents	$	(41	)	$	(222	)

Net cash from operating activities during the 2011 Period totaled $89 million, as compared to net cash used in the 2010 Period of $61 million. The significant increase in net cash from operating activities of $150 million was primarily due to higher cash earnings offset by increases in working capital during the period. Net cash used in investing activities decreased $47 million, or 30%, to $111 million in the 2011 Period as compared to $158 million in the 2010 Period due to decreased capital expenditures. Net cash used in financing activities during the 2011 Period totaled $19 million as compared to $3 million in the 2010 Period. The increase of net cash used in financing activities of $16 million is primarily due to the repayments of the Junior Subordinated Notes, the 6 1/4% Senior Notes and the TPSA Revolving Credit Facility, offset by proceeds from issuance of common units related to TLLP of $288 million.

Working capital requirements (excluding cash) increased $761 million in the period ending June 30, 2011, primarily related to significant increases in crude oil and product prices, which impact inventory values, related payables and trade receivables. Additionally, refining feedstock inventories increased by approximately 29% from December 31, 2010, in preparation for historically higher demand periods during the summer months. These amounts are partially offset by net repayments of $95 million of borrowings on the TPSA Revolving Credit Facility, which are classified in current maturities of debt.

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Capital Expenditures

Our 2011 capital budget is $380 million and is sufficient to cover the expected 2011 spending for the following recently announced projects, because most of the spending is expected to occur in 2012 and subsequent years. We expect to complete a capital project to expand the crude oil throughput capacity of the Mandan, North Dakota refinery from 58 Mbpd to 68 Mbpd by the second quarter of 2012, subject to permitting requirements. The current expected capital investment for the expansion, which will occur primarily in 2012, will be approximately $35 million. The expansion will allow the refinery to process additional crude from the nearby Bakken Shale/Williston Basin area delivered via the TLLP High Plains system. Additionally, we have planned capital expenditures for an unloading facility to accommodate the unit train at the Washington refinery. This facility will effectively allow the supply of crude oil from the Bakken Shale/Williston Basin region in North Dakota to our Washington refinery. Pending permitting requirements, construction of the facility is expected to take approximately one year to complete. We expect to spend approximately $50 million on this project. Additionally, we intend to replace the vacuum distillation unit at our Los Angeles refinery, subject to permitting requirements. The capital investment for the unit upgrade is expected to be approximately $40 million and is currently scheduled to be completed by the third quarter of 2012.

Capital spending during the 2011 Quarter and 2011 Period was $63 million and $105 million, respectively. Our 2011 Quarter, Period and full-year expected capital spending, and capital budget amounts are comprised of the following project categories:

	Percent of 2011 Quarter Capital Spending	Percent of 2011 Period Capital Spending	Percent of 2011 Expected Capital Spending
Project Category
Regulatory	48%	49%	35%
Sustaining	31%	32%	30%
Income Improvement	21%	19%	35%

See “Business Strategy and Overview” and “Environmental Capital Expenditures” for additional information.

Refinery Turnaround Spending

We spent $55 million for refinery turnarounds and catalysts during the 2011 Period and $46 million during the 2011 Quarter, primarily at our California refineries. During the remainder of 2011, we expect to spend approximately $56 million, primarily at our Los Angeles refinery. The turnaround previously scheduled at our Golden Eagle refinery in the fourth quarter of 2011 has been rescheduled for the first quarter of 2012. Refining throughput and yields will be affected by scheduled turnarounds at our Los Angeles refinery during the fourth quarter.

Off-Balance Sheet Arrangements

We have not entered into any transactions, agreements or other contractual arrangements that would result in off-balance sheet liabilities.

Environmental and Tax Matters

We are a party to various litigation and contingent loss situations, including environmental and income tax matters, arising in the ordinary course of business. Although we cannot predict the ultimate outcomes of these matters with certainty, we have accrued for the estimated liabilities when appropriate. We believe that the outcome of these matters will not materially impact our liquidity and consolidated financial position, although the resolution of certain of these matters could have a material impact on interim or annual results of operations. Additionally, if applicable, we accrue receivables for probable insurance or other third-party recoveries.

We are subject to extensive federal, state and local environmental laws and regulations. These laws, which change frequently, regulate the discharge of materials into the environment and may require us to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites, install additional controls, or make other modifications to certain emission sources, equipment or facilities.

Future expenditures may be required to comply with the Clean Air Act and other federal, state and local requirements for our various sites, including our refineries, tank farms, pipelines, operating retail stations, closed retail stations, operating refined-products terminals and closed refined products terminals. The impact of these legislative and regulatory developments, including

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any greenhouse gas cap-and-trade program or low carbon fuel standards, could result in increased compliance costs, additional operating restrictions on our business and an increase in the cost of the products we manufacture, which could have a material adverse impact on our consolidated financial position, results of operations and liquidity.

In 2009, the U.S. Environmental Protection Agency proposed regulating greenhouse gas emissions under the Clean Air Act. The first of these regulations, finalized on April 1, 2010, sets standards for the control of greenhouse gas emissions from light trucks and cars. It could reduce the demand for our manufactured transportation fuels. In addition, other proposed regulations include permitting requirements for stationary sources that emit greenhouse gases above a certain threshold. The resulting permitting requirements could impose emission controls that increase required capital expenditures at our refineries. We cannot currently predict its impact on our financial position, results of operations and liquidity.

In December 2007, the U.S. Congress passed the Energy Independence and Security Act that created a second Renewable Fuels Standard (“RFS2”). This standard requires the total volume of renewable transportation fuels (including ethanol and advanced biofuels) sold or introduced in the U.S. to reach 13.95 billion gallons in 2011, and rise to 36 billion gallons by 2022. The requirements could reduce future demand growth for petroleum products that we manufacture. In the near term, the RFS2 presents ethanol production and logistics challenges for the ethanol, alternative fuel and refining and marketing industries. Additional expenditures could be required to logistically accommodate the increased use of renewable transportation fuels. We cannot currently predict its impact on our financial position, results of operations and liquidity.

In California, Assembly Bill 32 (“AB 32”), created a statewide cap on greenhouse gas emissions and requires that the state return to 1990 emissions levels by 2020. AB 32 focuses on using market mechanisms, such as a cap-and-trade program and a low carbon fuel standard (“LCFS”) to achieve emissions reduction targets. The LCFS became effective in January 2010 and requires a 10% reduction in the carbon intensity of gasoline and diesel fuel by 2020. Final regulations for all other aspects of AB 32, including cap-and-trade requirements, are being developed by the California Air Resources Board, will take effect in 2012, and will be fully implemented by 2020. The implementation and implications of AB 32 will take many years to realize, and we cannot currently predict its impact on our financial position, results of operations and liquidity.

We are subject to extensive federal, state and foreign tax laws and regulations. Newly enacted tax laws and regulations, and changes in existing tax laws and regulations, could result in increased expenditures in the future. We are also subject to audits by federal, state and foreign taxing authorities in the normal course of business. It is possible that tax audits could result in claims against us in excess of recorded liabilities. We believe that resolution of any such claim(s) would not materially affect our consolidated financial position or results of operations. We believe it is possible that unrecognized tax benefits could decrease by as much as $10 million in the next twelve months through settlements or other conclusions, primarily regarding state tax issues.

Environmental Liabilities

We are incurring and expect to continue to incur expenses for environmental liabilities at a number of currently and previously owned or operated refining, pipeline, terminal and retail station properties. We have accrued liabilities for these expenses and believe these accruals are adequate. At June 30, 2011 and December 31, 2010, our accruals for environmental expenditures totaled $98 million and $108 million, respectively. Our environmental accruals are based on estimates including engineering assessments, and it is possible that our estimates will change and that additional costs will be recorded as more information becomes available.

We received $58.5 million in a settlement with a prior owner of our Golden Eagle refinery in 2007, in exchange for assuming responsibility for certain environmental liabilities arising from operations at the refinery prior to August 2000. These environmental liabilities totaled $58 million and $62 million at June 30, 2011 and December 31, 2010, respectively. We cannot reasonably determine the full extent of remedial activities that may be required at the Golden Eagle refinery. Therefore, it is possible that we will identify additional remediation costs as more information becomes available. We have filed insurance claims under environmental insurance policies that provide coverage up to $190 million for expenditures in excess of $50 million in self-insurance. We have not recognized possible insurance recoveries related to this matter.

We have investigated conditions at certain active wastewater treatment units at our Golden Eagle Refinery.  The investigation was driven by an order from the San Francisco Bay Regional Water Quality Control Board that named us as well as two previous owners of the Golden Eagle Refinery.  We cannot currently estimate the amount of the ultimate resolution of the order, but we believe it will not have a material adverse impact on our consolidated financial position, results of operations or liquidity.

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Washington Refinery Fire

In April 2010, the naphtha hydrotreater unit at our Washington refinery was involved in a fire, which fatally injured seven employees and rendered the unit inoperable. Subsequent to the incident, refinery processing was temporarily shut down until after the unit reconstruction was completed. The Washington refinery resumed operations at planned rates in November 2010.

In February 2011, Tesoro Corporation, Tesoro Refining and Marketing Company and other defendants were named in a lawsuit brought by the estates and families of the seven fatally injured employees arising from the April 2010 incident. In addition, a third-party truck driver has alleged damages in the lawsuit. The lawsuit includes allegations of negligence, premises liability, strict liability, product liability and seeks unspecified compensatory and punitive damages. This case, Donald and Peggy Zimmerman et al. v. Tesoro Corporation and Tesoro Refining and Marketing et al., is proceeding in the Superior Court of the State of Washington, Skagit County. The Company believes that it has defenses to the allegations contained in the lawsuit. While we cannot currently estimate the amount or timing of the resolution of this matter, and currently believe that the outcome of this matter will not materially impact our liquidity and consolidated financial position, the ultimate resolution could have a material impact on our interim and annual results of operations.

On July 21, 2011, we released the TOP (Triangle of Prevention) Investigation Team Report related to the April 2, 2010, incident at our Washington Refinery. TOP is a worker-led, company-supported Health and Safety Program designed to identify the cause of an incident and make recommendations to help prevent a similar incident in the future. The investigation was led by and included Tesoro personnel who are members of the local chapter of the United Steelworkers union and also included non-represented personnel. We do not believe the findings or our implementation of the recommendations in the report will have a material adverse impact on our consolidated financial position, results of operations or liquidity.

We maintain comprehensive property (including business interruption), workers' compensation, and general liability insurance policies with significant loss limits. Our business interruption insurance deductible is satisfied after we have exceeded both 60 days of operational disruption and $25 million in losses primarily based on the operating plan that existed prior to the incident. Our property damage insurance has a $10 million deductible. We have filed business interruption insurance claims and property damage claims related to this incident. As of June 30, 2011, all property damage claims have been settled but certain business interruption claims remain open.

We collected $87 million in business interruption insurance recoveries that relate to downtime from the incident, which were recorded as an offset to cost of sales in the consolidated statement of operations. Of the $87 million collected, $32 million was recorded in second quarter of 2011 and $55 million was recorded in 2010. We received $17 million to settle the property damage claim filed for this incident, which was recorded as a reduction to operating expense. Of the $17 million, $5 million was recorded in the second quarter of 2011 and $12 million was recorded in the fourth quarter of 2010.

Other Matters

In the ordinary course of business, we become party to lawsuits, administrative proceedings and governmental investigations, including environmental, regulatory and other matters. Large, and sometimes unspecified, damages or penalties may be sought from us in some matters. As a result, we have not established accruals for these matters unless a likelihood of loss may be reasonably possible and the amount of loss is currently estimable. On the basis of existing information, we believe that the resolution of these matters, individually or in the aggregate, will not have a material adverse impact on our financial position, results of operations or liquidity.

Legal

During 2009, Chevron filed a lawsuit against us claiming they are entitled to a share of the refunds we received in 2008 from the owners of the Trans Alaska Pipeline System (“TAPS”). We received $50 million in 2008, net of contingent legal fees, for excessive intrastate rates charged by TAPS during 1997 through 2000, and the period of 2001 through June 2003. Chevron is asserting that it is entitled to a share of its portion of the refunds for retroactive price adjustments under our previous crude oil contracts with them. In September 2010, the trial court judge granted Chevron's motion for summary judgment and awarded them $16 million, including interest. We disagree with the trial court and have appealed the decision to the Alaska Supreme Court in which the proceeding is now pending. We have established an accrual for this matter and believe that the outcome will not materially impact our consolidated financial position, results of operations or liquidity.

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We are a defendant, along with other manufacturing, supply and marketing defendants, in six lawsuits alleging MTBEcontamination in groundwater. We were served with the sixth lawsuit in April 2010.The defendants are being sued for having manufactured MTBE and having manufactured, supplied and distributed gasoline containing MTBE. The plaintiffs in the six cases, all in California, are municipalities and governmental authorities. The plaintiffs allege, in part, that the defendants are liable for manufacturing or distributing a defective product. The suits generally seek individual, unquantified compensatory and punitive damages and attorney's fees. We intend to vigorously assert our defenses against these claims. While we cannot currently estimate the amount or timing of the resolution of this matter, we have established an accrual for this matter and believe that the outcome will not materially impact our consolidated financial position, results of operations or liquidity.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the Financial Reform Act of 2010, was signed into law. Key provisions of the act require that standardized swaps be cleared through a registered clearinghouse and executed on a registered trading platform with specific margin requirements. These requirements could make these products more complicated or costly by creating new regulatory risks and increasing reporting, capital, and administrative requirements for companies that use derivatives for hedging and trading activities. Final rules on provisions in the legislation will be established and will take effect twelve months after the date of enactment. Although we cannot predict the ultimate outcome of this legislation, and currently believe that the outcome will not materially impact our liquidity and consolidated financial position, new regulations in this area may result in increased hedging costs and cash collateral requirements, which could have a material impact on our interim or annual results of operations.

Environmental

In May 2011 and again in July 2011, we met with the U.S. Department of Justice ("DOJ") and the U.S. Environmental Protection Agency ("EPA") to discuss potential claims by the EPA under the Clean Air Act concerning our Alaska, Washington, Golden Eagle, Hawaii and Utah refineries. At these meetings, the DOJ and EPA alleged that we have violated the Clean Air Act, regulations under the Clean Air Act and/or Clean Air Act permits at each of these refineries. We previously received a notice of violation ("NOV") in March 2011 from the EPA alleging violations of Title V of the Clean Air Act at our Alaska refinery. The alleged violations in the NOV arise from a 2007 state of Alaska inspection and inspections by the EPA in 2008 and 2010. We also previously received NOV's in 2005 and 2008 alleging violations of the Clean Air Act at our Washington refinery. We are evaluating all of these allegations. The ultimate resolution of this matter could require us to incur material capital expenditures and/or civil penalties. While we cannot currently estimate the amount or timing of the resolution of this matter, and currently believe that the outcome of this matter will not materially impact our liquidity and consolidated financial position, the ultimate resolution could have a material impact on our interim or annual results of operations.

Prior to this year, we received a NOV from the EPA concerning our Utah refinery alleging certain violations of the Clean Air Act at the refinery beginning in 2004. We have investigated the allegations contained in the NOV and sent the EPA additional information in 2009. While we cannot currently estimate the amount or timing of the resolution of this matter, we believe that the outcome will not materially impact our consolidated financial position, results of operations or liquidity.

On February 5, 2010, the EPA filed suit against us alleging violations of the Clean Air Act and corresponding regulatory requirements concerning the testing and reporting of transportation fuels and fuel additives. In February 2009, we received a NOV from the EPA for alleged violations arising from a compliance review conducted by the EPA in 2006, for the years 2003 through the time of the review in 2006. We are discussing the alleged violations contained in the suit with the EPA and the U.S. Department of Justice and have not established an accrual for this matter. On the basis of existing information, we believe that the resolution of this matter will not have a material adverse impact on our consolidated financial position, results of operations or liquidity.

Environmental Capital Expenditures

The EPA issued regulations in February 2007 that require the reduction of benzene in gasoline. We expect to spend approximately $98 million through 2012 at five of our refineries to comply with the regulations, including $27 million spent in the first half of 2011. Our California refineries will not require capital spending to meet the benzene reduction standards.

The cost estimates for the environmental projects described above are subject to further review and analysis and include estimates for capitalized interest and labor costs.

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IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (including information incorporated by reference) includes and references “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, expectations regarding refining margins, revenues, cash flows, capital expenditures, turnaround expenses, and other financial items. These statements also relate to our business strategy, goals and expectations concerning our market position, future operations, margins and profitability. We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar terms and phrases to identify forward-looking statements in this Quarterly Report on Form 10-Q, which speak only as of the date the statements were made.

Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect.

The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to:

• changes in global economic conditions and the effects of the global economic downturn on our business and the business of our suppliers, customers, business partners and credit lenders;

• the timing and extent of changes in commodity prices and underlying demand for our refined products;

• state and federal environmental, economic, health and safety, energy and other policies and regulations, including those related to climate change and any changes therein, and any legal or regulatory investigations, delays or other factors beyond our control;

• operational hazards inherent in refining operations and in transporting and storing crude oil and refined products;

• the availability and costs of crude oil, other refinery feedstocks and refined products;

• disruptions due to equipment interruption or failure at our facilities or third-party facilities;

• changes in the cost or availability of third-party vessels, pipelines and other means of transporting crude oil feedstocks and refined products;

• actions of customers and competitors;

• risks related to labor relations and workplace safety;

• earthquakes or other natural disasters affecting operations;

• weather conditions affecting our operations or the areas in which our refined products are marketed; 

• adverse rulings, judgments, or settlements in litigation or other legal or tax matters, including unexpected environmental remediation costs in excess of any reserves;

• changes in our cash flow from operations;

• changes in capital requirements or in execution of planned capital projects;

• direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war;

• political developments;

• changes in our inventory levels and carrying costs;

• seasonal variations in demand for refined products;

• changes in fuel and utility costs for our facilities; and

• changes in insurance markets impacting costs and the level and types of coverage available.

Many of these factors, as well as other factors, are described in our filings with the SEC. All future written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the previous statements. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update any information contained herein or to publicly release the results of any revisions to any forward-looking statements that may be made to reflect events or circumstances that occur, or that we become aware of, after the date of this Quarterly Report on Form 10-Q.

51

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary source of market risk is the difference between the prices we sell our refined products for and the prices we pay for crude oil and other feedstocks. We may use derivative instruments to manage the risks from changes in the prices of crude oil and refined products, fluctuations in foreign currency exchange rates, or to capture market opportunities. We have a risk committee whose responsibilities include reviewing a quarterly assessment of risks to the corporation and presenting a quarterly risk update to executive management for consideration.

Commodity Price Risks

Our earnings and cash flows from operations depend on the margin, relative to fixed and variable expenses (including the costs of crude oil and other feedstocks), at which we are able to sell our refined products. The prices of crude oil and refined products have fluctuated substantially in recent years and depend on many factors. These factors include the global supply and demand for crude oil and refined products. This demand is impacted by changes in the global economy, the level of foreign and domestic production of crude oil and refined products, geo-political conditions, the availability of imports of crude oil and refined products, the relative strength of the U.S. dollar, the marketing of alternative and competing fuels and the impact of government regulations. The prices we sell our refined products for are also affected by local factors such as local market conditions and the level of operations of other suppliers in our markets.

Prices for refined products are influenced by the price of crude oil. Generally, an increase or decrease in the price of crude oil results in a corresponding increase or decrease in the price of gasoline and other refined products. The timing, direction and the overall change in refined product prices versus crude oil prices will impact profit margins and could have a significant impact on our earnings and cash flows. Assuming all other factors remained constant, a $1 per barrel change in average gross refining margins, based on our rolling 12-month average throughput of 529 Mbpd, would change annualized pre-tax operating income by approximately $193 million.

We maintain inventories of crude oil, intermediate products and refined products, the values of which are subject to fluctuations in market prices. Our inventories of refinery feedstocks and refined products totaled 32 million barrels and 27 million barrels at June 30, 2011 and December 31, 2010, respectively. The average cost of our refinery feedstocks and refined products at June 30, 2011, was approximately $54 per barrel on a LIFO basis, compared to market prices of approximately $117 per barrel. If market prices decline to a level below the LIFO average cost of these inventories, we would be required to write down the carrying value of our inventory to market.

We periodically use non-trading derivative instruments to manage exposure to commodity price risks associated with the purchase or sale of crude oil and finished products. We may also use non-trading derivative instruments to manage price risks associated with inventories above or below our target levels. These derivative instruments typically involve options, exchange-traded futures and over-the-counter swaps and options, and physical commodity forward purchase and sale contracts, generally with durations of less than one year. Our hedging strategies are continuously monitored.

We mark-to-market our derivative instruments and recognize the changes in their fair value in our statements of consolidated operations. With the exception of a portion of our TPSA inventory, we elected not to designate derivative instruments as fair value hedges during the six months ended June 30, 2011 and 2010. We use fair value hedge accounting for a portion of our TPSA inventory.

52

Net earnings during the 2011 and 2010second quarters included net gains of $86 million and $18 million, respectively, on our derivative positions comprised of the following (dollars in millions and volumes in millions of barrels):

	Three Months Ended
	June 30,
	2011			2010
	Contract Volumes	Net Gain (Loss)		Contract Volumes	Net Gain (Loss)
Unrealized gain carried on open derivative positions from prior period	8	$	44	1	$	13
Realized gain on settled derivative positions	124	23		129	10
Unrealized gain (loss) on open net short derivative positions	2	19		3	(5		)
Net gain		$	86		$	18

_______

Note: This table includes derivative positions associated with crude oil hedges held by TPSA.

Our open positions at June 30, 2011, will expire at various times primarily during 2011 and 2012. We prepared a sensitivity analysis to estimate our exposure to market risk associated with our derivative instruments. This analysis may differ from actual results. Based on our open net positions of 2 million barrels at June 30, 2011, a $1.00 per-barrel change in quoted market prices of our derivative instruments, assuming all other factors remain constant, could change the fair value of our derivative instruments and pre-tax operating income by approximately $2 million.

Tesoro Panama Company Sociedad Anonima (“TPSA”)

We formed TPSA to use our leased pipeline and tank facilities in Panama by enhancing strategic partnerships, developing economies of scale around freight and storage opportunities, providing discretionary crude oil trading, expanding global commercial relationships and evaluating opportunities to source crude from alternative supply markets. We may use our excess storage capacity in Panama to take advantage of contango markets when the price of crude oil is higher in the future than the current spot price. We use commodity derivatives to hedge crude oil held in connection with these arbitrage opportunities. The table above and sensitivity analysis includes approximately 4 million barrels in open derivative positions at June 30, 2011, entered into to manage exposure to commodity price risks associated with TPSA.

We use fair value hedge accounting for certain derivative instruments acquired by TPSA and the crude oil inventories underlying these instruments. If we designate a hedging relationship as a fair value hedge, we record the changes in fair value of the hedged asset or liability and any ineffective portion in cost of sales in our statements of consolidated operations.

Risk Management

The Company has a system of governance and management oversight and has put in place a number of controls to ensure procedures are properly followed and accountability is present at the appropriate levels. For example, the Company has put in place controls designed to:

• create and maintain a comprehensive risk management policy;

• provide for authorization by the appropriate levels of management;

• provide for segregation of duties;

• maintain an appropriate level of knowledge regarding the execution of and the accounting for derivative instruments; and

• have key performance indicators in place to adequately measure the performance of its hedging activities.

The Company believes the governance structure that it has in place is adequate given the size and sophistication of its hedging program.

53

Counterparty Credit Risk

We have exposure to concentrations of credit risk related to the ability of our counterparties to meet their contractual payment obligations, and the potential non-performance of counterparties to deliver contracted commodities or services at the contracted price. We have risk management policies in place, and continue to monitor closely the status of our counterparties. We perform ongoing credit evaluations of our customers' financial condition, and in certain circumstances, require prepayments, letters of credit or other collateral.

Foreign Currency Risk

We are exposed to exchange rate fluctuations on our purchases of Canadian crude oil. We enter into forward contracts of Canadian dollars to manage monthly exchange rate fluctuations. We had a $1.6 million loss related to these transactions for the three months ended June 30, 2011. As of June 30, 2011, we had a forward contract to purchase 54 million Canadian dollars that matured on July 25, 2011. Based on our open forward contract position, a $0.01 change in the Canadian dollar to U.S. dollar exchange rate would change operating income by less than $1 million.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of the end of the period. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. Our disclosure controls and procedures are designed to provide reasonable assurance that the information that we are required to disclose in reports we file under the Exchange Act is accumulated and communicated to management, as appropriate.

During the quarter ended June 30, 2011, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

54

PART II — OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

In the ordinary course of business, we become party to lawsuits, administrative proceedings and governmental investigations, including environmental, regulatory and other matters. Large, and sometimes unspecified, damages or penalties may be sought from us in some matters and some matters may require years to resolve. Although we cannot provide assurance, we believe that an adverse resolution of these matters described below will not have a material adverse impact on our consolidated financial position, results of operations or liquidity.

In July 2011 we settled 46 notices of violation ("NOV'") received from the Bay Area Air Quality Management District (the "District") for $497,000. In July 2010, we had received an offer from the District to settle the NOVs issued from June 2006 to September 2009 and alleging violations of air quality regulations at our Golden Eagle refinery. This settlement resolves all of the NOV's received from the District through September 2009 and the resolution will not have a material impact on our consolidated financial position, results of operations or liquidity.

In May 2011 and again in July 2011, we met with the U.S. Department of Justice ("DOJ") and the U.S. Environmental Protection Agency ("EPA") to discuss potential claims by the EPA under the Clean Air Act concerning our Alaska, Washington, Golden Eagle, Hawaii and Utah refineries. At these meetings, the DOJ and the EPA alleged that we have violated the Clean Air Act, regulations under the Clean Air Act and/or Clean Air Act permits at each of these refineries. We previously received a NOV in March 2011 from the EPA alleging violations of Title V of the Clean Air Act at our Alaska refinery. The alleged violations in the NOV arise from a 2007 State of Alaska inspection and inspections by the EPA in 2008 and 2010. We also previously received NOV's in 2005 and 2008 alleging violations of the Clean Air Act at our Washington refinery. We are evaluating all of these allegations. The ultimate resolution of this matter could require us to incur material capital expenditures and/or civil penalties. While we cannot currently estimate the amount or timing of the resolution of this matter, and currently believe that the outcome of this matter will not materially impact our liquidity and consolidated financial position, the ultimate resolution could have a material impact on our interim or annual results of operations.

In April 2011, we received a NOV from the California Air Resources Board ("CARB"). The CARB alleges certain batches of fuels produced in 2009 and 2010 at our Golden Eagle and Los Angeles refineries violated fuel standards within the California Code of Regulations. We are investigating the allegations but do not believe the ultimate resolution of the NOV will have a material impact on our consolidated financial position, results of operations or liquidity.

In April 2011, we received an offer from the California Attorney General's office to settle alleged violations at twelve of our retail gasoline sites in California for $500,000. In February 2011, we received notice from the California Attorney General that the State Water Resources Control Board referred an investigation to the Attorney General alleging violations of the California Health and Safety Code at these sites. The allegations relate to the testing, monitoring, repair and reporting of information concerning the underground storage tanks at the sites. We are evaluating the allegations but the resolution of this matter will not have a material impact on our consolidated financial position, results of operations or liquidity.

In February 2011, Tesoro Corporation, Tesoro Refining and Marketing Company and other defendants were named in a lawsuit brought by the estates and families of the seven fatally injured employees arising from the April 2010 incident. In addition, a third-party truck driver has alleged damages in the lawsuit. The lawsuit includes allegations of negligence, premises liability, strict liability, product liability and seeks unspecified compensatory and punitive damages. This case, Donald and Peggy Zimmerman et al. v. Tesoro Corporation and Tesoro Refining and Marketing et al., is proceeding in the Superior Court of the State of Washington, Skagit County. The Company believes that it has defenses to the allegations contained in the lawsuit. While we cannot currently estimate the amount or timing of the resolution of this matter, and currently believe that the outcome of this matter will not materially impact our liquidity and consolidated financial position, the ultimate resolution could have a material impact on our interim and annual results of operations.

ITEM 1A.RISK FACTORS

There have been no significant changes from the risk factors previously disclosed in Item 1A of our 2010 Annual Report on Form 10‑K.

55

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below provides a summary of all repurchases by Tesoro of its common stock during the three-month period ended June 30, 2011.

Period	Total Number of Shares Purchased*	Average Price Paid per Share
April 2011	—	$	—
May 2011	155,528	$	24.58
June 2011	—	$	—
Total	155,528

___________

*    All of the shares acquired during the three-month period ended June 30, 2011, were surrendered to Tesoro to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to certain employees. These shares were not acquired under a stock repurchase program.

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ITEM 5. OTHER INFORMATION

On August 3, 2011, the Board of Directors (the "Board") increased chair fees for each of the Board Committees. The Audit Committee Chair fee increased from $15,000 annually to $20,000 annually. The Compensation Committee Chair fee increased from $10,000 annually to $15,000 annually. The Environmental, Health and Safety and Governance Committee Chairs fees increased from $8,000 annually to $15,000 annually.

On August 3, 2011, the Company adopted an amended Code of Business Conduct (the “Code”) applicable to the Company's employees and Board of Directors. The amendments to the Code (1) add a section titled “Meeting Our Responsibilities” to clarify individuals' responsibilities with respect to the Code; (2) clarify that waivers of Code provisions will be granted only in extremely limited circumstances and for good cause and expressly state that waivers for directors and executive officers must be approved by the Board of Directors; (3) clarify that a conflict of interest may arise as a result of work outside the Company; (4) clarify the process for approving political contributions; (5) add a discussion of gifts to foreign government officials to amplify certain existing provisions on bribery and anti-corruption; and (6) add a section titled “International Trade” to address additional compliance areas with respect to transacting international business.

The foregoing description of the amendments to the Code is qualified in its entirety by reference to the full text of the Code, which is attached hereto as Exhibit 14.1 and is posted on the Company's website at www.tsocorp.com under the heading “Investors” and the subheading “Board of Directors.”

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ITEM 6. EXHIBITS

(a) Exhibits

Exhibit Number	Description of Exhibit
3.1	First Amended and Restated Agreement of Limited Partnership of Tesoro Logistics LP, dated April 26, 2011 (incorporated by reference herein to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on April 29, 2011, File No. 1-3473).
10.1	Fifth Amended and Restated Credit Agreement, dated as of March 16, 2011 (incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 22, 2011, File No. 1-3473).
10.2	Credit Agreement, dated as of April 26, 2011, among Tesoro Logistics LP, Bank of America, N.A., as administrative agent, L/C Issuer and lender, and the other lenders party thereto. (incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 29, 2011, File No. 1-3473).
10.3	Contribution, Conveyance and Assumption Agreement dated as of April 26, 2011, among Tesoro Corporation, Tesoro Alaska Company, Tesoro Refining and Marketing Company and Tesoro High Plains Pipeline Company, LLC, Tesoro Logistics LP, Tesoro Logistics GP, LLC, Tesoro Logistics Operations LLC. (incorporated by reference herein to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 29, 2011, File No. 1-3473).
10.4	Omnibus Agreement dated as of April 26, 2011, among Tesoro Corporation, Tesoro Refining and Marketing Company, Tesoro Companies, Inc., Tesoro Alaska Company, Tesoro Logistics LP and Tesoro Logistics GP, LLC. (incorporated by reference herein to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on April 29, 2011, File No. 1-3473).
10.5	Transportation Services Agreement (SLC Short Haul Pipelines), dated as of April 26, 2011, between Tesoro Refining and Marketing Company and Tesoro Logistics Operations LLC. (incorporated by reference herein to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on April 29, 2011, File No. 1-3473).
10.6	Salt Lake City Storage and Transportation Services Agreement, dated as of April 26, 2011, between Tesoro Refining and Marketing Company and Tesoro Logistic Operations LLC. (incorporated by reference herein to Exhibit 10.5 to the Company's Current Report on Form 8-K filed on April 29, 2011, File No. 1-3473).
10.7	Tesoro Corporation 2011 Long-Term Incentive Plan (incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 6, 2011, File No. 1-3473).
10.8	Tesoro Corporation 2011 Grant Letter (incorporated by reference herein to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 6, 2011, File No. 1-3473).
10.9	Tesoro Corporation Performance Share Awards Granted in 2011 Summary of Key Provisions (incorporated by reference herein to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on May 6, 2011, File No. 1-3473).
10.10	Tesoro Corporation Market Stock Unit Awards Granted in 2011 Summary of Key Provisions (incorporated by reference herein to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on May 6, 2011, File No. 1-3473).
*10.11	Form of Tesoro Corporation 2006 Long-Term Incentive Plan Options and Restricted Shares Agreement, including Summary of Key Provisions of Stock Options and Restricted Shares.
*10.12	Form of Tesoro Corporation 2006 Long-Term Incentive Plan Performance Units Agreement, including Summary of Key Provisions of Performance Units.
†*10.13	Form of Master Terminalling Services Agreement, dated as of April 26, 2011, among Tesoro Refining and Marketing Company, Tesoro Alaska Company and Tesoro Logistics Operations LLC.
*10.14	Amendment No. 2 to the Uncommitted Revolving Credit Agreement dated June 17, 2011, among Tesoro Panama, S.A. as Borrower, certain lenders listed on the signature pages, as Lenders, and BNP Paribas, as Administrative Agent, Collateral Agent, Letter of Credit Issuer, Swing Line Lender and Daylight Overdraft Bank.
*14.1	Code of Business Conduct
*31.1	Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**101.INS	XBRL Instance Document
**101.SCH	XBRL Taxonomy Extension Schema Document
**101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
**101.LAB	XBRL Taxonomy Extension Label Linkbase Document
**101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

58

___________________________

*    Filed herewith.

**    Submitted electronically herewith.

†    Confidential status has been requested for certain provisions hereof pursuant to a Confidential Treatment Request. Such provisions have been filed with the Securities and Exchange Commission.

In accordance with Rule 402 of Regulation S-T, the XBRL information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

59

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		TESORO CORPORATOIN
Date:	August 8, 2011	/s/ GREGORY J. GOFF
		Gregory J. Goff
		President and Chief Executive Officer
		(Principal Executive Officer)
Date:	August 8, 2011	/s/ G. SCOTT SPENDLOVE
		G. Scott Spendlove
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

60

EXHIBIT INDEX

Exhibit Number	Description of Exhibit
3.1	First Amended and Restated Agreement of Limited Partnership of Tesoro Logistics LP, dated April 26, 2011 (incorporated by reference herein to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on April 29, 2011, File No. 1-3473).
10.1	Fifth Amended and Restated Credit Agreement, dated as of March 16, 2011 (incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 22, 2011, File No. 1-3473).
10.2	Credit Agreement, dated as of April 26, 2011, among Tesoro Logistics LP, Bank of America, N.A., as administrative agent, L/C Issuer and lender, and the other lenders party thereto. (incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 29, 2011, File No. 1-3473).
10.3	Contribution, Conveyance and Assumption Agreement dated as of April 26, 2011, among Tesoro Corporation, Tesoro Alaska Company, Tesoro Refining and Marketing Company and Tesoro High Plains Pipeline Company LLC, Tesoro Logistics LP, Tesoro Logistics GP, LLC, Tesoro Logistics Operations LLC. (incorporated by reference herein to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 29, 2011, File No. 1-3473).
10.4	Omnibus Agreement dated as of April 26, 2011, among Tesoro Corporation, Tesoro Refining and Marketing Company, Tesoro Companies, Inc., Tesoro Alaska Company, Tesoro Logistics LP and Tesoro Logistics GP, LLC. (incorporated by reference herein to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on April 29, 2011, File No. 1-3473).
10.5	Transportation Services Agreement (SLC Short-Haul Pipelines), dated as of April 26, 2011, between Tesoro Refining and Marketing Company and Tesoro Logistics Operations LLC. (incorporated by reference herein to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on April 29, 2011, File No. 1-3473).
10.6	Salt Lake City Storage and Transportation Services Agreement, dated as of April 26, 2011, between Tesoro Refining and Marketing Company and Tesoro Logistics Operations LLC. (incorporated by reference herein to Exhibit 10.5 to the Company's Current Report on Form 8-K filed on April 29, 2011, File No. 1-3473).
10.7	Tesoro Corporation 2011 Long-Term Incentive Plan (incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 6, 2011, File No. 1-3473).
10.8	Tesoro Corporation 2011 Grant Letter (incorporated by reference herein to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 6, 2011, File No. 1-3473).
10.9	Tesoro Corporation Performance Share Awards Granted in 2011 Summary of Key Provisions (incorporated by reference herein to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on May 6, 2011, File No. 1-3473).
10.10	Tesoro Corporation Market Stock Unit Awards Granted in 2011 Summary of Key Provisions (incorporated by reference herein to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on May 6, 2011, File No. 1-3473).
*10.11	Form of Tesoro Corporation 2006 Long-Term Incentive Plan Options and Restricted Shares Agreement, including Summary of Key Provisions of Stock Options and Restricted Shares.
*10.12	Form of Tesoro Corporation 2006 Long-Term Incentive Plan Performance Units Agreement, including Summary of Key Provisions of Performance Units.
†*10.13	Form of Master Terminalling Services Agreement, dated as of April 26, 2011, among Tesoro Refining and Marketing Company, Tesoro Alaska Company and Tesoro Logistics Operations LLC.
*10.14	Amendment No. 2 to the Uncommitted Revolving Credit Agreement dated June 17, 2011, among Tesoro Panama, S.A. as Borrower, certain lenders listed on the signature pages, as Lenders, and BNP Paribas, as Administrative Agent, Collateral Agent, Letter of Credit Issuer, Swing Line Lender and Daylight Overdraft Bank.
*14.1	Code of Business Conduct
*31.1	Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**101.INS	XBRL Instance Document
**101.SCH	XBRL Taxonomy Extension Schema Document
**101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
**101.LAB	XBRL Taxonomy Extension Label Linkbase Document
**101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

61

________________________

*    Filed herewith.

**    Submitted electronically herewith.

†    Confidential status has been requested for certain provisions hereof pursuant to a Confidential Treatment Request. Such provisions have been filed with the Securities and Exchange Commission.

In accordance with Rule 402 of Regulation S-T, the XBRL information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

62

EX-10.11

Exhibit 10.11

Form of Tesoro Corporation 2006 Long-Term Incentive Plan

Stock Options and Restricted Shares Agreement

Date

Private and Confidential

First Name Last Name

FBA

Work Street

Work City, Work State Work Zip

Dear First Name:

I am very pleased to inform you that, effective Grant Date (the "Award Date"), the Compensation Committee of the Board of Directors of Tesoro Corporation (the "Company"), pursuant to its authority under the Tesoro Corporation 2006 Long-Term Incentive Plan (the "Plan"), has approved the grant of the following long-term incentive awards (the "Awards") to you:

Award No. 1: Nonqualified stock options (the "Options") to purchase # shares of the Company's common stock at an exercise price of $XX.XX, which is the fair market value of the Company's common stock on the Award Date. You may exercise your Options at any time prior to the expiration date, to the extent you are vested in the Award, by paying the exercise price, and the applicable income and employment tax withholding(s), to the Company. This Award will vest 33 ¹/₃% on each anniversary of the Award Date. This Award will expire and no longer be exercisable on the tenth anniversary of the Award Date (i.e. Date) or, earlier, if your employment terminates prior to such date.

Award No. 2:## of Restricted Shares of the Company's common stock. Under this Award, you are the record owner of the shares as of the Award Date. Consequently, you will have the rights of a shareholder, including voting and dividend rights, as of the Award Date. However, if your employment with the Company terminates prior to you becoming 100% vested in this Award, you will forfeit your unvested shares. The value of the Restricted Shares at the time of vesting will be taxable to you as additional compensation. This Award will vest 33¹/₃% on each anniversary of the Award Date. The shares granted under this Award will remain in the custody of the Company, or its authorized delegate, until you vest in the shares. Upon vesting, the vested shares [less the number of shares withheld to cover your applicable income and employment tax withholding(s) to the Company (for 2007 grants)] will be credited to your account with Fidelity Stock Plan Services and [you will be required to remit payment of the applicable income and employment tax withholding(s) to the Company (for 2008 and 2009 grants)].

2006 Long-Term Incentive Plan                                        1

The above Awards have been granted under and are subject to the terms of the Plan. A copy of the Plan and the 2006 Long-Term Incentive Plan Summary may be viewed and printed at the Fidelity Stock Plan Services website (http://netbenefits.fidelity.com). In addition, further information concerning the terms and conditions of the Awards are included with this letter.

Approximately two to three weeks from receipt of this letter, you will be able to view your Awards on the Fidelity Stock Plan Services website. In order to exercise your Options or to receive a credit of your vested restricted shares to your account, you must log on to the Fidelity Stock Plan Services website (http://netbenefits.fidelity.com) to accept your Awards. Once you accept your Awards, you will be able to view and print the Grant Agreements, which explain the terms and conditions of your Awards. [Please be advised that your Restricted Stock Award must be accepted before the first vesting date; otherwise, your Restricted Stock Award will be forfeited (2010 Grants only)].

If this is the first Award you have been granted under the Plan, you will receive a "Welcome Kit" from Fidelity Stock Plan Services with information on how to certify and view your participant information. You must certify your participant information before you will be entitled to exercise your Options and before your vested shares will be credited to your account.

We highly value your contribution and commitment to the Company's success and believe that these Awards provide you a financial incentive that aligns with the interests of the Company's shareholders.

Sincerely,

President and Chief Executive Officer

Tesoro Corporation and Fidelity Investments are not affiliated.

Stock Plan recordkeeping and administrative services are offered through Fidelity Investments.

Fidelity Brokerage Services, Member NYSE, SIPC.

2006 Long-Term Incentive Plan                                        2

Compensation and Benefits

Tesoro Corporation 2006 Long-Term Incentive Plan

Summary of Key Provisions

Purpose	To reward corporate officers and other employees by enabling them to acquire shares of common stock of the Company and to receive other compensation based on the increase in value of the common stock of the Company or certain other performance measures.
Eligibility	The Committee will determine the employees they will grant awards to under the terms and conditions of the Plan.
Plan Duration	No awards may be granted under the Plan on or after the tenth anniversary of the effective date. The applicable provisions of the Plan will continue in effect with respect to an award granted under the Plan for as long as such award remains outstanding.
Awards Available Under the Plan	The Plan permits the grant of Options, Restricted Stock, Deferred Stock Units, Performance Stock Awards and Performance Units, Cash-Based Awards and Other Stock-Based Awards.
Number of Shares	The aggregate number of shares of stock with respect to which Full Value Awards and Options may be granted under the Plan is 2,750,000 and 5,250,000 respectively. The maximum number of shares of Stock with respect to which Options may be granted to an employee during a fiscal year is 562,500. The maximum number of shares of Stock with respect to which any full value award may be granted to an employee during a fiscal year may not exceed 187,500.
Grant Price	Fair Market Value (FMV) = Closing NYSE stock price on date of grant.
	The price for each grant of an Option shall be determined by the Committee; provided that it is not be less than the FMV of a share on the date the option is granted.
	Each Deferred Stock Unit shall have a value equal to the FMV of a share of Stock.
	Each cash-based award shall specify a payment amount or payment range as determined by the Committee.

2006 Long-Term Incentive Plan                                        1

Vesting	Unless the Committee specifies otherwise, the vesting schedule for all grants of options, restricted stock, deferred stock units, performance stock awards and performance units shall vest ratably over a minimum of three years.
	In no event may any option be exercised until an optionee has completed one year of continuous employment with the Company.
	In its' sole discretion, the Committee may approve the acceleration of the vesting of options, restricted stock, deferred stock units, performance stock awards and performance units in response to specified events or may change the terms of the exercise of options.
Change in Control	In the event of a Change in Control of the Company, all awards previously granted to employees that are not already fully vested and exercisable, shall become immediately vested and fully exercisable.

Nothing herein is intended to modify any referenced Plan. The applicable Plan is the legally governing document and is the final authority on the terms of such Plan.

2006 Long-Term Incentive Plan                                        2

EX-10.12

Exhibit 10.12

Form of Tesoro Corporation 2006 Long-Term Incentive Plan

Performance Units Agreement

Date

Private and Confidential

First Name Last Name

FBA

Work Street

Work City, Work State Work Zip

Dear First Name:

I am very pleased to inform you that, effective Grant Letter (the "Award Date"), the Compensation Committee of the Board of Directors of Tesoro Corporation (the "Company"), pursuant to its authority under the Tesoro Corporation 2006 Long-Term Incentive Plan (the "Plan"), has approved a grant of Value in performance units (the "Award"). The following is a summary of the terms and conditions associated with the Award.

The Award is designed to reward you for the Company achieving pre-established objectives for shareholder return on both a relative and absolute basis. This Award will vest at the end of the 33 month performance period (date through date). However, if your employment with the Company terminates prior to the end of the performance period, your award will be forfeited unless such termination is due to retirement, death, disability, or involuntary termination without cause. An involuntary termination without causeincludes any situation in which the Employee is terminated by the Company except when termination is related to the Employee's:

• Conviction of or a plea of nolocontendere to the charge of a felony (which, through lapse of time or otherwise, is not subject to appeal);

• Willful refusal without proper legal cause to perform, or gross negligence in performing, the Employee's duties and responsibilities;

• Material breach of fiduciary duty to the Company through the misappropriation of Company funds or property; or

• The unauthorized absence of the Employee from work (other than for sick or approved FMLA or disability leave) for a period of 30 or more working days out of a 45-working day period.

At the end of the performance period, the Award will be adjusted based on the Company's Relative Total Shareholder Return against the Performance Peer Group and S&P 500 Index and combined with the Absolute Total Shareholder Return of Tesoro's Stock over the performance period. Should the performance threshold not be achieved at the end of the performance period, the Award will not be paid. The value of the Award at the time of vesting will be paid in cash and be taxable to you as additional compensation and is subject to applicable income and employment tax withholding(s).

The Award has been granted under and is subject to the terms of the Plan. In addition, further information concerning the terms and conditions of the Award are included with this letter. The Award will be administered by Tesoro's Compensation Department. You will receive additional information on how to accept your Award at a later date.

We highly value your contribution and commitment to the Company's success and believe that this Award provides you a financial incentive that aligns your interests with the Company's shareholders.

Sincerely,

President and Chief Executive Officer

Compensation and Benefits

Performance Unit Awards Granted in [year]

Summary of Key Provisions

Purpose	To reward senior executives and other key employees based on the achievement of pre-established objectives for relative and absolute shareholder return over a 33 month performance period.
Eligibility	All senior executives and employees in salary grades 3 and above or as approved by the Compensation Committee of Tesoro's Board of Directors.
Plan	This award is granted under the general terms and conditions of the 2006 Long-Term Incentive Plan.
Performance Units	Each dollar ($1) of LTI compensation granted in the form of a performance unit award is equal to one performance unit.
Performance Period	The performance period for the performance unit award granted in [year] is for 33 months [(date to date)].
Vesting	Unless the Committee specifies otherwise, the performance units shall vest at the end of the 33 month performance period (100% of award vests on [date]).
Form and Timing of Payment	The performance units granted will be adjusted based on the relative and absolute shareholder returns achieved (as reflected on the Performance Payout Table), converted to cash, and paid out within 2 ½ months after the end of the performance period.
Payout Range	The payout for a performance unit award can range from 0% to 200% as reflected in the Performance Payout Table.
Performance Measures	1. Relative Total Shareholder Return (TSR) against the Performance Peer Group and S&P 500 Index
	For purposes of calculating TSR,
	An average of the stock prices for the 30 business days leading up to the beginning and end of the performance period will be used.
	Dividends will be assumed to be reinvested in company stock as of the end of the quarter declared.
	Reduction in Peers: Additional payout tables have been developed in the event of a reduction in the number of peers due to a business combination. If a peer files bankruptcy during the performance period, it will be ranked last for purposes of determining performance.
	2. Absolute Shareholder Return of Tesoro's stock over the Performance Period.

Performance Peer Group	The Performance Peer Group for this award is comprised of the following companies.
	Alon, Frontier, Holly, Sunoco, Valero, Western, and S&P 500 Index
Change in Control	In the event of a Change in Control of the Company, all awards will immediately vest upon and paid at the greater of target or actual performance (relative and absolute total shareholder returns) using the stock transaction price.
Termination of Employment	Performance Unit Awards
	Death - paid out at the end of the performance period based on the number of full months worked divided by 33 months based on the actual performance.
	Disability - paid out at the end of the performance period based on the number of full months worked divided by 33 months based on the actual performance.
	Retirement - paid out at the end of the performance period based on the number of full months worked divided by 33 months based on the actual performance.
	Voluntary Termination or Termination for Cause - award will be forfeited.
	Involuntary Termination or Voluntary for “Good Reason” - paid out at the end of the performance period based on the number of months worked (minimum of 12 months) divided by 33 months based on the actual performance.

Nothing herein is intended to modify any referenced Plan. The applicable Plan is the legally governing document and is the final authority on the terms of such Plan.

Compensation and Benefits

Performance Unit Awards Granted in [year]

Performance Payout Tables

	Rank	Payout % (7 Peers plus Tesoro)
Relative TSR	#1	60%	100%	125%	150%	175%	200%
	#2	30%	90%	112.5%	125%	150%	175%
	#3	20%	60%	100%	112.5%	125%	150%
	#4	0%	30%	75%	100%	112.5%	125%
	#5	0%	15%	50%	75%	100%	112.5%
	#6	0%	0%	25%	50%	75%	100%
Payout % will be interpolated to reflect shareholder returns between percentages outlined in this table.		< 5%	5%	10%	15%	20%	25%
		Absolute Total Shareholder Return

Note: Ranking 7 or 8 results in 0% payout. Committee retains full discretion on award payout at end of performance period.

In the event performance peer group is reduced as the result of a business combination, the following payout table will be used. Peers who file bankruptcy during the performance period will rank last for purposes of determining payouts.

	Rank	Payout % (6 Peers plus Tesoro)
Relative TSR	#1	60%	100%	125%	150%	175%	200%
	#2	30%	75%	100%	125%	150%	175%
	#3	0%	50%	75%	100%	125%	150%
	#4	0%	25%	50%	75%	100%	125%
	#5	0%	0%	25%	50%	75%	100%
Payout % will be interpolated to reflect shareholder returns between percentages outlined in this table.		< 5%	5%	10%	15%	20%	25%
		Absolute Total Shareholder Return

Note: Ranking 6 or 7 results in 0% payout. Committee retains full discretion on award payout at end of performance period.

In the event performance peer group is reduced as the result of a business combination, the following payout table will be used. Peers who file bankruptcy during the performance period will rank last for purposes of determining payouts.

	Rank	Payout % (5 Peers plus Tesoro)
Relative TSR	#1	60%	100%	125%	150%	175%	200%
	#2	25%	50%	75%	100%	125%	150%
	#3	0%	25%	50%	75%	100%	125%
	#4	0%	0%	25%	50%	75%	100%
Payout % will be interpolated to reflect shareholder returns between percentages outlined in this table.		< 5%	5%	10%	15%	20%	25%
		Absolute Total Shareholder Return

Note: Ranking 5 or 6 results in 0% payout. Committee retains full discretion on award payout at end of performance period.

EX-10.13

Exhibit 10.13

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT FOR THOSE TERMS HAVE BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH TWO ASTERISKS.

Execution Version

MASTER TERMINALLING SERVICES AGREEMENT

This Master Terminalling Services Agreement (the “Agreement”) is dated as of April 26, 2011, by and among Tesoro Refining and Marketing Company, a Delaware corporation (“TRMC”), Tesoro Alaska Company, a Delaware corporation (“TAK” and, together with TRMC, “Tesoro”) and Tesoro Logistics Operations LLC, a Delaware limited liability company (“TLO”).

RECITALS

WHEREAS, by virtue of their indirect ownership interests in Tesoro Logistics LP (the “Partnership”), TLO's parent entity, each of TAK and TRMC have an economic interest in the financial and commercial success of the Partnership and its operating subsidiary, TLO; and

WHEREAS, Tesoro and TLO desire to enter into this Agreement to memorialize the terms of their ongoing commercial relationship.

NOW, THEREFORE, in consideration of the covenants and obligations contained herein, the parties to this Agreement hereby agree as follows:

1. DEFINITIONS

Capitalized terms used throughout this Agreement shall have the meanings set forth below, unless otherwise specifically defined herein.

“Additive Facilities” has the meaning set forth in Section 17(a).

“Additized Gasoline” has the meaning set forth in Section 18(a).

“Adjusted Minimum Volume Commitment” means Tesoro's Minimum Throughput Commitment, adjusted by deducting the applicable Stipulated Volume for each Terminal that is no longer subject to this Agreement at any time.

“Agreement” has the meaning set forth in the Preamble.

“Ancillary Services” means the following services to be provided by TLO to Tesoro: ethanol receipt (rail and truck), ethanol storage, ethanol blending, generic gasoline additization, jet additization, jet certification, lubricity/conductivity additization, product receipt (barge), proprietary additive additization, red dye additization, transmix loading (truck) and winter flow improver additization.

“Applicable Law” means any applicable statute, law, regulation, ordinance, rule, determination, judgment, rule of law, order, decree, permit, approval, concession, grant, franchise, license, requirement, or any similar form of decision of, or any provision or condition of any permit, license or other operating authorization issued by any Governmental Authority having or asserting jurisdiction over the matter or matters in question, whether now or hereafter in effect.

“Base Gasoline” has the meaning set forth in Section 18(a).

“Blending Instructions” has the meaning set forth in Section 21(c).

“bpd” means barrels per day.

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“Business Day” means a day, other than a Saturday or Sunday, on which banks in New York, New York are open for the general transaction of business.

“Capacity Resolution” has the meaning set forth in Section 32(c).

“Carrier” means a third-party agent or contractor hired by Tesoro, who is in the business of transporting Products via tank trucks.

“Commencement Date” has the meaning set forth in Section 2.

“Confidential Information” means all confidential, proprietary or non-public information of a Party, whether set forth in writing, orally or in any other manner, including all non-public information and material of such Party (and of companies with which such Party has entered into confidentiality agreements) that another Party obtains knowledge of or access to, including non-public information regarding products, processes, business strategies and plans, customer lists, research and development programs, computer programs, hardware configuration information, technical drawings, algorithms, know-how, formulas, processes, ideas, inventions (whether patentable or not), trade secrets, schematics and other technical, business, marketing and product development plans, revenues, expenses, earnings projections, forecasts, strategies, and other non-public business, technological, and financial information.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract, or otherwise.

“Credit” has the meaning set forth in Section 7(b).

“Curtailment Fee” has the meaning set forth in Section 30(b).

“DCA” has the meaning set forth in Section 18(a).

“EPA” has the meaning set forth in Section 18(a).

“Ethanol Services” has the meaning set forth in Section 21(a).

“Excess Amounts” means, for any Month, the aggregate volumes throughput by Tesoro in excess of the Minimum Throughput Commitment, multiplied by the weighted average Terminalling Service Fee paid by Tesoro during such Month.

“Extension Period” has the meaning set forth in Section 3.

“First Offer Period” has the meaning set forth in Section 34(b).

“Force Majeure” means circumstances not reasonably within the control of TLO and which, by the exercise of due diligence, TLO is unable to prevent or overcome that prevent performance of TLO's obligations, including: acts of God, strikes, lockouts or other industrial disturbances, wars, riots, fires, floods, storms, orders of courts or Governmental Authorities, explosions, terrorist acts, breakage, accident to machinery, storage tanks or lines of pipe and inability to obtain or unavoidable delays in obtaining material or equipment and similar events.

“Force Majeure Notice” has the meaning set forth in Section 31(a).

“Force Majeure Period” has the meaning set forth in Section 31(a).

“Governmental Authority” means any federal, state, local or foreign government or any provincial, departmental or other political subdivision thereof, or any entity, body or authority exercising executive, legislative, judicial, regulatory, administrative or other governmental functions or any court,

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department, commission, board, bureau, agency, instrumentality or administrative body of any of the foregoing.

“LAC” has the meaning set forth in Section 18(a).

“Minimum Throughput Commitment” means an aggregate amount of Products equal to 100,000 bpd (on a monthly average basis); provided however, that the Minimum Throughput Commitment during the Month in which the Commencement Date occurs shall be prorated in accordance with the ratio of the number of days including and following the Commencement Date in such Month to the total number of days in such Month.

“Month” means a calendar month.

“Notice Period” has the meaning set forth in Section 30(a).

“Offer Period” has the meaning set forth in Section 32(g).

“OPIS” has the meaning set forth in Section 8(a).

“Partnership” means Tesoro Logistics LP, TLO's parent entity.

“Partnership Change of Control” means Tesoro Corporation ceases to Control the general partner of the Partnership.

“Party” or “Parties” means that each of TAK, TRMC and TLO is a “Party” and collectively are the “Parties” to this Agreement.

“Person” means any individual, partnership, limited partnership, joint venture, corporation, limited liability company, limited liability partnership, trust, unincorporated organization or Governmental Authority or any department or agency thereof.

“Product” or “Products” means the petroleum products, ethanol or biofuels described herein as being handled under this Agreement.

“Receiving Party Personnel” has the meaning set forth in Section 37(d).

“Red Dye” has the meaning set forth in Section 19(a).

“Refineries”means the Tesoro Refineries located in Anacortes, Washington; Kenai, Alaska; Mandan, North Dakota; Salt Lake City, Utah; and Martinez and Los Angeles, California.

“Restoration” has the meaning set forth in Section 32(b).

“Right of First Refusal” has the meaning set forth in Section 32(g).

“Shortfall Payment” has the meaning set forth in Section 7(b).

“Stipulated Volume” means the stipulated volume in bpd as set forth for each Terminal on Schedule C attached hereto.

“Storage Contract” has the meaning set forth in Section 32(g).

“Subject Tank” has the meaning set forth in Section 32(g).

“Suspension Notice” has the meaning set forth in Section 30(a).

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“TAK” has the meaning set forth in the Preamble.

“Term” and “Initial Term” shall each have the meaning set forth in Section 3.

“Terminalling Right of First Refusal” has the meaning set forth in Section 34(b).

“Terminalling Service Fee” means, for any Month during the Term of this Agreement, the total fee per barrel of throughput paid by Tesoro during that Month for terminalling, dedicated storage and Ancillary Services provided by TLO.

“Terminals” means the Terminals set forth on Schedule A attached hereto.

“Termination Notice” has the meaning set forth in Section 31(a).

“Tesoro” has the meaning set forth in the Preamble.

“Tesoro Termination Notice” has the meaning set forth in Section 31(b).

“TLO” has the meaning set forth in the Preamble.

“Transmix” has the meaning set forth in Section 13.

“TRMC” has the meaning set forth in the Preamble.

2. COMMENCEMENT DATE

The Parties anticipate that the “Commencement Date” will be April 26, 2011. The actual Commencement Date shall be the date specified by TLO in a written notice to TRMC. The Parties agree that there are a number of factors that may affect the actual Commencement Date. Consequently, neither Party shall have any right or remedy against the other Party if the actual Commencement Date is earlier or later than the anticipated Commencement Date.

3. TERM

The initial term of this Agreement shall commence on the Commencement Date and shall continue through April 30, 2021 (the “Initial Term”); provided, however, that Tesoro may, at its option, extend the Initial Term for up to two (2) renewal terms of five (5) years each (each, an “Extension Period”) by providing written notice of its intent to TLO no less than ninety (90) days prior to the end of the Initial Term or the then-current Extension Period. The Initial Term, and any extensions of this Agreement as provided above, shall be referred to herein as the “Term.”

4. MINIMUM THROUGHPUT COMMITMENT

(a)    During the Term of this Agreement and subject to the terms and conditions of this Agreement, Tesoro shall throughput the Minimum Throughput Commitment at the Terminals, and TLO shall make available to Tesoro commingled storage and throughput capacity at each respective Terminal, sufficient to allow Tesoro to throughput the Stipulated Volume of Products at such Terminal. Allocation of storage and throughput capacity for separate Products at each Terminal shall be in accordance with current practices, or as otherwise may be agreed among the Parties from time to time.

(b)    Tesoro shall pay a per-barrel fee for the volumes it throughputs at the Terminals in accordance with Schedule A attached hereto. In addition, if the Parties mutually determine to utilize dedicated storage tanks at any time during the Term of this Agreement, Tesoro shall pay a fee for dedicated storage capacity at the Terminals, which fee shall be mutually determined at such time and set forth in a Schedule to this Agreement.

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(c)    Tesoro may throughput volumes in excess of its Minimum Throughput Commitment, up to the then-available capacity of each Terminal, net of any third-party commitments, as determined by TLO at any time. Allocation of any excess capacity shall be in accordance with current practices, or as otherwise may be agreed among the Parties from time to time. Any excess throughput volumes shall be subject to the throughput and Ancillary Service fees set forth on Schedule A and Schedule B, respectively.

(d)    All fees set forth in this Agreement shall be increased on July 1 of each year of the Term, by a percentage equal to the greater of zero or the positive change in the CPI-U (All Urban Consumers), as reported by the U.S. Bureau of Labor Statistics.

(e)    In the event at any time this Agreement is terminated as to one or more Terminals, as provided herein, then the Minimum Throughput Commitment shall thereafter be adjusted to be the Adjusted Minimum Volume Commitment.

5. ANCILLARY SERVICES

TLO shall provide Ancillary Services for each Terminal and the fees for such Ancillary Services are set forth on Schedule B attached hereto. If any additional ancillary services are requested by Tesoro that are different in kind, scope or frequency from the Ancillary Services that have been historically provided, then the Parties shall negotiate in good faith to determine whether such ancillary services may be provided and the appropriate rates to be charged for such additional ancillary services.

6. SURCHARGES

If, during the term of this Agreement, new laws or regulations are enacted that require TLO to make substantial and unanticipated capital expenditures with respect to the Terminals, TLO may impose a monthly surcharge to cover Tesoro's pro rata share of the cost of complying with these laws or regulations, based upon the percentage of Tesoro's use of the services or facilities impacted by such new laws or regulations. TLO and Tesoro shall use their reasonable commercial efforts to comply with these laws and regulations, and shall negotiate in good faith to mitigate the impact of these laws and regulations and to determine the level of the monthly surcharge.

7. PAYMENT; SHORTFALL PAYMENTS

(a)TLO shall invoice Tesoro on a monthly basis and Tesoro shall pay all amounts due (including Shortfall Payments and Curtailment Fees, each as defined herein) no later than ten (10) calendar days after Tesoro's receipt of TLO's invoices. Any past due payments owed by Tesoro to TLO shall accrue interest, payable on demand, at the rate of eight percent (8%) per annum from the due date of the payment through the actual date of payment.

(b)If, during any Month during the Term, Tesoro throughputs aggregate volumes less than the Minimum Throughput Commitment for such Month, then Tesoro shall pay TLO an amount (a “Shortfall Payment”) for any shortfall. Shortfall Payments shall be equal to the weighted average Terminalling Service Fee paid by Tesoro during thatMonth across all of the Terminals, multiplied by the aggregate monthly shortfall across all Terminals. The dollar amount of any Shortfall Payment paid by Tesoro shall be posted as a credit (a “Credit”) to Tesoro's account and may be applied against any Excess Amounts owed by Tesoro during any of the succeeding three (3) Months. For informational purposes only, attached as Exhibit 1 hereto is a sample calculation demonstrating the Shortfall Payment and its application.Credits will be applied in the order in which such Credits accrue and any remaining portion of the Credit that is not used by Tesoro during the succeeding three (3) Months shall expire (e.g., a Credit that accrues in January will be available in February, March and April, will expire at the end of April, and must be applied prior to applying any Credit which accrues in February).

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(c)If at any time during the Term, any tank, rack or other equipment or facility of TLO that is dedicated to Tesoro or otherwise being used to provide services hereunder, is removed from service for reasons other than routine repair and maintenance, and if removal of such tank, rack or other equipment or facility from service restricts Tesoro from being able to throughput its Stipulated Volume and receive associated Ancillary Services at the Terminal where such tank, rack or other equipment or facility is located, then until such tank, rack or other equipment or facility is restored to service, Tesoro's Minimum Throughput Commitment shall be reduced by the difference between the Stipulated Volume and the amount that Tesoro can effectively throughput at such location without restriction until such tank, rack or other equipment or facility is restored to service.

8.VOLUME LOSSES

(a)    With respect only to the Anchorage, Boise, Burley, Stockton and Vancouver Terminals, TLO shall bear the risk of any actual volume losses of each Product to the extent that such losses exceed 0.25% of the volumes of such Product received at the Terminal, to be prorated among all Terminal users, during any Month during the Term. Volumes and losses of each Product shall be determined and accounted for as of the end of each Month. To the extent that actual losses of any Product are less than 0.25% during any particular Month, Tesoro shall repurchase from TLO the difference between the actual loss and the 0.25% allowance at a price per barrel for that Product as reported by the Oil Price Information Service (“OPIS”) using the monthly average OPIS unbranded contract rack posting for that Product during the Month in which the volume difference was accounted for. All such sales shall be “AS IS”, “WHERE IS”, without any warranty, express or implied, including warranties of merchantability, fitness or title, all of which are expressly excluded. If volume losses of any Product exceed 0.25% during any particular Month, TLO shall pay Tesoro for the difference between the actual loss and the 0.25% allowance at a price per barrel for that Product as reported by OPIS using the monthly average OPIS unbranded contract rack posting for that Product during the Month in which the volume difference was accounted for. Deliveries on Saturday, Sunday or Federal holidays shall be excluded from the calculation for the applicable Month.

(b)    For all other Terminals, TLO shall have no obligation to measure volume gains and losses and shall have no liability whatsoever for physical losses, except if such losses are caused by the gross negligence or willful misconduct of TLO, as further described in Section 27 herein.

9. REIMBURSEMENT

(a)Tesoro shall reimburse TLO for: (i) the actual cost of any regulatory fees incurred by TLO based on Tesoro's proportionate share of the actual volumes Tesoro throughputs based upon the percentage of Tesoro's use of the services or facilities impacted by regulatory fees; (ii) the actual cost of any capital expenditures that TLO agrees to make upon Tesoro's request to provide services hereunder, other than capital expenditures required for TLO to continue to provide those services specified hereunder; and (iii) the actual cost of any third-party fees, including port fees, incurred in connection with carrying out the terms of this Agreement.

(b)If cleaning of any tanks is performed by TLO at the specific request of Tesoro, Tesoro shall bear (or reimburse TLO) for all costs to clean, degas or otherwise prepare the tank(s) including, without limitation, the cost of removal, processing, transportation, disposal, of all waste and the cost of any taxes or charges TLO may be required to pay in regard to such waste. For any tanks that are dedicated to Tesoro for segregated storage of Tesoro's Products as set forth in Schedule A, Tesoro agrees to reimburse TLO for the reasonable cost of changes necessary to return the segregated storage tanks to TLO on termination of their dedication for segregated storage under this Agreement, in the same condition as originally received less normal wear and tear. If Tesoro requests that any such dedicated tank be converted to storage of a different product, then Tesoro shall be responsible for reimbursing TLO for all costs of such conversion, including all costs to clean, degas or otherwise prepare the tank(s) including, without limitation, the cost of removal, processing, transportation, disposal, of all waste and the cost of any taxes or charges TLO may be required to pay in regard to such waste. Tesoro shall not be

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responsible to TLO for any throughput fees and dedicated tank storage fees associated with any dedicated storage tanks taken out of service during the period that such tank is out of service.

(c)All of the foregoing reimbursements shall be made in accordance with the payment terms set forth in Section 7(a) herein.

10.CUSTODY TRANSFER AND TITLE

(a)     Pipeline

(i)    Receipts. For Product received into a Terminal by pipeline, custody of the Product shall pass to TLO at the flange where it enters the Terminal's receiving line. For receipts of Product at a Terminal rack at Mandan, Salt Lake City or Wilmington, custody shall transfer at the point where the pipeline from the Refinery crosses onto the property controlled by TLO.

(ii)    Deliveries. For Product delivered by a Terminal into pipeline, custody of the Product shall pass to Tesoro at the flange where it exits the Terminal's delivery line.

(b)    Rail Receipts. For Product received by rail, custody shall pass to TLO when the locomotive used to transfer Tesoro's rail cars to the Terminal is uncoupled from such rail cars at the Terminal.

(c)    Truck. For receipts and deliveries to or from trucks, custody shall pass at the flange where the hoses at TLO's facility interconnect with the truck.

(d)    Marine. For receipts and deliveries to or from marine vessel at Vancouver, custody shall pass at the flange where TLO's facility interconnects with the hoses connected to the marine vessel; for receipts and deliveries to or from marine vessel at Anchorage, custody shall pass at the flange where TLO's facility interconnects with the Port of Anchorage Valve Yard.

(e)General. Upon re-delivery of any Product to Tesoro's account, Tesoro shall become solely responsible for any loss, damage or injury to person or property or the environment, arising out of transportation, possession or use of such Product after transfer of custody and the loss allowance provisions hereof shall apply to Product while in TLO's custody. Title to all Tesoro's Product received in the Terminals shall remain with Tesoro at all times. Both Parties acknowledge that this Agreement represents a bailment of Products by Tesoro to TLO and not a consignment of Products, it being understood that TLO has no authority hereunder to sell or seek purchasers for the Products of Tesoro, except as provided in Section 8 above and Section 13 below. Tesoro hereby warrants that it shall, at all times, have good title to and the right to deliver, throughput, store and receive Products pursuant to the terms of this Agreement.

11.    PRODUCT QUALITY

(a)    Tesoro warrants that all Products delivered under this Agreement shall meet the latest applicable pipeline specifications for that Product and contain no deleterious substances or concentrations of any contaminants that may make it or its components commercially unacceptable in general industry application. Tesoro shall not deliver to any of the Terminals any Products which: (a) would in any way be injurious to any of the Terminals; (b) would render any of the Terminals unfit for the proper storage of similar products; (c) would contaminate or otherwise downgrade the quality of the products stored in commingled storage; (d) may not be lawfully stored at the Terminals; or (e) otherwise do not meet applicable Product specifications for such Product that are customary in the location of the Terminal. If, however, there are Products that do not have such applicable specifications, the specifications shall be mutually agreed upon by the Parties. Should Tesoro's commingled Products not meet or exceed the minimum quality standards set forth in this Agreement, Tesoro shall be liable for all loss, damage and

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cost incurred thereby, including damage to Products of third parties commingled with Tesoro's unfit Products.

(b)    TLO shall have the right to store compatible products received for Tesoro's account with products belonging to TLO or third parties in TLO's commingled storage tanks. TLO shall handle Tesoro's fungible Products in accordance with TLO's prevailing practices and procedures for handling such Products. The quality of all Products tendered into commingled storage for Tesoro's account shall be verified either by Tesoro's refinery analysis or supplier's certification, such that Products so tendered shall meet TLO's Product specifications. All costs for such analysis shall be borne solely by Tesoro. TLO shall have the right to sample any Product tendered to the Terminals hereunder. The cost of such sampling shall be borne solely by TLO. All products returned to Tesoro shall meet or exceed Product specifications in effect on the date the Products are delivered to Tesoro. Notwithstanding any other provision herein, any and all Products that leave the Terminals shall meet all relevant ASTM, EPA, federal and state specifications, and shall not leave the Terminals in the form of a sub-octane grade product.

(c)    TLO shall exercise reasonable care to ensure that all Products delivered by third Parties into commingled storage with Tesoro's Products meet applicable Product specifications for such Product that are customary in the location of the Terminal. In the event that Tesoro's Products are commingled with third-party Products that do not meet or exceed the minimum quality standards set forth in this Agreement, TLO shall be liable for all loss, damage and cost incurred thereby.

12. MEASUREMENT

All quantities of Products received or delivered by or into truck, rail, or marine vessel shall be measured and determined based upon the meter readings at each Terminal, as reflected by delivery tickets or bills of lading, or if such meters are unavailable, by applicable calibration tables. All quantities of Products received and delivered by pipeline shall be measured and determined based upon the meter readings of the pipeline operator, as reflected by delivery tickets, or if such meters are unavailable, by applicable calibration tables. Deliveries to a Terminal rack at Mandan, Salt Lake City or Wilmington from a Tesoro Refinery shall be deemed to be the same as the corresponding volumes delivered contemporaneously from the Terminal rack. Deliveries by book transfer shall be reflected by entries in the books of TLO. All quantities shall be adjusted to net gallons at 60° F in accordance with ASTM D-1250 Petroleum Measurement Tables, or latest revisions thereof. A barrel shall consist of 42 U.S. gallons and a gallon shall contain 231 cubic inches. Meters and temperature probes shall be calibrated according to applicable API standards. Tesoro shall have the right, at its sole expense, and in accordance with rack location procedure, to independently certify said calibration. Storage tank gauging shall be performed by TLO's personnel. TLO's gauging shall be deemed accurate unless challenged by an independent certified gauger. Tesoro may perform joint gauging at its sole expense with TLO's personnel at the time of delivery or receipt of Product, to verify the amount involved. If Tesoro should request an independent gauger, such gauger must be acceptable to TLO, and such gauging shall be at Tesoro's sole expense.

13. PRODUCT DOWNGRADE AND INTERFACE

Product downgraded as a result of ordinary Terminal or pipeline operations including line flushing, rack meter provings or other necessary Terminals operations shall not constitute losses for which TLO is liable to Tesoro. TLO shall account for the volume of Product downgraded, and Tesoro's inventory of Products and/or interface shall be adjusted, provided that, in some cases interface volume (“Transmix”) received shall be ratably shared between Tesoro and other customers receiving Products in the same shipment or stored in commingled storage. Tesoro shall remove its Transmix upon notice from TLO and shall be subject to applicable throughput fees upon its removal. If Transmix is not removed within fifteen (15) days after notification, TLO shall have the right to sell such Transmix at market rates and return any proceeds to Tesoro, less applicable throughput fees and delivery costs in effect at the time of such sale.

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14. PRODUCT DELIVERIES, RECEIPTS AND WITHDRAWALS

(a)All supervised deliveries, receipts and withdrawals hereunder shall be made within the normal business hours of each Terminal and at such times as may be required by Tesoro upon prior notice and approval by TLO, all in accordance with the agreed-upon scheduling. Unsupervised deliveries, receipts and withdrawals shall be made only with TLO's prior approval and in strict accordance with TLO's current operating procedures for the Terminals. Tesoro warrants that all vehicles permitted to enter the Terminals on behalf of Tesoro shall meet all requirements and standards promulgated by applicable regulatory authority including the Department of Transportation, the Occupational Safety and Health Administration, and the Environmental Protection Agency. Tesoro further warrants that it shall only send to the Terminals those employees, agents and other representatives acting on behalf of and at Tesoro's direction who have been properly instructed as to the characteristics and safe hauling methods associated with the Products to be loaded and hauled. Tesoro further agrees to be responsible to TLO for the performance under this Agreement by its agents and/or representatives receiving Products at the Terminals.

(b)Tesoro shall withdraw from the Terminals only those Products that it is authorized to withdraw hereunder. Tesoro shall neither duplicate nor permit the duplication of any loading device (i.e., card lock access) provided hereunder. Tesoro shall be fully and solely responsible for all Products loaded through the use of the loading devices issued to Tesoro in accordance with this Agreement; provided, however; that Tesoro shall not have any responsibility or liability hereunder in the event that the load authorization system provided hereunder fails or malfunctions in any way unless a credit department override is provided, which authorizes Tesoro to load the Products.

(c)Both Parties shall abide by all federal, state and local statutes, laws and ordinances and all rules and regulations which are promulgated by TLO and which are either furnished to Tesoro or posted at the Terminals, with respect to the use of the Terminals as herein provided. It is understood and agreed by Tesoro that these rules and regulations may be changed, amended or modified by TLO at any time. All changes, amendments and modifications shall become binding upon Tesoro ten (10) days following the posting of a copy at the affected Terminals or the receipt by Tesoro of a copy, whichever occurs sooner.

(d)For all purposes hereunder, Tesoro's jobbers, distributors, Carriers, haulers and other customers designated in writing or otherwise by Tesoro to have loading privileges under this Agreement or having possession of any loading device furnished to Tesoro pursuant to this Agreement, together with their respective officers, servants and employees, shall, when they access the Terminals, be deemed to be representatives of Tesoro.

15.DELIVERIES INTO TRANSPORT TRUCKS

Prior to transporting any Products loaded into transport trucks at the Terminals, Tesoro and its Carriers shall make or cause to be made, the following certifications on the delivery receipt or bill of lading covering the products received:

“If required by 49 CFR 172.204, this is to certify that the above-named materials are property classified, described, packaged, marked and labeled, and are in proper condition for transportation according to the applicable regulations of the Department of Transportation. Carrier hereby certifies that the cargo tank used for this shipment is a proper container for the commodity loaded therein and complies with Department of Transportation specifications and certifies that cargo tank is properly placarded and marked to comply with regulations pertaining to hazardous materials.”

TLO may require each Carrier coming into the Terminals to expressly agree in writing to be bound by the provisions of this Agreement with respect to withdrawals and loading of Products hereunder, to conduct its operations at the Terminals in a safe manner, in accordance with all Applicable

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Laws and regulations, and to carry the levels and types of insurance, with appropriate endorsements and certificates, specified for Tesoro hereunder.

16. ADDITIZATION OPTIONS

At each Terminal, TLO shall provide equipment for the injection of generic additives, as provided below. Subject to the other provisions set forth herein, and the availability of suitable space in a Terminal and its equipment, Tesoro shall have the option of installing its own proprietary additive systems at the Terminals which TLO shall operate, or utilizing the generic additive service provided by TLO, or a combination of both. Tesoro shall designate in writing to TLO which additive injection service it desires. TLO shall be responsible for providing generic additives as provided herein, and Tesoro shall be responsible for providing any special or proprietary additives requested by Tesoro.

17. LUBRICITY AND CONDUCTIVITY ADDITIVE

(a)TLO owns, maintains and operates diesel lubricity and conductivity additive injection facilities (the “Additive Facilities”) at each of the Terminals. TLO shall continue to maintain and operate such Additive Facilities in accordance with customary industry standards during the term of this Agreement, including all required reporting and record keeping prescribed by Applicable Law.

(b)During the term of this Agreement, TLO shall arrange for purchase and delivery of any and all required lubricity and conductivity additive for injection through the Additive Facilities at the Terminals.

(c)During the term of this Agreement, TLO shall inject into all Ultra Low Sulfur Diesel delivered to Tesoro at the Terminals an amount of lubricity and conductivity additive that it determines to be sufficient to comply with current ASTM diesel lubricity and conductivity specifications. TLO shall, upon request, provide Tesoro with documentation of additive specifications and additive injection, which TLO shall keep on file at each Terminal.

(d)Tesoro shall pay TLO a lubricity and conductivity additive injection fee, as set forth in Schedule B, for all lubricity and conductivity additive and injection services provided hereunder for each barrel of Low Sulfur Diesel/Ultra Low Sulfur Diesel Fuel delivered to trucks for Tesoro's account. Said injection charge is in addition to any existing Terminals charges.

18.DCA ADDITIVE INJECTION

(a)All gasoline Product leaving the Terminals shall be additized (“Additized Gasoline”). As an exception, TLO shall accommodate a request from Tesoro to lift base gasoline from the Terminals. In that case, the bill of lading issued by TLO shall label all such Product as base gasoline (“Base Gasoline”). TLO shall provide a generic Deposit Control Additive (“DCA”) injection service, including all required reporting and record keeping prescribed by Applicable Law. The additive supplied shall be a U.S. Environmental Protection Agency (“EPA”) certified DCA. Subject to the other provisions hereof, Tesoro may request TLO to instead inject a different proprietary DCA into certain gasoline delivered hereunder, instead of the generic DCA provided by TLO, and TLO shall accommodate such requests, subject to Tesoro providing a suitable Additized Gasoline system for such proprietary additive. TLO shall ensure that such additive is injected into all appropriate gasoline Product delivered to Tesoro at a rate no lower than the Lowest Allowable Concentration (“LAC”) at which such additive was certified. The gasoline additization rate shall be determined by Tesoro, but shall not be less than 1.1 times the LAC specified by the respective additive manufacturer or supplier. TLO shall accommodate Tesoro's requests for higher additive injection rates in accordance with the fees in Schedule B of this Agreement. Tesoro shall submit all such requests in writing to TLO.

(b)Notwithstanding the above, Tesoro shall be solely responsible for registering with the EPA or any other government agency its use of generic or proprietary additive in its fuels, as required by

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Applicable Law. Tesoro shall submit to each applicable Terminal evidence of registration in compliance with 40 C.F.R. Part 80. Tesoro shall also be responsible for full compliance with any quarterly or other regulatory reporting, and any other requirements under Applicable Law, rule or regulation related to use of generic or proprietary additive in Tesoro's Product.

(c)Tesoro shall pay TLO a DCA injection fee, as set forth in Schedule B, for all lubricity and conductivity additive and injection services provided hereunder for each barrel of Low Sulfur Diesel/Ultra Low Sulfur Diesel Fuel delivered to trucks for the account of Tesoro. Said injection charge is in addition to any existing Terminals charges.

19.RED DYE INJECTION

(a)TLO shall provide a generic red dye additive (“Red Dye”) injection service for diesel, including all required reporting and recordkeeping prescribed by Applicable Law. TLO shall be responsible for determining the injection rates, Red Dye inventory levels, meter readings, and calculations of actual treat rates, in compliance with the minimum levels prescribed by the Internal Revenue Service.

(b)Tesoro is responsible for designating which of its accounts shall be authorized to use Red Dye diesel injection services. TLO equipment shall enable designated Carriers and accounts to inject Red Dye upon request prior to loading diesel Product at Terminals. Tesoro's Carrier shall be solely responsible for designating that a load of diesel Product be injected with Red Dye, and TLO shall have no liability with regard to whether a load of Product is additized with Red Dye. TLO shall not be responsible for any loss, damage or liability that arises from Carrier injecting or failing to inject Red Dye into Tesoro's Product.

20.SPECIAL ADDITIVE EQUIPMENT

At the request of Tesoro, and subject to the other provisions set forth herein and the availability of suitable space in a Terminal, TLO shall install and maintain at the Terminals, at Tesoro's sole risk, cost and expense, such special additive equipment as may be desirable for Products to be delivered to Tesoro's account hereunder. The engineering and installation of any fixture, equipment or appurtenance placed on the Terminals in respect thereof shall be subject to TLO's prior approval and supervision. During the Term of this Agreement, TLO shall operate the special additive equipment, and TLO shall be paid a fee for such operation in accordance with the terms in respect of additive handling fees specified in Schedule B attached hereto. The location, ownership, installation, and maintenance of such special additive equipment shall be as specified in writing by Tesoro.

(a)Any such gasoline additive system shall include one above ground storage tank (and any necessary modifications thereto), one additive injection pump, any and all necessary piping and injectors. For the avoidance of doubt, the above ground storage tank shall be supplied by Tesoro.

(b)Subject to the supervision of TLO, TLO or its designee shall install the additive system. Tesoro shall be responsible for 100% of all costs of the Additized Gasoline system, including without limitation, costs associated with any required piping, nozzles, fittings, equipment, injection panels, labor and/or installation thereof, and if any existing load rack equipment will not support such additional additive system, then Tesoro shall bear all costs of enlarging or renovating such load rack to support the additional additive system requested by Tesoro. Tesoro shall reimburse TLO for all such costs within ten days after receipt of an invoice from TLO for such costs. Upon completion of the installation of the Additized Gasoline system, the Additized Gasoline system shall become the property of TLO, free and clear of any security interest or lien.

(c)Tesoro shall reimburse TLO for any and all necessary modifications to an additional additive system required by Tesoro during the Term of this Agreement.

21.ETHANOL BLENDING SERVICES

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(a)Where ethanol receiving, storage and blending facilities are available at a Terminal, and upon Tesoro's request, at its sole discretion, TLO shall receive, store and blend ethanol into Tesoro's gasoline at a Terminal (“Ethanol Services”). TLO shall provide and operate all equipment required for the Ethanol Services. The equipment shall consist of truck and/or rail unloading racks, tanks, pumps, motors, injectors, computer control, and any other ancillary equipment necessary for the providing of the Ethanol Services.

(b)Tesoro shall be solely responsible for supplying inventories of ethanol at its own expense, including the scheduling and transporting of ethanol into the Terminals, subject to mutually agreeable notice and scheduling procedures. TLO shall receive Tesoro's ethanol into fungible ethanol storage at the Terminal.

(c)Tesoro shall provide, in writing, to each Terminals where Ethanol Services are requested by Tesoro, the desired blending ratio of ethanol to gasoline, including the minimum Octane (R+M/2) rating (“Blending Instructions”), for each grade of Tesoro's gasoline Product, prior to blending. TLO shall not change the blending ratios without the prior written authorization of Tesoro.

(d)TLO shall maintain for a minimum of five (5) years written or electronic records of the type and volume of oxygenate blended into Tesoro's gasoline.

(e)TLO shall maintain an industry standard quality assurance oversight program of the ethanol blending process. TLO shall provide Tesoro with an end-of-year report that, at a minimum, summarizes the volume of Tesoro's gasoline received by TLO, the volume of oxygenate added to Tesoro's gasoline, and total volume of blended gasoline.

(f)TLO shall allow Tesoro or its agents to monitor the oxygenate blending operation by periodic audit, sampling, testing and/or records review to ensure the overall volumes and type of oxygenate blended into gasoline is consistent with the oxygenate claimed by Tesoro as required by 40 CFR 80.101(d)(4)(ii)(B)(2).

(g)TLO shall rely on Blending Instructions and data provided by Tesoro in performing its obligations under this Agreement. Tesoro agrees to be solely responsible for all claims arising from TLO's use of or reliance on these Blending Instructions and data.

(h)When performing the Ethanol Services as per Tesoro's Blending Instructions, TLO shall not certify to Tesoro or any third-party that blended gasoline does or shall meet ASTM D 4814 or any Federal, State, or Local regulatory specifications. Tesoro agrees that it is receiving from TLO the Blended Gasoline in an “AS IS, WHERE IS” condition without warranties of any kind, including any warranties of merchantability or fitness for a particular purpose, or its ability to meet ASTM or regulatory specifications.

22.ACCOUNTING PROVISIONS AND DOCUMENTATION

TLO shall furnish Tesoro with the following reports covering services hereunder involving Tesoro's Products:

(a)    Within ten (10) Business Days following the end of the Month, a statement showing, by Product: (i) Tesoro's monthly aggregate deliveries into the Terminals; (ii) Tesoro's monthly receipts from the Terminals; (iii) calculation of all Tesoro's monthly storage and handling fees; (iv) Tesoro's opening inventory for the preceding Month; (v) appropriate monthly loss allowance adjustments (as applicable in accordance with Section 8); and (vi) Tesoro's closing inventory for the preceding Month.

(b)    A copy of any meter calibration report, to be available for inspection upon reasonable request by Tesoro at the Terminals following any calibration.

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(c)    Upon delivery from the Terminals, a hard copy bill of lading to the Carrier for each truck, barge, or rail delivery. Upon reasonable request only, a hard copy bill of lading shall be provided to Tesoro's accounting group. Upon each truck delivery from the Terminals, bill of lading information shall be sent electronically through General Electric Information Services Petroex System or other mutually agreeable system.

(d)    For each marine shipment, all bills of lading (or other appropriate document in the case of barges) and inspection reports (if conducted by independent inspector).

(e)    Transfer documents for each in-tank transfer.

(f)    TLO shall be required to maintain the capabilities to support truck load authorization technologies at each Terminal. However, costs incurred by TLO for periodic software updates, replacement of loading systems or software or other upgrades made at the request of Tesoro shall be recoverable from Tesoro either as a lump sum payment or through an increase in terminalling fees. Notwithstanding the foregoing, if an update, replacement or upgrade is made other than at Tesoro's request, TLO and Tesoro shall mutually agree on a fee for such update, replacement or upgrade.

23. AUDIT AND CLAIMS PERIOD

Each Party and its duly authorized agents and/or representatives shall have reasonable access to the accounting records and other documents maintained by the other Party which relate to this Agreement, and shall have the right to audit such records at any reasonable time or times during the Term of this Agreement and for a period of up to three years after termination of this Agreement. Claims as to shortage in quantity or defects in quality shall be made by written notice within thirty (30) days after the delivery in question or shall be deemed to have been waived.

24. LIENS

To secure any fees due and Tesoro's performance of its obligations under this Agreement, Tesoro hereby grants to TLO an irrevocable lien and security interest in and on all of its Products in the care and custody of TLO and further grants TLO a limited power-of-attorney to dispose of such Products at fair market value to the extent of any and all amounts owed by Tesoro to TLO hereunder, after providing Tesoro with reasonable advance notice of any such sale. At TLO's request, Tesoro shall sign a UCC-1 financing statement acknowledging TLO's security interest in Tesoro's Product in the Terminals.

25. TAXES

Tesoro shall pay or cause to be paid all taxes, levies, royalties, assessments, licenses, fees, charges, surcharges and sums due of any nature whatsoever (other than income taxes, gross receipt taxes and similar taxes) imposed by any federal, state or local government that TLO incurs on Tesoro's behalf for the services provided by TLO under this Agreement. If TLO is required to pay any of the foregoing, Tesoro shall promptly reimburse TLO in accordance with the payment terms set forth in this Agreement.

26. LIMITATION ON LIABILITY

Notwithstanding anything to the contrary contained herein, neither Party shall be liable or responsible to the other Party or such other Party's affiliated Persons for any consequential, incidental, or punitive damages, or for loss of profits or revenues (collectively referred to as “special damages”) incurred by such Party or its affiliated Persons that arise out of or relate to this Agreement, regardless of whether any such claim arises under or results from contract, tort, or strict liability; provided that the foregoing limitation is not intended and shall not affect special damages imposed in favor of unaffiliated Persons that are not Parties to this Agreement.

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27. INDEMNITIES

(a)Notwithstanding anything else contained in this Agreement, TLO shall release, defend, protect, indemnify, and hold harmless Tesoro from and against any and all demands, claims (including third-party claims), losses, costs, suits, or causes of action (including, but not limited to, any judgments, losses, liabilities, fines, penalties, expenses, interest, reasonable legal fees, costs of suit, and damages, whether in law or equity and whether in contract, tort, or otherwise) for or relating to (i) personal or bodily injury to, or death of the employees of Tesoro and, as applicable, its Carriers, customers, representatives, and agents, (ii) loss of or damage to any property, products, material, and/or equipment belonging to Tesoro and, as applicable, its Carriers, customers, representatives, and agents, and each of their respective affiliates, contractors, and subcontractors (except for those volume losses provided for in Section 8), (iii) loss of or damage to any other property, products, material, and/or equipment of any other description (except for those volume losses provided for in Section 8), and/or personal or bodily injury to, or death of any other person or persons; and with respect to clauses (i) through (iii) above, which is caused by or resulting in whole or in part from the acts and omissions of TLO in connection with the ownership or operation of the Terminals and the services provided hereunder, and, as applicable, its carriers, customers (other than Tesoro), representatives, and agents, or those of their respective employees with respect to such matters, and (iv) any losses incurred by Tesoro due to violations of this Agreement by TLO, or, as applicable, its customers (other than Tesoro), representatives, and agents; PROVIDEDTHAT TLO SHALL NOT BE OBLIGATED TO INDEMNIFY OR HOLD HARMLESS TESORO FROM AND AGAINST ANY CLAIMS TO THE EXTENT THEY RESULT FROM THE BREACH OF CONTRACT, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF TESORO.

(b)Notwithstanding anything else contained in this Agreement, Tesoro shall release, defend, protect, indemnify, and hold harmless TLO and, and each of its respective affiliates, officers, directors, shareholders, agents, employees, successors-in-interest, and assignees from and against any and all demands, claims (including third-party claims), losses, costs, suits, or causes of action (including, but not limited to, any judgments, losses, liabilities, fines, penalties, expenses, interest, reasonable legal fees, costs of suit, and damages, whether in law or equity and whether in contract, tort, or otherwise) for or relating to (i) personal or bodily injury to, or death of the employees of TLO and, as applicable, its carriers, customers, representatives, and agents; (ii) loss of or damage to any property, products, material, and/or equipment belonging to TLO and, as applicable, its carriers, customers, representatives, and agents, and each of their respective affiliates, contractors, and subcontractors (except for those volume losses provided for in Section 8); (iii) loss of or damage to any other property, products, material, and/or equipment of any other description (except for those volume losses provided for in Section 8), and/or personal or bodily injury to, or death of any other person or persons; and with respect to clauses (i) through (iii) above, which is caused by or resulting in whole or in part from the acts and omissions of Tesoro, in connection with Tesoro's and its customers' use of the Terminals and the services provided hereunder and Tesoro's Products stored hereunder, and, as applicable, its Carriers, customers, representatives, and agents, or those of their respective employees with respect to such matters; and (iv) any losses incurred by TLO due to violations of this Agreement by Tesoro, or, as applicable, its Carriers, customers, representatives, and agents; PROVIDEDTHAT TESORO SHALL NOT BE OBLIGATED TO INDEMNIFY OR HOLD HARMLESS TLO FROM AND AGAINST ANY CLAIMS TO THE EXTENT THEY RESULT FROM THE BREACH OF CONTRACT, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF TLO. For the avoidance of doubt, nothing herein shall constitute a release by Tesoro of any volume losses that are caused by the TLO's gross negligence, breach of this Agreement or willful misconduct.

28.INSURANCE

(a)    At all times during the Term of this Agreement and for a period of two (2) years after termination of this Agreement for any coverage maintained on a “claims-made” or “occurrence” basis, Tesoro and/or its Carrier (if applicable) shall maintain at their expense the below listed insurance in the amounts specified below which are minimum requirements. Tesoro shall require that Carrier cause all of its contractors providing authorized drivers or authorized vehicles, to carry such insurance, and Tesoro

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shall be liable to TLO for their failure to do so. Such insurance shall provide coverage to TLO and such policies, other than Worker's Compensation Insurance, shall include TLO as an Additional Insured. Each policy shall provide that it is primary to and not contributory with any other insurance, including any self-insured retention, maintained by TLO (which shall be excess) and each policy shall provide the full coverage required by this Agreement. All such insurance shall be written with carriers and underwriters acceptable to TLO, and eligible to do business in the states where the Terminals are located and having and maintaining an A.M. Best financial strength rating of no less than “A-” and financial size rating no less than “VII”; provided that Tesoro and/or the Carrier may procure worker's compensation insurance from the state fund of the state where the Terminal(s) are located. All limits listed below are required MINIMUM LIMITS:

(i)    Workers Compensation and Occupational Disease Insurance which fully complies with Applicable Law of the state where each Terminal is located, in limits not less than statutory requirements;

(ii)    Employers Liability Insurance with a minimum limit of $1,000,000 for each accident, covering injury or death to any employee which may be outside the scope of the worker's compensation statute of the jurisdiction in which the worker's service is performed, and in the aggregate as respects occupational disease;

(iii)    Commercial General Liability Insurance, including contractual liability insurance covering Carrier's indemnity obligations under this Agreement, with minimum limits of $1,000,000 combined single limit per occurrence for bodily injury and property damage liability, or such higher limits as may be required by TLO or by Applicable Law from time to time. This policy shall include Broad Form Contractual Liability insurance coverage which shall specifically apply to the obligations assumed in this Agreement by Tesoro;

(iv)    Automobile Liability Insurance covering all owned, non-owned and hired vehicles, with minimum limits of $1,000,000 combined single limit per occurrence for bodily injury and property damage liability, or such higher limit(s) as may be required by Tesoro or by Applicable Law from time to time. Coverage must assure compliance with Sections 29 and 30 of the Motor Carrier Act of 1980 and all applicable rules and regulations of the Federal Highway Administration's Bureau of Motor Carrier Safety and Interstate Commerce Commissioner (Form MCS 90 Endorsement). Limits of liability for this insurance must be in accordance with the financial responsibility requirement of the Motor Carrier Act, but not less than $1,000,000 per occurrence;

(v)    Excess (Umbrella) Liability Insurance with limits not less than $4,000,000 per occurrence. Additional excess limits may be utilized to supplement inadequate limits in the primary policies required in items (ii), (iii), and (iv) above;

(vi)    Pollution Legal Liability with limits not less than $25,000,000 per loss with an annual aggregate of $25,000,000.  Coverage shall apply to bodily injury and property damage including loss of use of damaged property and property that has not been physically injured; clean up costs, defense, including costs and expenses incurred in the investigation, defense or settlement of claim; and

(vii)    Property Insurance, with a limit of no less than $1,000,000, which property insurance shall be first-party property insurance to adequately cover Tesoro's owned property; including personal property of others.

(b)    All such policies must be endorsed with a Waiver of Subrogation endorsement, effectively waiving rights of recovery under subrogation or otherwise, against TLO, and shall contain where applicable, a severability of interest clause and a standard cross liability clause.

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(c)    Upon execution of this Agreement and prior to the operation of any equipment by Tesoro, Carrier or its authorized drivers at the Terminals, Tesoro and/or Carrier will furnish to TLO, and at least annually thereafter (or at any other times upon request by TLO) during the Term of this Agreement (and for any coverage maintained on a “claims-made” basis, for two (2) years after the termination of this Agreement), insurance certificates and/or certified copies of the original policies to evidence the insurance required herein, including on behalf of Carrier's contractors providing authorized vehicles or authorized drivers. Such certificates shall be in the form of the “Accord” Certificate of Insurance, and reflect that they are for the benefit of TLO and shall provide that there will be no material change in or cancellation of the policies unless TLO is given at least thirty (30) days prior written notice. Certificates providing evidence of renewal of coverage shall be furnished to TLO prior to policy expiration.

(d)    Tesoro and/or Carrier shall be solely responsible for any deductibles or self-insured retention.

29. GOVERNMENT REGULATIONS

(a)    Product Certification. Each Party certifies that none of the Products covered by this Agreement were derived from crude petroleum, petrochemical, or gas which was produced or withdrawn from storage in violation of any federal, state or other governmental law, nor in violation of any rule, regulation or promulgated by any governmental agency having jurisdiction in the premises.

(b)    Applicable Law. The Parties are entering into this Agreement in reliance upon and shall fully comply with all Applicable Law which directly or indirectly affects the Products throughput hereunder, or any receipt, throughput delivery, transportation, handling or storage of Products hereunder or the ownership, operation or condition of each Terminal. Each Party shall be responsible for compliance with all Applicable Laws associated with such Party's respective performance hereunder and the operation of such Party's facilities. In the event any action or obligation imposed upon a Party under this Agreement shall at any time be in conflict with any requirement of Applicable Law, then this Agreement shall immediately be modified to conform the action or obligation so adversely affected to the requirements of the Applicable Law, and all other provisions of this Agreement shall remain effective.

(c)    New Or Changed Applicable Law: If during the Term, any new Applicable Law becomes effective or any existing Applicable Law or its interpretations is materially changed, which change is not addressed by another provision of this Agreement and which has a material adverse economic impact upon a Party, either Party, acting in good faith, shall have the option to request renegotiation of the relevant provisions of this Agreement with respect to future performance. The Parties shall then meet to negotiate in good faith amendments to this Agreement that will conform to the new Applicable Law while preserving the Parties' economic, operational, commercial and competitive arrangements in accordance with the understandings set forth herein.

30. SUSPENSION OF REFINERY OPERATIONS

(a)    In the event that Tesoro decides to permanently or indefinitely suspend refining operations at any of Tesoro's Refineries for a period that shall continue for at least twelve (12) consecutive Months, Tesoro may provide written notice to TLO of Tesoro's intent to terminate that part of this Agreement relating to the applicable associated Terminal (the “Suspension Notice”). Such Suspension Notice shall be sent at any time after Tesoro has publicly announced such suspension and, upon the expiration of the twelve (12)-Month period following the date such notice is sent (the “Notice Period”), that part of this Agreement relating to such Terminal shall terminate. If Tesoro publicly announces, more than two Monthsprior to the expiration of the Notice Period, its intent to resume operations at the applicable Refinery, then the Suspension Notice shall be deemed revoked and the applicable portion of this Agreement shall continue in full force and effect as if such Suspension Notice had never been delivered.

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(b)    During the Notice Period, for any Month during which Tesoro does not throughput any volumes of Products at an affected Terminal, Tesoro shall be permitted to reduce its Minimum Throughput Commitment by an amount equal to the Stipulated Volume for such affected Terminal(s), provided that Tesoro pays TLO a fee for such Month (a “Curtailment Fee”). Curtailment Fees for each applicable Month shall be equal to (i) such Terminal's Stipulated Volume multiplied by (ii) the number of days in the Month, multiplied by (iii) the weighted average monthly Terminalling Service Fee incurred by Tesoro at such Terminal during the twelve (12) calendar Months immediately preceding the Refinery's suspension of operations. For the purposes of calculating Shortfall Payments during any Month in which Tesoro pays TLO a Curtailment Fee, volume shortfalls shall be determined by deducting volumes throughput at the Terminals by TRMC during such Month from the Adjusted Minimum Throughput Commitment.

(c)    Upon the expiration of the Notice Period, Tesoro shall no longer owe TLO any future Curtailment Fees and shall have no throughput obligation with respect to the affected Terminal, and Tesoro's Minimum Throughput Commitment shall be adjusted to the Adjusted Minimum Volume Commitment for the remaining unaffected Terminals, by deducting the applicable Stipulated Volume for the Terminal removed from this Agreement under this Section 30. If refining operations at any of the Refineries are suspended for any reason (including Refinery turnarounds and other scheduled maintenance), then Tesoro shall remain liable for Shortfall Payments under this Agreement for the duration of the suspension, unless and until this Agreement is terminated as provided above. Schedule D attached hereto includes a list of the Terminals associated with each of the Refineries.

31. FORCE MAJEURE

(a)    As soon as possible upon the occurrence of a Force Majeure, TLO shall provide Tesoro with written notice of the occurrence of such Force Majeure (a “Force Majeure Notice”). TLO shall identify in such Force Majeure Notice the approximate length of time that TLO reasonably believes in good faith such Force Majeure shall continue (the “Force Majeure Period”). If TLO advises in any Force Majeure Notice that it reasonably believes in good faith that the Force Majeure Period shall continue for more than twelve (12) consecutive Months, then, subject to Section 32 below, at any time after TLO delivers such Force Majeure Notice, either Party may terminate that portion of this Agreement relating to the affected Terminal(s), but only upon delivery to the other Party of a notice (a “Termination Notice”) at least twelve (12) Months prior to the expiration of the Force Majeure Period; provided, however; that such Termination Notice shall be deemed cancelled and of no effect if the Force Majeure Period ends prior to the expiration of such twelve (12)-Month period. If this Agreement is terminated as to a Terminal under this Section 31, then Tesoro's Minimum Throughput Commitment shall be adjusted to the Adjusted Minimum Volume Commitment for the remaining unaffected Terminals, by deducting the applicable Stipulated Volume for the Terminal so removed from this Agreement. For the avoidance of doubt, neither Party may exercise its right under this Section 31(a) to terminate this Agreement as a result of a Force Majeure with respect to any Terminal that has been unaffected by, or has been restored to working order since, the applicable Force Majeure, including pursuant to a Restoration under Section 32.

(b)    Notwithstanding the foregoing, if Tesoro delivers a Termination Notice to TLO (the “Tesoro Termination Notice”) and, within thirty (30) days after receiving such Tesoro Termination Notice, TLO notifies Tesoro that TLO reasonably believes in good faith that it shall be capable of fully performing its obligations under this Agreement within a reasonable period of time, then the Tesoro Termination Notice shall be deemed revoked and the applicable portion of this Agreement shall continue in full force and effect as if such Tesoro Termination Notice had never been given.

(c)    If either Party terminates a portion of this Agreement related to one or more specific Terminals, then the Minimum Throughput Commitment shall be reduced by the Stipulated Volume for the applicable Terminal(s).

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32. CAPABILITIES OF FACILITIES

(a)    Interruptions of Service. TLO shall use reasonable commercial efforts to minimize the interruption of service at each Terminal and any portion thereof. TLO shall promptly inform Tesoro operational personnel of any anticipated partial or complete interruption of service at any Terminal, including relevant information about the nature, extent, cause and expected duration of the interruption and the actions TLO is taking to resume full operations, provided that TLO shall not have any liability for any failure to notify, or delay in notifying, Tesoro of any such matters except to the extent Tesoro has been materially prejudiced or damaged by such failure or delay.

(b)    Maintenance and Repair Standards. Subject to Force Majeure and interruptions for routine repair and maintenance, consistent with customary terminal industry standards, TLO shall maintain each Terminal in a condition and with a capacity sufficient to throughput a volume of Tesoro's Products at least equal to the respective Stipulated Volume for such Terminal. TLO's obligations may be temporarily suspended during the occurrence of, and for the entire duration of, a Force Majeure or other interruption of service that prevents TLO from terminalling the Minimum Throughput Commitment hereunder. To the extent TLO is prevented from terminalling volumes equal to the full Minimum Throughput Commitment for reasons of Force Majeure or other interruption of service, then Tesoro's obligation to throughput the Minimum Throughput Commitment and pay any Shortfall Payment shall be reduced proportionately in an amount not to exceed the Stipulated Volume for the affected Terminal. At such time as TLO is capable of terminalling volumes equal to the Minimum Throughput Commitment, Tesoro's obligation to throughput the full Minimum Throughput Commitment shall be restored. If for any reason, including, without limitation, a Force Majeure event, the throughput or storage capacity of any Terminal should fall below the capacity required for throughput of the Stipulated Volume for that Terminal, then within a reasonable period of time after the commencement of such reduction, TLO shall make repairs to the Terminal to restore the capacity of such Terminal to that required for throughput of the Stipulated Volume (“Restoration”). Except as provided below in Section 32(c), all of such Restoration shall be at TLO's cost and expense, unless the damage creating the need for such repairs was caused by the negligence or willful misconduct of Tesoro, its employees, agents or customers.

(c)    Capacity Resolution.    In the event of the failure of TLO to maintain any Terminal in a condition and with a capacity sufficient to throughput a volume of Tesoro's Products equal to the respective Stipulated Volume for such Terminal, then either Party shall have the right to call a meeting between executives of both Parties by providing at least two (2) Business Days' advance written notice. Any such meeting shall be held at a mutually agreeable location and will be attended by executives of both Parties each having sufficient authority to commit his or her respective Party to a Capacity Resolution (hereinafter defined). At the meeting, the Parties will negotiate in good faith with the objective of reaching a joint resolution for the Restoration of capacity on the Terminal which will, among other things, specify steps to be taken by TLO to fully accomplish Restoration and the deadlines by which the Restoration must be completed (the “Capacity Resolution”). Without limiting the generality of the foregoing, the Capacity Resolution shall set forth an agreed upon time schedule for the Restoration activities. Such time schedule shall be reasonable under the circumstances, consistent with customary terminal industry standards and shall take into consideration TLO's economic considerations relating to costs of the repairs and Tesoro's requirements concerning its refining and marketing operations. TLO shall use commercially reasonable efforts to continue to provide storage and throughput of Tesoro's Products at the affected Terminal, to the extent the Terminal has capability of doing so, during the period before Restoration is completed. In the event that Tesoro's economic considerations justify incurring additional costs to restore the Terminal in a more expedited manner than the time schedule determined in accordance with the preceding sentence, Tesoro may require TLO to expedite the Restoration to the extent reasonably possible, subject to Tesoro's payment, in advance, of the estimated incremental costs to be incurred as a result of the expedited time schedule. In the event the Parties agree to an expedited Restoration plan in which Tesoro agrees to fund a portion of the Restoration cost, then neither Party shall have the right to terminate this Agreement pursuant to Section 31 above, so long as such Restoration is completed with due diligence, and Tesoro shall pay its portion of the Restoration costs to TLO in advance based on an estimate based on reasonable engineering standards promulgated by the Association for

18

Facilities Engineering. Upon completion, Tesoro shall pay the difference between the actual portion of Restoration costs to be paid by Tesoro pursuant to this Section 32(c) and the estimated amount paid under the preceding sentence within thirty (30) days after receipt of TLO's invoice therefor, or, if appropriate, TLO shall pay Tesoro the excess of the estimate paid by Tesoro over TLO's actual costs as previously described within thirty (30) days after completion of the Restoration.

(d)    Tesoro's Right To Cure. If at any time after the occurrence of (x) a Partnership Change of Control or (y) a sale of a Refinery, TLO either (i) refuses or fails to meet with Tesoro within the period set forth in Section 32(c), (ii) fails to agree to perform a Capacity Resolution in accordance with the standards set forth in Section 32(c), or (iii) fails to perform its obligations in compliance with the terms of a Capacity Resolution, Tesoro may, as its sole remedy for any breach by TLO of any of its obligations under Section 32(c), require TLO to complete a Restoration of the affected Terminal, subject to and to the extent permitted under the terms, conditions and/or restrictions of applicable leases, permits and/or Applicable Law. Any such Restoration required under this Section 32(d) shall be completed by TLO at Tesoro's cost. TLO shall use commercially reasonable efforts to continue to provide storage and throughput of Tesoro's Products at the affected Terminal, during the period while such Restoration is being completed. Any work performed by TLO pursuant to this Section 32(d) shall be performed and completed in a good and workmanlike manner consistent with applicable industry standards and in accordance with all applicable laws, rules and/or regulations. Additionally, during such period after the occurrence of (x) a Partnership Change of Control or (y) a sale of a Refinery, Tesoro may exercise any remedies available to it under this Agreement (other than termination), including the right to immediately seek temporary and permanent injunctive relief for specific performance by TLO of the applicable provisions of this Agreement, including, without limitation, the obligation to make Restorations as described herein.

(e)    Commingled Storage. Unless otherwise specified in Schedule A, all storage and throughput of Tesoro's volumes shall be on a fungible commingled basis, and TLO may commingle such Products with Products of like grade and kind. All tank heels shall be allocated among all storage users on a pro rata basis. TLO shall have the right to enter into arrangements with third parties to throughput and store volumes of Products at each Terminal, provided however, that TLO shall not enter into any third party arrangements that would restrict or limit the ability of Tesoro to throughput the Stipulated Volume at each Terminal each Month without proration or allocation, on reasonable schedules consistent with Tesoro's requirements, and to receive the Ancillary Services provided herein.

(f)    Dedicated Storage. In the event that the Parties determine to use dedicated storage tanks during the Term of this Agreement, such storage tanks and capacities identified on Schedule A shall be dedicated and used exclusively for the storage and throughput of Tesoro's Product. For those dedicated tanks, Tesoro shall be responsible for providing all tank heels required for operation of such tanks. Tesoro shall pay the fees specified on Schedule A for the dedication of such tanks.

(g)    First Refusal. In the event that TLO desires to enter into a third-party dedicated storage arrangement (a “Storage Contract”) for any storage tank subject to this Agreement and existing on the Commencement Date (a “Subject Tank”), TLO shall provide Tesoro with (i) written notice of its intent to enter into a Storage Contract and the general terms of such transaction and (ii) a thirty (30)-day period (beginning upon Tesoro's receipt of such written notice) (the “Offer Period”) in which Tesoro may make a good faith offer to enter into a Storage Contract with TLO with respect to such Subject Tank (the “Right of First Refusal”).  If Tesoro makes an offer on terms no less favorable to TLO than the third-party offer for a Storage Contract with respect to such Subject Tank during the Offer Period, then TLO shall be obligated to enter into a Storage Contract with Tesoro. If Tesoro does not exercise its Right of First Refusal in the manner set forth above, TLO may, for the next ninety (90) days, proceed with the negotiation of the third-party Storage Contract. If no third-party Storage Contract is consummated during such ninety-day period, then the terms and conditions of this Section 32(g) shall again become effective with respect to such Storage Tank.

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33. TERMINATION

(a)Termination for Default.

A Party shall be in default under this Agreement if:

(i)the Party materially breaches any provision of this Agreement and such breach is not cured within fifteen (15) Business Days after notice thereof (which notice shall describe such breach in reasonable detail) is received by such Party;

(ii)the Party (A) files a petition or otherwise commences, authorizes or acquiesces in the commencement of a proceeding or cause of action under any bankruptcy, insolvency, reorganization or similar Applicable Law, or has any such petition filed or commenced against it, (B) makes an assignment or any general arrangement for the benefit of creditors, (C) otherwise becomes bankrupt or insolvent (however evidenced) or (D) has a liquidator, administrator, receiver, trustee, conservator or similar official appointed with respect to it or any substantial portion of its property or assets; or

(iii)If any of the Parties is in default as described above, then (i) if Tesoro is in default, TLO may or (ii) if TLO is in default, Tesoro may: (1) terminate this Agreement upon notice to the defaulting Parties; (2) withhold any payments due to the defaulting Parties under this Agreement; and/or (3) pursue any other remedy at law or in equity.

(b)Tesoro shall, upon expiration or termination of this Agreement, promptly remove all of its Products including any downgraded and interface product from the Terminals within thirty (30) days of such termination or expiration. In the event all of the Product is not removed within such thirty (30) day period, Tesoro shall be assessed a storage fee to all Products held in storage more than thirty (30) days beyond the termination or expiration of this Agreement until such time Tesoro's entire Product is removed from the Terminals.

(c)Tesoro shall, upon expiration or termination of this Agreement, promptly remove any and all of its owned equipment not purchased by TLO pursuant to Section 13 above, and restore the Terminals to their condition prior to the installation of such equipment.

34.RIGHT TO ENTER INTO A NEW TERMINALLING AGREEMENT

(a)Upon termination of this Agreement for reasons other than (x) a default by Tesoro and (y) any other termination of this Agreement initiated by Tesoro pursuant to Sections 30 or 31. Tesoro shall have the right to require TLO to enter into a new terminalling services agreement with Tesoro that (i) is consistent with the terms set forth in this Agreement, (ii) relates to the same Terminals that are the subject matter of this Agreement, and (iii) has commercial terms that are, in the aggregate, equal to or more favorable to TLO than fair market value terms as would be agreed by similarly-situated parties negotiating at arm's length; provided, however; that the term of any such new terminalling services agreement shall not extend beyond April 30, 2031.

(b)In the event that TLO proposes to enter into a terminalling services agreement with a third party upon the termination of this Agreement for reasons other than (x) by default by Tesoro and (y) any other termination of this Agreement initiated by Tesoro pursuant to Sections 30 or 31, TLO shall give Tesoro 90 days' prior written notice of any proposed new terminalling services agreement with a third party, including (i) details of all of the material terms and conditions thereof and (ii) a thirty (30)-day period (beginning upon Tesoro's receipt of such written notice) (the “First Offer Period”) in which Tesoro may make a good faith offer to enter into a new terminalling agreement with TLO (the “Terminalling Right of First Refusal”). If Tesoro makes an offer on terms no less favorable to TLO than

20

the third-party offer with respect to such terminalling services agreement during the First Offer Period, then TLO shall be obligated to enter into a terminalling services agreement with Tesoro on the terms set forth in subsection (a) above. If Tesoro does not exercise its Terminalling Right of First Refusal in the manner set forth above, TLO may, for the next ninety (90) days, proceed with the negotiation of the third-party terminalling services agreement. If no third party agreement is consummated during such ninety-day period, the terms and conditions of this Section 34(b) shall again become effective.

35.ASSIGNMENT; PARTNERSHIP CHANGE OF CONTROL

(a)Tesoro shall not assign all of its obligations hereunder without TLO's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however; that Tesoro may assign this Agreement, without TLO's consent, in connection with a sale by Tesoro of a Refinery associated with one of TLO's Terminals so long as the transferee: (i) agrees to assume all of Tesoro's obligations under this Agreement with respect to the associated Terminal(s); and (ii) is financially and operationally capable of fulfilling the terms of this Agreement, which determination shall be made by Tesoro in its reasonable judgment.

(b)TLO shall not assign its rights or obligations under this Agreement without Tesoro's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, that (i) TLO may assign this Agreement without Tesoro's consent in connection with a sale by TLO of one or more of its Terminals so long as the transferee: (A) agrees to assume all of TLO's obligations under this Agreement with respect to the associated Terminal(s); (B) is financially and operationally capable of fulfilling the terms of this Agreement, which determination shall be made by TLO in its reasonable judgment; and (C) is not a competitor of Tesoro; and (ii) TLO shall be permitted to make a collateral assignment of this Agreement solely to secure working capital financing for TLO.

(c)If either Tesoro or TLO assigns its rights or obligations under this Agreement relating to a specific Terminal, then: (i) the Minimum Throughput Commitment shall be converted to the Adjusted Minimum Volume Commitment for the Terminals remaining subject to this Agreement by reducing by the amount of the Stipulated Volume for such assigned Terminal, and both Tesoro's and TLO's obligations shall continue with respect to the remaining Terminals and the Adjusted Minimum Throughput Commitment; and (ii) the rights and obligations relating to the affected Terminal, and its Stipulated Volume, shall be novated into a new agreement with the assignee, and such assignee shall be responsible for the performance of the assigning Party's obligations relating to the affected Terminal.

(d)Any assignment that is not undertaken in accordance with the provisions set forth above shall be null and void ab initio. A Party making any assignment shall promptly notify the other Party of such assignment, regardless of whether consent is required. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

(e)Tesoro's obligations hereunder shall not terminate in connection with a Partnership Change of Control, provided however, that in the case of a Partnership Change of Control, Tesoro shall have the option to extend the Term of this Agreement as provided in Section 3. TLO shall provide Tesoro with notice of any Partnership Change of Control at least sixty (60) days prior to the effective date thereof.

36.NOTICE

All notices, requests, demands, and other communications hereunder will be in writing and will be deemed to have been duly given: (i) if by transmission by facsimile or hand delivery, when delivered; (ii) if mailed via the official governmental mail system, five (5) Business Days after mailing, provided said notice is sent first class, postage pre-paid, via certified or registered mail, with a return receipt requested; (iii) if mailed by an internationally recognized overnight express mail service such as Federal Express, UPS, or DHL Worldwide, one (1) Business Day after deposit therewith prepaid; or (iv) if by e-

21

mail, one Business Day after delivery with receipt confirmed. All notices will be addressed to the Parties at the respective addresses as follows:

If to TRMC or TAK, to:

c/o Tesoro Refining and Marketing Company

19100 Ridgewood Parkway

San Antonio, Texas 78259

For legal notices:

Attention: Charles S. Parrish, General Counsel

phone:

fax:

email:

For all other notices and communications:

Attention: Ralph J. Grimmer, Vice President, Logistics

phone:

fax:

email:

If to TLO, to:

Tesoro Logistics Operations LLC

19100 Ridgewood Parkway

San Antonio, Texas 78259

For legal notices:

Attention: Charles S. Parrish, General Counsel

phone:

fax:

email:

For all other notices and communications:

Attention: Victoria R. Somers, Contracts Administrator - Logistics

phone:

fax:

email:

or to such other address or to such other person as either Party will have last designated by notice to the other Party.

37. CONFIDENTIAL INFORMATION

(a)Obligations. Each Party shall use reasonable efforts to retain the other Parties' Confidential Information in confidence and not disclose the same to any third party nor use the same, except as authorized by the disclosing Party in writing or as expressly permitted in this Section 37. Each Party further agrees to take the same care with the other Party's Confidential Information as it does with its own, but in no event less than a reasonable degree of care. Excepted from these obligations of confidence and non-use is that information which:

(i)    is available, or becomes available, to the general public without fault of the receiving Party;

(ii)    was in the possession of the receiving Party on a non-confidential basis prior to receipt of the same from the disclosing Party (it being understood, for the avoidance of doubt, that this exception shall not apply to information of TLO that was in the possession of Tesoro or any of its affiliates as a result of their ownership or operation of the Terminals prior to the Commencement Date);

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(iii)    is obtained by the receiving Party without an obligation of confidence from a third party who is rightfully in possession of such information and, to the receiving Party's knowledge, is under no obligation of confidentiality to the disclosing Party; or

(iv)    is independently developed by the receiving Party without reference to or use of the disclosing Party's Confidential Information.

For the purpose of this Section 37, a specific item of Confidential Information shall not be deemed to be within the foregoing exceptions merely because it is embraced by, or underlies, more general information in the public domain or in the possession of the receiving Party.

(b)Required Disclosure. Notwithstanding Section 37(a) above, if the receiving Party becomes legally compelled to disclose the Confidential Information by a court, Governmental Authority or Applicable Law, or is required to disclose by the listing standards of the New York Stock Exchange, any of the disclosing Party's Confidential Information, the receiving Party shall promptly advise the disclosing Party of such requirement to disclose Confidential Information as soon as the receiving Party becomes aware that such a requirement to disclose might become effective, in order that, where possible, the disclosing Party may seek a protective order or such other remedy as the disclosing Party may consider appropriate in the circumstances. The receiving Party shall disclose only that portion of the disclosing Party's Confidential Information that it is required to disclose and shall cooperate with the disclosing Party in allowing the disclosing Party to obtain such protective order or other relief.

(c)Return of Information. Upon written request by the disclosing Party, all of the disclosing Party's Confidential Information in whatever form shall be returned to the disclosing Party upon termination of this Agreement or destroyed with destruction certified by the receiving Party, without the receiving Party retaining copies thereof except that one copy of all such Confidential Information may be retained by a Party's legal department solely to the extent that such Party is required to keep a copy of such Confidential Information pursuant to Applicable Law, and the receiving Party shall be entitled to retain any Confidential Information in the electronic form or stored on automatic computer back-up archiving systems during the period such backup or archived materials are retained under such Party's customary procedures and policies; provided, however, that any Confidential Information retained by the receiving Party shall be maintained subject to confidentiality pursuant to the terms of this Section 37, and such archived or back-up Confidential Information shall not be accessed except as required by Applicable Law.

(d)Receiving Party Personnel. The receiving Party will limit access to the Confidential Information of the disclosing Party to those of its employees, attorneys and contractors that have a need to know such information in order for the receiving Party to exercise or perform its rights and obligations under this Agreement (the “Receiving Party Personnel”). The Receiving Party Personnel who have access to any Confidential Information of the disclosing Party will be made aware of the confidentiality provision of this Agreement, and will be required to abide by the terms thereof. Any third party contractors that are given access to Confidential Information of a disclosing Party pursuant to the terms hereof shall be required to sign a written agreement pursuant to which such Receiving Party Personnel agree to be bound by the provisions of this Agreement, which written agreement will expressly state that it is enforceable against such Receiving Party Personnel by the disclosing Party.

(e)Survival. The obligation of confidentiality under this Section 37 shall survive the termination of this Agreement for a period of two (2) years.

38.MISCELLANEOUS

(a)Modification; Waiver. This Agreement may be terminated, amended or modified only by a written instrument executed by the Parties. Any of the terms and conditions of this Agreement may be waived in writing at any time by the Party entitled to the benefits thereof. No waiver of any of the terms and conditions of this Agreement, or any breach thereof, will be effective unless in writing signed by a

23

duly authorized individual on behalf of the Party against which the waiver is sought to be enforced. No waiver of any term or condition or of any breach of this Agreement will be deemed or will constitute a waiver of any other term or condition or of any later breach (whether or not similar), nor will such waiver constitute a continuing waiver unless otherwise expressly provided.

(b)Entire Agreement. This Agreement, together with the Schedules, constitutes the entire agreement among the Parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the Parties in connection therewith.

(c)Governing Law; Jurisdiction. This Agreement shall be governed by the laws of the State of Texas without giving effect to its conflict of laws principles. Each Party hereby irrevocably submits to the exclusive jurisdiction of any federal court of competent jurisdiction situated in the United States District Court for the Western District of Texas, San Antonio Division, or if such federal court declines to exercise or does not have jurisdiction, in the district court of Bexar County, Texas. The Parties expressly and irrevocably submit to the jurisdiction of said Courts and irrevocably waive any objection which they may now or hereafter have to the laying of venue of any action, suit or proceeding arising out of or relating to this Agreement brought in such Courts, irrevocably waive any claim that any such action, suit or proceeding brought in any such Court has been brought in an inconvenient forum and further irrevocably waive the right to object, with respect to such claim, action, suit or proceeding brought in any such Court, that such Court does not have jurisdiction over such Party. The Parties hereby irrevocably consent to the service of process by registered mail, postage prepaid, or by personal service within or without the State of Texas. Nothing contained herein shall affect the right to serve process in any manner permitted by law.

(d)Counterparts. This Agreement may be executed in one or more counterparts (including by facsimile or portable document format (pdf)) for the convenience of the Parties hereto, each of which counterparts will be deemed an original, but all of which counterparts together will constitute one and the same agreement.

(e)Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be valid and effective under applicable law, but if any provision of this Agreement or the application of any such provision to any person or circumstance will be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision hereof, and the Parties will negotiate in good faith with a view to substitute for such provision a suitable and equitable solution in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid, illegal or unenforceable provision.

(f)No Third Party Beneficiaries. It is expressly understood that the provisions of this Agreement do not impart enforceable rights in anyone who is not a Party or successor or permitted assignee of a Party.

(g)WAIVER OF JURY TRIAL. EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY PROCEEDINGS RELATING TO THIS AGREEMENT OR ANY PERFORMANCE OR FAILURE TO PERFORM OF ANY OBLIGATION HEREUNDER.

(h)Schedules. Each of the Schedules attached hereto and referred to herein is hereby incorporated in and made a part of this Agreement as if set forth in full herein.

[Remainder of this page intentionally left blank.]

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IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the date first written above.

TESORO ALASKA COMPANYTESORO REFINING AND MARKETING COMPANY

By:	/s/ Gregory J. Goff	By:	/s/ Gregory J. Goff
	Gregory J. Goff		Gregory J. Goff
	President		President

TESORO LOGISTICS OPERATIONS LLC

By: TESORO LOGISTICS LP,

its sole member

By: TESORO LOGISTICS GP, LLC,

its general partner

By:	/s/ Phillip M. Anderson
	Phillip M. Anderson
	President

25

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT FOR THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH TWO ASTERISKS.

SCHEDULE A

THROUGHPUT FEES PER BARREL

	Anchorage	Boise	Burley	Los Angeles	Mandan	Salt Lake City	Stockton	Vancouver
Decant					$ **
Gasoline	$ **	$ **	$ **	$ **	$ **	$ **	$ **	$ **
Jet	$ **	$ **		$ **	$ **	$ **
Kerosene	$ **
ULSD (clear)	$ **	$ **	$ **	$ **	$ **	$ **	$ **	$ **
ULSD (dyed)		$ **	$ **	$ **	$ **	$ **	$ **	$ **
ULSD (clear - flow improved)			$ **
ULSD (dyed - flow improved)			$ **
Premium ULSD (undyed - cetane improved)					$ **
Premium ULSD (dyed - cetane improved)					$ **

26

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT FOR THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH TWO ASTERISKS.

SCHEDULE B

ANCILLARY SERVICE FEES PER BARREL

Etoh Receipt Fee - Rail

Etoh Receipt Fee - Truck

Etoh Storage Fee

ETOH Blending Fee

Generic Gasoline Additive Fee - Tier 1 - 105% of LAC

Generic Gasoline Additive Fee - Tier 2 up to 2x LAC

Generic Gasoline Additive Fee - Tier 3 up to 3x LAC

Generic Gasoline Additive Fee - Tier 4 up to 4x LAC

Generic Gasoline Additive Fee- Tier 5 up to 5x LAC

Jet Additive Fee

Jet Certification Fee

Lubricity/ Conductivity Additive Charge

Product Receipt Fee - Barge

Proprietary Additive Fee

Red Dye Fee

Transmix Loading Fee - Truck

Winter Flow Improver

Anchorage

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

Stockton

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

Wilmington

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

Boise

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

Burley

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

Mandan

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

Salt Lake City

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

Vancouver

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

$ **

27

SCHEDULE C

STIPULATED VOLUMES

Terminal	Stipulated Volume (bpd)
Anchorage	9,000
Boise	7,200
Burley	2,300
Los Angeles	33,300
Mandan	8,900
Salt Lake City	25,300
Stockton	7,600
Vancouver	6,400
TOTAL	100,000

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SCHEDULE D

TERMINALS ASSOCIATED WITH TESORO REFINERIES

Refineries	Associated Terminal
Alaska Refinery	Anchorage Terminal
Anacortes Refinery	Vancouver Terminal
Golden Eagle Refinery	Stockton Terminal
Los Angeles Refinery	Los Angeles Terminal
Mandan Refinery	Mandan Terminal
Salt Lake City Refinery	Salt Lake City, Boise and Burley Terminals

29

EXHIBIT 1

SHORTFALL PAYMENTS

30

EX-10.14

Exhibit 10.14

EXECUTION VERSION

AMENDMENT NO. 2 TO CREDIT AGREEMENT AND CONSENT

This AMENDMENT NO. 2 TO CREDIT AGREEMENT AND CONSENT, is made this June 17, 2011 (this “Amendment”), by and among TESORO PANAMA COMPANY, S.A., a Panamanian company (the “Borrower”), each of the financial institutions listed on the signature pages hereto as a Lender (individually, a “Lender” and collectively, the “Lenders”), and BNP PARIBAS, as Administrative Agent, Letter of Credit Issuer, Swing Line Lender, and Daylight Overdraft Bank (in its capacity as Administrative Agent for the Lenders, together with its successors in such capacity, the “Administrative Agent”). Each initially capitalized term used but not otherwise defined herein shall have the meaning ascribed thereto in the Credit Agreement (as defined below).

WITNESSETH:

WHEREAS:

A.The Borrower, the Administrative Agent and the Lenders have entered into that certain Credit Agreement dated October 18, 2010 (together with any amendments, restatements or other modifications thereof, the “Credit Agreement”);

B.The Borrower has requested that the Administrative Agent and the Lenders amend certain provisions of the Credit Agreement; and

C.The parties hereto wish to amend certain provisions of the Credit Agreement, as set forth and subject to the terms and conditions contained herein.

NOW, THEREFORE, the parties hereto hereby agree as follows:

Section 1.Amendments to Credit Agreement.

1.1    This Amendment shall be deemed to be an amendment to the Credit Agreement and shall not be construed in any way as a replacement or substitution therefor. All of the terms and conditions of, and terms defined in, this Amendment are hereby incorporated by reference into the Credit Agreement as if such terms and provisions were set forth in full therein.

1.2    The definition of “Collateral Pool” in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“Collateral Pool” shall mean at any time, an amount equal to the sum of:

100% of the face value of Cash Collateral (including cash held in lockbox accounts or concentration accounts in the name of the Borrower so long as the Collateral Agent has been granted a first priority perfected security interest in such lockbox accounts, subject only to Permitted Liens); plus

90% of Eligible Accounts Receivable; plus

90% of Fully Hedged Eligible Inventory; plus

90% of the amount of Net Liquidity Value in Eligible Brokerage Accounts;

plus

90% of the Letters of Credit Issued for Pre-Sold/Fully Hedged Products Not Yet Delivered; plus

85% of Hedged Eligible Inventory (excluding Fully Hedged Eligible Inventory and Tier II Hedged Eligible Inventory); plus

80% of Tier II Hedged Eligible Inventory (excluding Fully Hedged Eligible Inventory); plus

85% of the Letters of Credit Issued for Hedged Products Not Yet Delivered;

plus

80% of Eligible Net Unrealized Positive MTM Gains; minus

100% of Reserves; minus

120% of the Lenders' Swap Liability.

The value of the Collateral Pool shall be determined by reference to the most recently dated Collateral Pool Report prepared by the Borrower pursuant to Section 8.02(c) of this Agreement absent any error in such Collateral Pool Report as of the date delivered. The value of each type of Collateral set forth above shall be computed in accordance with the provisions of the respective definitions provided in or otherwise by this Agreement. Notwithstanding the foregoing, (i) the aggregate amount of Approved Affiliate Oil Cargo Receivables and any other Accounts for which the Account Debtor is an equity holder or Affiliate of the Borrower or the Parent included in the calculation of the Collateral Pool may not exceed an amount equal to 50% of the minimum Adjusted Tangible Net Worth of the Borrower required pursuant to Section 9.14 of this Agreement or 50% of the minimum Adjusted Net Working Capital of the Borrower required pursuant to Section 9.15 of this Agreement, and (ii) the aggregate amount of Hedged Eligible Inventory (excluding Tier II Hedged Eligible Inventory) included in the calculation of the Collateral Pool may not exceed an aggregate maximum volume of 1,000,000 Barrels at any time. Notwithstanding any other provision of the Loan Documents, no asset shall be given positive value (i.e. be added to) in the Collateral Pool unless the Collateral Agent has been granted a first priority (subject to Permitted Liens) perfected security interest in such asset. Notwithstanding any other provision of the Loan Documents, the Administrative Agent, in its sole and absolute discretion, shall have the right to permanently or temporarily decrease the Collateral Pool, or add or modify additional concentration or other limits affecting the Collateral Pool, at any time for any duration, effective upon verbal notification to the Borrower. In the event of any such decrease, addition or

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modification by the Administrative Agent, the Administrative Agent shall within one (1) Business Day give notice of such decrease, addition or modification to the Lenders. Notwithstanding any other provision of the Loan Documents, no asset shall be included in the Collateral Pool in duplicate categories such that it would be counted towards the calculation of the Collateral Pool more than once.

1.3    The definition of “Collateral Pool Report” in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“Collateral Pool Report” shall mean a certificate, executed by a Responsible Officer of the Borrower and substantially in the form of Exhibit A hereto, delivered to the Administrative Agent and the Lenders in accordance with the requirements of Section 8.02(c) of this Agreement, which shall have attached thereto schedules in form and substance (as to accuracy and completeness) acceptable to the Administrative Agent and the Lenders showing the following with respect to all Collateral comprising the Collateral Pool:

(a) bank account statements reflecting Cash Collateral and other statements reflecting ownership and market value of Cash Equivalents;

(b) brokers account statements reflecting Net Liquidity Value in Eligible Brokerage Accounts;

(c) schedule of Eligible Accounts Receivable with details (including break outs of any Approved Affiliate Oil Cargo Receivables) and reconciliations as to any offsets, counterclaims or other applicable deductions as provided in the definition of Eligible Accounts Receivable as well as agings;

(d) schedule of Fully Hedged Eligible Inventory containing back-up information as to (i) location and pricing (calculated pursuant to a methodology acceptable to the Administrative Agent) of inventory (specifically setting out in-transit inventory, which shall be included as a separate line item on the Collateral Pool Report), (ii) weekly statements from third-party storage providers (including PTP) and inspection report for all Products in storage from an independent third-party firm in the Republic of Panama acceptable to the Administrative Agent that in each case includes confirmations of volume, (iii) schedule of negotiable documents of title representing such Fully Hedged Eligible Inventory, if applicable, and (iv) supporting documentation evidencing the hedges, including copies of the open strategy summary reports in form and substance acceptable to the Administrative Agent;

(e) schedule of Hedged Eligible Inventory and Tier II Hedged Eligible Inventory containing back-up information as to (i) location and pricing (calculated pursuant to a methodology acceptable to the Administrative Agent) of inventory (specifically setting out in-transit inventory, which shall be included as a separate line item on the Collateral Pool Report), (ii) weekly statements from third-party storage providers (including PTP) and inspection report for all Products in storage from an independent third-party firm in the Republic of Panama acceptable to the

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Administrative Agent that in each case includes confirmations of volume, and (iii) schedule of negotiable documents of title representing such Hedged Eligible Inventory, if applicable, and (iv) supporting documentation evidencing the hedges, and (v) a copy of the open strategy summary reports in form and substance acceptable to the Administrative Agent;

(f) evidence in form and substance acceptable to the Administrative Agent of committed available credit of the Parent;

(g) the value of any Letters of Credit Issued for Products Not Yet Delivered, broken down by Letters of Credit Issued for Hedged Products Not Yet Delivered and Letters of Credit Issued for Pre-Sold/Fully Hedged Products Not Yet Delivered and by counterparty and showing all related liabilities including accounts payable, accrued payables, and marked-to-market losses;

(h) the value of Eligible Net Unrealized Positive MTM Gains;

(i) copies of third-party statements of accounts confirming account or asset balances in brokerage and commodities used in the calculation of the Collateral Pool, and other similar counterparty confirmations supporting the calculation of the Collateral Pool;

(j) if any Eligible Account Receivable or the creation, attachment, perfection, or enforcement of any Lien on any Eligible Account Receivable is governed by Panama law, a copy (with original counterpart to follow promptly thereafter) of a “Supplemental Commercial Pledge Agreement” executed by a Responsible Officer of the Borrower in the form attached to that certain Commercial Pledge Agreement, dated as of the date hereof, between the Borrower and the Administrative Agent, with respect to each such Eligible Account Receivable;

(k) schedule of Reserves;

(l) schedule of all Lenders' Swap Liability together with all supporting documentation in respect thereof,

(m) schedule of Letters of Credit and Loans outstanding as of the relevant Collateral Pool Reporting Date;

(n) schedule of Facility B Aggregate Outstanding Extensions of Credit as of the relevant Collateral Pool Reporting Date, which shall include without limitation updated values for escalating clause letters of credit,

(o) the Facility B Maximum Amount then in effect; and

(p) as required by Section 8.02(d) of this Agreement, a Position Limit Report and a Mark to Market Report.

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All amounts in the Collateral Pool Report will be calculated in Dollars and, to the extent any such amounts shall be converted from another currency, shall be so converted pursuant to a methodology approved by the Administrative Agent and the Required Lenders.

1.4    A new definition of “Second Amendment Date” is hereby added to Section 1.1 of the Credit Agreement in the appropriate alphabetical order to read in its entirety as follows:

“Second Amendment Date” shall mean June 17, 2011.

1.5    A new definition of “Tier II Hedged Eligible Inventory” is hereby added to Section 1.1 of the Credit Agreement in the appropriate alphabetical order to read in its entirety as follows:

“Tier II Hedged Eligible Inventory” shall mean, with respect to each Collateral Pool Reporting Date, the aggregate Hedged Eligible Inventory in excess of 1,000,000 Barrels.

1.6    Sections 8.03(j) and (k) of the Credit Agreement are hereby amended and restated in their entirety to read as follows:

“(j)within one (1) Business Day of the occurrence thereof, any violation of any of the limits set forth in Sections 8.13 and 8.14 of this Agreement, and the Borrower shall in addition provide a detailed explanation of the reason for such violation and the Borrower's plan for eliminating and/or preventing the reoccurrence of such violation;

(k)[Reserved];”

1.7    Section 8.13 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“SECTION 8.13    Position Limits.

The Borrower shall at all times cause its Net Outright Position and Net Basis Position (provided that in each case all such positions shall include options on a Delta Equivalent Basis) not to exceed the applicable limits set forth on Schedule 8.13 attached hereto and incorporated herein as such corresponds to the then most recently reported Adjusted Tangible Net Worth.”

1.8    Section 8.14 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“SECTION 8.14    Stop Loss Limit and VAR Limit.

The Borrower shall at all times cause its daily stop loss, yearly stop loss and Value at Risk (as such term is defined in the Borrower's Risk Control Policy) not to

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exceed the applicable limits set forth on Schedule 8.14 attached hereto and incorporated herein as such corresponds to the then most recently reported Adjusted Tangible Net Worth.”

1.9    Section 9.19 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“SECTION 9.19    Risk Control Policy Changes.

The Borrower shall not, and shall not suffer or permit any Subsidiary to permit, any amendment or modification to the Risk Control Policy without the express written consent of the Administrative Agent (which consent will not be unreasonably withheld, conditioned, or delayed), and, with respect to any amendment or modification to the Risk Control Policy that is or is likely to be materially adverse to the interests of the Lenders, the Borrower shall not, and shall not suffer or permit any Subsidiary to, permit such amendment or modification without the express written consent of the Administrative Agent and the Required Lenders (which consent will not be unreasonably withheld, conditioned, or delayed).”

1.10    Section 10.01(o) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(o)    Position Limit Violations. For any reason:

(i) any violation of any of the daily or yearly stop loss limits set forth in Section 8.14 of this Agreement shall have occurred and, as of the second Business Day after the occurrence thereof in the case of violations of daily stop loss limits or the third Business Day after the occurrence thereof in the case of violations of yearly stop loss limits, such violation continues to exist; provided, however, that if such violation is with respect to a daily stop loss limit and the Parent shall have contributed new equity to the Borrower on or before such second Business Day or if such violation is with respect to a yearly stop loss limit and the Parent shall have contributed new equity to the Borrower on or before such third Business Day, in each case in an amount equal to the amount of such excess, on terms and conditions acceptable to the Administrative Agent, and in accordance with the plan delivered in respect thereof pursuant to Section 8.03(j) of this Agreement, such violation shall be deemed not to be continuing as of such third Business Day; or

(ii)     any violation of any of the limits set forth in Sections 8.13 or 8.14 of this Agreement (other than the daily or yearly stop loss limits set forth in Section 8.14 of this Agreement) shall have occurred and continues to exist as of the third Business Day after the occurrence thereof; or”

1.11    Exhibit A to the Credit Agreement (“Collateral Pool Report”) is hereby deleted in its entirety and replaced with Exhibit A attached hereto.

1.12    Exhibit G to the Credit Agreement (“Form of Position Limit Report”)is hereby deleted in its entirety and replaced with Exhibit G attached hereto.

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1.13    Exhibit H to the Credit Agreement (“Risk Control Policy”) is hereby deleted in its entirety and replaced with Exhibit H attached hereto.

1.14    A new Schedule 8.13 to the Credit Agreement (“Position Limits”) is hereby added to the Credit Agreement to and attached as Schedule 8.13 hereto.

1.15    A new Schedule 8.14 to the Credit Agreement (“Stop Loss Limit and VAR Limit”) is hereby added to the Credit Agreement to and attached as Schedule 8.14 hereto.

1.16    The Credit Agreement, the Loan Documents and all agreements, instruments and documents executed and delivered in connection with any of the foregoing, shall each be deemed to be amended hereby to the extent necessary, if any, to give effect to the provisions of this Amendment. Except as so amended hereby, the Credit Agreement and the Loan Documents shall remain in full force and effect in accordance with their respective terms.

Section 2.Consent to Amendment to Risk Control Policy

2.1    Amendment to Risk Control Policy.

Section 9.19 of the Credit Agreement, in pertinent part, requires the written consent of the Required Lenders for the Borrower to amend, modify or supplement the Risk Control Policy. The Borrower has requested the consent of the Administrative Agent and the Lenders to amend the Risk Control Policy to provide for revised position limits for the Borrower. In the exercise of their discretion as prudent lenders, the Administrative Agent and the Lenders hereby consent to the amendment of the Risk Control Policy to amend the position limits of the Borrower to the limits set forth in Exhibit H attached to the Credit Agreement, as amended by this Amendment.

Section 3.Representations and Warranties of the Borrower.

The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that:

3.1    After giving effect to the amendments of the Credit Agreement pursuant to and consents contained in this Amendment, and on the date hereof (i) each of the representations and warranties set forth in Article VII of the Credit Agreement is true and correct in all respects as if made on the date hereof (except with respect to representations or warranties that specifically relate to an earlier date, in which case such representations or warranties shall be true and correct in all respects as of such earlier date), and (ii) there exists no Default or Event of Default under the Credit Agreement after giving effect to this Amendment.

3.2    The Borrower has full corporate power and authority to execute and deliver this Amendment and to perform the obligations on its part to be performed thereunder and under the Credit Agreement as amended hereby.

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Section 4.Conditions Precedent to Amendments.

The effectiveness of the amendments contained in Section 1 of this Amendment and the consent contained in Section 2 of this Amendment is subject to the satisfaction, in form and substance satisfactory to the Administrative Agent, of each of the following conditions precedent:

4.1    The Borrower, the Lenders, and the Administrative Agent shall have each duly executed and delivered to the Administrative Agent this Amendment.

4.2    The Facility B Agent shall have executed and delivered to the Administrative Agent all necessary consents to the amendments to the Credit Agreement contemplated herein.

4.3    In consideration of the Lenders' efforts in connection with this Amendment, the Borrower agrees to pay the Administrative Agent, for the benefit of each Lender that executes and agrees to this Amendment, an amendment fee equal to $7,500 (a “Closing Date Amendment Fee”), which Closing Date Amendment Fee shall be fully earned and due and payable on the Second Amendment Date, shall be nonrefundable for any reason whatsoever and shall be in addition to any other fees, costs and expenses payable pursuant to Credit Agreement or any other Loan Documents. The Borrower's obligation to pay the foregoing fees will not be subject to counterclaim or setoff for, or be otherwise affected by, any claim or dispute the Borrower may have.

4.4    No Default or Event of Default and be continuing as of the date hereof or as of the date that each of the other conditions in this Section 4 is satisfied.

4.5    The Administrative Agent and the Lenders shall have received such approvals, opinions or documents as each may reasonably request, the Borrower shall have taken all such other actions as the Administrative Agent may reasonably request, and all legal matters incident to the foregoing shall be satisfactory to the Administrative Agent and the Lenders.

Section 5.Reference to and Effect Upon the Credit Agreement and other Loan Documents.

5.1    Except as specifically amended in Section 1 of this Amendment and consented to in Section 2 of this Amendment, the Credit Agreement and each of the other Loan Documents shall remain in full force and effect and each is hereby ratified and confirmed.

5.2    The execution, delivery and effect of this Amendment shall be limited precisely as written and shall not be deemed to (i) be a consent to any waiver of any term or condition or to any amendment or modification of any term or condition of the Credit Agreement or any other Loan Document, except upon the effectiveness of this Amendment, as specifically amended in Section 1 of this Amendment and consented to in Section 2 of this Amendment, (ii) impair, restrict, limit, or otherwise prejudice any right, power, privilege, or remedy that the Administrative Agent or any Lender now has or may

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have in the future under or in connection with the Credit Agreement, any other Loan Document, at law, or in equity, or (iii) constitute any course of dealing or other basis for altering any obligation of the Borrower or any right, power, privilege, or remedy of the Administrative Agent or the Lenders under the Credit Agreement or any of the other Loan Documents. This Amendment embodies the entire agreement and understanding among the Borrower, the Lenders, and the Administrative Agent in respect of the amendment of the terms and conditions of the Credit Agreement and consent to the amendment of the Risk Control Policy, in each case as expressly provided herein. Except as expressly stated herein, the Administrative Agent and the Lenders hereby reserve all rights, powers, privileges and remedies under the Credit Agreement and all other Loan Documents, at law, and in equity.

5.3    The consent agreed to in Section 2.1 of this Amendment is strictly limited to the amendment of the Borrower's Risk Control Policy in the form attached as Exhibit H to the Credit Agreement, as amended hereby.

5.4    Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or any other word or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby, and each reference in any other Loan Document to the Credit Agreement or any word or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby.

5.5    This Amendment constitutes a Loan Document (as defined in the Credit Agreement) and any breach of any representation or warranty made herein or covenant or agreement contained herein will constitute an Event of Default under the Credit Agreement.

Section 6.Miscellaneous.

6.1    Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument. It is not necessary that any counterpart be signed by all of the parties hereto. A facsimile copy of this Amendment and the signatures thereon shall be considered for all purposes as originals.

6.2    GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF NEW YORK.

6.3    Severability. The illegality or unenforceability of any provision of this Amendment or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Amendment or any instrument or agreement required hereunder.

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6.4    Modification and Waiver. No waiver or modification of this Amendment shall be effective unless the same shall be in writing and signed by all parties hereto.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed on the date first above written.

TESORO PANAMA COMPANY, S.A., as
Borrower
By:	/s/ TRACY D. JACKSON
Name:	Tracy D. Jackson
Title:	Vice-President, Finance and Treasurer

Signature Page to Amendment No. 2 to Credit Agreement

BNP PARIBAS, as Lender, Administrative Agent,
Lead Arranger, Letter of Credit Issuer, Daylight
Overdraft Bank, and Swing Line Lender
By:	/s/ MATTHEW L. ROSETTI
Name:	Matthew L. Rosetti
Title:	Director
By:	/s/ JANET KOEHNE
Name:	Janet Koehne
Title:	Director

Signature Page to Amendment No. 2 to Credit Agreement

SOCIÉTÉ GÉNÉRALE, as a Lender
By:	/s/ CHUNG-TAEK OH
Name:	Chung-Taek Oh
Title:	Director
By:	/s/ SEBASTIEN RIBATTO
Name:	Sebastien Ribatto
Title:	Managing Director

Signature Page to Amendment No. 2 to Credit Agreement

NATIXIS, NEW YORK BRANCH, as a Lender
By:	/s/ DAVID PERSHAD
Name:	David Pershad
Title:	Managing Director
By:	/s/ VINCENT LAURAS
Name:	Vincent Lauras
Title:	Senior Managing Director

Signature Page to Amendment No. 2 to Credit Agreement

CREDIT AGRICOLE CORPORATE AND
INVESTMENT BANK, as a Lender
By:	/s/ ZALI WIN
Name:	Zali Win
Title:	Managing Director
By:	/s/ LOUIS PRIEUR
Name:	Louis Prieur
Title:	Vice President

Signature Page to Amendment No. 2 to Credit Agreement

EXECUTION VERSION

RB INTERNATIONAL FINANCE (USA) LLC, as
a Lender
By:	/s/ ASTRID NOEBAUER
Name:	Astrid Noebauer
Title:	Group Vice President
By:	/s/ SHIRLEY RITCH
Name:	Shirley Ritch
Title:	Vice President

Signature Page to Amendment No. 2 to Credit Agreement

CITIBANK N.A. PANAMA BRANCH, as a
Lender
By:	/s/ RICARDO G. FERNANDEZ
Name:	Ricardo G. Fernandez
Title:	Director

Signature Page to Amendment No. 2 to Credit Agreement

THE BANK OF NOVA SCOTIA, PANAMA
BRANCH, as a Lender
By:	/s/ BRITTANNIA AMAYA
Name:	Brittannia Amaya
Title:	Credit Solutions, Director

Signature Page to Amendment No. 2 to Credit Agreement

ABN AMRO BANK N.V., as a Lender
By:	/s/ L.G. ENGELSBEL-SPORISJEVA
Name:	L.G. Engelsbel-Sporisjeva
Title:	Head of Commodities Trade Services
By:	/s/ B. GREMEZ
Name:	B. Gremez
Title:	Global Head Energy Commodities
	Managing Director

Signature Page to Amendment No. 2 to Credit Agreement

MACQUARIE BANK LIMITED, as a Lender
By:	/s/ STEPHEN BOWER
Name:	Stephen Bower
Title:	Associate Director
By:	/s/ ANDREW MCGRATH
Name:	Andrew McGrath
Title:	Division Director

Signature Page to Amendment No. 2 to Credit Agreement

Consented to and acknowledged by:

BNP PARIBAS (SUISSE) SA, for itself on behalf
of the Facility B Lenders as Facility B Agent
By:	/s/ B. LE GOFF
Name:	B. Le Goff
Title:
By:	/s/ DANIEL HABEGGER
Name:	Daniel Habegger
Title:

Signature Page to Amendment No. 2 to Credit Agreement

EXHIBIT A

FORM OF

COLLATERAL POOL REPORT

_______ ___, 201__

BNP Paribas, as Administrative Agent

787 Seventh Avenue

New York, New York 10019

Attention: Anne-Catherine Mathiot

Matthew Rosetti

Ed Tice

Facsimile: 212-471-6862

BNP Paribas (Suisse) SA

2 Place de Holland

CH-1204 Geneve

Switzerland

Attention: M. Bernard Le Goff

Facsimile: +41(0) 58 212 22 22

Re:    (i) That certain Uncommitted Revolving Credit Agreement (as modified, supplemented, amended, or restated from time to time, the “Facility A Credit Agreement”), dated as of October 18, 2010, by and among Tesoro Panama Company, S.A. (the “Borrower”), the lenders from time to time parties thereto (the “Facility A Lenders”), BNP Paribas, as Administrative Agent, Letter of Credit Issuer, Swing Line Lender, and Daylight Overdraft Bank (in such capacity, the “Facility A Agent”), Credit Agricole Corporate and Investment Bank, as Syndication Agent, and BNP Paribas Securities Corp., as Arranger; and (ii) that certain Facility Letter, dated as of October 18, 2010, by and among Borrower, the lenders from time to time parties thereto (the “Facility B Lenders”), and BNP Paribas (Suisse) SA, as agent for the Facility B Lenders (in such capacity, the “Facility B Agent”).

Ladies and Gentlemen:

The Borrower hereby delivers the attached Collateral Pool Report to the Facility A Agent and the Facility B Agent for the Collateral Pool Reporting Date ____________, 20__ in accordance with Section 8.02(c) of the Facility A Credit Agreement and as otherwise required by the Facility A Credit Agreement and certifies to the Facility A Agent and the Facility B Agent

that (i) the Borrower is in compliance with the terms and covenants of the Facility A Credit Agreement and the Facility B Credit Agreement and all representations and warranties in Article VII of the Facility A Credit Agreement and in the Facility B Credit Agreement are true and correct as of the Reporting Date (except with respect to representations and warranties relating to an earlier date, in which case such representations and warranties shall be true as of such earlier date), (ii) the Aggregate Outstanding Extensions of Credit do not exceed the lesser of (A) the Maximum Availability Amount and (B) the Collateral Pool, (iii) the Combined Facilities Aggregate Outstanding Extensions of Credit shall not exceed the least of (X) the Combined Facilities Maximum Amount then in effect, (Y) the Collateral Pool, or (Z) $700,000,000; (iv) the undersigned has no knowledge of any Default or Event of Default under the Facility A Credit Agreement or any event of default described in Section 16 of the Facility B Credit Agreement, and (iv) the information contained in Annex I attached hereto and the other attachments to and the information indicated on this Collateral Pool Report were accurate and true as of such Collateral Pool Reporting Date. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Facility A Credit Agreement.

The statements made herein (and in the Schedules attached hereto) shall be deemed to be (i) representations and warranties made in a Loan Document for the purposes of Section 10.01(b) of the Facility A Credit Agreement and (ii) representations and warranties made under the Facility B Credit Agreement.

Very truly yours,

TESORO PANAMA COMPANY, S.A.,

a Panamanian corporation

By:

Name:

Title:

Annexes

Calculation of Collateral Pool

Schedules (to be attached as applicable)

Bank Account Statements

Brokers Account Statements

Schedule of Eligible Accounts Receivable

Schedule of Fully Hedged Eligible Inventory (including without limitation copies of open strategy reports and identification of Platts or other publication utilized)

Schedule of Hedged Eligible Inventory and Tier II Hedged Eligible Inventory (including without limitation copies of open strategy reports and identification of Platts or other publication utilized)

Evidence of Committed Available Credit of the Parent

Value of Letters of Credit Issued for Products Not Yet Delivered

Value of Eligible Net Unrealized Positive MTM Gains

Third-Party Statements of Accounts

Supplemental Commercial Pledge Agreement

Schedule of Reserves

Schedule of all Lenders' Swap Liability

Schedule of Facility A Aggregate Outstanding Extensions of Credit

Schedule of Facility B Aggregate Outstanding Extensions of Credit (with updated values of escalating letters of credit)

Position Limit Report

Mark to Market Report

ANNEX I

TESORO PANAMA COMPANY, S.A.

COLLATERAL POOL REPORT

as of [DATE]

		(A)	(B)	(C)
	Collateral Pool Category:	Value as of Collateral Pool Reporting Date:	Advance Rate:	Collateral Pool Amount (A x B):
I.	Cash Collateral:	$_____________	100%	$_____________
II.	Eligible Accounts Receivable:	$_____________	90%	$_____________1
III.	Fully Hedged Eligible Inventory:	$_____________	90%	$_____________
IV.	Net Liquidity Value in Eligible Brokerage Accounts:	$_____________	90%	$_____________
V.	Letters of Credit Issued for Pre-Sold/Fully Hedged Products Not Yet Delivered:	$_____________	90%	$_____________
VI.	Hedged Eligible Inventory (excluding Fully Hedged Eligible Inventory and Tier II Hedged Eligible Inventory):	$_____________	85%	$_____________2
VII.	Tier II Hedged Eligible Inventory (excluding Fully Hedged Eligible Inventory):	$_____________	80%	$_____________
VIII.	Letters of Credit Issued for Hedged Products Not Yet Delivered:	$_____________	85%	$_____________
IX.	Eligible Net Unrealized Positive MTM Gains:	$_____________	80%	$_____________
X.		Collateral Pool Subtotal: (Sum of I through IX)	$_____________

1. The aggregate amount of Approved Affiliate Oil Cargo Receivables and any other Accounts for which the Account Debtor is an equity holder or Affiliate of the Borrower or the Parent included in the calculation of the Collateral Pool may not exceed an amount equal to 50% of the minimum Adjusted Tangible Net Worth of the Borrower required pursuant to Section 9.14 of this Agreement or 50% of the minimum Adjusted Net Working Capital of the Borrower required pursuant to Section 9.15 of this Agreement

2. The aggregate amount of Hedged Eligible Inventory (excluding Tier II Hedged Eligible Inventory) included in the calculation of the Collateral Pool may not exceed an aggregate maximum volume of 1,000,000 Barrels at any time

XI.	Reserves:	$_____________	100%
XII.	Swap Liability:	$_____________	120%
XIII.		Collateral Pool Total: (X minus XI and XII)	$_____________
XIV.	Facility A Loans Outstanding:			$_____________
XV.	Facility A Letters of Credit Outstanding:			$_____________
XVI.	Facility A Aggregate Outstanding Extensions of Credit: (Sum of XIV and XV)		$_____________
XVII.	Facility B Loans Outstanding:			$_____________
XVIII.	Facility B Letters of Credit Outstanding:			$_____________
XIX.	Facility B Letters of Indemnity Outstanding:			$_____________
XX.	Facility B Aggregate Outstanding Extensions of Credit: (Sum of XVII through XIX)		$_____________
XXI.	Combined Facility Aggregate Outstanding Extensions of Credit: (Sum of XVI and XX)		$_____________
XXII.	Collateral Pool Available for Facility A or Facility B: (XIII minus XXI)		$_____________

Facility A Availability

XXIII.	Collateral Pool Available for Facility A: (XIII minus XX)	$_____________
XXIV.	Maximum Availability Amount in effect:	$_____________
XXV.	Facility A Availability: (Lesser of XXII or XXIV minus XVI)	$_____________***

Facility B Availability

XXVI.	Collateral Pool Available for Facility B: (XIII minus XVI)	$_____________
XXVII.	Facility B Maximum Amount in effect:	$_____________
XXVIII.	Facility B Availability: (Lesser of XXII or XXVII minus XX)	$_____________***

*** Notwithstanding anything to the contrary, the Facility A Availability set forth in Item XXV and the Facility B Availability set forth in Item XXVIII are each at all times subject to the combined facilities collateral pool availability limit set forth in Item XXII.

EXHIBIT G

FORM OF

TESORO PANAMA COMPANY, S.A.

POSITION LIMIT REPORT

AS OF [DATE]

This report is delivered as a component of the Collateral Pool Report in accordance with the requirements of (i) Section 8.02(d) of the Uncommitted Revolving Credit Agreement (as modified, supplemented, amended, or restated from time to time, the “Facility A Credit Agreement”), dated as of October 18, 2010, by and among Tesoro Panama Company, S.A. (the “Borrower”), the lenders from time to time parties thereto (the “Facility A Lenders”), BNP Paribas, as Administrative Agent, Letter of Credit Issuer, Swing Line Lender, and Daylight Overdraft Bank (in such capacity, the “Facility A Agent”), Credit Agricole Corporate and Investment Bank, as Syndication Agent, and BNP Paribas Securities Corp., as Arranger (capitalized terms used herein that are not defined shall have the respective meanings ascribed thereto in the Facility A Credit Agreement); and (ii) the Facility Letter, dated as of October 18, 2010, by and among Borrower, the lenders from time to time parties thereto (the “Facility B Lenders”), BNP Paribas (Suisse) SA, as agent for the Facility B Lenders (in such capacity, the “Facility B Agent”).

To the best of the knowledge of the Borrower at the time of preparation of the Position Limit Report attached hereto, the information presented therein was true and correct in all material respects as of the date hereof and no Default or Event of Default (as such terms are defined in the Facility A Credit Agreement) under the Facility A Credit Agreement or any event of default described in Section 16 of the Facility B Credit Agreement has occurred and is continuing.

During the Reporting Period, except as expressly disclosed to the Facility A Agent and the Facility A Lenders pursuant to Sections 8.03(j) of the Facility A Credit Agreement and to the Facility B Agent pursuant to the Facility B Credit Agreement, the Borrower has not been in violation of Sections 8.13 or 8.14 of the Facility A Credit Agreement.

As of the Reporting Date¹:

A.        The Borrower's Adjusted Tangible Net Worth was: $____________

B.        The Borrower held on an aggregate basis:

1.    As a Net Outright Position, _____________ Barrels of Product and the limit set forth in Schedule 8.13 of the Facility A Credit Agreement for Net Outright Position is _________ Barrels of Product; and

2.    As a Net Basis Position, _____________ Barrels of Product and the limit set forth in Schedule 8.13 of the Facility A Credit Agreement for Net Basis Position is ___________ Barrels of Product.

1. No violation of any of the following will result in an Event of Default unless such violation results in a Tolerance Limit Violation and is deemed an Event of Default under Section 10.01(o) of the Facility A Credit Agreement.

C.    The Borrower's daily stop loss was $____________ and the daily stop loss limit set forth in Schedule 8.14 of the Facility A Credit Agreement is $________.

D.    The Borrower's yearly stop loss was $____________ and the yearly stop loss limit set forth in Schedule 8.14 of the Facility A Credit Agreement is $________.

E.    The Borrower had Value At Risk of $____________ and the Value at Risk set forth in Schedule 8.14 of the Facility A Credit Agreement is $________.

The statements made herein (and in the Schedules hereto) shall be deemed to be (i) representations and warranties made in a Loan Document for the purposes of Sections 7.18 and 10.01(b) of the Facility A Credit Agreement and (ii) representations and warranties made under the Facility B Credit Agreement.

[See Attached Position Limit Report]

EXHIBIT H

TESORO PANAMA COMPANY, S.A.

RISK CONTROL POLICY

[See Attached]

Schedule 8.13

Position Limits

Adjusted Tangible Net Worth	Net Outright Position Limit (bbls)	Net Basis Position Limit (bbls)
≥$70,000,000	200,000	5,500,000
≥$60,000,000 and <$70,000,000	200,000	4,500,000
≥$50,000,000 and <$60,000,000	150,000	3,750,000
≥$40,000,000 and <$50,000,000	100,000	3,250,000
<$40,000,000	100,000	2,500,000

Schedule 8.14

Stop Loss Limits and VAR Limit

Adjusted Tangible Net Worth	Daily Stop Loss Limit	Yearly Stop Loss Limit	Value at Risk Limit
≥$70,000,000	$5,000,000	$15,000,000	$7,000,000
≥$60,000,000 and <$70,000,000	$4,250,000	$13,000,000	$6,000,000
≥$50,000,000 and <$60,000,000	$3,500,000	$11,000,000	$5,000,000
≥$40,000,000 and <$50,000,000	$3,000,000	$9,000,000	$4,000,000
<$40,000,000	$2,500,000	$7,500,000	$3,000,000

EX-14.1

Exhibit 14.1

Code of Business Conduct

doing the right thing

Dear Fellow Employee:

At Tesoro, we are committed to the highest ethical standards in the conduct of the Company's business. The Company's commitment is defined in our Core Values of:

• Honesty and Integrity

• Respect and Trust

• Safety and Environmental Stewardship

• Commitment to Excellence

• Creative and Entrepreneurial Spirit

• Teamwork

Our Core Values describe the characteristics and behaviors we expect from our employees and business partners as we pursue our strategic goals. These values encourage a culture of integrity and accountability that allows us to be a high-performing organization, a trusted and valued business partner, and a good corporate citizen.

Our Code of Business Conduct outlines what is expected of everyone who works and represents Tesoro. The Code describes the common values that guide our workplace actions and reflects the business practices and behavior in support of this commitment. Every employee, officer, and director is expected to read, understand, and follow these standards.

Employees are encouraged to contact the Business Conduct Office if they believe an action of Tesoro or its employees violates our Code of Business Conduct. Thank you for your support and commitment.

/S/ GREGORY J. GOFF

Gregory J. Goff

President and Chief Executive Officer

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The way WE WORK at Tesoro

We are pleased to present our Code of Business Conduct that summarizes the standards that govern how we conduct our business. This Code, our Core Values, policies and procedures, and our work rules describe how we work at Tesoro.

We want Tesoro to succeed and how we conduct our business is important in defining our success. The ways in which we conduct ourselves are just as important as the results that we achieve. This is why we have established a Code. This Code helps define our commitment to legal and ethical business conduct.

Key Messages

Here are some of the most important things to remember:

• Respect the dignity of everyone.

• Listen openly to concerns and suggestions.

• Carefully obey the laws and follow the policies that govern how we conduct our business.

• Don't make tough decisions alone.

• Never compromise our Core Values or standards to meet financial plans or goals.

Our Core Values

Our Core Values guide our decisions and describe the type of company we are. Tesoro's Core Values are the foundation for assuring we “do the right thing.”

• Honesty and Integrity

• Respect and Trust

• Safety and Environmental Stewardship

• Commitment to Excellence

• Creative and Entrepreneurial Spirit

• Teamwork

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Table of contents

Using This Code.......................6

Our Code of Business Conduct and Ethics

Doing Business Around the World

Speaking Up to Get Answers

What Our Business Conduct Office Offers

Talking with Your Supervisor or Manager

Talking with Human Resources

Contacting the Business Conduct Office

Calling the Business Conduct Helpline

Prohibition Against Retaliation

Meeting Our Responsibilities

Conducting Investigations

Disciplinary Action

Amendments and Waivers

Making Tough Decisions

Working Together.................. 15

Respect and Fairness in the Workplace

Harassment

Workplace Violence

Drug and Alcohol Abuse

Confidentiality and Privacy

Maintaining Strong and Fair Business Relations .........20

General Procurement

Antitrust, Sales Practices, and Fair Dealing

Conflicts of Interest

Gifts, Hospitality, and Entertainment

Insider Information

Protecting Our Assets and Resources.......................26

Business Records and Internal Controls

Fraud

Company Property and Technology

Intellectual Property

Media and External Contacts

Being a Responsible Corporate Citizen................... 31

Environment, Health, and Safety

Political Contributions

Bribery and Anti-Corruption

International Trade

Index of Contact Information……………………35

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Using this code

Our Code of Business Conduct

This Code is a common-sense guide that you can use to make good business decisions.

This Code applies to everyone at Tesoro including the Board of Directors and senior leadership. Each of us is expected to read, understand, and follow our Code. Our CEO and Senior Financial Officers are also subject to the provisions of an additional separate code that has been adopted to further highlight their particular duties and commitments.

The Code will help you

• Resolve difficult questions about conduct on the job;

• Apply the policies and laws that control and guide our business;

• Work with your fellow employees, customers, business partners, competitors, regulators, vendors, and suppliers;

• Identify and report suspected illegal or unethical behavior.

We expect our suppliers, vendors, contractors, and business partners to be familiar with our Code and support effective compliance programs within their own organizations.

This Code is a living document and it will change over time. However, this Code is not an employment contract between you and Tesoro.

In addition to this Code, Tesoro has policies and procedures that describe how to apply the law to our business operations. You are expected to know and follow the policies that apply to your work. All of Tesoro's policies are available to our employees on our intranet site. We offer on-line training about our Code and policies to help you understand these concepts. The content of our Code is governed by Tesoro's policies. In the event that this Code is in conflict with Tesoro's policies, the policies will govern.

Our Code is managed through the Business Conduct Office. Charles S. Parrish is our Compliance Officer and Kelly Curll is our lead attorney responsible for the day to day management of the Business Conduct Office.

Doing Business Around the World

Each of us must respect and obey the laws of the cities, states, and countries where we operate. However, complying with the law is not our only responsibility. We should consider not only what the law permits us to do, but also what is the “right thing to do.” Our Code reflects our commitment to obey not only the laws, but also to respect the principles upon which these laws are based.

The sheer complexity of laws and regulations can make it difficult to make a good decision. In some instances, there may be a conflict between the laws of two or more countries. If you have a

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question about the right course of action to take, contact our Legal Department. Just because the laws are complicated or hard to follow does not mean that we are excused from complying.

Speaking Up to Get Answers

Most of us have faced a difficult situation where the right course of action was hard to determine.

Perhaps the facts were complex or there was a conflict between your personal interests and the interests of Tesoro, or you did not have the information you needed to make an informed choice. When you understand our expectations for legal and ethical conduct, you can handle most situations such as these and act with confidence. However, this Code will not give you an answer for every dilemma and so, when you are unsure about the right course of action, get help.

When you see or hear something that you believe is improper, contact one of these resources. When you speak up, you help to prevent misconduct and correct problems. You have several avenues to get help:

• Your supervisor or manager

• Human Resources

• Business Conduct Office

• Business Conduct Helpline at 1-877-782-3763

• Compliance Officer or General Counsel

Also remember that you can find additional information about the topics covered in this Code by consulting our policies, which can be accessed on our intranet site.

Obeying the law - both its spirit and its letter - is the foundation on which our Code is built.

What Our Business Conduct Office Offers

Our Business Conduct Office supports the Code of Business Conduct.

This Office offers many services:

• Developing clear guidelines about Tesoro's ethical and legal standards

• Providing education and training

• Responding to questions about business conduct

• Ensuring that our Code is current with our policies

• Managing the Business Conduct Helpline

• Enforcing our policy prohibiting retaliation

• Overseeing confidential internal investigations

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• Monitoring and auditing to improve our compliance programs

Talking with Your Supervisor or Manager

Every supervisor and manager is expected to keep an “open door” and to provide timely advice on business conduct concerns.

Though some situations may be uncomfortable, we encourage you to talk at any time with your supervisor or manager so that a good solution can be reached for everyone. If you report unethical conduct or questionable accounting or auditing matters to your supervisor or manager, they will promptly notify the Business Conduct Office for assistance in resolving the problem.

Talking with Human Resources

Many business issues involve human resources' policies and practices.

Contact Human Resources if your concern involves unfair employment practices, management practices, compensation, benefits, transfers, or promotions. If you choose to report unethical conduct to Human Resources, they will promptly notify the Business Conduct Office for assistance in resolving the problem. Remember: When in doubt, always ask.

Contacting the Business Conduct Office

Our Business Conduct Office is a company-wide resource where you can get help with business ethics and compliance. If you have a question, want to express a concern, or report a possible violation of law or our policies, contact the Business Conduct Office by e-mail at business.conduct@tsocorp.com. Often, this Office can provide you with immediate advice. You can also call the Business Conduct Helpline at 1-877-782-3763.

Our Business Conduct Office reports directly to the Compliance Officer, Charles S. Parrish, who meets regularly with the Audit Committee of the Board of Directors. If you have concerns or complaints regarding questionable accounting, auditing, internal controls, or other financial matters, you are expected to report your concerns to the Business Conduct Office or the Business Conduct Helpline.

You may also contact our Audit Committee Chairman directly by writing to:

Chairman

The Audit Committee

19100 Ridgewood Parkway

San Antonio, Texas 78259

Our Business Conduct Office is a company-wide resource where you can get help with business ethics and compliance.

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Calling the Business Conduct Helpline

Each day you make choices that are critical to our success.

Our Business Conduct Helpline is an important way for you to report concerns. Our Helpline is available 24 hours a day, 7 days a week and may be contacted directly at 1-877-782-3763. An independent third party will take your call, listen, and ask questions about your concern. You will receive a unique number and date so that you may have a record of your call. A report of your call is promptly forwarded to the Business Conduct Office for action.

All calls to the Business Conduct Helpline are confidential. Our goal is to handle issues fairly and consistently. We will make sure that reports of improper conduct are thoroughly investigated. We will take appropriate action to resolve each reported matter.

When you contact us, you may remain anonymous, however in some cases this may make it more difficult for Tesoro to thoroughly follow up and resolve your concern.

You should call the Business Conduct Helpline when

• You have a question about ethics, business conduct, or compliance;

• You want to report a suspected violation of the Code, the law, or a Tesoro policy;

• You have a concern or information regarding questionable accounting or auditing matters;

• You tried to raise a concern but did not receive a response;

• You are uncomfortable reporting an issue through other channels;

• You believe management may be involved or will not be impartial;

• You don't know where to go to get the information you need.

Prohibition Against Retaliation

It is Tesoro's obligation to protect you from retaliation.

When you step forward to report something you believe is unethical or illegal, we will investigate and address the problem. Individuals who raise concerns in good faith or who help to resolve reported matters are protected against retaliation. Good faith does not mean that you are always right. It does mean that you sincerely believe that you are telling the truth. Anyone who misuses this process will be subject to disciplinary action.

Meeting Our Responsibilities

Meeting our responsibilities is critical to Tesoro's success today - and in the future.

Maintaining our reputation and doing the right thing is the responsibility of all of us. Tesoro is made up of thousands of individuals, each with unique perspectives and aspirations. Though we

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are all different, we share our Core Values and we must strive to maintain the highest ethical standards. In particular:

• Always obey the law and act in a professional, honest, and ethical manner when acting on behalf of or as a representative of the company. Seek advice if in doubt about the legality of an action.

• Know the information contained in this Code and the related policies, paying particular attention to the policies that pertain to your job responsibilities.

• Complete all required employee training in a timely manner.

• You MUST promptly report concerns about possible violations of law, regulations, or the Code to your supervisor, Human Resources, or the Business Conduct Office.

• Cooperate and tell the whole truth when responding to an investigation or audit. Never alter or destroy records in response to an investigation or when an investigation is anticipated.

If you are in a management position and have employees reporting to you, you also have the following responsibilities:

• Lead by example. Managers are expected to exemplify the highest standards of ethical business conduct.

• Help create a work environment that focuses on building teamwork and is supportive of a creative and entrepreneurial spirit. Recognize effort and value honesty, integrity, and trust.

• Be a resource for others. Communicate to employees, consultants, and contract workers about how the Code and policies apply to their daily work and what is required of them.

• Be proactive. Look for opportunities to discuss and properly address ethics questions and challenging situations with others.

• Listen to suggestions. Never retaliate against those who raise issues or concerns.

• Never ask or pressure anyone to do something that you would be prohibited from doing yourself.

• Be aware of the limits of your authority and do not take any action that exceeds those limits. Delegate authority only where permissible and never delegate authority to any individual who you believe may engage in unlawful or unethical conduct.

Remember: No reason, including the desire to meet business goals, is an excuse for violating laws, regulations, the Code, or Tesoro's Policies.

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Conducting Investigations

We investigate reports about business conduct as promptly and confidentially as possible.

Our investigations are impartial, fair, and thorough. Who conducts an investigation depends on the issues involved. Sometimes the Business Conduct Office, Legal Department, Internal Audit, Corporate Security, or Human Resources may participate. We may contact those who are involved in the situation, and provide them an opportunity to explain what happened. We expect every employee to cooperate with investigations into allegations that the Code, policies, or laws may have not been followed.

If we find that our standards have been violated, we will take action. This may include imposing disciplinary action, implementing system-wide changes, or notifying the right government agency. Not only will we deal with a specific situation, but we may also make changes so that the same issue does not occur again.

We cooperate fully with government investigations and are courteous to government officials. Notify the Legal Department immediately if you learn about an investigation or request for information from an outside organization. Do not try to respond without getting legal advice.

During an investigation, never destroy or alter documents, lie, or obstruct the collection of information. The Legal Department will assist you in responding to requests for information from the government.

Disciplinary Action

Violations of the law, this Code, or our policies can have severe consequences.

Violations can jeopardize our relationships with customers and suppliers, and could result in the loss of our ability to do business. Anyone who violates the law, this Code, or our policies is subject to disciplinary action up to and including termination.

Amendments and Waivers

In extremely limited circumstances, Tesoro may find it appropriate to waive a provision of the Code of Business Conduct; however, the Company generally will not grant such waivers and will make exceptions only for good cause. Only the Compliance Officer or General Counsel can waive a provision of our Code, however, any waiver of the Code for a director or executive officer of Tesoro may be made only by the Board of Directors of Tesoro. If required by law or regulation, we will report or disclose waivers as appropriate.

Making Tough Decisions

In our work, we face tough decisions and the answers may not be obvious. If you are having a difficult time making a decision, try answering these questions:

• Have I reviewed the facts carefully?

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• Who will be affected by my decision?

• Have I thought carefully about my options?

• What are the consequences of my choices?

• Will my decision stand the test of time?

• Will my decision reflect positively on Tesoro and on me?

• Is this the right thing to do?

If you are still not sure what to do, speak up. Keep asking questions until you are sure you are “doing the right thing.”

Working together

Respect and Fairness in the Workplace

In Brief

Our employees represent a wide variety of backgrounds, skills, and cultures. We value one another's unique contributions. Combining such a wealth of talent and resources creates the diverse and dynamic teams that drive our success. To maintain our commitment and to attract and keep talented individuals from around the world, it is vital that we continue to have a supportive, professional, and respectful work environment.

Each of us is personally responsible for maintaining a work environment that is free from discrimination. Tesoro respects the rights of others and offers equal employment opportunities to everyone who meets our qualifications.

Key Points

We are committed to fair practices in all aspects of employment. This includes recruiting, hiring, performance evaluation, training, discipline, work assignment, compensation, promotion, and termination. We follow all applicable labor and employment laws. We do not tolerate unlawful discrimination of any kind.

Each of us has the right to be treated respectfully, without regard to race, color, religion, gender, national origin, age, disability, citizenship, status as a veteran, or sexual orientation. Tesoro will make every reasonable effort to accommodate employees' religious observances. Tesoro will also make reasonable accommodations for qualified individuals who are disabled. No employee will be subject to retaliation for reporting an incident that they believe, in good faith, violates this policy.

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In Action

• Each of us is responsible for promoting a courteous, respectful, and professional work environment.

• Treat everyone with whom you work fairly and reasonably.

• Review your decisions to ensure that merit drives your actions - not bias.

• If you need a workplace accommodation, discuss your needs with your supervisor and Human Resources.

• Speak up if you feel that you have been discriminated against or if you witness discrimination against others.

Harassment

In Brief

Harassment is behavior that unreasonably disrupts another person in his or her work because of that person's race, color, religion, gender, national origin, age, disability, citizenship, status as a veteran, or sexual orientation. Each of us has the right to be free from improper or offensive conduct at work. Unwelcome or insulting words or actions that create an offensive workplace do not belong at Tesoro.

Exercise good judgment in your relationships with co-workers. Each of us wants to be valued for who we are and what we can contribute. Each of us wants to work where we are respected and appreciated.

Key Points

Sexual harassment can occur under many different circumstances. In general, it occurs when

• Requests for dates, sexual favors, or other similar conduct of a sexual nature serve as the basis for employment decisions;

• An intimidating, offensive, or hostile work environment results from sexual advances, offensive jokes, or other insulting behavior;

• Sexually suggestive, vulgar, or derogatory pictures, cartoons, drawings, or e-mails are present in the workplace.

In Action

• Never threaten to get even with someone who refuses a request for a date.

• Be careful about flirting or starting a workplace romance. Once someone says “no,” refrain from any further advances.

• Be careful not to use offensive or sexually explicit language in the workplace or e-mails.

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• Know your audience before telling a joke. What is funny to you may be offensive to someone else. Make sure your comments are appropriate for your audience.

Workplace Violence

In Brief

We provide a safe workplace for everyone. We will not tolerate workplace violence or threats of any kind - whether committed by or against our employees.

We prohibit having weapons on our property, in company vehicles, or wherever we conduct business. We act promptly to investigate and reduce threats of workplace violence. We reserve the right to search personal property to enforce our standards.

Key Points

The following behaviors are prohibited:

• Making threatening remarks

• Causing physical injury to someone else

• Intentionally damaging someone else's property, or acting aggressively in a way that causes someone to fear injury

• Spoken or written words, as well as actions, are included in our definition of threatening behavior

In Action

To maintain the safety of our workplace, you have the following responsibilities:

• Treat everyone with respect and dignity at all times.

• Report all threatening behavior to your supervisor, Human Resources, Corporate Security, or the Business Conduct Helpline.

Drug and Alcohol Abuse

In Brief

We expect our workplace to be free from the effects of drug use and alcohol abuse. Illegal drug and alcohol use threatens our ability to serve our customers and compromises the safety and quality of our products and services.

Key Points

We expect your full concentration while on the job. You must be able to perform your job, free from the effects of prohibited drugs or alcohol. Our workplaces have specific procedures on drug and alcohol abuse in order to meet government requirements or collective bargaining agreements. You are expected to know and comply with these rules.

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While on the job, on company property, or in company vehicles, you may not

• Abuse alcohol or report to work unfit for duty;

• Use, sell, or possess illegal drugs, controlled substances, or prescription drugs contrary to your doctor's orders.

Tesoro reserves the right to test employees for drug use or alcohol abuse. We may choose to test an employee for drug use or alcohol abuse randomly, after an accident, or for cause.

In Action

To maintain the safety of our workplace, you have the following responsibilities:

• Do not abuse drugs or alcohol when representing Tesoro or while working at any company location.

• Remember that you represent Tesoro when you attend business-related meetings or social gatherings. While attending, act responsibly.

Confidentiality and Privacy

In Brief

You may come across confidential information about our company, employees, customers, or suppliers. It is critical that you keep all sensitive information in confidence. You should share confidential information only with those who have a legitimate need to know.

Key Points

Employee Information

Employee information is confidential and should only be used for valid business purposes and in compliance with applicable federal and state laws. This includes personnel file information, medical records, social security numbers, home addresses, and telephone numbers. We reserve the right to inspect Tesoro property and personal property that you bring to work, including computers, telephone records, vehicles, lockers, e-mail, files, business documents, and workplaces. You should not expect privacy when using company property or assets.

Company Information

You may have access to Tesoro's confidential or proprietary information that must be protected from disclosure. Examples include:

• Business strategies and plans

• Projected earnings

• Forecasts about our financial condition

• Operating methods and procedures

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• Marketing strategies

• Possible acquisitions

• Information about current or prospective business partners

• Customer data

In Action

• Respect employee and our customers' private information.

• Don't discuss confidential information where others can overhear.

• Never use confidential company information for personal gain.

• Never disclose confidential information of any kind without first obtaining the proper approvals from your supervisor or the Legal Department.

Maintaining strong and fair business relations

General Procurement

In Brief

We use vendors, suppliers, and contractors who best meet our needs. Our vendors, suppliers, and contractors sell us goods and services that are essential to our business. We protect from disclosure their confidential and proprietary data. We don't reveal pricing or other confidential information to those who are competing for our business.

Key Points

We purchase from qualified suppliers whose bids are the most responsive to our needs. Selection decisions are based on objective information such as price, past performance, business reputation, engineering skill, production capacity, and financial stability.

We select vendors with care because their actions impact our reputation. Former employees who represent a vendor should be screened carefully to prevent misuse of company information, creation of an unfair advantage, or the appearance of a conflict of interest.

If you have become a personal friend of a vendor over time, disclose this relationship before participating in the selection process. We can help you evaluate the situation and avoid conflicts of interest.

You cannot afford to let your good business judgment be clouded by a gift provided by a vendor. Discounts or special offers must be offered to all Tesoro employees through a regular discount or buying program. If a vendor offers you any item of appreciation, talk it over with your manager before you accept.

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In Action

• Make sure that our vendors, suppliers, and contractors understand our expectations and their obligations to perform.

• We treat our suppliers, vendors, and contractors ethically at all times.

Antitrust, Sales Practices, and Fair Dealing

In Brief

We deal fairly with our customers, suppliers, competitors, and employees. They trust us because we deliver on our promises. We are committed to fair and competitive sales practices. We do not engage in practices that unfairly limit trade or exclude competitors from the marketplace. Antitrust laws prohibit agreements that eliminate or discourage competition. We follow these laws carefully.

Key Points

Healthy business competition is the basis for our system of free markets. We think our products and services speak for themselves. That's why we compete vigorously, ethically, and legally.

We will not communicate formally or informally with competitors to fix or control prices, allocate market share, boycott customers or suppliers, or limit the sale of our products. We will not take unfair advantage of anyone through manipulation, misrepresentation, or any other type of unfair dealing.

Properly gathered business information is valuable. We gather information about our competitors only from public sources that are freely available to others.

In Action

• Avoid even casual conversations with our competitors regarding prices, products, markets, or services and never agree with competitors on any of these topics.

• Aggressive competition is not an excuse for intentionally making false or misleading statements about our business or competitors.

• Never require a customer to take an unwanted product in order to obtain a product that the customer does want to buy.

• If people are discussing topics you think raise antitrust concerns, you should excuse yourself from the conversation and leave the room. Then, immediately contact the Legal Department for advice.

• Never commit an illegal or unethical act in order to obtain competitive information or to obtain or abuse market share.

• Do not set prices below cost to drive a competitor out of the marketplace.

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• Do not charge customers that compete with each other different prices for the same product without first checking with the Legal Department, Compliance Officer, or General Counsel.

• Be sure to read our antitrust policy and its referenced materials and attend required training on antitrust laws. Antitrust laws are very complex. If you have questions, don't hesitate to contact the Legal Department.

Conflicts of Interest

In Brief

A conflict of interest occurs when your private interests interfere - or appear to interfere - with the best interests of Tesoro. A conflict of interest may also arise when your personal interests adversely impact your business judgment or job performance. We avoid conflicts of interest because they can cause serious problems for you and damage our reputation. We need to avoid even the appearance of a conflict of interest.

You should base business decisions on our company's needs rather than your own personal interests or the interests of your friends or family. Unless approved by our Compliance Officer or General Counsel, you should not pursue business with companies in which you, or members of your immediate family¹ have a substantial financial interest².

In addition, neither you nor your immediate family should own a substantial financial interest in any organization doing business or competing with our company, unless approved by our Compliance Officer or General Counsel.

If you have any doubt about whether a conflict of interest exists, follow these three steps:

• Recognize that there may be a conflict of interest.

• Disclose and explain the situation to your supervisor, the Legal Department, or the Business Conduct Office.

• Get advice and, when called for, remove yourself from all decision- making about the situation.

_______________________

¹    Your immediate family includes your spouse, children, stepchildren, parents, stepparents, brothers, sisters, grandparents, in-laws, and any other person living in your same household.

²    A substantial financial interest is one percent of any class of the outstanding securities of a firm or corporation, or interest in a partnership, limited liability company or association. A substantial financial interest can also be five percent of your total direct and beneficial assets or income.

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Key Points

Personal Business Relationships

You must disclose to the Compliance Officer or General Counsel significant financial interests you have or your immediate family has in our suppliers, customers, or competitors. Executive officers must disclose their financial interests to the Compliance Officer or General Counsel and the Chairman of the Board of Directors.

Organizational Relationships

A conflict of interest may also arise if outside work (including sitting on for-profit and not for-profit boards) interferes with your ability to fulfill your responsibilities to Tesoro, or if there is a risk that the outside employment may cause you to disclose our confidential or proprietary information or trade secrets. Each of us is expected to use good judgment and avoid situations that can lead to even the appearance of a conflict.

If you or your immediate family serves as an officer, consultant, or board member of any company that transacts business with Tesoro, you must disclose these obligations to the Compliance Officer or General Counsel and get approval. When you disclose your organizational relationships, we can determine whether you are in a position to unduly influence either the decisions of the outside organization or Tesoro. We can provide advice on how to resolve the situation fairly.

Business Opportunities

Business opportunities are company assets. Tesoro will grow and prosper by cultivating customers and pursuing new leads. Do not take personal advantage of business opportunities you discover using Tesoro's resources. Tesoro employees should not compete against Tesoro. Each of us should advance Tesoro's legitimate interests whenever we can.

In Action

• Talk with your supervisor or the Business Conduct Office about any situation that raises a real or possible conflict of interest.

• Use company resources, assets, and opportunities only for Tesoro's business purposes.

• Disclosure and getting advice are the best steps you can take to avoid even the appearance of a conflict of interest.

Be careful that your personal business relationships never influence the decisions you make for Tesoro.

17

Gifts, Hospitality, and Entertainment

In Brief

A gift can be anything of value, including goods, services, favors, meals, trips, hospitality, and sports or entertainment tickets. Gift giving can be a part of conducting business. However, giving and accepting gifts may - or may appear to - compromise your independence and objectivity. This perception can damage your good name and our standing in the business community.

We follow three primary rules when it comes to giving or receiving gifts:

• A gift, favor, or entertainment should not be given or accepted if it will obligate or appear to obligate Tesoro or you.

• No gift should be exchanged if it could jeopardize our image or reputation.

• Any gift, hospitality or entertainment involving a foreign government official should be discussed with the Legal Department prior to the presentation of such gift, hospitality, or entertainment.

You should review Tesoro's gifts policy, and comply with our policy limits on the value of gifts offered or received. This policy establishes approval requirements for gifts of any kind.

Key Points

Giving Gifts

We compete solely on the merits of our products and services. You should not give any gift if, under the circumstances, this raises questions about its propriety. We may provide gifts, meals, and entertainment of reasonable value in the course of doing business with commercial customers or non-government personnel, provided this practice does not conflict with our standards or the standards of the recipient's organization. Gifts of modest value can be given, for instance, to acknowledge good service, to motivate performance, or to promote Tesoro's products and services.

Gifts may be given if

• There is a sound business purpose;

• They support our corporate strategy;

• They are authorized by your supervisor;

• They are within approved budgets and policy limits.

Receiving Gifts

Ask yourself if a gift that you are offered looks like an attempt to sway your judgment. You should not accept a gift from someone doing - or wanting to do - business with Tesoro, if this is an attempt to improperly influence your decisions. Generally, you may receive infrequent gifts

18

of modest value. You can also accept promotional items, such as pens, note pads, or coffee mugs.

Government Relationships

Most government agencies do not allow their employees to accept even nominal gifts. Avoid giving any type of gift to federal, state, or local government employees or employees of foreign government-owned entities. The US Foreign Corrupt Practices Act (FCPA) prohibits giving anything of value, directly or indirectly, to foreign government officials and employees or foreign political candidates in order to obtain or retain business. For further information concerning the FCPA, please refer to the Bribery and Anti-Corruption section of the Code.

In Action

• If you have any questions about giving or receiving gifts, contact the Business Conduct Office, Compliance Officer or General Counsel for advice.

• Ensure that meals and entertainment have valid business purposes.

• It is never acceptable to give or receive a gift of cash.

• Make sure the vendors and suppliers with whom you do business are familiar with our rules on gifts, hospitality, and entertainment.

Insider Information

In Brief

You may learn of material inside information about our company or other companies with which we do business. It is illegal for you to buy or sell securities of any company while possessing material, non-public inside information about that company or to pass that information on to someone else who then buys or sells securities of that company. This is called insider trading.

Key Points

Material inside information is non-public information that is significant enough to affect the value of a company's stock or to influence someone to buy or sell stock. Examples of material inside information include significant contracts, financial forecasts or earnings estimates, major management changes, proposed mergers or acquisitions, major litigation, or securities offerings. All non-public information about Tesoro should be considered confidential. Public information is the kind of information that is generally available in a press release, a major newspaper, or an SEC filing.

In Action

• Do not buy or sell securities of Tesoro or any other company based on material non-public information.

• Do not pass inside information to someone who has no need to know.

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• Keep in confidence any material inside information you learn about Tesoro or any other company.

• Never buy, sell, or trade in options, puts, calls, or similar types of speculative instruments or take short positions in Tesoro's securities.

• Get legal advice if you are not certain whether it is OK to buy securities or sell securities that you own.

Ask yourself if a gift that you are offered looks like an attempt to sway your judgment.

Protecting our assets and resources

Business Records and Internal Controls

In Brief

Our reputation for honest dealing is one of our most valuable assets. By observing the law, we build our reputation as an honest business partner.

We maintain accurate and complete records of all financial and business transactions. These records provide the basis upon which our financial statements and other business information are compiled and disclosed. You must never record or omit information that intentionally hides or alters the truth.

You are responsible for following our system of internal controls. Each of us must record transactions accurately and completely and follow all accounting policies and procedures. No false or misleading entries should ever be made in our books and records.

Key Points

Generally Accepted Accounting Principles

We keep all financial records in accordance with generally accepted accounting principles. Our system of financial controls, checks, and balances helps ensure that we properly account for revenues, expenses, assets, and liabilities.

Records Management

We have a records management system that determines what records we need to keep and for how long. It is your responsibility to know and follow the specific rules for the business records in your area.

20

Records Requests

If you receive a request for records from someone outside of Tesoro, contact the Legal Department. They will provide instructions on how to respond. Never destroy records that are related to ongoing litigation or an official investigation.

In Action

• Our books and records should be accurate and our disclosures transparent.

• Prepare all records including expense reports, time reports, and financial statements - accurately, honestly, and promptly.

• Bring to the attention of the Business Conduct Office, Compliance Officer, General Counsel, or Chairman of the Audit Committee any irregularity or inconsistency in our records or books.

• Never write anything in an electronic format that you would not feel comfortable reading in a formal written memo.

Fraud

In Brief

Fraud can range from minor employee theft to significant misstatement of our earnings and holdings. Material financial fraud can have an adverse effect on our reputation and share price. Fraud is often accompanied by collusion and stealth.

Key Points

It is wrong to

• Inaccurately record time for reporting purposes;

• Falsify quality, environmental, or safety reports;

• Process or submit false or inaccurate invoices;

• Record false sales or expense reports;

• Understate or overstate known liabilities and assets;

• Defer or accelerate recording of transactions in incorrect periods;

• Alter, remove, or destroy company documents except in accordance with our records management policy;

• Use company property for personal gain or benefit.

21

Company Property and Technology

In Brief

You are entrusted with company property in order to do your job. Each of us is responsible for safeguarding Tesoro's property and assets which include: funds, records, tools, vehicles, equipment, supplies, and facilities. We are responsible for using company property and technology efficiently.

Key Points

All of our property and assets, including our technology and communications systems, should be used for legitimate business purposes. Tesoro has the right to monitor and review the information contained in these systems. Within reasonable limits, you may use company telephones or other resources such as e-mail, instant messaging, Internet, voice mail, faxes, and computers for limited personal communication.

You are encouraged to use the Internet to help you do your job. However, the Internet - just like the telephone and other company property - should not be used to support a personal business or political venture, nor should its use interfere with your work responsibilities.

We protect our computer systems from unauthorized access by outsiders. This is one way to safeguard our confidential and proprietary information.

In Action

• Preserve our property and assets; take care to prevent theft, loss, or damage to our property.

• Software programs may not be copied for other kinds of business or home use, or shared with others.

• You should not expect privacy when using Tesoro's equipment or technology.

• Do not plug in personal computing devices to the Tesoro network.

• Safeguard your passwords and follow all directions about computer security.

• Protect information from improper alteration.

• Use only properly licensed software. Follow the terms of our licenses.

The following content is never acceptable to be sent or received on our communications resources:

• Sexually explicit messages, cartoons, images, or jokes

• Profanity or obscenity

• Intimidating, offensive, or hostile material based on sex, age, race, religion, national origin, disability, sexual orientation, or other protected legal status

• Personal opinions masquerading as company opinions or commitments

22

Intellectual Property

In Brief

Our intellectual property is extremely valuable. It includes trademarks, copyrights, patents, trade secrets, technical and business knowledge, know how, and experience.

Each of us is responsible for protecting Tesoro's intellectual property and reporting infringements. We do not disclose business ideas, projects, or plans to anyone who does not have a legitimate need to know. Any invention or improvement conceived or discovered during the course of your employment belongs to Tesoro, and must be disclosed to the Legal Department.

Key Points

Intellectual property covers a wide range of information and knowledge. It is valuable, in part because it includes facts, data, and knowledge that have not been disclosed to the public.

Here are some examples of our intellectual property:

• Market research data and results

• Engineering processes and techniques

• Technical drawings and plans

• Customer and supplier lists

• Business analysis

• Marketing strategies

• Pricing records

• Plant layouts, engineering designs, and blue prints

Other companies also protect their confidential and proprietary information. We respect their rights. We do not tolerate the unauthorized copying or disclosure of another's intellectual property. You may use other people's information only if you have received their written consent or if the information is publicly available without restriction.

In Action

• Speak to the Legal Department if you have questions about an invention or discovery.

• Follow our copyright licensing agreements.

• Generally, you can make a reasonable number of photocopies of selected copyrighted materials for internal use.

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Media and External Contacts

In Brief

We receive questions daily from external contacts about our business. The Corporate Communications Department or designated media spokesperson is responsible for handling calls from the media and the investment community. They determine whether and when interviews are appropriate. Channeling all calls through the Corporate Communications Department ensures that we convey a consistent message. They control how information is released to the public so that this is done correctly.

Be especially careful when writing communications that might be published. This includes postings to the Internet. If you participate in on-line forums, blogs, news groups, chat rooms, or bulletin boards, never give the impression that you are speaking on behalf of Tesoro unless you are authorized to do so. Think before you hit the 'send' button.

We are very careful not to release material, non-public information. This includes information about earnings, our securities, pending mergers or other transactions, changes in management, new products, and discoveries.

In Action

• Assume that all discussions with a member of the media are “on the record.”

• Don't try to answer a media question yourself, even if you think you know the answer.

• All information about Tesoro and its projects, including those involving other companies, must be reviewed prior to release.

• If you talk to the media about your outside interests, make it clear that any opinion you give is your own, and not that of Tesoro.

Being a responsible corporate citizen

Environment, Health, and Safety

In Brief

Our goal is to protect our environment from harm and we actively seek opportunities to improve the quality of life in our communities. We recognize the need to conduct business in a way that protects and improves the state of the environment for future generations. Each of us is responsible for minimizing adverse environmental impact, reducing waste and emissions, and promoting conservation.

We believe that all accidents and workplace illnesses can be prevented. Accident prevention is good business. We expect everyone to work safely and think safety. We expect supervisors and

24

managers to prevent accidents. We never compromise safety. Our safety standards are posted in all company locations and facilities as reminders of our fundamental commitments.

Key Points

All our facilities must operate with the necessary permits, approvals, and controls that protect the environment. We take special care to ensure that we do not discharge hazardous substances beyond those allowed in our permits and approvals and we strive to reduce all emissions from our facilities. Each of us is responsible for reporting safety hazards, accidents, and incidents - no matter how minor. We act promptly to investigate situations that create workplace hazards. We take immediate corrective action to eliminate unsafe practices and prevent injuries.

You are on the front line to ensure that our operations are conducted safely. If you identify a condition that warrants investigation, be prepared to provide details such as the following:

• The nature of the problem

• The location of the problem

• When the problem occurred (date and time)

• Name and quantity of materials involved, to the extent known

• The extent of injuries, if known, and any additional information you may have - particularly eyewitness information, documents, or photographs

In Action

You have the following responsibilities:

• Follow all safety policies and procedures carefully.

• Use protective equipment and personal gear that is appropriate for the task at hand.

• Operate vehicles and marine vessels properly.

• Always be prepared for fire protection.

• Become familiar with the laws, regulations, policies, and procedures that apply to your own job duties.

• Properly and safely dispose of hazardous materials.

Political Contributions

In Brief

We comply with all laws regulating our company's participation in political affairs, including contributions of money, time, or resources to political parties, candidate committees, or individual candidates. All political contributions made by Tesoro will be made only in compliance with applicable state and federal laws and in accordance with company policies.

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Key Points

Tesoro supports state and federal Political Action Committees (PACs). All political contributions, whether through the use of a Tesoro PAC or through corporate funds, must be approved in advance by the Government Relations Department. In addition, before making any political contribution or participating in campaign activities you should consult the Legal Department to review specific requirements that may apply in your local area.

Tesoro encourages employees to be informed voters and to become involved in the political process. Your participation is entirely voluntary. If you choose to contribute or participate, your contributions must be on a personal basis, using your own time and funds. Tesoro will not reimburse you for any contribution of money donated or time spent by you on that activity.

In Action

• Do not use company work time, money, or resources to promote a political campaign or candidate.

• Never loan or use company property for political purposes that are not authorized in advance by Tesoro.

• Be careful to avoid giving the impression that you are speaking on behalf of Tesoro when you participate as a citizen in the political process.

Bribery and Anti-Corruption

In Brief

We believe customers should choose our products and services because of their intrinsic value, not because they received something extra from us. You must never offer anything of value to obtain an improper advantage when conducting Tesoro's business.

We prohibit kickbacks, bribes, and payoffs. This includes the giving or accepting of money, fees, gifts, favors, or anything of value provided directly or indirectly in return for more favorable treatment.

Key Points

It is just as wrong to offer a kickback as it is to accept a bribe. Never accept anything from a vendor or supplier in exchange for favorably considering their product. Remember, your good judgment is not for sale.

All countries prohibit bribery of their public officials. Generally, these laws prohibit giving anything of value to government officials or their family members for the purpose of obtaining or retaining business. At Tesoro, our policy extends beyond these laws. You may not make an unauthorized payment, concession, or bribe to government officials or employees or to private parties engaged in a commercial transaction.

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In limited circumstances in some countries outside of the United States, you may need to pay a government official to obtain a benefit to which Tesoro is entitled under local law. These facilitating payments must be modest in amount and necessary to achieve a valid business purpose. Never make a facilitating payment without first consulting the Legal Department. If you must make a facilitating payment, be sure to record and account for it properly.

Inappropriate or questionable payments made through an intermediary (i.e. third-party agent, representative, or vendor) are just as unacceptable as those that are made directly.

In Action

• Don't make payments or give gifts that are intended to increase the volume of business that customers do with Tesoro.

• Never hide a payment or falsify business records.

• Money must never be offered as a gift.

• Never establish any secret, “off the books,” or unrecorded funds, assets, or transactions.

• Intermediaries who represent Tesoro outside of the United States must comply with our Code of Business Conduct.

• Please review Tesoro's policy on anti-corruption and procedures before hiring any intermediaries.

It is just as wrong to offer a kickback as it is to accept a bribe.

International Trade

In Brief

Many laws govern the conduct of trade across borders. These include laws that are designed to ensure that transactions are not being used for money laundering or to support terrorism. Other laws prohibit companies from cooperating with unsanctioned boycotts, and there are complex laws that regulate exports. We are committed to complying with all such laws that are applicable in the countries in which we operate.

In Action

• Maintain required import, export, and customs records at each Tesoro business location.

• Seek guidance from the Legal Department when necessary to ensure that shipments of information or products across borders comply with laws governing imports and exports.

• To help prevent and detect money laundering and terrorist financing, watch for any suspicious payments, which may include cash or the equivalent (when checks are the norm); payments made from personal accounts instead of business accounts;

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and funds from financial institutions or third parties without a logical relationship to the customer or business partner.

• Get legal advice if you have a concern about these or other international trade issues.

Index of contact information

Business Conduct Helpline

You may choose to remain anonymous when contacting the Business Conduct Helpline.

Call Toll-Free:

From the United States, U.S. Territories and Canada:

877-782-3763

From Singapore:

Dial 8000-177-177. If you hear a recorded greeting, dial 05 and then 877-782-3763; If you are connected to an overseas operator, provide operator with 877-782-3763. You will then be connected to the Business Conduct Helpline operator who will take your call.

or

Make a Report in Outlook:

Go to business.conduct@tsocorp.com

Please note, the policies and procedures referenced in this Code are available on our Intranet site or by contacting HR Link at 866-688-5465 or hrlink@tsocorp.com.

Legal Department:

Tesoro Corporation

19100 Ridgewood Parkway

San Antonio, Texas 78259

Attn: Legal Department

210-626-6000 or 866-876-2455

Business Conduct Office:

Tesoro Corporation

19100 Ridgewood Parkway

San Antonio, Texas 78259

c/o Compliance Officer or General Counsel

Email: business.conduct@tsocorp.com

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Audit Committee:

Chairman

The Audit Committee

19100 Ridgewood Parkway

San Antonio, Texas 78259

Investor Relations Department:

Email: irelations@tsocorp.com

Corporate Communications Department:

Email: satcc@tsocorp.com

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Gregory J. Goff, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tesoro Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

(d)    Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	August 8, 2011	/s/ GREGORY J. GOFF
		Gregory J. Goff
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, G. Scott Spendlove, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tesoro Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

(d)    Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	August 8, 2011	/s/ G. SCOTT SPENDLOVE
		G. Scott Spendlove
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Tesoro Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory J. Goff, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ GREGORY J. GOFF

Gregory J. Goff

Chief Executive Officer

August 8, 2011

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Tesoro Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, G. Scott Spendlove, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ G. SCOTT SPENDLOVE

G. Scott Spendlove

Chief Financial Officer

August 8, 2011

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML



Debt, Total Debt (Details) (USD $) In Millions	6 Months Ended
	Jun. 30, 2011	Dec. 31, 2010
Total Debt	$ 1,723	$ 1,995
Tesoro Corporation Revolving Credit Facility [Member]
Line of Credit Facility	0	0
Tesoro Panama Company Sociedad Anonima Revolving Credit Facility [Member]
Line of Credit Facility	55	150
Tesoro Logistics LP Revolving Credit Facility [Member]
Line of Credit Facility	50	0
Junior subordinated notes due 2012 (net of unamortized discount of $16) [Member]
Subordinated debt	0	134
Debt instrument, unamortized discount	0	16
6 1/4% Senior Notes Due 2012 [Member]
Long-term debt	356	450
Debt instrument interest rate	6 1/4
Year of maturity	2012
6 5/8% Senior Notes Due 2015 [Member]
Long-term debt	450	450
Debt instrument interest rate	6 5/8
Year of maturity	2015
6 1/2% Senior Notes Due 2017 [Member]
Long-term debt	500	500
Debt instrument interest rate	6 1/2
Year of maturity	2017
9 3/4% Senior Notes Due 2019 (net of unamortized discount of $10) Member]
Long-term debt	290	290
Debt instrument, unamortized discount	10	10
Debt instrument interest rate	9 3/4
Year of maturity	2019
Capital lease obligations and other [Member]
Capital lease obligations and other	$ 22	$ 21

XML



Condensed Consolidated Balance Sheets (Parenthetical) (Tesoro Corporation, USD $)	Jun. 30, 2011	Dec. 31, 2010
Tesoro Corporation
STOCKHOLDERS' EQUITY
Common Stock, Par or Stated Value Per Share	$ 0.167	$ 0.167
Common Stock, Shares Authorized	200,000,000	200,000,000
Common Stock, Shares, Issued	149,918,449	149,105,570
Treasury Stock, Shares	6,079,310	5,925,541

XML



Condensed Statements of Consolidated Operations (Unaudited) (USD $) In Millions, except Per Share data	3 Months Ended				6 Months Ended
	Jun. 30, 2011		Jun. 30, 2010		Jun. 30, 2011		Jun. 30, 2010
REVENUES	$ 7,963		$ 5,143		$ 14,489		$ 9,750
COSTS AND EXPENSES:
Cost of sales (a)	6,985		4,492		12,720		8,739
Operating expenses	372		348		743		721
Selling, general and administrative expenses	27		42		122		109
Depreciation and amortization expense	106		108		209		208
Loss on asset disposals and impairments	54		10		57		32
OPERATING INCOME (LOSS)	419	[1]	143	[1]	638	[1]	(59)	[1]
Interest and financing costs	(60)		(37)		(103)		(74)
Foreign currency exchange gain (loss)	(2)		1		(1)		1
EARNINGS (LOSS) BEFORE INCOME TAXES	357		107		534		(132)
Income tax expense (benefit)	135	[2]	40	[3]	205	[2]	(44)	[3]
NET EARNINGS (LOSS)	222		67		329		(88)
Less net income attributable to noncontrolling interest	4		0		4		0
NET EARNINGS (LOSS) ATTRIBUTABLE TO TESORO CORPORATION	218		67		325		(88)
NET EARNINGS (LOSS) PER SHARE:
Basic	$ 1.54		$ 0.48		$ 2.29		$ (0.63)
Diluted	$ 1.52		$ 0.47		$ 2.26		$ (0.63)
WEIGHTED AVERAGE COMMON SHARES:
Basic	142.6		140.5		142.1		140.0
Diluted	144.4		142.5		144.2		140.0
SUPPLEMENTAL INFORMATION
(a) Includes excise taxes collected by our retail segment	$ 92		$ 71		$ 183		$ 139

[1] Includes a $48 million gain for the three and six months ended June 30, 2010, from the elimination of postretirement life insurance benefits for current and future retirees, and $37 million in business interruption and property damage recoveries for the three and six months ended June 30, 2011.

[2] The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners' share of partnership income.

[3] The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from subsidiaries.

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Benefit Plans (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Pension Benefits [Member]
Pension and Other Postretirement Benefit Contributions [Abstract]
Employer contributions to employee retirement plan			$ 24
Components of Net Periodic Benefit Cost: [Abstract]
Service cost	7	10	14	20
Interest cost	8	7	15	14
Expected return on plan assets	(5)	(5)	(10)	(10)
Amortization of prior service cost (credit)	0	1	0	2
Recognized net actuarial loss	5	4	10	7
Recognized curtailment loss (gain)	1	3	3	4
Net Periodic Benefit Expense (Income)	16	20	32	37
General Discussion of Pension and Other Postretirement Benefits [Abstract]
Number of defined benefit plans sponsored	4		4
Other Postretirement Benefits [Member]
Components of Net Periodic Benefit Cost: [Abstract]
Service cost	2	4	3	8
Interest cost	1	5	2	11
Amortization of prior service cost (credit)	(10)	0	(19)	0
Recognized net actuarial loss	3	1	6	1
Recognized curtailment loss (gain)	0	(48)	0	(48)
Net Periodic Benefit Expense (Income)	$ (4)	$ (38)	$ (8)	$ (28)

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Earnings (Loss) Per Share (Tables)

6 Months Ended

Jun. 30, 2011

Earnings Loss Per Share [Abstract]

Earnings (Loss) Per Share Table [Table Text Block]

Share and per share calculations are presented below (in millions except per share amounts):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Basic:
Net earnings (loss) attributable to Tesoro Corporation stockholders	$	218	$	67	$	325	$	(88	)
Weighted average common shares outstanding	142.6		140.5		142.1		140.0
Basic Earnings (Loss) Per Share	$	1.54	$	0.48	$	2.29	$	(0.63	)
Diluted:
Net earnings (loss) attributable to Tesoro Corporation stockholders	$	218	$	67	$	325	$	(88	)
Weighted average common shares outstanding	142.6		140.5		142.1		140.0
Common stock equivalents	1.8		2.0		2.1		0.0
Total diluted shares	144.4		142.5		144.2		140.0
Diluted Earnings (Loss) Per Share	$	1.52	$	0.47	$	2.26	$	(0.63	)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

Potentially dilutive common stock equivalents that were excluded from the calculation of diluted earnings (loss) per share, as the effect of including such securities would have been anti-dilutive, were as follows (in millions):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2011	2010	2011	2010
Common stock equivalents (a)	—	—	—	1.7
Stock options (b)	3.1	6.0	3.1	5.7

________________

(a) For the six months ended June 30, 2010, common stock equivalents, including stock options, were excluded as a result of the net loss reported during the period.

(b) Common stock options presented above were excluded as the exercise prices were greater than the average market price of the common stock during each respective reporting period.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2011	Jul. 31, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	TESORO CORP /NEW/
Entity Central Index Key	0000050104
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		143,885,371

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Debt, Debt Repurchase Program (Details) (6 1/4% Senior Notes [Member], USD $) In Millions	3 Months Ended
	Jun. 30, 2011
6 1/4% Senior Notes [Member]
Year of maturity	2012
Principal amount of debt repurchased	$ 94
Cash paid for repurchases of long-term debt	$ 100

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Derivative Instruments (Tables)

6 Months Ended

Jun. 30, 2011

Derivative Instruments, Gain (Loss) Recognized in Income, Net [Abstract]

Schedule of Other Derivatives Not Designated as Hedging Instruments, Statements of Financial Performance and Financial Position, Location [Table Text Block]

Gains (losses) for our non-hedging derivative instruments for the three and six months ended June 30, 2011 and 2010, were as follows (in millions):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
Derivatives Not Designated as Hedging Instruments (a):	2011			2010		2011			2010
Commodity Futures Contracts	$	88		$	10	$	32		$	(2	)
Commodity OTC Swap Contracts	2			8		1			8
Commodity Forward Contracts	(8		)	—		(1		)	—
Total Non-Hedging Derivative Instruments	$	82		$	18	$	32		$	6

________________

(a) Derivative gains (losses) are recognized in either revenues or cost of sales depending on the purpose for acquiring and holding the derivative. All derivative gains for the three and six months ended June 30, 2010, were recorded in cost of sales. Derivative gains recognized during the three months ended June 30, 2011, recorded in revenues and cost of sales, were $12 million and $70 million, respectively. Derivative gains recognized during the six months ended June 30, 2011, recorded in cost of sales was $32 million. There were no amounts recognized in revenues for the six months ended June 30, 2011.

Schedule of Fair Value Hedging Instruments, Statements of Financial Performance and Financial Position, Location [Table Text Block]

Gains (losses) on our fair value hedging derivative instruments during the three and six months ended June 30, 2011, were as follows (in millions). We did not acquire any fair value hedging derivative instruments during the three and six months ended June 30, 2010.

Derivatives Designated as Fair Value Hedging Instruments:	Amount of Gain Recognized in Income on Derivatives		Amount of Loss Recognized in Income on Hedged Item			Amount of Loss Recognized in Income on Ineffective Portion of Derivative (c)
Three months ended June 30, 2011
Commodity Futures Contracts (b)	$	4	$	(4	)	$	—
Six months ended June 30, 2011
Commodity Futures Contracts (b)	$	3	$	(4	)	$	(1	)

________________

(b) Gains (losses) recognized in income on the derivative and the hedged item are included in cost of sales in the statements of consolidated operations.

(c) For fair value hedges, no component of the derivative instruments' gains or losses was excluded from the assessment of hedges effectiveness. No amounts were recognized in income for hedged firm commitments that no longer qualify as fair value hedges.

Derivative, Fair Value, Gross Amount Not Offset Against Collateral, Net [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block]

The following table presents the fair value (in millions) of our derivative instruments as of June 30, 2011 and December 31, 2010. Net derivative assets and net derivative liabilities are presented in prepayments and other and accrued liabilities in the consolidated balance sheet, respectively. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements. As a result, the asset and liability amounts below will not agree with the amounts presented in our consolidated balance sheet, nor will they agree with the fair value information presented in Note E.

	Derivative Assets				Derivative Liabilities
Derivatives Not Designated as Hedging Instruments:	June 30, 2011		December 31, 2010		June 30, 2011			December 31, 2010
Commodity Futures Contracts	$	197	$	88	$	(175	)	$	(96	)
Commodity OTC Swap Contracts	3		3		(7		)	(2		)
Commodity Forward Contracts	1		2		(3		)	(1		)
Total Derivative Instruments	$	201	$	93	$	(185	)	$	(99	)

	Derivative Assets				Derivative Liabilities
Derivatives Designated as Fair Value Hedging Instruments:	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010
Commodity Futures Contracts	$	—	$	—	$	—	$	(3	)
Total Derivative Instruments	$	—	$	—	$	—	$	(3	)

Open Positions [Abstract]

Schedule of Notional Amounts of Outstanding Derivative Positions [Table Text Block]

All of our open positions are scheduled to mature within the next twelve months. The information below presents the net volume of outstanding contracts by type of instrument and year of maturity as of June 30, 2011 (volumes in thousands of barrels):

Fair value hedges		Mark-to-market derivatives
Derivative instrument and Year of maturity	Long (Short) Contract Volumes	Derivative instrument and Year of maturity	Long (Short) Contract Volumes
Swaps		Swaps
2011	—	2011	6,080
2012	—	2012	—
Futures		Futures
2011	(59)	2011	(5,571)
2012	—	2012	(51)
Forwards		Forwards
2011	—	2011	(2,270)

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Derivative Instruments, Open Positions (Details)	Jun. 30, 2011
Futures [Member] | Fair Value Hedging [Member] | 2011 [Member]
Derivative [Line Items]
Contract Volumes	(59,000)
Futures [Member] | Fair Value Hedging [Member] | 2012 [Member]
Derivative [Line Items]
Contract Volumes	0
Swaps [Member] | Fair Value Hedging [Member] | 2011 [Member]
Derivative [Line Items]
Contract Volumes	0
Swaps [Member] | Fair Value Hedging [Member] | 2012 [Member]
Derivative [Line Items]
Contract Volumes	0
Forwards [Member] | Fair Value Hedging [Member] | 2011 [Member]
Derivative [Line Items]
Contract Volumes	0
Futures [Member] | Not Designated as Hedging Instrument [Member] | 2011 [Member]
Derivative [Line Items]
Contract Volumes	(5,571,000)
Futures [Member] | Not Designated as Hedging Instrument [Member] | 2012 [Member]
Derivative [Line Items]
Contract Volumes	(51,000)
Swaps [Member] | Not Designated as Hedging Instrument [Member] | 2011 [Member]
Derivative [Line Items]
Contract Volumes	6,080,000
Swaps [Member] | Not Designated as Hedging Instrument [Member] | 2012 [Member]
Derivative [Line Items]
Contract Volumes	0
Forwards [Member] | Not Designated as Hedging Instrument [Member] | 2011 [Member]
Derivative [Line Items]
Contract Volumes	(2,270,000)

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Debt (Notes)

6 Months Ended

Jun. 30, 2011

Long-term Debt, Unclassified [Abstract]

Debt Disclosure [Text Block]

DEBT

Our Total Debt at June 30, 2011 and December 31, 2010, was comprised of the following (in millions):

Debt, including current maturities:	June 30, 2011		December 31, 2010
Tesoro Corporation Revolving Credit Facility	$	—	$	—
Tesoro Panama Company Sociedad Anonima ("TPSA") Revolving Credit Facility	55		150
Tesoro Logistics LP ("TLLP") Revolving Credit Facility	50		—
Junior subordinated notes due 2012 (net of unamortized discount of $16)	—		134
6¼% Senior Notes Due 2012	356		450
65/8% Senior Notes Due 2015	450		450
6½% Senior Notes Due 2017	500		500
9¾% Senior Notes Due 2019 (net of unamortized discount of $10)	290		290
Capital lease obligations and other	22		21
Total Debt	$	1,723	$	1,995

For additional information regarding our outstanding debt, see “Capital Resources and Liquidity” in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 2.

6 1/4% Senior Notes due 2012

From time to time, we may purchase our 6 1/4% Senior Notes due 2012 in the open market or in privately negotiated transactions. The timing and amount of debt repurchases, if any, will depend on available cash, market conditions and other considerations.

During the second quarter of 2011, we repurchased $94 million of principal related to these notes through the open market for an aggregate purchase price of $100 million, including accrued interest and premiums, which are included in interest and financing costs in the consolidated statement of operations for the three and six months ended June 30, 2011.

Junior Subordinated Notes due 2012

We redeemed the $150 million Junior Subordinated Notes due 2012 in May 2011. Upon redemption, we recorded a $13 million charge to write-off the remaining unamortized discount associated with the Notes, which is included in interest and financing costs in the consolidated statement of operations for the three and six months ended June 30, 2011.

Credit Facilities Overview

Our credit facilities as of June 30, 2011 were subject to the following expenses and fees.

Credit Facility	Eurodollar Rate	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Tesoro Corporation Revolving Credit Facility ($1.85 billion)	0.19%	1.75%	3.25%	—%	0.375%
TPSA Revolving Credit Facility ($500 million)	0.19%	2.75%	3.25%	1.75%	—%
TLLP Revolving Credit Facility ($150 million)	0.19%	2.50%	3.25%	1.50%	0.50%

Tesoro Corporation Revolving Credit Facility (“Revolving Credit Facility”)

We amended our Revolving Credit Facility in March 2011. The total available capacity was changed to $1.85 billion, which, subject to receiving increased commitments from the lending group, can be increased up to an aggregate $2.25 billion. Additionally, there were reductions in borrowing rates and the easing of certain covenants. The Revolving Credit Facility is guaranteed by substantially all of Tesoro's active domestic subsidiaries, excluding Tesoro Logistics GP, Tesoro Logistics LP and its subsidiaries, and is secured by substantially all of the crude oil and refined product inventories, cash and receivables of Tesoro's active domestic subsidiaries. TPSA is not a guarantor of the Revolving Credit Facility. For additional information regarding Tesoro Logistics LP, see Note B.

At June 30, 2011, our Revolving Credit Facility provided for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base of approximately $3.1 billion, consisting of Tesoro's eligible cash and cash equivalents, receivables and petroleum inventories (based upon a West Texas Intermediate crude oil price of $103 per barrel), net of the standard reserve as defined, or the Revolving Credit Facility's total capacity of $1.85 billion. As of June 30, 2011, we had no borrowings and $772 million in letters of credit outstanding under the Revolving Credit Facility, resulting in total unused credit availability of approximately $1.1 billion or 58% of the eligible borrowing base.

Our committed Revolving Credit Facility is scheduled to mature on March 16, 2016. The Revolving Credit Facility will terminate if the Company does not (a) refinance or pay in full, the Company's 6 1/4% notes due November 2012 on or prior to the stated maturity date, or (b) refinance or pay in full, the Company's 6 5/8% notes due November 2015 on or prior to the stated maturity date.

Our Revolving Credit Agreement and senior notes each limit our restricted payments (as defined) including our ability to pay cash dividends, repurchase stock or make voluntary repayments of subordinate debt. The aggregate amount of restricted payments cannot exceed an amount defined in each of the debt agreements. The indentures for our senior notes also limit our subsidiaries ability to make certain payments and distributions.

Letter of Credit Agreements

The Revolving Credit Facility allows us to obtain letters of credit under separate letter of credit agreements for foreign crude oil purchases. At June 30, 2011, we had three separate letter of credit agreements with a total capacity of $490 million, of which $222 million was outstanding. Letters of credit outstanding under these agreements incur fees and are secured by the petroleum inventories for which they are issued. The letter of credit agreements may be terminated by either party, at any time.

TPSA Revolving Credit Facility

TPSA, a directly and wholly owned subsidiary of Tesoro, entered into a 364-day uncommitted, secured revolving credit agreement that expires in October 2011. TPSA is an excluded and unrestricted subsidiary from the Revolving Credit Facility and outstanding indentures. The TPSA Revolving Credit Facility is non-recourse to Tesoro and is guaranteed by TPSA's assets. The TPSA Revolving Credit Facility includes two uncommitted facilities, which provide for revolving borrowings, swing line loans and daylight overdraft loans and letters of credit.

At June 30, 2011, our TPSA Revolving Credit Facility provided for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base consisting of TPSA eligible receivables and petroleum inventories, net of reserves, or the agreement's capacity based on the net worth of TPSA. In June 2011, we increased the maximum capacity of these facilities from $350 million to $500 million, consisting of $350 million under the first facility and $150 million under the second facility, and amended this facility to modify certain terms of the collateral pool calculation. The two facilities maximum capacities were increased from $245 million and $105 million, respectively. Our total capacity under the TPSA facilities can be further increased up to $700 million provided the facilities' maximum amounts do not exceed $550 million and $350 million, respectively. At June 30, 2011, we had $55 million in borrowings outstanding under this agreement and letters of credit outstanding of $95 million.

TLLP Revolving Credit Facility

On April 26, 2011, TLLP entered into a senior secured revolving credit agreement with a syndicate of banks and financial institutions, including Bank of America, N.A. as administrative agent. The TLLP Revolving Credit Facility provides for total available revolving capacity of $150 million and allows for TLLP to request that the capacity be increased up to an aggregate of $300 million, subject to receiving increased commitments from the lenders. At the closing of the offering, TLLP borrowed $50 million under the TLLP Revolving Credit Facility.

The TLLP Revolving Credit Facility is non-recourse to Tesoro, except for Tesoro Logistics GP (which is TLLP's general partner), and is guaranteed by all of TLLP's subsidiaries and secured by substantially all of its assets. Borrowings available under the TLLP Revolving Credit Facility are up to the total available revolving capacity of the facility. The TLLP Revolving Credit Facility is scheduled to mature three years from execution and will terminate on April 25, 2014.

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Debt (Tables)

6 Months Ended

Jun. 30, 2011

Debt [Abstract]

Schedule Of Total Debt [Table Text Block]

Our Total Debt at June 30, 2011 and December 31, 2010, was comprised of the following (in millions):

Debt, including current maturities:	June 30, 2011		December 31, 2010
Tesoro Corporation Revolving Credit Facility	$	—	$	—
Tesoro Panama Company Sociedad Anonima ("TPSA") Revolving Credit Facility	55		150
Tesoro Logistics LP ("TLLP") Revolving Credit Facility	50		—
Junior subordinated notes due 2012 (net of unamortized discount of $16)	—		134
6¼% Senior Notes Due 2012	356		450
65/8% Senior Notes Due 2015	450		450
6½% Senior Notes Due 2017	500		500
9¾% Senior Notes Due 2019 (net of unamortized discount of $10)	290		290
Capital lease obligations and other	22		21
Total Debt	$	1,723	$	1,995

Schedule of Line of Credit Facilities [Table Text Block]

Our credit facilities as of June 30, 2011 were subject to the following expenses and fees.

Credit Facility	Eurodollar Rate	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Tesoro Corporation Revolving Credit Facility ($1.85 billion)	0.19%	1.75%	3.25%	—%	0.375%
TPSA Revolving Credit Facility ($500 million)	0.19%	2.75%	3.25%	1.75%	—%
TLLP Revolving Credit Facility ($150 million)	0.19%	2.50%	3.25%	1.50%	0.50%

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Fair Value Measurements, Nonrecurring (Details) (USD $) In Millions	Jun. 30, 2011	Dec. 31, 2010
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Refining equipment, materials and engineering costs	$ 9	$ 4
Goodwill		36
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Refining equipment, materials and engineering costs	0	0
Goodwill		0
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Refining equipment, materials and engineering costs	0	0
Goodwill		0
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Refining equipment, materials and engineering costs	9	4
Goodwill		$ 36

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Tesoro Logistics LP, Balance Sheet (Details) (USD $) In Millions	Jun. 30, 2011		Dec. 31, 2010		Jun. 30, 2010	Dec. 31, 2009
ASSETS
Cash and cash equivalents	$ 607		$ 648		$ 191	$ 413
Receivables, less allowance for doubtful accounts
Trade	1,376		908
Other current assets	205		115
Net Property, Plant and Equipment	5,075		5,170
Other Noncurrent Assets	383		388
TOTAL ASSETS	9,738		8,732
Accounts payable
Accrued liabilities	539		492
Other Noncurrent Liabilities	562		562
Debt	1,666		1,843
TOTAL LIABILITIES AND EQUITY	9,738		8,732
Tesoro Logistics LP
ASSETS
Cash and cash equivalents	10	[1]	0	[1]
Receivables, less allowance for doubtful accounts
Trade	0	[1]	0	[1]
Affiliate	8		4
Other current assets	1	[1]	0	[1]
Net Property, Plant and Equipment	134	[1]	132	[1]
Other Noncurrent Assets	2	[1]	0	[1]
TOTAL ASSETS	155		136
Accounts payable
Trade	1	[1]	2	[1]
Affiliate	4		0
Accrued liabilities	2	[1]	3	[1]
Other Noncurrent Liabilities	0	[1]	2	[1]
Debt	50	[1]	0	[1]
Equity	98		129
TOTAL LIABILITIES AND EQUITY	$ 155		$ 136

[1] Included in the condensed consolidated balance sheet of Tesoro Corporation.

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Fair Value Measurements (Tables)

3 Months Ended

6 Months Ended

Jun. 30, 2011

Jun. 30, 2011

Fair Value Measurements [Abstract]

Fair Value, by Balance Sheet Grouping [Table Text Block]

The fair values of our derivative assets and liabilities by level within the fair value hierarchy were as follows (in millions):

	June 30, 2011		Level 1		Level 2			Level 3
Assets:
Commodity Futures Contracts	$	25	$	25	$	—		$	—
Commodity OTC Swap Contracts	2		—		2			—
Commodity Forward Contracts	—		—		—			—
Total Assets	27		25		2			—
Liabilities:
Commodity Futures Contracts	3		—		3			—
Commodity OTC Swap Contracts	6		—		6			—
Commodity Forward Contracts	2		—		2			—
Total Liabilities	11		—		11			—
Net Assets (Liabilities)	$	16	$	25	$	(9	)	$	—

	December 31, 2010			Level 1			Level 2		Level 3
Assets:
Commodity Futures Contracts	$	6		$	—		$	6	$	—
Commodity OTC Swap Contracts	1			—			1		—
Commodity Forward Contracts	1			—			1		—
Total Assets	8			—			8		—
Liabilities:
Commodity Futures Contracts	17			17			—		—
Total Liabilities	17			17			—		—
Net Assets (Liabilities)	$	(9	)	$	(17	)	$	8	$	—

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Table Text Block]

The fair value of certain nonfinancial assets measured on a non-recurring basis as of June 30, 2011 and December 31, 2010 were as follows (in millions):

	June 30, 2011		Level 1	Level 2	Level 3	Total Losses
Assets:
Refining equipment and engineering costs	$	9	—	—	9	$	48

	December 31, 2010		Level 1	Level 2	Level 3	Total Losses
Assets:
Refining equipment, materials and engineering costs	$	4	—	—	4	$	20
Goodwill	$	36	—	—	36	$	10

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Stock-Based Compensation (Notes)

6 Months Ended

Jun. 30, 2011

Stock Based Compensation [Abstract]

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

Stock-based compensation expense included in our condensed statements of consolidated operations was as follows (in millions):    

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011		2010
Stock appreciation rights	$	(13	)	$	(4	)	$	22	$	1
Phantom stock options	(5		)	(2		)	6		1
Restricted common stock	2			4			4		7
Restricted stock units	1			1			1		1
Performance share awards	1			—			1		—
Market stock units	1			—			1		—
Stock options	—			2			—		4
Total Stock-Based Compensation Expense (Credit)	$	(13	)	$	1		$	35	$	14

We have aggregated expenses for certain award types as they are not considered significant. The income tax benefit recognized in the income statement for stock-based compensation was $12 million and $6 million for the six months ended June 30, 2011 and 2010, respectively. The income tax benefit recognized from tax deductions resulting from exercises and vestings under all of our stock-based compensation arrangements totaled $15 million and $5 million for the six months ended June 30, 2011 and 2010, respectively.

Stock Appreciation Rights

A stock appreciation right (“SAR”) entitles an employee to receive cash in an amount equal to the excess of the fair market value of one share of common stock on the date of exercise over the grant price of the SAR. The fair value of each SAR is estimated at the end of each reporting period using the Black-Scholes option-pricing model. We did not grant SARs to our employees during the six months ended June 30, 2011. We have accrued $53 million and $39 million in liabilities associated with our SARs awards at June 30, 2011 and December 31, 2010, respectively.

A summary of our stock appreciation right activity for the six months ended June 30, 2011, is set forth below (shares in thousands):

	Number of SARs		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at January 1, 2011	7,372		$	22.34	4.6 years
Exercised	(723	)
Forfeited	(150	)
Outstanding at June 30, 2011	6,499		$	23.25	4.1 years
Vested or expected to vest at June 30, 2011	6,498		$	23.25	4.1 years
Exercisable at June 30, 2011	4,731		$	26.74	3.8 years

Executive Phantom Stock Options

The fair value of each phantom stock option is estimated at the end of each reporting period using the Black-Scholes option-pricing model. We did not grant phantom stock options to our executive officers during the six months ended June 30, 2011. We have accrued $17 million and $15 million in other noncurrent liabilities associated with these executive phantom stock option awards at June 30, 2011 and December 31, 2010, respectively.

A summary of our executive phantom stock option activity is set forth below (shares in thousands):

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at January 1, 2011	1,487		$	14.13	8.1 years
Exercised	(256	)
Forfeited	(65	)
Outstanding at June 30, 2011	1,166		$	14.13	7.6 years
Vested or expected to vest at June 30, 2011	1,166		$	14.13	7.6 years
Exercisable at June 30, 2011	1,166		$	14.13	7.6 years

Performance Share Awards

In May 2011, we granted performance share awards under the 2011 Long-Term Incentive Plan. The vesting percentages of these equity awards, range from 0-200%, and are tied to certain performance measures or market conditions over a three year performance period. Both types of performance share awards vest at the end of the performance period. The fair value of each performance share award is estimated using a Monte Carlo simulation. The estimated fair value of these performance share awards is generally amortized over a three year vesting period using the straight-line method. The value of the award ultimately paid will be based on relative total shareholder return, which is measured against the performance peer group and the S&P 500 Index, or return on capital employed, which is measured against the performance peer group. Total unrecognized compensation cost related to non-vested performance share awards totaled $7 million as of June 30, 2011, which is expected to be recognized over a weighted average period of 2.8 years. As of June 30, 2011, the fair value of each outstanding non-vested performance share award was $22.91. A summary of our performance share award activity is set forth below (units in thousands):

	Number of Shares	Weighted Average Grant-Date Fair Value
Nonvested at January 1, 2011	—	$	—
Granted	264	$	31.90
Nonvested at June 30, 2011	264	$	31.90

Market Stock Units

In May 2011, we granted market stock units under the 2011 Long-Term Incentive Plan. These market stock units represent the right to receive a target number of shares that will vest at the end of a three year performance period. The number of shares ultimately issued will be based on Tesoro's stock price changes over the performance period. The market stock units' potential payout can range from 50-200% of targeted award value, unless the average closing stock price at vesting has decreased more than 50% from the average closing stock price at grant date, then no market stock units will be paid out. The fair value of each market stock unit is estimated on the grant date using a Monte Carlo simulation. The estimated fair value of these market stock units is amortized over a three year vesting period using the straight-line method. Total unrecognized compensation cost related to non-vested market stock units totaled $13 million as of June 30, 2011, which is expected to be recognized over a weighted average period of 2.8 years. A summary of our market stock unit award activity is set forth below (units in thousands):

	Number of Units	Weighted Average Grant-Date Fair Value		Intrinsic Value
				(In millions)
Nonvested at January 1, 2011	—	$	—	$	—
Granted	426	$	34.45
Nonvested at June 30, 2011	426	$	34.45	$	8

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Earnings (Loss) Per Share (Notes)

6 Months Ended

Jun. 30, 2011

Earnings Loss Per Share [Abstract]

Earnings (Loss) Per Share [Text Block]

EARNINGS (LOSS) PER SHARE

We compute basic earnings (loss) per share by dividing net earnings (loss) attributable to Tesoro Corporation shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share include the effects of potentially dilutive shares, principally consisting of common stock options and unvested restricted stock outstanding during the period.

Share and per share calculations are presented below (in millions except per share amounts):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Basic:
Net earnings (loss) attributable to Tesoro Corporation stockholders	$	218	$	67	$	325	$	(88	)
Weighted average common shares outstanding	142.6		140.5		142.1		140.0
Basic Earnings (Loss) Per Share	$	1.54	$	0.48	$	2.29	$	(0.63	)
Diluted:
Net earnings (loss) attributable to Tesoro Corporation stockholders	$	218	$	67	$	325	$	(88	)
Weighted average common shares outstanding	142.6		140.5		142.1		140.0
Common stock equivalents	1.8		2.0		2.1		0.0
Total diluted shares	144.4		142.5		144.2		140.0
Diluted Earnings (Loss) Per Share	$	1.52	$	0.47	$	2.26	$	(0.63	)

Potentially dilutive common stock equivalents that were excluded from the calculation of diluted earnings (loss) per share, as the effect of including such securities would have been anti-dilutive, were as follows (in millions):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2011	2010	2011	2010
Common stock equivalents (a)	—	—	—	1.7
Stock options (b)	3.1	6.0	3.1	5.7

________________

(a) For the six months ended June 30, 2010, common stock equivalents, including stock options, were excluded as a result of the net loss reported during the period.

(b) Common stock options presented above were excluded as the exercise prices were greater than the average market price of the common stock during each respective reporting period.

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Tesoro Logistics LP, Contractual Terms Of Agreements With Tesoro Logistics LP (Details)	6 Months Ended
	Jun. 30, 2011
High Plains transportation services agreement initial term [Member]
Long-term Purchase Commitment [Line Items]
Contract term	10
Long-term purchase commitment, description	5
Number of contract renewals	2
Long-term purchase commitment, potential adverse consequences	1
High Plains transportation services agreement [Member]
Long-term Purchase Commitment [Line Items]
Long-term purchase commitment, description	2
Number of contract renewals	4
Long-term purchase commitment, potential adverse consequences	1
Terminalling services agreement initial term [Member]
Long-term Purchase Commitment [Line Items]
Contract term	10
Long-term purchase commitment, description	5
Number of contract renewals	2
Long-term purchase commitment, potential adverse consequences	1
SLC transportation services agreement initial term [Member]
Long-term Purchase Commitment [Line Items]
Contract term	10
Long-term purchase commitment, description	5
Number of contract renewals	2
Long-term purchase commitment, potential adverse consequences	1
Utah transportation services agreement initial term [Member]
Long-term Purchase Commitment [Line Items]
Contract term	10
Long-term purchase commitment, description	5
Number of contract renewals	2
Long-term purchase commitment, potential adverse consequences	1
Omnibus agreement with subsidiary [Member]
Long-term Purchase Commitment [Line Items]
Omnibus or administrative fees received	2.5
Variable Interest Entity, Primary Beneficiary [Member]
Long-term Purchase Commitment [Line Items]
Number of refined products terminals	8
Number of storage facilities	1
Number of short-haul pipelines	5

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Benefit Plans (Notes)

6 Months Ended

Jun. 30, 2011

Benefit Plans [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

BENEFIT PLANS

Tesoro sponsors the following four defined benefit pension plans: the funded qualified employee retirement plan, the unfunded nonqualified executive security plan, the unfunded nonqualified restoration retirement plan and the unfunded nonqualified supplemental executive retirement plan. Although our funded employee retirement plan fully meets all funding requirements under applicable laws and regulations, during the six months ended June 30, 2011, we voluntarily contributed $24 million to improve the funded status of the plan.

The components of pension benefit expense and other postretirement benefit expense included in the condensed statements of consolidated operations for the three and six months ended June 30, 2011 and 2010, were (in millions):

	Pension Benefits
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Service cost	$	7		$	10		$	14		$	20
Interest cost	8			7			15			14
Expected return on plan assets	(5		)	(5		)	(10		)	(10		)
Amortization of prior service cost	—			1			—			2
Recognized net actuarial loss	5			4			10			7
Recognized curtailment loss	1			3			3			4
Net Periodic Benefit Expense	$	16		$	20		$	32		$	37

	Other Postretirement Benefits
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Service cost	$	2		$	4		$	3		$	8
Interest cost	1			5			2			11
Amortization of prior service credit	(10		)	—			(19		)	—
Recognized net actuarial loss	3			1			6			1
Recognized curtailment gain	—			(48		)	—			(48		)
Net Periodic Benefit Income	$	(4	)	$	(38	)	$	(8	)	$	(28	)

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Subsequent Events (Notes)

6 Months Ended

Jun. 30, 2011

Subsequent Events [Abstract]

Subsequent Events [Text Block]

SUBSEQUENT EVENTS

Stock-based Compensation Dilution Management Program

On August 3, 2011, our Board of Directors approved a program designed to offset the dilutive effect of 2011 and future stock-based compensation awards. The Board authorized the repurchase of approximately 0.7 million shares related to 2011 awards granted and described in Note L to offset their potential dilutive effect. The Board also authorized a program to repurchase additional shares in subsequent years to offset the dilutive effect of future stock-based compensation programs.

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Commitments and Contingencies (Notes)

6 Months Ended

Jun. 30, 2011

Commitments And Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Environmental and Tax Matters

We are a party to various litigation and contingent loss situations, including environmental and income tax matters, arising in the ordinary course of business. Although we cannot predict the ultimate outcomes of these matters with certainty, we have accrued for the estimated liabilities when appropriate. We believe that the outcome of these matters will not materially impact our liquidity and consolidated financial position, although the resolution of certain of these matters could have a material impact on interim or annual results of operations. Additionally, if applicable, we accrue receivables for probable insurance or other third-party recoveries.

We are subject to extensive federal, state and local environmental laws and regulations. These laws, which change frequently, regulate the discharge of materials into the environment and may require us to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites, install additional controls, or make other modifications to certain emission sources, equipment or facilities.

We are subject to extensive federal, state and foreign tax laws and regulations. Newly enacted tax laws and regulations, and changes in existing tax laws and regulations, could result in increased expenditures in the future. We are also subject to audits by federal, state and foreign taxing authorities in the normal course of business. It is possible that tax audits could result in claims against us in excess of recorded liabilities. We believe that resolution of any such claim(s) would not materially affect our consolidated financial position or results of operations. We believe it is possible that unrecognized tax benefits could decrease by as much as $10 million in the next twelve months through settlements or other conclusions, primarily regarding state tax issues.

Environmental Liabilities

We are incurring and expect to continue to incur expenses for environmental liabilities at a number of currently and previously owned or operated refining, pipeline, terminal and retail station properties. We have accrued liabilities for these expenses and believe these accruals are adequate. At June 30, 2011 and December 31, 2010, our accruals for environmental expenditures totaled $98 million and $108 million, respectively. Our environmental accruals are based on estimates including engineering assessments, and it is possible that our estimates will change and that additional costs will be recorded as more information becomes available.

We received $58.5 million in a settlement with a prior owner of our Golden Eagle refinery in 2007 in exchange for assuming responsibility for certain environmental liabilities arising from operations at the refinery prior to August 2000. These environmental liabilities totaled $58 million and $62 million at June 30, 2011 and December 31, 2010, respectively. We cannot reasonably determine the full extent of remedial activities that may be required at the Golden Eagle refinery. Therefore, it is possible that we will identify additional remediation costs as more information becomes available. We have filed insurance claims under environmental insurance policies that provide coverage up to $190 million for expenditures in excess of $50 million in self-insurance. We have not recognized possible insurance recoveries related to this matter.

We have investigated conditions at certain active wastewater treatment units at our Golden Eagle Refinery.  The investigation was driven by an order from the San Francisco Bay Regional Water Quality Control Board that named us as well as two previous owners of the Golden Eagle Refinery.  We cannot currently estimate the amount of the ultimate resolution of the order, but we believe it will not have a material adverse impact on our consolidated financial position, results of operations or liquidity.

Washington Refinery Fire

In April 2010, the naphtha hydrotreater unit at our Washington refinery was involved in a fire, which fatally injured seven employees and rendered the unit inoperable. The Washington State Department of Labor & Industries (“L&I”), the U.S. Chemical Safety and Hazard Investigation Board (“CSB”) and the U.S. Environmental Protection Agency (“EPA”) initiated separate investigations of the incident. In October 2010, L&I completed its investigation, issued citations and assessed a $2.4 million fine, which we appealed. L&I reassumed jurisdiction of the citation and affirmed the allegations in December 2010. We disagree with L&I's characterizations of Tesoro's operations at our Washington refinery and believe, based on available evidence and scientific reviews, that many of the agency's conclusions are mistaken. In January 2011, we filed an appeal of the citation. The EPA and CSB investigations are ongoing. We have incurred charges related to the incident of $4 million and $27 million during the six months ended June 30, 2011 and the year ended December 31, 2010, respectively. These amounts do not include insurance recoveries.

In February 2011, Tesoro Corporation, Tesoro Refining and Marketing Company and other defendants were named in a lawsuit brought by the estates and families of the seven fatally injured employees arising from the April 2010 incident. In addition, a third-party truck driver has alleged damages in the lawsuit. The lawsuit includes allegations of negligence, premises liability, strict liability, product liability and seeks unspecified compensatory and punitive damages. This case, Donald and Peggy Zimmerman et al. v. Tesoro Corporation and Tesoro Refining and Marketing et al., is proceeding in the Superior Court of the State of Washington, Skagit County. The Company believes that it has defenses to the allegations contained in the lawsuit. While we cannot currently estimate the amount or timing of the resolution of this matter, and currently believe that the outcome of this matter will not materially impact our liquidity and consolidated financial position, the ultimate resolution could have a material impact on our interim and annual results of operations.

Our business interruption insurance deductible is satisfied after we have exceeded both 60 days of operational disruption and $25 million in losses primarily based on the operating plan that existed prior to the incident. Our property damage insurance has a $10 million deductible. We have filed business interruption insurance claims and property damage claims related to this incident. We collected $87 million in business interruption insurance recoveries that relate to downtime from the incident, which were recorded as an offset to cost of sales in the consolidated statement of operations. Of the $87 million collected, $32 million was recorded in second quarter of 2011 and $55 million was recorded in 2010. We received $17 million to settle the property damage claim filed for this incident, which was recorded as a reduction to operating expense. Of the $17 million, $5 million was recorded in the second quarter of 2011 and $12 million was recorded in the fourth quarter of 2010.

Other Matters

In the ordinary course of business, we become party to lawsuits, administrative proceedings and governmental investigations, including environmental, regulatory and other matters. Large, and sometimes unspecified, damages or penalties may be sought from us in some matters. As a result, we have not established accruals for these matters unless a likelihood of loss may be reasonably possible and the amount of loss is currently estimable. On the basis of existing information, we believe that the resolution of these matters, individually or in the aggregate, will not have a material adverse impact on our financial position, results of operations or liquidity.

Legal

During 2009, Chevron filed a lawsuit against us claiming they are entitled to a share of the refunds we received in 2008 from the owners of the Trans Alaska Pipeline System (“TAPS”). We received $50 million in 2008, net of contingent legal fees, for excessive intrastate rates charged by TAPS during 1997 through 2000, and the period of 2001 through June 2003. Chevron is asserting that it is entitled to a share of its portion of the refunds for retroactive price adjustments under our previous crude oil contracts with them. In September 2010, the trial court judge granted Chevron's motion for summary judgment and awarded them $16 million, including interest. We disagree with the trial court and have appealed the decision to the Alaska Supreme Court in which the proceeding is now pending. We have established an accrual for this matter and believe that the outcome will not materially impact our consolidated financial position, results of operations or liquidity.

Environmental

In May 2011 and again in July 2011, we met with the U.S. Department of Justice ("DOJ") and the U.S. Environmental Protection Agency ("EPA") to discuss potential claims by the EPA under the Clean Air Act concerning our Alaska, Washington, Golden Eagle, Hawaii and Utah refineries. At these meetings, the DOJ and EPA alleged that we have violated the Clean Air Act, regulations under the Clean Air Act and/or Clean Air Act permits at each of these refineries. We previously received a notice of violation ("NOV") in March 2011 from the EPA alleging violations of Title V of the Clean Air Act at our Alaska refinery. The alleged violations in the NOV arise from a 2007 state of Alaska inspection and inspections by the EPA in 2008 and 2010. We also previously received NOV's in 2005 and 2008 alleging violations of the Clean Air Act at our Washington refinery. We are evaluating all of these allegations. The ultimate resolution of this matter could require us to incur material capital expenditures and/or civil penalties. While we cannot currently estimate the amount or timing of the resolution of this matter, and currently believe that the outcome of this matter will not materially impact our liquidity and consolidated financial position, the ultimate resolution could have a material impact on our interim or annual results of operations.

On February 5, 2010, the EPA filed suit against us alleging violations of the Clean Air Act and corresponding regulatory requirements concerning the testing and reporting of transportation fuels and fuel additives. In February 2009, we received a NOV from the EPA for alleged violations arising from a compliance review conducted by the EPA in 2006, for the years 2003 through the time of the review in 2006. We are discussing the alleged violations contained in the suit with the EPA and the U.S. Department of Justice and have not established an accrual for this matter. On the basis of existing information, we believe that the resolution of this matter will not have a material adverse impact on our consolidated financial position, results of operations or liquidity.

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Operating Segments (Tables)

6 Months Ended

Jun. 30, 2011

Operating Segments [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

Segment information is as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Revenues	(In millions)
Refining:
Refined products	$	7,635		$	4,661		$	13,905		$	8,906
Crude oil resales and other	186			351			341			588
Retail:
Fuel (a)	1,354			886			2,469			1,700
Merchandise and other	57			57			109			110
Intersegment sales from Refining to Retail	(1,269		)	(812		)	(2,335		)	(1,554		)
Total Revenues	$	7,963		$	5,143		$	14,489		$	9,750
Segment Operating Income (Loss)
Refining (b)	$	399		$	150		$	702		$	(19	)
Retail	38			30			40			54
Total Segment Operating Income	437			180			742			35
Corporate and unallocated costs	(18		)	(37		)	(104		)	(94		)
Operating Income (Loss) (c)	419			143			638			(59		)
Interest and financing costs	(60		)	(37		)	(103		)	(74		)
Foreign currency exchange gain (loss)	(2		)	1			(1		)	1
Earnings (Loss) Before Income Taxes	$	357		$	107		$	534		$	(132	)
Depreciation and Amortization Expense
Refining	$	94		$	93		$	185		$	178
Retail	10			10			19			20
Corporate	2			5			5			10
Total Depreciation and Amortization Expense	$	106		$	108		$	209		$	208
Capital Expenditures
Refining	$	55		$	75		$	93		$	140
Retail	4			2			7			4
Corporate	4			—			5			—
Total Capital Expenditures	$	63		$	77		$	105		$	144

______________

(a) Federal and state motor fuel taxes on sales by our retail segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $92 million and $71 million for the three months ended June 30, 2011 and 2010, respectively, and $183 million and $139 million for the six months ended June 30, 2011 and 2010, respectively.

(b) Includes impairment charges related to the change in scope of a capital project at our Los Angeles refinery of $48 million for the three and six months ended June 30, 2011, and $20 million for the six months June 30, 2010. Includes charges related to the Washington refinery incident of $12 million for the three and six months ended June 30, 2010. The loss on asset disposals and impairments is included in refining segment operating income but excluded from the regional operating costs per barrel.

(c) Includes a $48 million gain for the three and six months ended June 30, 2010, from the elimination of postretirement life insurance benefits for current and future retirees, and $37 million in business interruption and property damage recoveries for the three and six months ended June 30, 2011.

	June 30,		December 31,
	2011		2010
Identifiable Assets:
Refining	$	8,259	$	7,303
Retail	643		619
Corporate	836		810
Total Assets	$	9,738	$	8,732

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Property, Plant and Equipment (Notes)

6 Months Ended

Jun. 30, 2011

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Text Block]

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, is as follows (in millions):

	June 30, 2011			December 31, 2010
Refining	$	5,997		$	5,984
Retail	659			659
Corporate	204			204
Property, plant and equipment, at cost	6,860			6,847
Accumulated depreciation	(1,785		)	(1,677		)
Net property, plant and equipment	$	5,075		$	5,170

See discussion of impairments of long-lived assets in Note E.

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Property, Plant and Equipment (Details) (USD $) In Millions	Jun. 30, 2011	Dec. 31, 2010
Property Plant and Equipment, at cost [Abstract]
Property, plant and equipment, at cost	$ 6,860	$ 6,847
Accumulated depreciation	(1,785)	(1,677)
Net property, plant and equipment	5,075	5,170
Refining [Member]
Property Plant and Equipment, at cost [Abstract]
Property, plant and equipment, at cost	5,997	5,984
Retail [Member]
Property Plant and Equipment, at cost [Abstract]
Property, plant and equipment, at cost	659	659
Corporate [Member]
Property Plant and Equipment, at cost [Abstract]
Property, plant and equipment, at cost	$ 204	$ 204

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Basis of Presentation (Notes)

6 Months Ended

Jun. 30, 2011

Basis Of Presentation [Abstract]

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

BASIS OF PRESENTATION

As used in this report, the terms “Tesoro,” “we,” “us,” or “our” may refer to Tesoro Corporation, one or more of its consolidated subsidiaries or all of them taken as a whole. The words "we," "us," or "our" generally include Tesoro Logistics LP ("TLLP") and its subsidiaries as consolidated subsidiaries of Tesoro Corporation with certain exceptions where there are transactions or obligations between TLLP and Tesoro Corporation or its other subsidiaries. When used in descriptions of agreements and transactions, "TLLP" or the "Partnership" refers to TLLP and its consolidated subsidiaries.

The interim condensed consolidated financial statements and notes thereto of Tesoro Corporation and its subsidiaries have been prepared by management without audit according to the rules and regulations of the Securities and Exchange Commission ("SEC"). The accompanying condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of results for the periods presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed.

The consolidated balance sheet at December 31, 2010, has been condensed from the audited consolidated financial statements at that date. Certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC's rules and regulations. However, management believes that the disclosures presented herein are adequate to fairly present the information. The accompanying condensed consolidated financial statements and notes should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010.

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, to disclose contingent assets and liabilities at the date of the financial statements and to report revenues and expenses for the periods presented. We review our estimates on an ongoing basis using currently available information. Changes in facts and circumstances may result in revised estimates and actual results could differ from those estimates. The results of operations for any interim period are not necessarily indicative of results for the full year. Certain prior year balances have been disaggregated in order to conform to the current year presentation.

Our consolidated financial statements include TLLP, a variable interest entity. As the general partner of TLLP, we have the sole ability to direct the activities of TLLP that most significantly impact its economic performance. We are also considered to be the primary beneficiary for accounting purposes.

New Accounting Standards

Presentation of Comprehensive Income

The Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update ("ASU") in June 2011 regarding the presentation of comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income, which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This standard is effective for interim and annual periods beginning after December 15, 2011. We are reviewing the impact of this ASU on the presentation of our financial statements but do not believe the adoption of this standard will have a material impact on our consolidated financial statements.

Fair Value Measurements and Disclosures

The FASB issued an ASU in May 2011 related to fair value measurements and disclosures to achieve common fair value measurements and additional consistency of disclosures between GAAP and International Financial Reporting Standards. This standard includes amendments that clarify the intent about the application of existing fair value measurements and disclosures, while other amendments change a principle or requirement for fair value measurements or disclosures. Some of the changes include (1) the application of the highest and best use and valuation premise concepts, (2) measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity, and (3) quantitative information required for fair value measurements categorized within level 3 of the fair value hierarchy. In addition, this standard requires additional disclosure for level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. This standard is effective for interim and annual periods beginning after December 15, 2011. We do not believe the adoption of this standard will have a material impact on our consolidated financial statements.

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Inventories (Notes)

6 Months Ended

Jun. 30, 2011

Inventories [Abstract]

Inventory Disclosure [Text Block]

INVENTORIES

Components of inventories were as follows (in millions):

	June 30, 2011		December 31, 2010
Domestic crude oil and refined products	$	1,337	$	954
Foreign subsidiary crude oil	385		177
Oxygenates and by-products	35		30
Merchandise	14		14
Materials and supplies	84		82
Total Inventories	$	1,855	$	1,257

We use the last-in, first-out (“LIFO”) cost method as the primary method to determine the carrying value of domestic crude oil and refined product inventories in our refining and retail segments. We determine the carrying value of inventories of oxygenates, by-products, and foreign subsidiary-owned crude oil, using the first-in, first-out (“FIFO”) cost method. The total carrying value of our crude oil and refined product inventories was less than replacement cost by approximately $1.9 billion and $1.4 billion at June 30, 2011 and December 31, 2010, respectively.

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Earnings (Loss) Per Share, Potentially Dilutive Stock (Details) In Millions	3 Months Ended				6 Months Ended
	Jun. 30, 2011		Jun. 30, 2010		Jun. 30, 2011		Jun. 30, 2010
Common stock equivalents [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	0	[1]	0	[1]	0	[1]	1.7	[1]
Stock options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	3.1	[2]	6.0	[2]	3.1	[2]	5.7	[2]

[1] For the six months ended June 30, 2010, common stock equivalents, including stock options, were excluded as a result of the net loss reported during the period.

[2] Common stock options presented above were excluded as the exercise prices were greater than the average market price of the common stock during each respective reporting period.

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2011

Stock Based Compensation [Abstract]

Summary of Stock-based Compensation Expense [Table Text Block]

Stock-based compensation expense included in our condensed statements of consolidated operations was as follows (in millions):    

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011		2010
Stock appreciation rights	$	(13	)	$	(4	)	$	22	$	1
Phantom stock options	(5		)	(2		)	6		1
Restricted common stock	2			4			4		7
Restricted stock units	1			1			1		1
Performance share awards	1			—			1		—
Market stock units	1			—			1		—
Stock options	—			2			—		4
Total Stock-Based Compensation Expense (Credit)	$	(13	)	$	1		$	35	$	14

Summary of Stock Appreciation Rights [Table Text Block]

A summary of our stock appreciation right activity for the six months ended June 30, 2011, is set forth below (shares in thousands):

	Number of SARs		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at January 1, 2011	7,372		$	22.34	4.6 years
Exercised	(723	)
Forfeited	(150	)
Outstanding at June 30, 2011	6,499		$	23.25	4.1 years
Vested or expected to vest at June 30, 2011	6,498		$	23.25	4.1 years
Exercisable at June 30, 2011	4,731		$	26.74	3.8 years

Summary of Executive Phantom Stock Options [Table Text Block]

A summary of our executive phantom stock option activity is set forth below (shares in thousands):

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at January 1, 2011	1,487		$	14.13	8.1 years
Exercised	(256	)
Forfeited	(65	)
Outstanding at June 30, 2011	1,166		$	14.13	7.6 years
Vested or expected to vest at June 30, 2011	1,166		$	14.13	7.6 years
Exercisable at June 30, 2011	1,166		$	14.13	7.6 years

Summary of Performance Share Awards [Table Text Block]

A summary of our performance share award activity is set forth below (units in thousands):

	Number of Shares	Weighted Average Grant-Date Fair Value
Nonvested at January 1, 2011	—	$	—
Granted	264	$	31.90
Nonvested at June 30, 2011	264	$	31.90

Summary of Market Stock Units [Table Text Block]

A summary of our market stock unit award activity is set forth below (units in thousands):

	Number of Units	Weighted Average Grant-Date Fair Value		Intrinsic Value
				(In millions)
Nonvested at January 1, 2011	—	$	—	$	—
Granted	426	$	34.45
Nonvested at June 30, 2011	426	$	34.45	$	8

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Stockholders' Equity (Details) (USD $) In Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011		Jun. 30, 2010
Total Equity [Roll Forward]
Balance at December 31, 2010			$ 3,215
Net earnings	222	67	329		(88)
Net proceeds from issuance of common units -TLLP			288		0
Shares issued for equity-based compensation awards and benefit plans			7
Adjustment to Additional Paid in Capital, Income Tax Effect from Share-based Compensation, Net			6
Stock option and restricted common stock amortization			6
Repurchases of common stock			(7)	[1]	(3)
Other			2
Balance at June 30, 2011	3,846		3,846
Tesoro Corporation Stockholders' Equity [Member]
Total Equity [Roll Forward]
Balance at December 31, 2010			3,215
Net earnings			325
Net proceeds from issuance of common units -TLLP			0
Shares issued for equity-based compensation awards and benefit plans			7
Adjustment to Additional Paid in Capital, Income Tax Effect from Share-based Compensation, Net			6
Stock option and restricted common stock amortization			6
Repurchases of common stock			7	[1]
Other			2
Balance at June 30, 2011	3,554		3,554
Noncontrolling Interest [Member]
Total Equity [Roll Forward]
Balance at December 31, 2010			0
Net earnings			4
Net proceeds from issuance of common units -TLLP			288
Shares issued for equity-based compensation awards and benefit plans			0
Adjustment to Additional Paid in Capital, Income Tax Effect from Share-based Compensation, Net			0
Stock option and restricted common stock amortization			0
Repurchases of common stock			0	[1]
Other			0
Balance at June 30, 2011	$ 292		$ 292

[1] Represents shares purchased under the terms of restricted stock agreements to provide funds for the payment of payroll and income taxes due at vesting of restricted stock.

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Operating Segments, Results (Details) (USD $) In Millions	3 Months Ended					6 Months Ended				12 Months Ended
	Jun. 30, 2011		Jun. 30, 2010		Mar. 31, 2010	Jun. 30, 2011		Jun. 30, 2010		Dec. 31, 2010	Dec. 31, 2009
Segment Reporting Information, Operating Income (Loss) [Abstract]
Total Revenues	$ 7,963		$ 5,143			$ 14,489		$ 9,750
Total Segment Operating Income (Loss)	437		180			742		35
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]
Corporate and unallocated costs	(18)		(37)			(104)		(94)
Operating Income (Loss)	419	[1]	143	[1]		638	[1]	(59)	[1]
Segment Reporting Information, Income (Loss) before Income Taxes [Abstract]
Interest and financing costs	(60)		(37)			(103)		(74)
Foreign currency exchange gain	(2)		1			(1)		1
Income (Loss) from Continuing Operations before Equity Method Investments, Income Taxes, Extraordinary Items, Noncontrolling Interest	357		107			534		(132)
Earnings (Loss) Before Income Taxes			107					(132)
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments [Abstract]
Depreciation and Amortization Expense	106		108			209		208
Capital Expenditures	63		77			105		144
Identifiable Assets	9,738					9,738				8,732
Table Footnotes [Abstract]
Federal and state motor fuel taxes on sales by our retail segment	92		71			183		139
Impairment charge	48				20	48		20		20	12
Charges related to Washington refinery incident			12			4		12		27
Gain on elimination of postretirement benefits			48					48
Business interruption and property damage recoveries	37					37
Refining [Member]
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]
Operating Income (Loss)	399	[2]	150	[2]		702	[2]	(19)	[2]
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments [Abstract]
Depreciation and Amortization Expense	94		93			185		178
Capital Expenditures	55		75			93		140
Identifiable Assets	8,259					8,259				7,303
Refined products [Member]
Segment Reporting Information, Operating Income (Loss) [Abstract]
Revenues	7,635		4,661			13,905		8,906
Crude oil resales and other [Member]
Segment Reporting Information, Operating Income (Loss) [Abstract]
Revenues	186		351			341		588
Retail [Member]
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]
Operating Income (Loss)	38		30			40		54
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments [Abstract]
Depreciation and Amortization Expense	10		10			19		20
Capital Expenditures	4		2			7		4
Identifiable Assets	643					643				619
Fuel [Member]
Segment Reporting Information, Operating Income (Loss) [Abstract]
Revenues	1,354	[3]	886	[3]		2,469	[3]	1,700	[3]
Merchandise and other [Member]
Segment Reporting Information, Operating Income (Loss) [Abstract]
Revenues	57		57			109		110
Intersegment sales from Refining to Retail [Member]
Segment Reporting Information, Operating Income (Loss) [Abstract]
Intersegment sales	(1,269)		(812)			(2,335)		(1,554)
Corporate [Member]
Segment Reporting, Disclosure of Other Information about Entity's Reportable Segments [Abstract]
Depreciation and Amortization Expense	2		5			5		10
Capital Expenditures	4		0			5		0
Identifiable Assets	$ 836					$ 836				$ 810

[1] Includes a $48 million gain for the three and six months ended June 30, 2010, from the elimination of postretirement life insurance benefits for current and future retirees, and $37 million in business interruption and property damage recoveries for the three and six months ended June 30, 2011.

[2] Includes impairment charges related to the change in scope of a capital project at our Los Angeles refinery of $48 million for the three and six months ended June 30, 2011, and $20 million for the six months June 30, 2010. Includes charges related to the Washington refinery incident of $12 million for the three and six months ended June 30, 2010. The loss on asset disposals and impairments is included in refining segment operating income but excluded from the regional operating costs per barrel.

[3] Federal and state motor fuel taxes on sales by our retail segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $92 million and $71 million for the three months ended June 30, 2011 and 2010, respectively, and $183 million and $139 million for the six months ended June 30, 2011 and 2010, respectively.

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Debt, Credit Facilities (Details)	6 Months Ended
	Jun. 30, 2011
Tesoro Corporation Revolving Credit Facility ($1.85 billion) [Member]
Line of Credit Facility [Line Items]
Eurodollar Rate	0.19%
Eurodollar Margin	1.75%
Base Rate	3.25%
Base Rate Margin	0.00%
Commitment Fee (unused portion)	0.375%
TPSA Revolving Credit Facility ($500 million) [Member]
Line of Credit Facility [Line Items]
Eurodollar Rate	0.19%
Eurodollar Margin	2.75%
Base Rate	3.25%
Base Rate Margin	1.75%
Commitment Fee (unused portion)	0.00%
TLLP Revolving Credit Facility ($150 million) [Member]
Line of Credit Facility [Line Items]
Eurodollar Rate	0.19%
Eurodollar Margin	2.50%
Base Rate	3.25%
Base Rate Margin	1.50%
Commitment Fee (unused portion)	0.50%

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Condensed Consolidating Financial Information, Guarantors and Non-Guarantors (Details)	6 Months Ended
	Jun. 30, 2011
Limited partner [Member]
Related Party Transaction [Line Items]
Noncontrolling interest, ownership percentage by parent	52.00%
Guarantor subsidiaries [Member]
Related Party Transaction [Line Items]
Subsidiary or equity method investee, cumulative percentage ownership after all transactions	100.00%

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Fair Value Measurements (Notes)

6 Months Ended

Jun. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements [Text Block]

FAIR VALUE MEASUREMENTS

We classify financial assets and financial liabilities into the following fair value hierarchy:

• level 1 - quoted prices in active markets for identical assets and liabilities;

• level 2 - quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability; and

• level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We measure fair value using level 1 inputs, when available, because they provide the most reliable evidence of fair value. Derivative instruments are our only financial assets and financial liabilities measured at fair value on a recurring basis. See Note F for further information on the Company's derivative instruments.

Our derivative instruments consist primarily of options, exchange-traded futures (“Futures Contracts”), over-the-counter swaps and options (“OTC Swap Contracts” and “OTC Option Contracts,” respectively), and physical commodity forward purchase and sale contracts (“Forward Contracts”). Options are valued using quoted prices from exchanges and are categorized in level 1 of the fair value hierarchy. Futures Contracts are valued based on quoted prices from exchanges and are categorized in level 1 or level 2 of the fair value hierarchy based on the liquidity of the instrument. OTC Swap Contracts, OTC Option Contracts and Forward Contracts are valued using third-party broker quotes, industry pricing services and price curves derived from commodity exchange postings, with consideration of counterparty credit risk. These quotes are corroborated with market data and are categorized in level 2 of the fair value hierarchy. We did not have any derivative assets or liabilities classified as level 3 at June 30, 2011 or December 31, 2010.

The fair values of our derivative assets and liabilities by level within the fair value hierarchy were as follows (in millions):

	June 30, 2011		Level 1		Level 2			Level 3
Assets:
Commodity Futures Contracts	$	25	$	25	$	—		$	—
Commodity OTC Swap Contracts	2		—		2			—
Commodity Forward Contracts	—		—		—			—
Total Assets	27		25		2			—
Liabilities:
Commodity Futures Contracts	3		—		3			—
Commodity OTC Swap Contracts	6		—		6			—
Commodity Forward Contracts	2		—		2			—
Total Liabilities	11		—		11			—
Net Assets (Liabilities)	$	16	$	25	$	(9	)	$	—

	December 31, 2010			Level 1			Level 2		Level 3
Assets:
Commodity Futures Contracts	$	6		$	—		$	6	$	—
Commodity OTC Swap Contracts	1			—			1		—
Commodity Forward Contracts	1			—			1		—
Total Assets	8			—			8		—
Liabilities:
Commodity Futures Contracts	17			17			—		—
Total Liabilities	17			17			—		—
Net Assets (Liabilities)	$	(9	)	$	(17	)	$	8	$	—

Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We have elected to offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously.

The physical inventory associated with the futures contracts included in the above table and selected for fair value hedge accounting treatment is adjusted to fair value at the end of the period. At December 31, 2010, the fair value adjustment related to the physical inventory was approximately $4 million. There were no material fair value adjustments to the physical inventory at June 30, 2011.

The carrying value of our financial instruments, including cash and cash equivalents, receivables, accounts payable and certain accrued liabilities approximate fair value because of the short maturities of these instruments. The fair value of our debt was estimated primarily using quoted market prices. The carrying value and fair value of our debt at June 30, 2011, were approximately $1.7 billion and $1.8 billion, respectively. Both the carrying value and fair value of our debt at December 31, 2010, were approximately $2.0 billion.

The fair value of certain nonfinancial assets measured on a non-recurring basis as of June 30, 2011 and December 31, 2010 were as follows (in millions):

	June 30, 2011		Level 1	Level 2	Level 3	Total Losses
Assets:
Refining equipment and engineering costs	$	9	—	—	9	$	48

	December 31, 2010		Level 1	Level 2	Level 3	Total Losses
Assets:
Refining equipment, materials and engineering costs	$	4	—	—	4	$	20
Goodwill	$	36	—	—	36	$	10

We continue to evaluate the recoverability of the value of certain capital projects currently in progress. For one project at our Los Angeles refinery, regulations issued by California's South Coast Air Quality Management District (the "District") required emission of nitrogen oxides to be reduced by the end of 2010 at our Los Angeles refinery. Our initial plan in 2007 to meet this regulation was to replace our power cogeneration units and steam boilers with more efficient equipment. We began construction for this project in 2008. In 2009, we determined that air emissions credits could be used to meet this requirement in the short-term, which would allow us to defer capital expenditures related to this project and we incurred a $12 million impairment charge to cancel an equipment order. In 2010, we revised our capital plan to further defer certain components of this project and during the first quarter of 2010, incurred an impairment charge of $20 million related to this change in scope. Equipment, materials and related unrecoverable engineering costs specifically manufactured and uniquely configured for this project were written down from a carrying value of $24 million to a fair value of $4 million.

During the second quarter of 2011, we concluded that we now expect to sell, rather than use, specific equipment related to the change in scope of this capital project. The equipment and related unrecoverable engineering costs specifically manufactured and uniquely configured for this project were written down from a carrying value of $57 million to a fair value of $9 million during the three months ended June 30, 2011, resulting in a $48 million loss included in loss on asset disposals and impairments. The estimated fair value was based on amounts recoverable if sold to an end user, in the principal or most advantageous market for the assets, in an orderly transaction. The amounts presented represent our estimates for unobservable inputs that require significant judgment, for which there is little or no market data.

We reviewed the recorded value of goodwill for impairment during the fourth quarter of 2010 as part of our annual goodwill impairment test. This review resulted in a write-off related to our Hawaii refinery included in loss on asset disposals and impairments. There were no material goodwill impairments, asset retirement obligations or indefinite lived intangible assets that were measured at fair value during the six months ended June 30, 2011.

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Fair Value Measurements (Details) (USD $)	Jun. 30, 2011	Dec. 31, 2010
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	$ 27,000,000	$ 8,000,000
Total Liabilities	11,000,000	17,000,000
Net Assets (Liabilities)	16,000,000	(9,000,000)
Fair value adjustment to physical inventory	0	4,000,000
Carrying value of debt	1,700,000,000	2,000,000,000
Fair value of debt	1,800,000,000	2,000,000,000
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	25,000,000	0
Total Liabilities	0	17,000,000
Net Assets (Liabilities)	25,000,000	(17,000,000)
Level 1 [Member] | Commodity Futures Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	25,000,000	0
Total Liabilities	0	17,000,000
Level 1 [Member] | Commodity OTC Swap Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	0	0
Total Liabilities	0
Level 1 [Member] | Commodity Forward Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	0	0
Total Liabilities	0
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	2,000,000	8,000,000
Total Liabilities	11,000,000	0
Net Assets (Liabilities)	(9,000,000)	8,000,000
Level 2 [Member] | Commodity Futures Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	0	6,000,000
Total Liabilities	3,000,000	0
Level 2 [Member] | Commodity OTC Swap Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	2,000,000	1,000,000
Total Liabilities	6,000,000
Level 2 [Member] | Commodity Forward Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	0	1,000,000
Total Liabilities	2,000,000
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	0	0
Total Liabilities	0	0
Net Assets (Liabilities)	0	0
Level 3 [Member] | Commodity Futures Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	0	0
Total Liabilities	0	0
Level 3 [Member] | Commodity OTC Swap Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	0	0
Total Liabilities	0
Level 3 [Member] | Commodity Forward Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	0	0
Total Liabilities	0
Commodity Futures Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	25,000,000	6,000,000
Total Liabilities	3,000,000	17,000,000
Commodity OTC Swap Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	2,000,000	1,000,000
Total Liabilities	6,000,000
Commodity Forward Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	0	1,000,000
Total Liabilities	$ 2,000,000

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Property, Plant and Equipment (Tables)

6 Months Ended

Jun. 30, 2011

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

Property, plant and equipment, at cost, is as follows (in millions):

	June 30, 2011			December 31, 2010
Refining	$	5,997		$	5,984
Retail	659			659
Corporate	204			204
Property, plant and equipment, at cost	6,860			6,847
Accumulated depreciation	(1,785		)	(1,677		)
Net property, plant and equipment	$	5,075		$	5,170

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Condensed Consolidating Financial Information, Statement of Operations (Details) (USD $) In Millions	3 Months Ended				6 Months Ended
	Jun. 30, 2011		Jun. 30, 2010		Jun. 30, 2011		Jun. 30, 2010
Condensed Financial Statements, Captions [Line Items]
REVENUES	$ 7,963		$ 5,143		$ 14,489		$ 9,750
Costs and expenses	7,544		5,000		13,851		9,809
OPERATING INCOME (LOSS)	419	[1]	143	[1]	638	[1]	(59)	[1]
Equity in earnings (loss) of subsidiaries	0		0		0		0
Other expense	(62)		(36)		(104)		(73)
EARNINGS (LOSS) BEFORE INCOME TAXES	357		107		534		(132)
Income tax expense (benefit)	135	[2]	40	[3]	205	[2]	(44)	[3]
Net earnings (loss)	222		67		329		(88)
Less net income attributable to noncontrolling interest	4		0		4		0
NET EARNINGS (LOSS) ATTRIBUTABLE TO TESORO CORPORATION	218		67		325		(88)
Tesoro Corporation [Member]
Condensed Financial Statements, Captions [Line Items]
REVENUES	0		0		0		0
Costs and expenses	1		1		5		3
OPERATING INCOME (LOSS)	(1)		(1)		(5)		(3)
Equity in earnings (loss) of subsidiaries	224		67		333		(87)
Other expense	0		0		0		0
EARNINGS (LOSS) BEFORE INCOME TAXES	223		66		328		(90)
Income tax expense (benefit)	1	[2]	(1)	[3]	(1)	[2]	(2)	[3]
Net earnings (loss)	222		67		329		(88)
Less net income attributable to noncontrolling interest	0				0
NET EARNINGS (LOSS) ATTRIBUTABLE TO TESORO CORPORATION	222				329
Guarantor Subsidiaries [Member]
Condensed Financial Statements, Captions [Line Items]
REVENUES	9,964		6,657		18,205		12,481
Costs and expenses	9,557		6,513		17,580		12,540
OPERATING INCOME (LOSS)	407		144		625		(59)
Equity in earnings (loss) of subsidiaries	(5)		(7)		(17)		(14)
Other expense	(58)		(36)		(98)		(73)
EARNINGS (LOSS) BEFORE INCOME TAXES	344		101		510		(146)
Income tax expense (benefit)	133	[2]	40	[3]	204	[2]	(44)	[3]
Net earnings (loss)	211		61		306		(102)
Less net income attributable to noncontrolling interest	0				0
NET EARNINGS (LOSS) ATTRIBUTABLE TO TESORO CORPORATION	211				306
Non-Guarantors [Member]
Condensed Financial Statements, Captions [Line Items]
REVENUES	960		526		1,648		1,085
Costs and expenses	947		526		1,630		1,082
OPERATING INCOME (LOSS)	13		0		18		3
Equity in earnings (loss) of subsidiaries	21		0		21		0
Other expense	(4)		0		(6)		0
EARNINGS (LOSS) BEFORE INCOME TAXES	30		0		33		3
Income tax expense (benefit)	1	[2]	1	[3]	2	[2]	2	[3]
Net earnings (loss)	29		(1)		31		1
Less net income attributable to noncontrolling interest	4				4
NET EARNINGS (LOSS) ATTRIBUTABLE TO TESORO CORPORATION	25				27
Eliminations [Member]
Condensed Financial Statements, Captions [Line Items]
REVENUES	(2,961)		(2,040)		(5,364)		(3,816)
Costs and expenses	(2,961)		(2,040)		(5,364)		(3,816)
OPERATING INCOME (LOSS)	0		0		0		0
Equity in earnings (loss) of subsidiaries	(240)		(60)		(337)		101
Other expense	0		0		0		0
EARNINGS (LOSS) BEFORE INCOME TAXES	(240)		(60)		(337)		101
Income tax expense (benefit)	0	[2]	0	[3]	0	[2]	0	[3]
Net earnings (loss)	(240)		(60)		(337)		101
Less net income attributable to noncontrolling interest	0				0
NET EARNINGS (LOSS) ATTRIBUTABLE TO TESORO CORPORATION	$ (240)				$ (337)

[1] Includes a $48 million gain for the three and six months ended June 30, 2010, from the elimination of postretirement life insurance benefits for current and future retirees, and $37 million in business interruption and property damage recoveries for the three and six months ended June 30, 2011.

[2] The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners' share of partnership income.

[3] The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from subsidiaries.

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Subsequent Events (Details) (Repurchase of Equity [Member]) In Millions	Aug. 03, 2011
Repurchase of Equity [Member]
Subsequent Event [Line Items]
Stock repurchase program, number of shares authorized to be repurchased	0.7

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Condensed Consolidating Financial Information (Tables)

6 Months Ended

Jun. 30, 2011

Condensed Consolidating Financial Statements [Abstract]

Condensed Consolidated Balance Sheet [Table Text Block]

Condensed Consolidating Balance Sheet as of June 30, 2011

(In millions)

	Parent		Guarantor Subsidiaries			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	562		$	45		$	—		$	607
Receivables, less allowance for doubtful accounts	6		1,252			118			—			1,376
Inventories	—		1,470			385			—			1,855
Prepayments and other	65		124			16			—			205
Total Current Assets	71		3,408			564			—			4,043
Net Property, Plant and Equipment	—		4,853			222			—			5,075
Investment in Subsidiaries	4,217		(251		)	216			(4,182		)	—
Long-Term Receivables from Affiliates	2,115		—			—			(2,115		)	—
Other Noncurrent Assets	46		572			52			(50		)	620
Total Assets	$	6,449	$	8,582		$	1,054		$	(6,347	)	$	9,738
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	89	$	2,342		$	403		$	—		$	2,834
Current maturities of debt	—		2			55			—			57
Total Current Liabilities	89		2,344			458			—			2,891
Long-Term Payables to Affiliates	—		2,063			52			(2,115		)	—
Debt	1,647		19			50			(50		)	1,666
Other Noncurrent Liabilities	1,159		177			(1		)	—			1,335
Equity-Tesoro Corporation	3,554		3,979			203			(4,182		)	3,554
Equity-Noncontrolling interest	—		—			292			—			292
Total Liabilities and Stockholders' Equity	$	6,449	$	8,582		$	1,054		$	(6,347	)	$	9,738

Condensed Consolidating Balance Sheet as of December 31, 2010

(In millions)

	Tesoro Corporation		Guarantor Subsidiaries			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	612		$	36		$	—		$	648
Receivables, less allowance for doubtful accounts	8		719			181			—			908
Inventories	—		1,080			177			—			1,257
Prepayments and other	29		78			8			—			115
Total Current Assets	37		2,489			402			—			2,928
Net Property, Plant and Equipment	—		5,008			162			—			5,170
Investment in Subsidiaries	4,011		(147		)	(5		)	(3,859		)	—
Long-Term Receivables from Affiliates	2,037		—			88			(2,125		)	—
Other Noncurrent Assets	34		597			3			—			634
Total Assets	$	6,119	$	7,947		$	650		$	(5,984	)	$	8,732
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	76	$	1,940		$	328		$	—		$	2,344
Current maturities of debt	—		2			150			—			152
Total Current Liabilities	76		1,942			478			—			2,496
Long-Term Payables to Affiliates	—		2,125			—			(2,125		)	—
Debt	1,823		20			—			—			1,843
Other Noncurrent Liabilities	1,005		174			(1		)	—			1,178
Equity-Tesoro Corporation	3,215		3,686			173			(3,859		)	3,215
Total Liabilities and Stockholders' Equity	$	6,119	$	7,947		$	650		$	(5,984	)	$	8,732

Condensed Consolidated Statement Of Operations [Table Text Block]

Condensed Consolidating Statement of Operations for the Three Months EndedJune 30, 2011

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	9,964		$	960		$	(2,961	)	$	7,963
Costs and expenses	1			9,557			947			(2,961		)	7,544
OPERATING INCOME (LOSS)	(1		)	407			13			—			419
Equity in earnings (loss) of subsidiaries	224			(5		)	21			(240		)	—
Other expense	—			(58		)	(4		)	—			(62		)
EARNINGS (LOSS) BEFORE INCOME TAXES	223			344			30			(240		)	357
Income tax expense (a)	1			133			1			—			135
NET EARNINGS (LOSS)	222			211			29			(240		)	222
Less net income attributable to noncontrolling interest	—			—			4			—			4
NET INCOME (LOSS) ATTRIBUTABLE TO TESORO CORPORATION STOCKHOLDERS	$	222		$	211		$	25		$	(240	)	$	218

_______________

(a) The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners' share of partnership income.

Condensed Consolidating Statement of Operations for the Three Months EndedJune 30, 2010

(In millions)

	Tesoro Corporation			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	6,657		$	526		$	(2,040	)	$	5,143
Costs and expenses	1			6,513			526			(2,040		)	5,000
OPERATING INCOME (LOSS)	(1		)	144			—			—			143
Equity in earnings (loss) of subsidiaries	67			(7		)	—			(60		)	—
Other expense	—			(36		)	—			—			(36		)
EARNINGS (LOSS) BEFORE INCOME TAXES	66			101			—			(60		)	107
Income tax expense (benefit) (a)	(1		)	40			1			—			40
NET EARNINGS (LOSS)	$	67		$	61		$	(1	)	$	(60	)	$	67

_______________

(a) The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from subsidiaries.

Condensed Consolidating Statement of Operations for the Six Months EndedJune 30, 2011

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	18,205		$	1,648		$	(5,364	)	$	14,489
Costs and expenses	5			17,580			1,630			(5,364		)	13,851
OPERATING INCOME (LOSS)	(5		)	625			18			—			638
Equity in earnings (loss) of subsidiaries	333			(17		)	21			(337		)	—
Other expense	—			(98		)	(6		)	—			(104		)
EARNINGS (LOSS) BEFORE INCOME TAXES	328			510			33			(337		)	534
Income tax expense (benefit) (a)	(1		)	204			2			—			205
NET EARNINGS (LOSS)	329			306			31			(337		)	329
Less net income attributable to noncontrolling interest	—			—			4			—			4
NET INCOME (LOSS) ATTRIBUTABLE TO TESORO CORPORATION STOCKHOLDERS	$	329		$	306		$	27		$	(337	)	$	325

_______________

(a) The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners' share of partnership income.

Condensed Consolidating Statement of Operations for the Six Months EndedJune 30, 2010

(In millions)

	Tesoro Corporation			Guarantor Subsidiaries			Non- Guarantors		Eliminations			Consolidated
REVENUES	$	—		$	12,481		$	1,085	$	(3,816	)	$	9,750
Costs and expenses	3			12,540			1,082		(3,816		)	9,809
OPERATING INCOME (LOSS)	(3		)	(59		)	3		—			(59		)
Equity in earnings (loss) of subsidiaries	(87		)	(14		)	—		101			—
Other expense	—			(73		)	—		—			(73		)
EARNINGS (LOSS) BEFORE INCOME TAXES	(90		)	(146		)	3		101			(132		)
Income tax expense (benefit) (a)	(2		)	(44		)	2		—			(44		)
NET EARNINGS (LOSS)	$	(88	)	$	(102	)	$	1	$	101		$	(88	)

_______________

(a) The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from subsidiaries.

Condensed Consolidated Statement Of Cash Flows [Table Text Block]

Condensed Consolidating Statement of Cash Flows for the Six Months EndedJune 30, 2011

(In millions)

	Parent			Guarantor Subsidiaries			Non-Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	31		$	162		$	(104	)	$	—		$	89
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(111		)	(1		)	—			(112		)
Proceeds from asset sales	—			1			—			—			1
Intercompany notes, net	59			—			—			(59		)	—
Net cash from (used in) investing activities	59			(110		)	(1		)	(59		)	(111		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolver	—			—			115			—			115
Repayments under revolver	—			—			(160		)	—			(160		)
Repayments of debt	(243		)	(1		)	—			—			(244		)
Proceeds from stock options exercised	7			—			—			—			7
Excess tax benefits from equity-based compensation arrangements	—			7			—			—			7
Repurchases of common stock	(7		)	—			—			—			(7		)
Proceeds from issuance of common units-Tesoro Logistics LP	—			—			288			—			288
Net intercompany borrowings (repayments)	—			(265		)	206			59			—
Distributions to General Partner	50			—			(50		)	—			—
Distributions to Common unitholders	31			39			(70		)	—			—
Distributions to Subordinated unitholders	95			118			(213		)	—			—
Financing costs and other	(23		)	—			(2		)	—			(25		)
Net cash from (used in) financing activities	(90		)	(102		)	114			59			(19		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	—			(50		)	9			—			(41		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			612			36			—			648
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	562		$	45		$	—		$	607

Condensed Consolidating Statement of Cash Flows for the Six Months EndedJune 30, 2010

(In millions)

	Tesoro Corporation			Guarantor Subsidiaries			Non-Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	3		$	199		$	(263	)	$	—		$	(61	)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(158		)	(1		)	—			(159		)
Proceeds from asset sales	—			1			—			—			1
Intercompany notes, net	1			—			—			(1		)	—
Net cash from (used in) investing activities	1			(157		)	(1		)	(1		)	(158		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolver	66			—			—			—			66
Repayments under revolver	(66		)	—			—			—			(66		)
Repayments of debt	—			(1		)	—			—			(1		)
Proceeds from stock options exercised	3			—			—			—			3
Repurchases of common stock	(3		)	—			—			—			(3		)
Excess tax benefits from stock-based compensation arrangements	—			2			—			—			2
Net intercompany borrowings (repayments)	—			(272		)	271			1			—
Financing costs and other	(4		)	—			—			—			(4		)
Net cash from (used in) financing activities	(4		)	(271		)	271			1			(3		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	—			(229		)	7			—			(222		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			411			2			—			413
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	182		$	9		$	—		$	191

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Inventories (Details) (USD $)	Jun. 30, 2011	Dec. 31, 2010
Domestic crude oil and refined products	$ 1,337,000,000	$ 954,000,000
Foreign subsidiary crude oil	385,000,000	177,000,000
Oxygenates and by-products	35,000,000	30,000,000
Merchandise	14,000,000	14,000,000
Materials and supplies	84,000,000	82,000,000
Total Inventories	1,855,000,000	1,257,000,000
Excess of replacement or current costs over stated LIFO value	$ 1,900,000,000	$ 1,400,000,000

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Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2011

Stockholders' Equity Attributable to Parent [Abstract]

Stockholders equity and non controlling interest [Table Text Block]

Changes to equity during the six months ended June 30, 2011 are presented below:

	Tesoro Corporation Stockholders' Equity			Noncontrolling Interest		Total Equity
Balance at December 31, 2010	$	3,215		$	—	$	3,215
Net earnings	325			4		329
Net proceeds from issuance of common units - TLLP	—			288		288
Shares issued for equity-based compensation awards and benefit plans	7			—		7
Excess tax benefits from equity-based compensation arrangements	6			—		6
Stock option and restricted common stock amortization	6			—		6
Repurchases of common stock (a)	(7		)	—		(7		)
Other	2			—		2
Balance at June 30, 2011	$	3,554		$	292	$	3,846

_________________

(a) Represents shares purchased under the terms of restricted stock agreements to provide funds for the payment of payroll and income taxes due at vesting of restricted stock.

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Operating Segments (Notes)

6 Months Ended

Jun. 30, 2011

Operating Segments [Abstract]

Operating Segments [Text Block]

OPERATING SEGMENTS

The Company's revenues are derived from two operating segments, refining and retail. We own and operate seven petroleum refineries located in California, Washington, Alaska, Hawaii, North Dakota and Utah. These refineries manufacture gasoline and gasoline blendstocks, jet fuel, diesel fuel, residual fuel oil and other refined products. We sell these refined products, together with refined products purchased from third-parties, at wholesale through terminal facilities and other locations. Our refining segment also sells refined products to unbranded marketers and occasionally exports refined products to foreign markets. Our retail segment sells gasoline, diesel fuel and convenience store items through company-operated retail stations and branded jobber/dealers in 18 states from Minnesota to Alaska and Hawaii. We do not have significant operations in foreign countries. Therefore, revenue in foreign countries and long-lived assets located in foreign countries are not material to our operations.

We evaluate the performance of our segments based primarily on segment operating income. Segment operating income includes those revenues and expenses that are directly attributable to management of the respective segment. Intersegment sales from refining to retail are made at prevailing market rates. Income taxes, other income, foreign currency exchange gain (loss), interest and financing costs, interest income, corporate depreciation and corporate general and administrative expenses are excluded from segment operating income. Identifiable assets are those used by the segments, whereas corporate assets are principally cash and other assets that are not associated with a specific operating segment.

Segment information is as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Revenues	(In millions)
Refining:
Refined products	$	7,635		$	4,661		$	13,905		$	8,906
Crude oil resales and other	186			351			341			588
Retail:
Fuel (a)	1,354			886			2,469			1,700
Merchandise and other	57			57			109			110
Intersegment sales from Refining to Retail	(1,269		)	(812		)	(2,335		)	(1,554		)
Total Revenues	$	7,963		$	5,143		$	14,489		$	9,750
Segment Operating Income (Loss)
Refining (b)	$	399		$	150		$	702		$	(19	)
Retail	38			30			40			54
Total Segment Operating Income	437			180			742			35
Corporate and unallocated costs	(18		)	(37		)	(104		)	(94		)
Operating Income (Loss) (c)	419			143			638			(59		)
Interest and financing costs	(60		)	(37		)	(103		)	(74		)
Foreign currency exchange gain (loss)	(2		)	1			(1		)	1
Earnings (Loss) Before Income Taxes	$	357		$	107		$	534		$	(132	)
Depreciation and Amortization Expense
Refining	$	94		$	93		$	185		$	178
Retail	10			10			19			20
Corporate	2			5			5			10
Total Depreciation and Amortization Expense	$	106		$	108		$	209		$	208
Capital Expenditures
Refining	$	55		$	75		$	93		$	140
Retail	4			2			7			4
Corporate	4			—			5			—
Total Capital Expenditures	$	63		$	77		$	105		$	144

______________

(a) Federal and state motor fuel taxes on sales by our retail segment are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled $92 million and $71 million for the three months ended June 30, 2011 and 2010, respectively, and $183 million and $139 million for the six months ended June 30, 2011 and 2010, respectively.

(b) Includes impairment charges related to the change in scope of a capital project at our Los Angeles refinery of $48 million for the three and six months ended June 30, 2011, and $20 million for the six months June 30, 2010. Includes charges related to the Washington refinery incident of $12 million for the three and six months ended June 30, 2010. The loss on asset disposals and impairments is included in refining segment operating income but excluded from the regional operating costs per barrel.

(c) Includes a $48 million gain for the three and six months ended June 30, 2010, from the elimination of postretirement life insurance benefits for current and future retirees, and $37 million in business interruption and property damage recoveries for the three and six months ended June 30, 2011.

	June 30,		December 31,
	2011		2010
Identifiable Assets:
Refining	$	8,259	$	7,303
Retail	643		619
Corporate	836		810
Total Assets	$	9,738	$	8,732

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Commitments and Contingencies, Washington Refinery Fire (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended	6 Months Ended	12 Months Ended	18 Months Ended	6 Months Ended	18 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010	Dec. 31, 2010	Jun. 30, 2011 Business Interruption [Member]	Dec. 31, 2010 Business Interruption [Member]	Jun. 30, 2011 Business Interruption [Member]	Jun. 30, 2011 Property Plant and Equipment [Member]	Jun. 30, 2011 Property Plant and Equipment [Member]
Information Related To Fire [Line Items]
Fines and penalties assessed					$ 2.4
Charges related to Washington refinery incident		12	4	12	27
Number of fatally injured employees in the refinery incident			7
Days of operational disruption						60
Losses incurred due to interuption						25
Proceeds from insurance settlement		12				32	55		5
Insurance deductible									10
Insurance recoveries	$ 37		$ 37					$ 87		$ 17

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Operating Segments (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2011	Mar. 31, 2010	Jun. 30, 2011	Jun. 30, 2010	Dec. 31, 2010	Dec. 31, 2009
Segment Reporting Information [Line Items]
Impairment charge	$ 48	$ 20	$ 48	$ 20	$ 20	$ 12
Number of operating segments	2		2
Segment reporting, additional information about entity's reportable segments			We do not have significant operations in foreign countries. Therefore, revenue in foreign countries and long-lived assets located in foreign countries are not material to our operations.
Refining [Member]
Segment Reporting Information [Line Items]
Segment reporting information, description of products and services			We own and operate seven petroleum refineries located in California, Washington, Alaska, Hawaii, North Dakota and Utah. These refineries manufacture gasoline and gasoline blendstocks, jet fuel, diesel fuel, residual fuel oils and other refined products. We sell these refined products, together with refined products purchased from third-parties, at wholesale through terminal facilities and other locations. Our refining segment also sells refined products to unbranded marketers and occasionally exports refined products to foreign markets.
Number of refineries	7		7
Retail [Member]
Segment Reporting Information [Line Items]
Segment reporting information, description of products and services			Our retail segment sells gasoline, diesel fuel and convenience store items through company-operated retail stations and branded jobber/dealers in 18 states from Minnesota to Alaska and Hawaii.
Number of states with retail sites	18		18

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Derivative Instruments (Notes)

6 Months Ended

Jun. 30, 2011

Derivative Instruments and Hedges, Assets [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

The timing, direction and overall change in refined product prices versus crude oil prices impacts profit margins and has a significant impact on our earnings and cash flows. Consequently, we periodically use non-trading derivative instruments to manage exposure to commodity price risks associated with the purchase or sale of feedstocks, products and energy supplies to or from the Company's refineries, terminals, retail operations and customers. We may also use non-trading derivative instruments to manage price risks associated with inventories above or below our target levels. To achieve our objectives, we may use derivative instruments such as options, Futures Contracts, OTC Swap Contracts, OTC Option Contracts, and Forward Contracts, all generally with maturity dates of less than one year. We believe that there is minimal credit risk with respect to our counterparties.

We may use our excess storage capacity in Panama to take advantage of contango markets when the future price of crude oil is higher than the current spot price. We use commodity derivatives to manage price risk and hedge crude oil held in connection with these arbitrage opportunities.

The accounting for changes in the fair value of a commodity derivative depends on whether the derivative has been designated in a hedging relationship and whether we have elected the normal purchases and normal sales exception. The accounting for the change in fair value can be summarized as follows:

Derivative Treatment	Accounting Method
Normal purchases and normal sales exception	Accrual accounting
Designated in qualifying hedging relationship	Hedge accounting
All other derivatives	Mark-to-market accounting

The primary derivative instruments that we use have the following characteristics. Option contracts provide the right, but not the obligation to buy or sell the commodity at a specified price in the future. Futures Contracts include a requirement to buy or sell the commodity at a fixed price in the future. OTC Swap Contracts, OTC Option Contracts and Forward Contracts require cash settlement for the commodity based on the difference between a fixed or floating price and the market price on the settlement date. Certain of these contracts require cash collateral if our liability position exceeds specified thresholds. At June 30, 2011, we had approximately $6 million of cash collateral outstanding related to our OTC Swap Contracts.

The following table presents the fair value (in millions) of our derivative instruments as of June 30, 2011 and December 31, 2010. Net derivative assets and net derivative liabilities are presented in prepayments and other and accrued liabilities in the consolidated balance sheet, respectively. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements. As a result, the asset and liability amounts below will not agree with the amounts presented in our consolidated balance sheet, nor will they agree with the fair value information presented in Note E.

	Derivative Assets				Derivative Liabilities
Derivatives Not Designated as Hedging Instruments:	June 30, 2011		December 31, 2010		June 30, 2011			December 31, 2010
Commodity Futures Contracts	$	197	$	88	$	(175	)	$	(96	)
Commodity OTC Swap Contracts	3		3		(7		)	(2		)
Commodity Forward Contracts	1		2		(3		)	(1		)
Total Derivative Instruments	$	201	$	93	$	(185	)	$	(99	)

	Derivative Assets				Derivative Liabilities
Derivatives Designated as Fair Value Hedging Instruments:	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010
Commodity Futures Contracts	$	—	$	—	$	—	$	(3	)
Total Derivative Instruments	$	—	$	—	$	—	$	(3	)

Gains (losses) for our non-hedging derivative instruments for the three and six months ended June 30, 2011 and 2010, were as follows (in millions):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
Derivatives Not Designated as Hedging Instruments (a):	2011			2010		2011			2010
Commodity Futures Contracts	$	88		$	10	$	32		$	(2	)
Commodity OTC Swap Contracts	2			8		1			8
Commodity Forward Contracts	(8		)	—		(1		)	—
Total Non-Hedging Derivative Instruments	$	82		$	18	$	32		$	6

________________

(a) Derivative gains (losses) are recognized in either revenues or cost of sales depending on the purpose for acquiring and holding the derivative. All derivative gains for the three and six months ended June 30, 2010, were recorded in cost of sales. Derivative gains recognized during the three months ended June 30, 2011, recorded in revenues and cost of sales, were $12 million and $70 million, respectively. Derivative gains recognized during the six months ended June 30, 2011, recorded in cost of sales was $32 million. There were no amounts recognized in revenues for the six months ended June 30, 2011.

Gains (losses) on our fair value hedging derivative instruments during the three and six months ended June 30, 2011, were as follows (in millions). We did not acquire any fair value hedging derivative instruments during the three and six months ended June 30, 2010.

Derivatives Designated as Fair Value Hedging Instruments:	Amount of Gain Recognized in Income on Derivatives		Amount of Loss Recognized in Income on Hedged Item			Amount of Loss Recognized in Income on Ineffective Portion of Derivative (c)
Three months ended June 30, 2011
Commodity Futures Contracts (b)	$	4	$	(4	)	$	—
Six months ended June 30, 2011
Commodity Futures Contracts (b)	$	3	$	(4	)	$	(1	)

________________

(b) Gains (losses) recognized in income on the derivative and the hedged item are included in cost of sales in the statements of consolidated operations.

(c) For fair value hedges, no component of the derivative instruments' gains or losses was excluded from the assessment of hedges effectiveness. No amounts were recognized in income for hedged firm commitments that no longer qualify as fair value hedges.

Open Long (Short) Positions

All of our open positions are scheduled to mature within the next twelve months. The information below presents the net volume of outstanding contracts by type of instrument and year of maturity as of June 30, 2011 (volumes in thousands of barrels):

Fair value hedges		Mark-to-market derivatives
Derivative instrument and Year of maturity	Long (Short) Contract Volumes	Derivative instrument and Year of maturity	Long (Short) Contract Volumes
Swaps		Swaps
2011	—	2011	6,080
2012	—	2012	—
Futures		Futures
2011	(59)	2011	(5,571)
2012	—	2012	(51)
Forwards		Forwards
2011	—	2011	(2,270)

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Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2011

Basis Of Presentation [Abstract]

Use of Estimates, Policy [Policy Text Block]

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, to disclose contingent assets and liabilities at the date of the financial statements and to report revenues and expenses for the periods presented. We review our estimates on an ongoing basis using currently available information. Changes in facts and circumstances may result in revised estimates and actual results could differ from those estimates.

Consolidation, Variable Interest Entity, Policy [Policy Text Block]

Our consolidated financial statements include TLLP, a variable interest entity. As the general partner of TLLP, we have the sole ability to direct the activities of TLLP that most significantly impact its economic performance. We are also considered to be the primary beneficiary for accounting purposes.

Inventory, Policy [Policy Text Block]

We use the last-in, first-out (“LIFO”) cost method as the primary method to determine the carrying value of domestic crude oil and refined product inventories in our refining and retail segments. We determine the carrying value of inventories of oxygenates, by-products, and foreign subsidiary-owned crude oil, using the first-in, first-out (“FIFO”) cost method.

Fair Value of Financial Instruments, Policy [Policy Text Block]

We classify financial assets and financial liabilities into the following fair value hierarchy:

• level 1 - quoted prices in active markets for identical assets and liabilities;

• level 2 - quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability; and

• level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We measure fair value using level 1 inputs, when available, because they provide the most reliable evidence of fair value. Derivative instruments are our only financial assets and financial liabilities measured at fair value on a recurring basis. See Note F for further information on the Company's derivative instruments.

Derivatives, Policy [Policy Text Block]

The accounting for changes in the fair value of a commodity derivative depends on whether the derivative has been designated in a hedging relationship and whether we have elected the normal purchases and normal sales exception. The accounting for the change in fair value can be summarized as follows:

Derivative Treatment	Accounting Method
Normal purchases and normal sales exception	Accrual accounting
Designated in qualifying hedging relationship	Hedge accounting
All other derivatives	Mark-to-market accounting

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Condensed Consolidating Financial Information, Balance Sheet (Details) (USD $) In Millions	Jun. 30, 2011	Dec. 31, 2010	Jun. 30, 2010	Dec. 31, 2009
Assets, Current [Abstract]
Cash and cash equivalents	$ 607	$ 648	$ 191	$ 413
Receivables, less allowances for doubtful accounts	1,376	908
Inventories	1,855	1,257
Prepayments and other	205	115
Total Current Assets	4,043	2,928
Net Property, Plant and Equipment	5,075	5,170
Investment in Subsidiaries	0	0
Long-Term Receivables from Affiliates	0	0
Other Noncurrent Assets	620	634
Total Assets	9,738	8,732
Liabilities, Current [Abstract]
Accounts payable and accrued liabilities	2,834	2,344
Current maturities of debt	57	152
Total Current Liabilities	2,891	2,496
Long-Term Payables to Affiliates	0	0
Debt	1,666	1,843
Deferred Tax and Other Liabilities, Noncurrent	1,335	1,178
Equity - Tesoro Corporation	3,554	3,215
Equity - Noncontrolling interest	292	0
Total Liabilities and Stockholders' Equity	9,738	8,732
Tesoro Corporation [Member]
Assets, Current [Abstract]
Cash and cash equivalents	0	0	0	0
Receivables, less allowances for doubtful accounts	6	8
Inventories	0	0
Prepayments and other	65	29
Total Current Assets	71	37
Net Property, Plant and Equipment	0	0
Investment in Subsidiaries	4,217	4,011
Long-Term Receivables from Affiliates	2,115	2,037
Other Noncurrent Assets	46	34
Total Assets	6,449	6,119
Liabilities, Current [Abstract]
Accounts payable and accrued liabilities	89	76
Current maturities of debt	0	0
Total Current Liabilities	89	76
Long-Term Payables to Affiliates	0	0
Debt	1,647	1,823
Deferred Tax and Other Liabilities, Noncurrent	1,159	1,005
Equity - Tesoro Corporation	3,554	3,215
Equity - Noncontrolling interest	0
Total Liabilities and Stockholders' Equity	6,449	6,119
Guarantor Subsidiaries [Member]
Assets, Current [Abstract]
Cash and cash equivalents	562	612	182	411
Receivables, less allowances for doubtful accounts	1,252	719
Inventories	1,470	1,080
Prepayments and other	124	78
Total Current Assets	3,408	2,489
Net Property, Plant and Equipment	4,853	5,008
Investment in Subsidiaries	(251)	(147)
Long-Term Receivables from Affiliates	0	0
Other Noncurrent Assets	572	597
Total Assets	8,582	7,947
Liabilities, Current [Abstract]
Accounts payable and accrued liabilities	2,342	1,940
Current maturities of debt	2	2
Total Current Liabilities	2,344	1,942
Long-Term Payables to Affiliates	2,063	2,125
Debt	19	20
Deferred Tax and Other Liabilities, Noncurrent	177	174
Equity - Tesoro Corporation	3,979	3,686
Equity - Noncontrolling interest	0
Total Liabilities and Stockholders' Equity	8,582	7,947
Non-Guarantors [Member]
Assets, Current [Abstract]
Cash and cash equivalents	45	36	9	2
Receivables, less allowances for doubtful accounts	118	181
Inventories	385	177
Prepayments and other	16	8
Total Current Assets	564	402
Net Property, Plant and Equipment	222	162
Investment in Subsidiaries	216	(5)
Long-Term Receivables from Affiliates	0	88
Other Noncurrent Assets	52	3
Total Assets	1,054	650
Liabilities, Current [Abstract]
Accounts payable and accrued liabilities	403	328
Current maturities of debt	55	150
Total Current Liabilities	458	478
Long-Term Payables to Affiliates	52	0
Debt	50	0
Deferred Tax and Other Liabilities, Noncurrent	(1)	(1)
Equity - Tesoro Corporation	203	173
Equity - Noncontrolling interest	292
Total Liabilities and Stockholders' Equity	1,054	650
Eliminations [Member]
Assets, Current [Abstract]
Cash and cash equivalents	0	0	0	0
Receivables, less allowances for doubtful accounts	0	0
Inventories	0	0
Prepayments and other	0	0
Total Current Assets	0	0
Net Property, Plant and Equipment	0	0
Investment in Subsidiaries	(4,182)	(3,859)
Long-Term Receivables from Affiliates	(2,115)	(2,125)
Other Noncurrent Assets	(50)	0
Total Assets	(6,347)	(5,984)
Liabilities, Current [Abstract]
Accounts payable and accrued liabilities	0	0
Current maturities of debt	0	0
Total Current Liabilities	0	0
Long-Term Payables to Affiliates	(2,115)	(2,125)
Debt	(50)	0
Deferred Tax and Other Liabilities, Noncurrent	0	0
Equity - Tesoro Corporation	(4,182)	(3,859)
Equity - Noncontrolling interest	0
Total Liabilities and Stockholders' Equity	$ (6,347)	$ (5,984)

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Condensed Consolidating Financial Information, Narrative (Details)	6 Months Ended
	Jun. 30, 2011
6 1/4% Senior note [Member]
Debt Instrument [Line Items]
Debt instrument interest rate	6 1/4
Year of maturity	2012
6 5/8% Senior note [Member]
Debt Instrument [Line Items]
Debt instrument interest rate	6 5/8
Year of maturity	2015
6 1/2% Senior note [Member]
Debt Instrument [Line Items]
Debt instrument interest rate	6 1/2
Year of maturity	2017
9 3/4% Senior note [Member]
Debt Instrument [Line Items]
Debt instrument interest rate	9 3/4
Year of maturity	2019

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Earnings (Loss) Per Share (Details) (USD $) In Millions, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Basic [Abstract]
Net earnings (loss) attributable to Tesoro Corporation stockholders	$ 218	$ 67	$ 325	$ (88)
Weighted average common shares outstanding	142.6	140.5	142.1	140.0
Basic Earnings (Loss) Per Share	$ 1.54	$ 0.48	$ 2.29	$ (0.63)
Diluted [Abstract]
Net earnings (loss) attributable to Tesoro Corporation stockholders	$ 218	$ 67	$ 325	$ (88)
Weighted average common shares outstanding	142.6	140.5	142.1	140.0
Common stock equivalents	1.8	2.0	2.1	0
Total diluted shares	144.4	142.5	144.2	140.0
Diluted Earnings (Loss) Per Share	$ 1.52	$ 0.47	$ 2.26	$ (0.63)

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Benefit Plans (Tables)

6 Months Ended

Jun. 30, 2011

Benefit Plans [Abstract]

Schedule of Defined Benefit Plans Disclosures [Table Text Block]

The components of pension benefit expense and other postretirement benefit expense included in the condensed statements of consolidated operations for the three and six months ended June 30, 2011 and 2010, were (in millions):

	Pension Benefits
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Service cost	$	7		$	10		$	14		$	20
Interest cost	8			7			15			14
Expected return on plan assets	(5		)	(5		)	(10		)	(10		)
Amortization of prior service cost	—			1			—			2
Recognized net actuarial loss	5			4			10			7
Recognized curtailment loss	1			3			3			4
Net Periodic Benefit Expense	$	16		$	20		$	32		$	37

	Other Postretirement Benefits
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Service cost	$	2		$	4		$	3		$	8
Interest cost	1			5			2			11
Amortization of prior service credit	(10		)	—			(19		)	—
Recognized net actuarial loss	3			1			6			1
Recognized curtailment gain	—			(48		)	—			(48		)
Net Periodic Benefit Income	$	(4	)	$	(38	)	$	(8	)	$	(28	)

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Condensed Statements of Consolidated Cash Flows (Unaudited) (USD $) In Millions	6 Months Ended
	Jun. 30, 2011		Jun. 30, 2010
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings (loss)	$ 329		$ (88)
Adjustments to reconcile net earnings (loss) to net cash from (used in) operating activities:
Depreciation and amortization expense	209		208
Amortization of debt issuance costs and discounts	10		8
Loss on asset disposals and impairments	57		32
Equity-based compensation expense	35		14
Write-off of unamortized debt issue costs and discounts	13		0
Deferred income taxes	156		(41)
Excess tax benefits from equity-based compensation arrangements	(7)		(2)
Other changes in non-current assets and liabilities	(50)		(91)
Changes in current assets and current liabilities:
Receivables	(469)		96
Inventories	(597)		(450)
Prepayments and other	(75)		(44)
Accounts payable and accrued liabilities	478		297
Net cash from (used in) operating activities	89		(61)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	(112)		(159)
Proceeds from asset sales	1		1
Net cash used in investing activities	(111)		(158)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolving credit agreements	115		66
Repayments on revolving credit agreements	(160)		(66)
Repayments of debt	(244)		(1)
Proceeds from stock options exercised	7		3
Proceeds from issuance of common units -Tesoro Logistics LP	288		0
Repurchases of common stock	(7)	[1]	(3)
Excess tax benefits from equity-based compensation arrangements	7		2
Financing costs and other	(25)		(4)
Net cash used in financing activities	(19)		(3)
DECREASE IN CASH AND CASH EQUIVALENTS	(41)		(222)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	648		413
CASH AND CASH EQUIVALENTS, END OF PERIOD	607		191
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid, net of capitalized interest	62		57
Income taxes paid (refunded), net	61		(105)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
Capital expenditures included in accounts payable and accrued liabilities at end of period	$ 16		$ 19

[1] Represents shares purchased under the terms of restricted stock agreements to provide funds for the payment of payroll and income taxes due at vesting of restricted stock.

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Tesoro Logistics LP (Tables)

6 Months Ended

Jun. 30, 2011

Tesoro Logistics LP [Abstract]

Gross Proceeds [Table Text Block]

The following table is a reconciliation of proceeds from the offering (in millions):

Reconciliation of Cash Proceeds
Total proceeds from the Offering	$	314
Less: Offering Costs, net of debt issuance costs	(26		)
Proceeds from the Offering, net of Offering Costs	288
Less: Debt issuance costs	(2		)
Net proceeds from the Offering	286
Less: Cash retained by TLLP	(3		)
Net proceeds distributed to Tesoro from the Offering	283
Add: Borrowings under the TLLP Revolving Credit Facility	50
Distribution to Tesoro	$	333

Subsidiary Balance Sheet [Table Text Block]

The TLLP condensed consolidated balance sheets as of June 30, 2011 and December 31, 2010 are as follows:

	June 30, 2011		December 31, 2010
	(In millions)
ASSETS
Cash and cash equivalents (a)	$	10	$	—
Receivables, less allowance for doubtful accounts
Trade (a)	—		—
Affiliate	8		4
Other current assets (a)	1		—
Net Property, Plant and Equipment (a)	134		132
Other Noncurrent Assets (a)	2		—
TOTAL ASSETS	$	155	$	136
LIABILITIES
Accounts payable
Trade (a)	$	1	$	2
Affiliate	4		—
Accrued liabilities (a)	2		3
Other Noncurrent Liabilities (a)	—		2
Debt (a)	50		—
Equity	98		129
TOTAL LIABILITIES AND EQUITY	$	155	$	136

(a)    Included in the condensed consolidated balance sheet of Tesoro Corporation.

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Fair Value Measurements, Impairment Losses (Details) (USD $) In Millions	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2011	Mar. 31, 2010	Jun. 30, 2011	Jun. 30, 2010	Dec. 31, 2010	Dec. 31, 2009
Refining equipment, Total Losses	$ 48	$ 20	$ 48	$ 20	$ 20	$ 12
Refining equipment, materials and engineering costs	9		9		4
Net property, plant and equipment	5,075		5,075		5,170
Goodwill, impairment loss					10
Equipment [Member]
Net property, plant and equipment	$ 57	$ 24	$ 57

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Inventories (Tables)

6 Months Ended

Jun. 30, 2011

Inventories [Abstract]

Schedule of Inventory, Current [Table Text Block]

Components of inventories were as follows (in millions):

	June 30, 2011		December 31, 2010
Domestic crude oil and refined products	$	1,337	$	954
Foreign subsidiary crude oil	385		177
Oxygenates and by-products	35		30
Merchandise	14		14
Materials and supplies	84		82
Total Inventories	$	1,855	$	1,257

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Tesoro Logistics LP (Notes)

6 Months Ended

Jun. 30, 2011

Initial Public Offering Subsidiary [Abstract]

Related Party Transactions Disclosure [Text Block]

TESORO LOGISTICS LP

Tesoro Logistics LP, is a publicly traded limited partnership that was formed to own, operate, develop and acquire crude oil and refined products logistics assets. Its assets are integral to the success of Tesoro's refining and marketing operations and are used to gather, transport and store crude oil and to distribute, transport and store refined products. The initial assets consist of a crude oil gathering system in the Bakken Shale/Williston Basin area of North Dakota and Montana, eight refined products terminals in the midwestern and western United States, and a crude oil and refined products storage facility and five related short-haul pipelines in Utah.

Initial Public Offering

On April 26, 2011, TLLP completed the initial public offering (the "Offering") of 14,950,000 common units at a price of $21.00 per unit, which included a 1,950,000 unit over-allotment option that was exercised by the underwriters. Net proceeds to TLLP from the sale of the units were approximately $286 million, net of offering expenses (the "Offering Costs") and debt issuance costs. As of June 30, 2011, we owned a 52% interest in TLLP, including the 2% general partner interest. We are TLLP's primary beneficiary and therefore we consolidate TLLP into our financial results. The initial public offering represented the sale by us of a 48% interest in TLLP. Our interest includes 304,890 common units, 15,254,890 subordinated units and 622,649 general partner units. All intercompany transactions with TLLP are eliminated in our consolidated balances.

The following table is a reconciliation of proceeds from the offering (in millions):

Reconciliation of Cash Proceeds
Total proceeds from the Offering	$	314
Less: Offering Costs, net of debt issuance costs	(26		)
Proceeds from the Offering, net of Offering Costs	288
Less: Debt issuance costs	(2		)
Net proceeds from the Offering	286
Less: Cash retained by TLLP	(3		)
Net proceeds distributed to Tesoro from the Offering	283
Add: Borrowings under the TLLP Revolving Credit Facility	50
Distribution to Tesoro	$	333

Effective on the closing date of the offering, TLLP entered into a senior secured revolving credit agreement ("TLLP Revolving Credit Facility") with a syndicate of banks and financial institutions, which will provide for borrowings under a revolving credit facility with total loan availability of $150 million. At the closing of the offering, TLLP borrowed $50 million under the TLLP Revolving Credit Facility. The TLLP Revolving Credit Facility is non-recourse to Tesoro, except for Tesoro Logistics GP (which is TLLP's general partner), and is guaranteed by all of TLLP's subsidiaries and secured by substantially all of TLLP's assets. TLLP is an excluded subsidiary under our Revolving Credit Facility. For additional information regarding our credit facilities, see Note G.

Commercial Agreements

TLLP generates revenue by charging fees for gathering, transporting and storing crude oil and for terminalling, transporting and storing refined products. We do not provide financial or equity support through any liquidity arrangements and/or financial guarantees to TLLP.

TLLP provides us with various pipeline transportation, trucking, terminal distribution and storage services under the following long-term, fee-based commercial agreements:

• a 10-year pipeline transportation services agreement under which TLLP provides crude oil gathering and transportation services within the High Plains system;

• a two-year crude oil trucking transportation services agreement under which TLLP will provide trucking related services and scheduling and dispatching services through the High Plains truck-based crude oil gathering operation;

• a 10-year master terminalling services agreement under which TLLP will provide terminalling services at eight refined products terminals;

• a 10-year pipeline transportation services agreement under which TLLP will transport crude oil and refined products through short-haul pipelines in Salt Lake City ("SLC"); and

• a 10-year storage and transportation services agreement under which TLLP will provide crude oil and refined product storage and transportation between our Utah refinery and the storage facility.

Each of these agreements, other than the SLC storage and transportation services agreement, contain minimum volume commitments. Fees under the SLC storage and transportation services agreement are for the exclusive use of the existing shell capacity at the SLC storage facility and the pipelines connecting the storage facility to our Utah refinery. The fees under each agreement are indexed for inflation and, except for the trucking transportation services agreement, give us the option to renew for two five-year terms. The trucking transportation services agreement will renew automatically for up to four successive two-year terms unless earlier terminated by us or TLLP. Additionally, these agreements include provisions that permit us to suspend, reduce or terminate our obligations under the applicable agreement if certain events occur after one year of continuing minimum payments.

In addition to the commercial agreements described above, we also entered into the following agreements with TLLP:

Omnibus Agreement. Weentered into an omnibus agreement with TLLP at the closing of the offering under which we agree not to compete with TLLP under certain circumstances. It also grants a right of first offer to TLLP for certain of our retained logistics assets, including certain terminals, pipelines, docks, storage facilities and other related assets located in California, Alaska and Washington. Further, the omnibus agreement addresses the payment of an annual fee to us, initially in the amount of $2.5 million, for the provision of various general and administrative services. We also will reimburse TLLP for certain maintenance and expansion capital expenditures and indemnify them for certain matters, including environmental, title and tax matters.

Operational Services Agreement. We entered into an operational services agreement with TLLP at the closing of the offering under which TLLP will reimburse us for the provision of certain operational services in support of their pipelines, terminals and storage facility.

TLLP is a consolidated variable interest entity. The TLLP condensed consolidated balance sheets as of June 30, 2011 and December 31, 2010 are as follows:

	June 30, 2011		December 31, 2010
	(In millions)
ASSETS
Cash and cash equivalents (a)	$	10	$	—
Receivables, less allowance for doubtful accounts
Trade (a)	—		—
Affiliate	8		4
Other current assets (a)	1		—
Net Property, Plant and Equipment (a)	134		132
Other Noncurrent Assets (a)	2		—
TOTAL ASSETS	$	155	$	136
LIABILITIES
Accounts payable
Trade (a)	$	1	$	2
Affiliate	4		—
Accrued liabilities (a)	2		3
Other Noncurrent Liabilities (a)	—		2
Debt (a)	50		—
Equity	98		129
TOTAL LIABILITIES AND EQUITY	$	155	$	136

(a)    Included in the condensed consolidated balance sheet of Tesoro Corporation.

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Stockholders' Equity (Notes)

6 Months Ended

Jun. 30, 2011

Stockholders' Equity Attributable to Parent [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

STOCKHOLDERS' EQUITY

See Note L for information relating to stock-based compensation and common stock reserved for exercise of options. Changes to equity during the six months ended June 30, 2011 are presented below:

	Tesoro Corporation Stockholders' Equity			Noncontrolling Interest		Total Equity
Balance at December 31, 2010	$	3,215		$	—	$	3,215
Net earnings	325			4		329
Net proceeds from issuance of common units - TLLP	—			288		288
Shares issued for equity-based compensation awards and benefit plans	7			—		7
Excess tax benefits from equity-based compensation arrangements	6			—		6
Stock option and restricted common stock amortization	6			—		6
Repurchases of common stock (a)	(7		)	—		(7		)
Other	2			—		2
Balance at June 30, 2011	$	3,554		$	292	$	3,846

_________________

(a) Represents shares purchased under the terms of restricted stock agreements to provide funds for the payment of payroll and income taxes due at vesting of restricted stock.

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Commitments and Contingencies, Environmental Liabilities (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2011	Dec. 31, 2007	Dec. 31, 2010
Reporting entity [Member]
Environmental Exit Cost [Line Items]
Accruals for environmental expenditures	$ 98		$ 108
Golden Eagle Refinery [Member]
Environmental Exit Cost [Line Items]
Accruals for environmental expenditures	58		62
Settlement received from prior owner		58.5
Environmental insurance coverage ceiling	190
Number of previous owners	2
Self insurance deductible	$ 50

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Stock-Based Compensation, Summary of Stock-Based Compensation Expense (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011 years	Jun. 30, 2010	Dec. 31, 2010 years
Share-Based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation arrangement by share-based payment award, compensation cost	$ (13,000,000)	$ 1,000,000	$ 35,000,000	$ 14,000,000
Income tax benefit for stock-based compensation arrangements			12,000,000	6,000,000
Tax benefit realized from exercise of stock-based compensation arrangements			15,000,000	5,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Market Condition Market Stock Units			50.00%
Stock Appreciation Rights (SARs) [Member]
Share-Based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation arrangement by share-based payment award, compensation cost	(13,000,000)	(4,000,000)	22,000,000	1,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested [Roll Forward]
Number of options outstanding at beginning of period			7,372,000
Number of options granted			0
Number of options exercised			(723,000)
Number of options forfeited			(150,000)
Number of options outstanding at end of period	6,499,000		6,499,000		7,372,000
Number of options vested or expected to vest at end of period			6,498,000
Number of options exercisable at end of period	4,731,000		4,731,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Weighted average exercise price, outstanding at beginning of period			$ 22.34
Weighted average exercise price, outstanding at end of period	$ 23.25		$ 23.25		$ 22.34
Weighted average exercise price, vested and expected to vest	$ 23.25		$ 23.25
Weighted average exercise price, exercisable at end of period	$ 26.74		$ 26.74
Other deferred compensation arrangements, liability, current and noncurrent	53,000,000		53,000,000		39,000,000
Share-based compensation arrangement by share-based payment award, equity instruments other than options, outstanding, weighted average remaining contractual term			4.1		4.6
Weighted average contractual term other than options vested and expected to vest			4.1
Weighted average contractual term other than options exercisable			3.8
Stock appreciation rights			1
Executive Phantom Stock Options [Member]
Share-Based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation arrangement by share-based payment award, compensation cost	(5,000,000)	(2,000,000)	6,000,000	1,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested [Roll Forward]
Number of options outstanding at beginning of period			1,487,000
Number of options granted			0.0
Number of options exercised			(256,000)
Number of options forfeited			(65,000)
Number of options outstanding at end of period	1,166,000		1,166,000		1,487,000
Number of options vested or expected to vest at end of period			1,166,000
Number of options exercisable at end of period	1,166,000		1,166,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Weighted average exercise price, outstanding at beginning of period			$ 14.13
Weighted average exercise price, outstanding at end of period	$ 14.13		$ 14.13		$ 14.13
Weighted average exercise price, vested and expected to vest	$ 14.13		$ 14.13
Weighted average exercise price, exercisable at end of period	$ 14.13		$ 14.13
Other deferred compensation arrangements, liability, current and noncurrent	17,000,000		17,000,000		15,000,000
Share-based compensation arrangement by share-based payment award, equity instruments other than options, outstanding, weighted average remaining contractual term			7.6		8.1
Weighted average contractual term other than options vested and expected to vest			7.6
Weighted average contractual term other than options exercisable			7.6
Restricted stock [Member]
Share-Based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation arrangement by share-based payment award, compensation cost	2,000,000	4,000,000	4,000,000	7,000,000
Restricted Stock Units (RSUs) [Member]
Share-Based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation arrangement by share-based payment award, compensation cost	1,000,000	1,000,000	1,000,000	1,000,000
Performance Share Awards [Member]
Share-Based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Fair Value	22.91		22.91
Share-based compensation arrangement by share-based payment award, compensation cost	1,000,000	0	1,000,000	0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested [Roll Forward]
Number of options outstanding at beginning of period			0
Number of options granted			264,000
Number of options outstanding at end of period	264,000		264,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Weighted average grant date fair value, nonvested, beginning of period			$ 0
Weighted average grant date fair value, grants in period			$ 31.90
Weighted average grant date fair value, nonvested, end of period	$ 31.90		$ 31.90
Vesting percentage lower limit			0
Vesting percentage upper limit			200
Nonvested awards, total compensation cost not yet recognized	7,000,000		7,000,000
Total compensation cost not yet recognized, period for recognition			2.8
Performance period			3
Share-based compensation arrangement by share-based payment award, award vesting period			3
Market Stock Units [Member]
Share-Based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation arrangement by share-based payment award, compensation cost	1,000,000	0	1,000,000	0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested [Roll Forward]
Number of options outstanding at beginning of period			0
Number of options granted			426,000
Number of options outstanding at end of period	426,000		426,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Weighted average grant date fair value, nonvested, beginning of period			$ 0
Weighted average grant date fair value, grants in period			$ 34.45
Weighted average grant date fair value, nonvested, end of period	$ 34.45		$ 34.45
Vesting percentage lower limit			50
Vesting percentage upper limit			200
Nonvested awards, total compensation cost not yet recognized	13,000,000		13,000,000
Total compensation cost not yet recognized, period for recognition			2.8
Share-based compensation arrangement by share-based payment award, equity instruments other than options, nonvested, total intrinsic value	8,000,000		8,000,000		0
Performance period			3
Share-based compensation arrangement by share-based payment award, award vesting period			3
Stock options [Member]
Share-Based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation arrangement by share-based payment award, compensation cost	$ 0	$ 2,000,000	$ 0	$ 4,000,000

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Tesoro Logistics LP, Interest in Subsidiary (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended
	Jun. 30, 2011
Related Party Transaction [Line Items]
Overallotment option	1,950,000
Affiliated Entity [Member]
Related Party Transaction [Line Items]
Common limited partner units outstanding	14,950,000
Initial public offering price	$ 21.00
Total proceeds from the Offering	$ 314
Offering Costs, net of debt issuance costs	(26)
Proceeds from the Offering, net of Offering Costs	288
Debt issuance costs	(2)
Net proceeds from the Offering including debt issuance costs	286
Cash retained by TLLP	(3)
Net proceeds distributed to Tesoro from the Offering	283
Distribution to Tesoro	$ 333
Limited Partner [Member]
Related Party Transaction [Line Items]
Interest in subsidiary	52.00%
Public interest in subsidiary	48.00%
General Partner [Member]
Related Party Transaction [Line Items]
Interest in subsidiary	2.00%

XML



Condensed Consolidating Financial Information (Notes)

6 Months Ended

Jun. 30, 2011

Condensed Consolidating Financial Information [Abstract]

CONDENSED CONSOLIDATING FINANCIAL INFORMATION

CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Separate condensed consolidating financial information of Tesoro Corporation (the "Parent"), subsidiary guarantors and non-guarantors are presented below. Tesoro and certain subsidiary guarantors have fully and unconditionally guaranteed our 6 1/4% senior notes due 2012, 6 5/8% senior notes due 2015, 6 1/2% senior notes due 2017, and 9 3/4% senior notes due 2019. TLLP, in which we have a 52% ownership interest, and other subsidiaries have not guaranteed these obligations. As a result of these guarantee arrangements, we are required to present the following condensed consolidating financial information. The following condensed consolidating financial information should be read in conjunction with the accompanying condensed consolidated financial statements and notes. The following condensed consolidating financial information is provided as an alternative to providing separate financial statements for guarantor subsidiaries. Separate financial statements of Tesoro's subsidiary guarantors are not included because the guarantees are full and unconditional and these subsidiary guarantors are 100% owned and jointly and severally liable for Tesoro's outstanding senior notes. The information is presented using the equity method of accounting for investments in subsidiaries.

Condensed Consolidating Balance Sheet as of June 30, 2011

(In millions)

	Parent		Guarantor Subsidiaries			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	562		$	45		$	—		$	607
Receivables, less allowance for doubtful accounts	6		1,252			118			—			1,376
Inventories	—		1,470			385			—			1,855
Prepayments and other	65		124			16			—			205
Total Current Assets	71		3,408			564			—			4,043
Net Property, Plant and Equipment	—		4,853			222			—			5,075
Investment in Subsidiaries	4,217		(251		)	216			(4,182		)	—
Long-Term Receivables from Affiliates	2,115		—			—			(2,115		)	—
Other Noncurrent Assets	46		572			52			(50		)	620
Total Assets	$	6,449	$	8,582		$	1,054		$	(6,347	)	$	9,738
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	89	$	2,342		$	403		$	—		$	2,834
Current maturities of debt	—		2			55			—			57
Total Current Liabilities	89		2,344			458			—			2,891
Long-Term Payables to Affiliates	—		2,063			52			(2,115		)	—
Debt	1,647		19			50			(50		)	1,666
Other Noncurrent Liabilities	1,159		177			(1		)	—			1,335
Equity-Tesoro Corporation	3,554		3,979			203			(4,182		)	3,554
Equity-Noncontrolling interest	—		—			292			—			292
Total Liabilities and Stockholders' Equity	$	6,449	$	8,582		$	1,054		$	(6,347	)	$	9,738

Condensed Consolidating Balance Sheet as of December 31, 2010

(In millions)

	Tesoro Corporation		Guarantor Subsidiaries			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	612		$	36		$	—		$	648
Receivables, less allowance for doubtful accounts	8		719			181			—			908
Inventories	—		1,080			177			—			1,257
Prepayments and other	29		78			8			—			115
Total Current Assets	37		2,489			402			—			2,928
Net Property, Plant and Equipment	—		5,008			162			—			5,170
Investment in Subsidiaries	4,011		(147		)	(5		)	(3,859		)	—
Long-Term Receivables from Affiliates	2,037		—			88			(2,125		)	—
Other Noncurrent Assets	34		597			3			—			634
Total Assets	$	6,119	$	7,947		$	650		$	(5,984	)	$	8,732
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	76	$	1,940		$	328		$	—		$	2,344
Current maturities of debt	—		2			150			—			152
Total Current Liabilities	76		1,942			478			—			2,496
Long-Term Payables to Affiliates	—		2,125			—			(2,125		)	—
Debt	1,823		20			—			—			1,843
Other Noncurrent Liabilities	1,005		174			(1		)	—			1,178
Equity-Tesoro Corporation	3,215		3,686			173			(3,859		)	3,215
Total Liabilities and Stockholders' Equity	$	6,119	$	7,947		$	650		$	(5,984	)	$	8,732

Condensed Consolidating Statement of Operations for the Three Months EndedJune 30, 2011

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	9,964		$	960		$	(2,961	)	$	7,963
Costs and expenses	1			9,557			947			(2,961		)	7,544
OPERATING INCOME (LOSS)	(1		)	407			13			—			419
Equity in earnings (loss) of subsidiaries	224			(5		)	21			(240		)	—
Other expense	—			(58		)	(4		)	—			(62		)
EARNINGS (LOSS) BEFORE INCOME TAXES	223			344			30			(240		)	357
Income tax expense (a)	1			133			1			—			135
NET EARNINGS (LOSS)	222			211			29			(240		)	222
Less net income attributable to noncontrolling interest	—			—			4			—			4
NET INCOME (LOSS) ATTRIBUTABLE TO TESORO CORPORATION STOCKHOLDERS	$	222		$	211		$	25		$	(240	)	$	218

_______________

(a) The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners' share of partnership income.

Condensed Consolidating Statement of Operations for the Three Months EndedJune 30, 2010

(In millions)

	Tesoro Corporation			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	6,657		$	526		$	(2,040	)	$	5,143
Costs and expenses	1			6,513			526			(2,040		)	5,000
OPERATING INCOME (LOSS)	(1		)	144			—			—			143
Equity in earnings (loss) of subsidiaries	67			(7		)	—			(60		)	—
Other expense	—			(36		)	—			—			(36		)
EARNINGS (LOSS) BEFORE INCOME TAXES	66			101			—			(60		)	107
Income tax expense (benefit) (a)	(1		)	40			1			—			40
NET EARNINGS (LOSS)	$	67		$	61		$	(1	)	$	(60	)	$	67

_______________

(a) The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from subsidiaries.

Condensed Consolidating Statement of Operations for the Six Months EndedJune 30, 2011

(In millions)

	Parent			Guarantor Subsidiaries			Non- Guarantors			Eliminations			Consolidated
REVENUES	$	—		$	18,205		$	1,648		$	(5,364	)	$	14,489
Costs and expenses	5			17,580			1,630			(5,364		)	13,851
OPERATING INCOME (LOSS)	(5		)	625			18			—			638
Equity in earnings (loss) of subsidiaries	333			(17		)	21			(337		)	—
Other expense	—			(98		)	(6		)	—			(104		)
EARNINGS (LOSS) BEFORE INCOME TAXES	328			510			33			(337		)	534
Income tax expense (benefit) (a)	(1		)	204			2			—			205
NET EARNINGS (LOSS)	329			306			31			(337		)	329
Less net income attributable to noncontrolling interest	—			—			4			—			4
NET INCOME (LOSS) ATTRIBUTABLE TO TESORO CORPORATION STOCKHOLDERS	$	329		$	306		$	27		$	(337	)	$	325

_______________

(a) The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners' share of partnership income.

Condensed Consolidating Statement of Operations for the Six Months EndedJune 30, 2010

(In millions)

	Tesoro Corporation			Guarantor Subsidiaries			Non- Guarantors		Eliminations			Consolidated
REVENUES	$	—		$	12,481		$	1,085	$	(3,816	)	$	9,750
Costs and expenses	3			12,540			1,082		(3,816		)	9,809
OPERATING INCOME (LOSS)	(3		)	(59		)	3		—			(59		)
Equity in earnings (loss) of subsidiaries	(87		)	(14		)	—		101			—
Other expense	—			(73		)	—		—			(73		)
EARNINGS (LOSS) BEFORE INCOME TAXES	(90		)	(146		)	3		101			(132		)
Income tax expense (benefit) (a)	(2		)	(44		)	2		—			(44		)
NET EARNINGS (LOSS)	$	(88	)	$	(102	)	$	1	$	101		$	(88	)

_______________

(a) The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from subsidiaries.

Condensed Consolidating Statement of Cash Flows for the Six Months EndedJune 30, 2011

(In millions)

	Parent			Guarantor Subsidiaries			Non-Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	31		$	162		$	(104	)	$	—		$	89
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(111		)	(1		)	—			(112		)
Proceeds from asset sales	—			1			—			—			1
Intercompany notes, net	59			—			—			(59		)	—
Net cash from (used in) investing activities	59			(110		)	(1		)	(59		)	(111		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolver	—			—			115			—			115
Repayments under revolver	—			—			(160		)	—			(160		)
Repayments of debt	(243		)	(1		)	—			—			(244		)
Proceeds from stock options exercised	7			—			—			—			7
Excess tax benefits from equity-based compensation arrangements	—			7			—			—			7
Repurchases of common stock	(7		)	—			—			—			(7		)
Proceeds from issuance of common units-Tesoro Logistics LP	—			—			288			—			288
Net intercompany borrowings (repayments)	—			(265		)	206			59			—
Distributions to General Partner	50			—			(50		)	—			—
Distributions to Common unitholders	31			39			(70		)	—			—
Distributions to Subordinated unitholders	95			118			(213		)	—			—
Financing costs and other	(23		)	—			(2		)	—			(25		)
Net cash from (used in) financing activities	(90		)	(102		)	114			59			(19		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	—			(50		)	9			—			(41		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			612			36			—			648
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	562		$	45		$	—		$	607

Condensed Consolidating Statement of Cash Flows for the Six Months EndedJune 30, 2010

(In millions)

	Tesoro Corporation			Guarantor Subsidiaries			Non-Guarantors			Eliminations			Consolidated
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net cash from (used in) operating activities	$	3		$	199		$	(263	)	$	—		$	(61	)
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures	—			(158		)	(1		)	—			(159		)
Proceeds from asset sales	—			1			—			—			1
Intercompany notes, net	1			—			—			(1		)	—
Net cash from (used in) investing activities	1			(157		)	(1		)	(1		)	(158		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Borrowings under revolver	66			—			—			—			66
Repayments under revolver	(66		)	—			—			—			(66		)
Repayments of debt	—			(1		)	—			—			(1		)
Proceeds from stock options exercised	3			—			—			—			3
Repurchases of common stock	(3		)	—			—			—			(3		)
Excess tax benefits from stock-based compensation arrangements	—			2			—			—			2
Net intercompany borrowings (repayments)	—			(272		)	271			1			—
Financing costs and other	(4		)	—			—			—			(4		)
Net cash from (used in) financing activities	(4		)	(271		)	271			1			(3		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	—			(229		)	7			—			(222		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			411			2			—			413
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	182		$	9		$	—		$	191

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Condensed Consolidated Balance Sheets (USD $) In Millions	Jun. 30, 2011	Dec. 31, 2010
CURRENT ASSETS
Cash and cash equivalents	$ 607	$ 648
Receivables, less allowance for doubtful accounts	1,376	908
Inventories	1,855	1,257
Prepayments and other	205	115
Total Current Assets	4,043	2,928
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost	6,860	6,847
Less accumulated depreciation and amortization	(1,785)	(1,677)
Net Property, Plant and Equipment	5,075	5,170
OTHER NONCURRENT ASSETS
Acquired intangibles, net	237	246
Other, net	383	388
Total Other Noncurrent Assets	620	634
Total Assets	9,738	8,732
CURRENT LIABILITIES
Accounts payable	2,295	1,852
Accrued liabilities	539	492
Current maturities of debt	57	152
Total Current Liabilities	2,891	2,496
DEFERRED INCOME TAXES	773	616
OTHER NONCURRENT LIABILITIES	562	562
DEBT	1,666	1,843
COMMITMENTS AND CONTINGENCIES (Note J)
TESORO CORPORATION STOCKHOLDERS' EQUITY
Common stock, par value $0.16 2/3; authorized 200,000,000 shares; 149,918,449 shares issued (149,105,570 in 2010)	25	25
Additional paid-in capital	988	970
Retained earnings	2,723	2,398
Treasury stock, 6,079,310 common shares (5,925,541 in 2010), at cost	(132)	(128)
Accumulated other comprehensive loss	(50)	(50)
Stockholders' Equity Attributable to Parent	3,554	3,215
NONCONTROLLING INTEREST	292	0
Total Equity	3,846	3,215
Total Liabilities and Stockholders' Equity	9,738	8,732
Parent [Member]
TESORO CORPORATION STOCKHOLDERS' EQUITY
Total Equity	3,554	3,215
Noncontrolling Interest
TESORO CORPORATION STOCKHOLDERS' EQUITY
Total Equity	$ 292	$ 0

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Tesoro Logistics LP, Credit Facility (Details) (USD $) In Millions	Jun. 30, 2011	Dec. 31, 2010
Tesoro Logistics LP Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Available borrowing capacity	$ 150
Tesoro Logistics LP Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Borrowings under the TLLP Revolving Credit Facility	$ 50	$ 0

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Debt (Details) (USD $)	3 Months Ended	6 Months Ended								6 Months Ended
	Jun. 30, 2011 Junior Subordinated debt [Member]	Jun. 30, 2011 Tesoro Corporation Revolving Credit Facility [Member]	Jun. 30, 2011 Tesoro Corporation Letter of Credit Agreements [Member]	Jun. 30, 2011 Tesoro Panama Company Sociedad Anonima Revolving Credit Facility [Member]	Mar. 31, 2011 Tesoro Panama Company Sociedad Anonima Revolving Credit Facility [Member]	Jun. 30, 2011 First facility [Member]	Mar. 31, 2011 First facility [Member]	Jun. 30, 2011 Second facility [Member]	Mar. 31, 2011 Second facility [Member]	Jun. 30, 2011 Tesoro Logistics LP Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Year of maturity	2012
Amount of debt redeemed	$ 150,000,000
Write off of unamortized discount associated with redeemed debt	13,000,000
Initiation date		March 2011								April 26, 2011
Available borrowing capacity		1,850,000,000		500,000,000	350,000,000	350,000,000	245,000,000	150,000,000	105,000,000	150,000,000
Letters of Credit Outstanding, Amount		772,000,000	222,000,000	95,000,000
Maximum borrowing capacity		2,250,000,000	490,000,000	700,000,000		550,000,000		350,000,000		300,000,000
Borrowings under the TLLP Revolving Credit Facility		0
Adjusted borrowing base		3,100,000,000
West Texas Intermediate crude oil price		103
Letters of credit, amount outstanding		772,000,000	222,000,000	95,000,000
Unused credit availability		$ 1,100,000,000
Remaining percentage of eligible borrowing base		58.00%
Expiration date		March 16, 2016		October 2011						April 25, 2014
Line of credit facility, borrowing capacity, description		At June 30, 2011, our Revolving Credit Facility provided for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base of approximately $3.1 billion (based upon a West Texas Intermediate crude oil price of $103 per barrel), consisting of Tesoro's eligible cash and cash equivalents, receivables and petroleum inventories, net of the standard reserve as defined, or the Revolving Credit Facility's total capacity of $1.85 billion.		At June 30, 2011, our TPSA Revolving Credit Facility provided for borrowings (including letters of credit) up to the lesser of the amount of a periodically adjusted borrowing base consisting of TPSA eligible receivables and petroleum inventories, net of reserves, or the agreement's capacity based on the net worth of TPSA.						Borrowings available under the TLLP Revolving Credit Facility are up to the total available revolving capacity of the facility.
Description of interest rate calculation		Borrowings under the Revolving Credit Facility bear interest at either a base rate (3.25% at June 30, 2011), or a Eurodollar rate (0.19% at June 30, 2011) plus an applicable margin. The applicable margin at June 30, 2011, was 1.75% in the case of the Eurodollar rate, but varies based upon our Revolving Credit Facility's credit ratings.		Revolving borrowings bear interest at a Eurodollar rate plus an applicable margin (2.75% as of June 30, 2011), or an alternative base rate (3.25% as of June 30, 2011) plus an applicable margin (1.75% as of June 30, 2011). Letters of credit outstanding under the TPSA Revolving Credit Facility incur fees at the Eurodollar rate (0.19% as of June 30, 2011) plus an annual base rate (1.75% at June 30, 2011).						Borrowings bear interest at either a base rate (3.25% at June 30, 2011), plus the applicable margin or a Eurodollar rate (0.19% at June 30, 2011), plus an applicable margin. The applicable margin at June 30, 2011, was 1.50% in the case of the base rate and 2.50% in the case of the Eurodollar rate but varies based upon Consolidated Leverage Ratio, as defined.
Number of agreements			3	2
Length of Revolving Credit Facility				364						3
Revolving Credit Facility guarantor		The Revolving Credit Facility is guaranteed by substantially all of Tesoro's active domestic subsidiaries, excluding Tesoro Logistics LP and its subsidiaries and is secured by substantially all of the petroleum inventory, cash and receivables of Tesoro's active domestic subsidiaries.	Letters of credit outstanding under these agreements incur fees and are secured by the petroleum inventories for which they are issued.	The TPSA Revolving Credit Facility is non-recourse to Tesoro and is guaranteed by TPSA's assets.						The TLLP Revolving Credit Facility is non-recourse to Tesoro, except for Tesoro Logistics GP (which is TLLP's general partner), and is guaranteed by all of TLLP's subsidiaries and secured by substantially all of the assets.

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Commitments and Contingencies, Other Matters (Details) (USD $) In Millions	12 Months Ended
	Dec. 31, 2008	Jun. 30, 2011
TAPS Litigation [Abstract]
Gain (loss) related to litigation settlement	$ 50
Loss contingency, estimate of possible loss		$ 16

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Condensed Consolidating Financial Information, Cash Flows (Details) (USD $) In Millions	6 Months Ended
	Jun. 30, 2011		Jun. 30, 2010
Net Cash Provided by (Used in) Operating Activities [Abstract]
Net cash from (used in) operating activities	$ 89		$ (61)
Net Cash Provided by (Used in) Investing Activities [Abstract]
Capital expenditures	(112)		(159)
Proceeds from asset sales	1		1
Intercompany notes, net	0		0
Net cash from (used in) investing activities	(111)		(158)
Net Cash Provided by (Used in) Financing Activities [Abstract]
Borrowings under revolver	115		66
Repayments under revolver	(160)		(66)
Repayments of debt	(244)		(1)
Proceeds from stock options exercised	7		3
Excess tax benefits from equity-based compensation arrangements	7		2
Repurchases of common stock	(7)	[1]	(3)
Proceeds from issuance of common units -Tesoro Logistics LP	288		0
Net intercompany borrowings (repayments)	0		0
General Partner Distributions	0
Distribution Made to Member or Limited Partner, Cash Distributions Paid	0
Distributions To Subordinated Unitholders	0
Financing costs and other	(25)		(4)
Net cash from (used in) financing activities	(19)		(3)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(41)		(222)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	648		413
CASH AND CASH EQUIVALENTS, END OF PERIOD	607		191
Tesoro Corporation [Member]
Net Cash Provided by (Used in) Operating Activities [Abstract]
Net cash from (used in) operating activities	31		3
Net Cash Provided by (Used in) Investing Activities [Abstract]
Capital expenditures	0		0
Proceeds from asset sales	0		0
Intercompany notes, net	59		1
Net cash from (used in) investing activities	59		1
Net Cash Provided by (Used in) Financing Activities [Abstract]
Borrowings under revolver	0		66
Repayments under revolver	0		(66)
Repayments of debt	(243)		0
Proceeds from stock options exercised	7		3
Excess tax benefits from equity-based compensation arrangements	0		0
Repurchases of common stock	(7)		(3)
Proceeds from issuance of common units -Tesoro Logistics LP	0
Net intercompany borrowings (repayments)	0		0
General Partner Distributions	50
Distribution Made to Member or Limited Partner, Cash Distributions Paid	31
Distributions To Subordinated Unitholders	95
Financing costs and other	(23)		(4)
Net cash from (used in) financing activities	(90)		(4)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	0		0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	0		0
CASH AND CASH EQUIVALENTS, END OF PERIOD	0		0
Guarantor Subsidiaries [Member]
Net Cash Provided by (Used in) Operating Activities [Abstract]
Net cash from (used in) operating activities	162		199
Net Cash Provided by (Used in) Investing Activities [Abstract]
Capital expenditures	(111)		(158)
Proceeds from asset sales	1		1
Intercompany notes, net	0		0
Net cash from (used in) investing activities	(110)		(157)
Net Cash Provided by (Used in) Financing Activities [Abstract]
Borrowings under revolver	0		0
Repayments under revolver	0		0
Repayments of debt	(1)		(1)
Proceeds from stock options exercised	0		0
Excess tax benefits from equity-based compensation arrangements	7		2
Repurchases of common stock	0		0
Proceeds from issuance of common units -Tesoro Logistics LP	0
Net intercompany borrowings (repayments)	(265)		(272)
General Partner Distributions	0
Distribution Made to Member or Limited Partner, Cash Distributions Paid	39
Distributions To Subordinated Unitholders	118
Financing costs and other	0		0
Net cash from (used in) financing activities	(102)		(271)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(50)		(229)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	612		411
CASH AND CASH EQUIVALENTS, END OF PERIOD	562		182
Non-Guarantors [Member]
Net Cash Provided by (Used in) Operating Activities [Abstract]
Net cash from (used in) operating activities	(104)		(263)
Net Cash Provided by (Used in) Investing Activities [Abstract]
Capital expenditures	(1)		(1)
Proceeds from asset sales	0		0
Intercompany notes, net	0		0
Net cash from (used in) investing activities	(1)		(1)
Net Cash Provided by (Used in) Financing Activities [Abstract]
Borrowings under revolver	115		0
Repayments under revolver	(160)		0
Repayments of debt	0		0
Proceeds from stock options exercised	0		0
Excess tax benefits from equity-based compensation arrangements	0		0
Repurchases of common stock	0		0
Proceeds from issuance of common units -Tesoro Logistics LP	288
Net intercompany borrowings (repayments)	206		271
General Partner Distributions	(50)
Distribution Made to Member or Limited Partner, Cash Distributions Paid	(70)
Distributions To Subordinated Unitholders	(213)
Financing costs and other	(2)		0
Net cash from (used in) financing activities	114		271
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	9		7
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	36		2
CASH AND CASH EQUIVALENTS, END OF PERIOD	45		9
Eliminations [Member]
Net Cash Provided by (Used in) Operating Activities [Abstract]
Net cash from (used in) operating activities	0		0
Net Cash Provided by (Used in) Investing Activities [Abstract]
Capital expenditures	0		0
Proceeds from asset sales	0		0
Intercompany notes, net	(59)		(1)
Net cash from (used in) investing activities	(59)		(1)
Net Cash Provided by (Used in) Financing Activities [Abstract]
Borrowings under revolver	0		0
Repayments under revolver	0		0
Repayments of debt	0		0
Proceeds from stock options exercised	0		0
Excess tax benefits from equity-based compensation arrangements	0		0
Repurchases of common stock	0		0
Proceeds from issuance of common units -Tesoro Logistics LP	0
Net intercompany borrowings (repayments)	59		1
General Partner Distributions	0
Distribution Made to Member or Limited Partner, Cash Distributions Paid	0
Distributions To Subordinated Unitholders	0
Financing costs and other	0		0
Net cash from (used in) financing activities	59		1
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	0		0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	0		0
CASH AND CASH EQUIVALENTS, END OF PERIOD	$ 0		$ 0

[1] Represents shares purchased under the terms of restricted stock agreements to provide funds for the payment of payroll and income taxes due at vesting of restricted stock.

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Derivative Instruments, Derivative Assets and Liabilities (Details) (USD $) In Millions	Jun. 30, 2011	Dec. 31, 2010
Derivative, Collateral [Abstract]
Collateral already posted, aggregate fair value	$ 6
Fair Value Hedging [Member]
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Derivative Liabilities	0	(3)
Fair Value Hedging [Member] | Commodity Futures Contracts [Member]
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Derivative Liabilities	0	(3)
Not Designated as Hedging Instrument [Member]
Derivatives, Fair Value [Line Items]
Derivative Assets	201	93
Derivative Liabilities	(185)	(99)
Not Designated as Hedging Instrument [Member] | Commodity Futures Contracts [Member]
Derivatives, Fair Value [Line Items]
Derivative Assets	197	88
Derivative Liabilities	(175)	(96)
Not Designated as Hedging Instrument [Member] | Commodity OTC Swap Contracts [Member]
Derivatives, Fair Value [Line Items]
Derivative Assets	3	3
Derivative Liabilities	(7)	(2)
Not Designated as Hedging Instrument [Member] | Commodity Forward Contracts [Member]
Derivatives, Fair Value [Line Items]
Derivative Assets	1	2
Derivative Liabilities	$ (3)	$ (1)

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Derivative Instruments, Derivative Gains and Losses (Details) (USD $) In Millions	3 Months Ended				6 Months Ended
	Jun. 30, 2011		Jun. 30, 2010		Jun. 30, 2011		Jun. 30, 2010
Commodity Futures Contracts [Member] | Fair Value Hedging [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income on Derivatives	$ 4	[1]			$ 3	[1]
Amount of Gain (Loss) Recognized in Income on Hedged Item	(4)	[1]			(4)	[1]
Amount of Gain (Loss) Loss Recognized in Income on Ineffective Portion of Derivative	0	[1],[2]			(1)	[1],[2]
Commodity Futures Contracts [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income on Derivatives	88	[3]	10	[3]	32	[3]	(2)	[3]
Commodity OTC Swap Contracts [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income on Derivatives	2	[3]	8	[3]	1	[3]	8	[3]
Commodity Forward Contracts [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income on Derivatives	(8)	[3]	0	[3]	(1)	[3]	0	[3]
Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income on Derivatives	82	[3]	18	[3]	32	[3]	6	[3]
Not Designated as Hedging Instrument [Member] | Revenues [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income on Derivatives	12
Not Designated as Hedging Instrument [Member] | Cost of sales [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income on Derivatives	$ 70				$ 32

[1] Gains (losses) recognized in income on the derivative and the hedged item are included in cost of sales in the statements of consolidated operations.

[2] For fair value hedges, no component of the derivative instruments' gains or losses was excluded from the assessment of hedges effectiveness. No amounts were recognized in income for hedged firm commitments that no longer qualify as fair value hedges.

[3] Derivative gains (losses) are recognized in either revenues or cost of sales depending on the purpose for acquiring and holding the derivative. All derivative gains for the three and six months ended June 30, 2010, were recorded in cost of sales. Derivative gains recognized during the three months ended June 30, 2011, recorded in revenues and cost of sales, were $12 million and $70 million, respectively. Derivative gains recognized during the six months ended June 30, 2011, recorded in cost of sales was $32 million. There were no amounts recognized in revenues for the six months ended June 30, 2011.

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Commitments and Contingencies, Tax Matters (Details) (USD $) In Millions	Jun. 30, 2011
Income Tax Uncertainties [Abstract]
Significant change in unrecognized tax benefits is reasonably possible, amount of unrecorded benefit	$ 10

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Tesoro Logistics LP, Schedule of Partner Units (Details)	Jun. 30, 2011
Limited Partner [Member]
Capital Unit [Line Items]
Tesoro limited partner units outstanding	304,890
Subordinated units outstanding	15,254,890
General Partner [Member]
Capital Unit [Line Items]
General partner units outstanding	622,649