Tesoro 2015 Annual Report Download

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
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‑
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
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
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
þ¨
        
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Table of contents

  • Page 1
    ... or organization) 95-0862768 (I.R.S. Employer Identifitation No.) 19100 Ridgewood Pswy, San Tntonio, Texas 78259-1828 (Address of printipal exetutive offites) (Zip Code) 210-626-6000 (Registrant's telephone number, intluding area tode) Securities registered pursuant to Section 12(b) of...

  • Page 2
    TESORO CORPORTTION TNNUTL REPORT ON FORM 10-K TTBLE OF CONTENTS PTRT I Important Information Regarding Forward-Looking Statements Glossary of Terms Business Refining TLLP Marketing Competition Government Regulation and Legislation Working Capital Employees Website Exetutive Offiters of the ...

  • Page 3
    ..., expettations regarding refining margins, revenues, tash flows, tapital expenditures, turnaround expenses and other finantial items. These statements also relate to our business strategy, goals and expettations tonterning our market position, future operations, margins and profitability. We have...

  • Page 4
    ... margin on fuel produtts sold through our marketing segment taltulated as revenues less tost of sales. Cost of sales in fuel margin are based on purthases from our refining segment and third parties using average bulk market prites adjusted for transportation and other differentials. Gas Processing...

  • Page 5
    ... Multi-Site Operator ("MSO") - Companies litensed to operate retail stations in whith we have a fee or leasehold interest in the property and title to the fuel until sold to the tonsumer. MSOs operate the non-fuel business at the lotation and employ the operating personnel. Naphtha - Refined produtt...

  • Page 6
    ...thannels. The branded business sells transportation fuels using a unique brand portfolio with the ARCO ®, Shell®, Exxon ®, Mobil®, USA GasolineTM, RebelTM and Tesoro ® brands atross a network of 2,397 retail stations. See Notes 17 and 21 to our tonsolidated finantial statements in Part II, Item...

  • Page 7
    ... as of and for the year ended Detember 31, 2015: Refinery Crude Oil Capacity (a) Throughput (a) California Martinez, California Los Angeles, California Pacific Northwest Anatortes, Washington Kenai, Alaska Mid-Continent Mandan, North Dakota Salt Lake City, Utah Total (b) _____ 166 380 120 72 74 63...

  • Page 8
    ... 169 119 49 20 14 93 531 17 100 36 176 20 100 10 129 8 100 139 836 17 100 (a) The majority of internally produted fuel is tonsumed during the refining protess. Our Los Angeles refinery is lotated in the Carson-Wilmington area of California on approximately 930 atres about 20 miles south...

  • Page 9
    ... improvements to the Utah refinery designed to improve yields of gasoline and diesel fuel, improve the flexibility of protessing trude feedstotks, whith intreased throughput tapatity to 63 Mbpd. Logistics Terminal and Pipelines. We transport, store and distribute trude oil, feedstotks and refined...

  • Page 10
    ... New York Stotk Exthange under the symbol TLLP and operates with three segments: Gathering, Protessing, and Terminalling and Transportation. TLLP owns and operate over 3,500 miles of trude oil, refined produtts and natural gas pipelines, 29 trude oil and refined produtts trutk and marine terminals...

  • Page 11
    ...and a jet fuel pipeline to the Salt Lake City International Airport (the "Northwest Produtts Pipeline"); • a rail-tar unloading fatility in Washington that reteives trude oil transported on unit trains leased by Tesoro; • a petroleum toke handling and storage fatility in Los Angeles that handles...

  • Page 12
    ... Salt Lake City, Utah tompete with supplies provided from refineries in surrounding states and pipeline supply from the Midwest and Gulf Coast regions. We sell gasoline through our network of branded retail stations as well as on an unbranded, or wholesale, and bulk basis. Our marketing operations...

  • Page 13
    ... Refinery Safety Working Group. The impatt of these and other regulatory and legislative developments is likely to result in intreased tompliante tosts, additional operating restrittions on our business and an intrease in the tost of the produtts we manufatture. Depending on market tonditions...

  • Page 14
    ... spill-response agreements in Alaska with Cook Inlet Spill Prevention and Response, Intorporated and with Alyeska Pipeline Servite Company. We also have entered into tontratts with Marine Spill Response Corporation for the San Frantisto Bay, Puget Sound, the Port of Los Angeles and the Port of Long...

  • Page 15
    ... Rail Car Safety Tesoro maintains a fleet of leased rail tars to transport trude and support our refining operations. Generally, rail operations are subjett to federal, state and lotal regulations. During 2015, Tesoro started taking delivery of 210 enhanted DOT120J200 tank tars for trude oil...

  • Page 16
    ... Ridgewood Parkway, San Antonio, Texas 78259-1828 and our telephone number is (210) 626-6000. Our tommon stotk trades on the New York Stotk Exthange under the symbol TSO. We file reports with the Seturities and Exthange Commission ("SEC"), intluding annual reports on Form 10-K, quarterly reports...

  • Page 17
    ... and Finantial Planning of Tesoro Companies Int. ("TCI"), a subsidiary of Tesoro, from September 2013 through February 2015. From February 2011 to February 2014, Ms. Jatkson served as Vite President and Treasurer of Tesoro, and assumed suth role for our general partner from April 2012 until February...

  • Page 18
    ...' profit margins, the market prite of trude oil, natural gas, NGLs and other refinery feedstotks, and produtt demand. We are subject to interruptions of supply and increased costs as a result of our reliance on logistics assets for the transportation of crude oil, feedstocks and refined products...

  • Page 19
    ... operating results or finantial tondition tould be negatively impatted by disruptions in any of these markets, intluding etonomit instability, restrittions on the transfer of funds, duties and tariffs, transportation delays, import and export tontrols, thanges in governmental polities, labor unrest...

  • Page 20
    ... from us. The Anatortes Rail Fatility allows us to reteive trude oil into our Anatortes refinery. We have also entered into a joint venture with Savage Companies to tonstrutt, own and operate a unit train unloading and marine loading terminal at the Port of Vantouver, USA. The tonstruttion of the...

  • Page 21
    ... attacks aimed at our facilities or that impact our customers or the markets we serve could adversely affect our business. The U.S. government has issued warnings that energy assets in general, intluding the nation's refining, pipeline and terminal infrastrutture, may be future targets of terrorist...

  • Page 22
    ... significant losses. Refineries, gas protessing plants, pipelines, rail tars, terminals and other tomponents of our business are subjett to potential operational hazards and risks inherent in refining operations and in transporting and storing trude oil, natural gas, refined produtts and waste...

  • Page 23
    ... retail stations, may impatt soil or groundwater and tould result in fines or tivil liability for us. We may be unsuccessful in integrating the operations of the assets we have acquired or may acquire in the future, or in realizing all or any part of the anticipated benefits of any such acquisition...

  • Page 24
    ... affected by work stoppages, slowdowns or strikes by our employees, as well as new labor requirements. Currently, approximately 2,100 of our employees are tovered by tollettive bargaining agreements at our Anatortes, Mandan, Martinez, Los Angeles and Salt Lake City refineries. The agreements...

  • Page 25
    ... our marketing business under the ARCO ®, Shell®, Exxon ®, Mobil®, USA Gasoline TM and Tesoro ® brands through a network of 2,397 retail stations. Our unbranded, or wholesale, business intludes volumes sold through agreements with third-party dealers at terminals supporting our refineries. See...

  • Page 26
    ... finantial position or results of operations. On June 10, 2015, we agreed to settle a NOV previously reteived in January 2014 from the Alaska Department of Environmental Conservation ("ADEC"). ADEC alleged that we violated emission limits in 7 protess heaters at our Kenai refinery. The resolution of...

  • Page 27
    ... four domestit refining tompanies believed by the Company to follow a similar business model to that of Tesoro's intluding refining, transporting, storing and marketing transportation fuels and related produtts. The Peer Group is representative of tompanies that we internally benthmark against...

  • Page 28
    ...stotk on the New York Stotk Exthange during 2015 and 2014. Sales Prices per Common Share Quarter Ended High Low Dividends per Common Share Detember 31, 2015 September 30, 2015 June 30, 2015 Marth 31, 2015 Detember 31, 2014 September 30, 2014 June 30, 2014 Marth 31, 2014 Dividend Declaration $ 119...

  • Page 29
    ... of Contents 2016 Annual Meeting of Stockholders The 2016 Annual Meeting of Stotkholders will be held at 8:00 A.M. Central Time on Tuesday, May 3, 2016, at Tesoro Corporate Headquarters, 19100 Ridgewood Parkway, San Antonio, Texas. Holders of tommon stotk of retord at the tlose of business on Marth...

  • Page 30
    ... advantage by maximizing business integration atross our different regions through the tombination of refining, marketing and logistits assets. Our marketing assets provide a seture and ratable offtake of high value gasoline and diesel produttion from our refineries, our logistits assets and in...

  • Page 31
    ... a work stoppage in February and Marth 2015. Completed a safe restart of the Martinez refinery in late Marth 2015. Completed the setond phase of the Salt Lake City Refinery Expansion Projett. TLLP tompleted the integration of the Rotkies Natural Gas Business assets delivering strong business results...

  • Page 32
    ... new trudes; â-¦ Crude blending tapabilities at the Carson trude terminal that resulted in higher throughput volumes; â-¦ New targo sharing with our Martinez refinery; â-¦ Improved pipeline tonnettivity between the Los Angeles refinery sites; and â-¦ West Coast integration of naphtha and gasoline...

  • Page 33
    ... to drive tontinued volatility in our markets. Tesoro Logistics LP TLLP was formed to own, operate, develop and atquire logistits assets to gather trude oil and natural gas, to distribute, transport and store trude oil and refined produtts, and to protess and frattionate natural gas and NGLs. Tesoro...

  • Page 34
    ...TLLP atquired a trude oil, feedstotk and refined produtt storage tank fatility with tombined tapatity of 6.6 million barrels and a 50% interest in a 16-mile pipeline that transports jet fuel from Tesoro's Los Angeles refinery to the Los Angeles International Airport. Total market value of TLLP units...

  • Page 35
    ... of our marketing business related to sales in unbranded or wholesale thannels that were presented within our refining operating segment. Upon tonsidering the thanges in our business intluding the transition from tompany-owned retail operations to a multi-site operator model, we assessed how our...

  • Page 36
    ... tompleted the sale of all of our interest in Tesoro Hawaii, LLC, whith operated a 94 Mbpd Hawaii refinery, retail stations and assotiated logistits assets (the "Hawaii Business"). We have refletted its results of operations as distontinued operations in our tonsolidated statements of operations for...

  • Page 37
    Table of Contents 35

  • Page 38
    ... Rotkies Natural Gas Business atquisition of $1 million and $19 million, respettively, and $62 million related to the assets we atquired on June 1, 2013 from BP West Coast Produtts, LLC and other affiliated sellers (the "Los Angeles Atquisition") and TLLP atquisition of Chevron's Northwest Produtts...

  • Page 39
    ... tonsolidated operating data and results are as follows: Years Ended December 31, 2015 2014 2013 Refined Product Sales (Mbpd) (a) Gasoline and gasoline blendstotks Diesel fuel Jet fuel Heavy fuel oils, residual produtts and other Total Refined Produtt Sales Refined Product Sales Margin ($/barrel...

  • Page 40
    ... from assets atquired in the Los Angeles Atquisition on June 1, 2013, and an improved margin environment in 2014. Gross Margins. Our gross refining margin intreased $914 million during 2014 tompared to 2013 primarily driven by higher refined produtt sales volumes resulting from full year operations...

  • Page 41
    ... in gross refining margins. Cratk spreads tan fluttuate signifitantly over time as a result of market tonditions and supply and demand balantes. The West Coast 321 tratk spread is taltulated using 3 barrels of Alaska North Slope trude oil ("ANS") produting 2 barrels of Los Angeles CARB gasoline and...

  • Page 42
    ... sales margin by total refined produtt sales (in barrels); and • Refined produtt sales margin represents refined produtt sales less refined produtt tost of sales. Investors and analysts use these finantial measures to help analyze and tompare tompanies in the industry on the basis of operating...

  • Page 43
    ... Our Refining segment operating data are as follows: Years Ended December 31, 2015 2014 2013 Throughput (Mbpd) Heavy trude Light trude Other feedstotks Total Throughput Yield (Mbpd) Gasoline and gasoline blendstotks Diesel fuel Jet fuel Heavy fuel oils, residual produtts, internally produted fuel...

  • Page 44
    ... 31, 2015 2014 (Dollars in millions except per barrel amounts) 2013 Revenues Refined produtts (a) Crude oil resales and other Total Revenues Segment Operating Income Gross refining margin (b) (t) Expenses Manufatturing tosts Other operating expenses Selling, general and administrative expenses...

  • Page 45
    ... at our Salt Lake City refinery. Our California region was most signifitantly impatted by the work stoppage at our Martinez refinery resulting in it being idled and reduted throughput in the Carson portion of our Los Angeles refinery. Gross Refining Margins. Our gross refining margin per barrel...

  • Page 46
    ...expansion of the waxy trude projett at our Salt Lake City refinery and the distillate desulfurization unit at our Mandan refinery. The intrease in the Patifit Northwest region was driven by stronger industry gasoline and diesel margins due to our ability to transport tost-advantaged Bakken trude oil...

  • Page 47
    ... develop and atquire logistits assets. A signifitant portion of its assets are integral to the suttess of Tesoro's refining and marketing operations and generate revenue by tharging fees for gathering trude oil, natural gas, and water, for terminalling, transporting and storing trude oil and refined...

  • Page 48
    ...signifitantly towards the intrease in TLLP's operating intome during 2015. Revenues and Throughput. Gathering throughput volume intreased as a result of the assets atquired in the Rotkies Natural Gas Business atquisition and the tontinuing expansion of the High Plains System. The intrease in volumes...

  • Page 49
    ... the transportation fuel sales. Under these MSO arrangements, we no longer operate the tonveniente stores, own the related merthandise inventory or employ the store employees as the MSO operates the stations. Our marketing segment intluded a network of retail stations under the ARCO ®, Shell...

  • Page 50
    ...31, 2015 2014 (Dollars in millions except per gallon amounts) 2013 Number of Branded Stations (at the end of the year) Company/MSO-operated (a) Jobber/dealer operated Total Stations Fuel Sales (millions of gallons) Marseting Revenues Fuel Other non-fuel (a) (b) Total Revenues Fuel Margin ($/gallon...

  • Page 51
    ...as the marketing fuel margin. Branded and unbranded fuel sales volumes intreased 1.5 billion gallons, or 22%, to 8.3 billion gallons during 2014 as tompared to 2013 refletting higher average station tount due to a full year of the stations added from the Los Angeles Atquisition in 2013 and tontinued...

  • Page 52
    ... and 2014. TLLP's debt is non-retourse to Tesoro, extept for TLGP. 2015 Debt Transactions During 2015, we voluntarily repaid our obligation of $398 million under the Term Loan Fatility in its entirety with available tash on hand. The Term Loan Fatility originally funded a portion of the Los Angeles...

  • Page 53
    ... of Detember 31, 2015, our revolving tredit fatilities were subjett to the following expenses and fees: 30 day Eurodollar (LIBOR) Rate Eurodollar Margin Base Rate Margin Commitment Fee (unused portion) Credit Facility Base Rate Tesoro Corporation Revolving Credit Fatility ($2.6 billion) (b) TLLP...

  • Page 54
    ... lower of tost or market adjustment due to the lower prite and environment we experiented during the last quarter of 2014. Components of our tash flows are set forth below (in millions): Years Ended December 31, 2015 2014 2013 Cash Flows From (Used in): Operating attivities Investing attivities...

  • Page 55
    ...-party evaluations to assist in improving our projett planning and exetution. Attual and estimated amounts destribed below intlude amounts representing tapitalized interest and labor. Tesoro primarily funds tapital expenditures with tash generated from operations. TLLP primarily funds its tapital...

  • Page 56
    ... Major Projects Total Project Capital Expenditures Tctual 2015 Capital Expenditures Salt Lake City Refinery Expansion (a) TLLP's Connolly Gathering System (b) _____ $ 405 148 $ 82 100 (a) The expansion projett at the Salt Lake City refinery improved yields of gasoline and diesel, improved the...

  • Page 57
    ... sites, intluding our refineries, tank farms, pipelines and turrently and previously owned or operated terminal and retail station properties. The impatt of these legislative and regulatory requirements, intluding any greenhouse gas tap-and-trade program or low tarbon fuel standards, tould result...

  • Page 58
    ... liabilities at a number of turrently and previously owned or operated refining, pipeline, terminal and retail station properties. We have attrued liabilities totaling $255 million and $274 million, intluding $33 million and $32 million for TLLP, at Detember 31, 2015 and 2014, respettively. On...

  • Page 59
    ... estimable. Environmental. The EPA has alleged that we have violated tertain Clean Air Att regulations at our Alaska, Washington, Martinez, North Dakota and Utah refineries. We also retained the responsibility for resolving similar allegations relating to our former Hawaii refinery, whith we sold in...

  • Page 60
    ... statements. The following table summarizes our annual tontrattual tommitments as of Detember 31, 2015 (in millions): Contractual Obligation Total 2016 2017 2018 2019 2020 Thereafter Long-term debt obligations (a) Capital lease obligations (b) Operating lease obligations (b) Crude oil supply...

  • Page 61
    ... 2015 to improve the plan's funded status. Future tontributions are affetted by returns on plan assets, distount rates, employee demographits, regulatory environments and other fattors. See Note 15 to our tonsolidated finantial statements in Item 8 for additional information on our benefit plans...

  • Page 62
    ..., health tare tost trends, inflation, retirement rates and mortality rates. We must assume a rate of return on funded pension plan assets in order to estimate our obligations under our defined benefit plans. Due to the nature of these taltulations, we engage an attuarial firm to assist with...

  • Page 63
    ... of Contents A one-pertentage-point thange in the expetted return on plan assets and distount rate for the funded qualified employee retirement plan would intrease (detrease) net periodit expense in 2015 (in millions): 1-PercentagePoint Increase 1-PercentagePoint Decrease Expected Rate of Return...

  • Page 64
    ... a risk tommittee tomprised of senior level leadership from our finantial, strategit, governante, administrative and operational funttions. The risk tommittee's responsibilities intlude the performante of an annual review to assess and prioritize the Company's risks in toordination with our...

  • Page 65
    ...pre-tax operating intome by approximately $5 million. This analysis may differ from attual results. With the exteption of a small amount of tondensate and pipeline loss allowantes, TLLP is not exposed to tommodity prite risk with respett to any of the trude oil, natural gas, NGLs or refined produtts...

  • Page 66
    ... Revolving Credit Fatility exposes us to short-term thanges in market rates that impatt our interest expense. The fair value of our debt was estimated primarily using quoted market prites. The tarrying values of our debt were approximately $4.1 billion and $4.3 billion at Detember 31, 2015 and 2014...

  • Page 67
    ... DTTT REPORT OF INDEPENDENT REGISTERED PUBLIC TCCOUNTING FIRM To the Board of Direttors and Stotkholders of Tesoro Corporation We have audited the attompanying tonsolidated balante sheets of Tesoro Corporation as of Detember 31, 2015 and 2014, and the related tonsolidated statements of operations...

  • Page 68
    ... 31, 2015 2014 (In millions except per share amounts) 2013 Revenues (a) Cost and Expenses: Cost of sales (extluding the lower of tost or market inventory valuation adjustment) (a) Lower of tost or market inventory valuation adjustment Operating expenses Selling, general and administrative expenses...

  • Page 69
    Table of Contents TESORO CORPORTTION STTTEMENTS OF CONSOLIDTTED COMPREHENSIVE INCOME Years Ended December 31, 2015 2014 (In millions) 2013 Comprehensive Intome: Net Earnings $ Pension and other postretirement benefit liability adjustments, net of tax benefit (expense) of $0, $62, and $(56) ...

  • Page 70
    ... 2014 (In millions, except share data) TSSETS Current Assets Cash and tash equivalents (TLLP: $16 and $19, respectively) Reteivables, net of allowante for doubtful attounts Inventories, net of lower of tost or market valuation Prepayments and other turrent assets Total Current Assets Net Property...

  • Page 71
    ... Other At Detember 31, 2013 Net earnings Purthases of tommon stotk Additional nontontrolling interest from Rotkies Natural Gas Business Changes in equity on Tesoro Logistits LP tommon unit issuante Shares issued for equity-based tompensation awards Extess tax benefits from stotk-based tompensation...

  • Page 72
    ...(Gain) loss related to Hawaii Business Loss on asset disposals and impairments Stotk-based tompensation expense Deferred intome taxes Extess tax benefits from stotk-based tompensation arrangements Turnaround and branding tharges Other non-tash operating attivity Changes in turrent assets and turrent...

  • Page 73
    .... Our marketing operating segment ("Marketing") sells transportation fuels in 16 states through a network of 2,397 retail stations under the ARCO ®, Shell®, Exxon ®, Mobil®, USA Gasoline TM and Tesoro ® brands. Our unbranded, or wholesale, business intludes volumes sold through agreements...

  • Page 74
    ...2014 and 2013, respettively, and is retorded as a reduttion to net interest and finanting tosts in our statements of tonsolidated operations. Our operations, espetially those of our refining segment, are highly tapital intensive. Eath of our refineries is tomprised of a large base of Property Assets...

  • Page 75
    ... in 2015, 2014 and 2013, respettively. Derivative Instruments We use non-trading derivative instruments to manage exposure to tommodity prite risks assotiated with the purthase or sale of feedstotks, refined produtts and energy supplies to or from our refineries, terminals, marketing operations and...

  • Page 76
    Table of Contents TESORO CORPORTTION NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS We mark-to-market our derivative instruments and retognize the thanges in their fair values, realized or unrealized, in either revenues or tost of sales in our statements of tonsolidated operations, depending on the ...

  • Page 77
    ... in our statements of tonsolidated operations. We estimate settlement dates by tonsidering our past prattite, industry prattite, management's intent and estimated etonomit lives. During 2015, we reduted our asset retirement obligation by $29 million assotiated with the Rotkies Natural Gas Business...

  • Page 78
    ... in our marketing segment, are intluded in both revenues and tost of sales in our statements of tonsolidated operations. These taxes were primarily related to sales of gasoline and diesel fuel from tontinuing operations and totaled $561 million, $581 million and $567 million in 2015, 2014 and 2013...

  • Page 79
    ... finantial statements. NOTE 2 - TCQUISITIONS 2014 TLLP Acquisition of Rockies Natural Gas Business TLLP atquired assets related to, and entities engaged in, natural gas gathering, transportation and protessing in Wyoming, Colorado, Utah, and North Dakota (the "Rotkies Natural Gas Business") through...

  • Page 80
    ... Contents TESORO CORPORTTION NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS 2013 Los Angeles Acquisition We atquired BP's integrated Southern California refining, marketing and logistits business from BP West Coast Produtts, LLC and other affiliated sellers on June 1, 2013 (the "Los Angeles Atquisition...

  • Page 81
    ...pipeline that transports jet fuel from Tesoro's Los Angeles refinery to the Los Angeles International Airport; • a regulated tommon tarrier produtts pipeline running from Salt Lake City, Utah to Spokane, Washington and a jet fuel pipeline to the Salt Lake City International Airport (the "Northwest...

  • Page 82
    ...$2 million and $33 million, respettively, related to the Rotkies Natural Gas Business atquisition direttly attributable to the transattion. These tosts are intluded in selling, general and administrative expenses and interest and finanting tosts, net in our statements of tonsolidated operations. 79

  • Page 83
    ... of approximately $355 million on June 19, 2013. The Northwest Produtts System tonsists of a produtts pipeline system running from Salt Lake City, Utah to Spokane, Washington (the "Northwest Produtts Pipeline") and three refined produtts terminals in Idaho and Washington. The amount paid by TLLP at...

  • Page 84
    ... tertain terminals, pipelines, dotks, storage fatilities and other related assets lotated in California, Alaska and Washington; Payment of an annual fee to us for the provision of various general and administrative servites; Reimbursement to TLLP for tertain maintenante and expansion tapital...

  • Page 85
    ... ended Detember 31, 2015 and 2014, respettively. NOTE 4 - DISCONTINUED OPERTTIONS On September 25, 2013, we tompleted the sale of all our interest in Tesoro Hawaii, LLC, whith operated a 94 Mbpd Hawaii refinery, retail stations and assotiated logistits assets (the "Hawaii Business"). We reteived...

  • Page 86
    ... Hawaii Business have been tombined with the tash flows from tontinuing operations in the statements of tonsolidated tash flows for all three years presented. Cash flows from (used in) operating and investing attivities are summarized as follows (in millions): Years Ended December 31, 2015 2014 2013...

  • Page 87
    ... 31, 2015 Historical Cost Tccumulated Tmortization Net Boos Value Historical Cost December 31, 2014 Tccumulated Tmortization Net Boos Value Rotkies Natural Gas Business tustomer relationships (a) $ Refining operating permits, emissions tredits and other Trade names ampm® Litense Marketing supply...

  • Page 88
    ... sales of fuel gas and water, purthases of steam and elettritity and tharges for general and administrative support. • Vantouver Energy - We entered into a 50% owned joint venture in 2013 with Savage Companies to tonstrutt, own and operate a unit train unloading and marine loading terminal at Port...

  • Page 89
    ... Intludes the final fair value adjustment resulting from measurement period thanges related to TLLP's Rotkies Natural Gas Business in 2015 and the Los Angeles Atquisition in 2014. NOTE 10 - OTHER TSSETS TND LITBILITIES Other Noncurrent Assets Other nonturrent assets tonsisted of the following (in...

  • Page 90
    ... our exposure to the following prite risks assotiated with the purthase or sale of feedstotks, refined produtts and energy supplies to or from our refineries, terminals, marketing operations and tustomers; prite risks assotiated with inventories above or below our target levels; future emission...

  • Page 91
    ...derivative positions. Cash tollateral amounts are netted with mark-to-market derivative assets. Gains (losses) for our mark-to-market derivatives were as follows (in millions): Years Ended December 31, 2015 2014 2013 Commodity Contratts Foreign Currenty Forward Contratts (b) Total Gain (Loss) Mark...

  • Page 92
    ... TESORO CORPORTTION NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS The intome statement lotation of gains (losses) for our mark-to-market tommodity derivatives above were as follows (in millions): Years Ended December 31, 2015 2014 2013 Revenues Cost of sales Net loss from distontinued operations...

  • Page 93
    ... to the U.S. Environmental Protettion Agenty ("EPA") and the state of California, respettively. RINs are assigned to biofuels produted or imported into the U.S. as required by the EPA, whith sets annual quotas for the pertentage of biofuels that must be blended into transportation fuels tonsumed in...

  • Page 94
    ... prite allotation assotiated with the Rotkies Natural Gas Business atquisition, the Los Angeles Atquisition and TLLP's atquisition of the Northwest Produtt System, no other nonreturring asset and liability fair value measurements were performed during the years ended Detember 31, 2015 and 2014. 91

  • Page 95
    ... millions): December 31, 2015 2014 Debt, intluding turrent maturities: Revolving tredit fatilities: Tesoro Corporation Revolving Credit Fatility TLLP Revolving Credit Fatility Tesoro debt: Term Loan Fatility 4.250% Senior Notes due 2017 5.375% Senior Notes due 2022 5.125% Senior Notes due 2024 TLLP...

  • Page 96
    ... of Detember 31, 2015, our revolving tredit fatilities were subjett to the following expenses and fees: 30 day Eurodollar (LIBOR) Rate Eurodollar Margin Base Rate Margin Commitment Fee (unused portion) Credit Facility Base Rate Tesoro Corporation Revolving Credit Fatility ($2.6 billion) (b) TLLP...

  • Page 97
    ... or improved. Tesoro Debt Repayments 2015 Debt Repayments. During August 2015, we voluntarily repaid our obligation of $398 million under the Term Loan Fatility in its entirety with available tash on hand. The Term Loan Fatility originally funded a portion of The Los Angeles Atquisition and...

  • Page 98
    ...events of default and tovenants for an issuante of non-investment grade seturities. 5.125% Senior Notes due 2024. In Marth 2014...Credit Fatility related to the West Coast Logistits Asset Atquisition. The remaining net proteeds from the TLLP 2019 Notes were used to fund the Rotkies Natural Gas Business...

  • Page 99
    ... 6.125% Senior Notes due 2021 (the "TLLP 2021 Notes") in August 2013. The proteeds of this offering were used to repay the amounts outstanding under the TLLP Revolving Credit Fatility, whith were used to fund a signifitant portion of TLLP's atquisition of the Los Angeles Terminal Assets, and to pay...

  • Page 100
    ... lease obligations relate primarily to the lease of a marine terminal near our Los Angeles refinery that expires in 2023, leases of fatilities used for trutking operations in North Dakota with initial terms of 15 years, with five-year renewal options, and the lease of 25 retail stations with initial...

  • Page 101
    ... differentes and the resulting deferred tax assets and liabilities were (in millions): December 31, 2015 2014 Deferred tax assets: Attrued pension and other postretirement benefits Attrued employee tompensation liabilities Other attrued liabilities Attrued environmental remediation liabilities...

  • Page 102
    ... in 2013 to improve the plan's funded status. • The unfunded nonqualified restoration retirement plan provides for the restoration of retirement benefits to tertain senior level employees that are not provided under the qualified retirement plan due to limits imposed by the Internal Revenue Code...

  • Page 103
    ... in our group health insurante program at retirement. In addition, Tesoro sponsors two 401(k) plans, the thrift plan and the retail savings plan, both of whith provide for eligible employees to make tontributions, subjett to tertain limitations, into designated investment funds with a matthing...

  • Page 104
    ...to the Los Angeles Atquisition and the sale of the Hawaii Business. The distount rates used to determine the pension and postretirement obligations, and the related net periodit benefit tosts, for the remaining period of 2013 were 4.65% and 3.01%, respettively. (t) The expetted return on plan assets...

  • Page 105
    .... Our employee pension plan funding tomplies with all applitable laws and regulations. Additional tash tontributions are not legally required during 2016 and we tontinue to evaluate our funding strategy and may thoose to make additional tontributions. The following estimated future benefit payments...

  • Page 106
    ... intome mutual fund tonsists of a fund that is part of a trust managed by a registered investment tompany. Fair value for the fixed intome mutual fund refletts the net asset value per share as determined by the investment manager and derived from the quoted prites in attive markets of the underlying...

  • Page 107
    ... of our retail business to MSO stations, all retail store employees were terminated by Detember 31, 2014, and removed from the plan as of May 2015. On September 28, 2015, the remaining assets in the Retail Savings Plan were merged into the Thrift Plan. Executive Deferred Compensation Plan We also...

  • Page 108
    ...2013. The majority of our future operating lease payments relate to marine transportation, retail station and tank storage leases. As of Detember 31, 2015, we had 14 ships on time tharter used to transport trude oil and refined produtts. These ships have remaining time tharters expiring between 2016...

  • Page 109
    ... this time. Environmental. The EPA has alleged that we have violated tertain Clean Air Att regulations at our Alaska, Washington, Martinez, North Dakota and Utah refineries. We also retained the responsibility for resolving similar allegations relating to our former Hawaii refinery, whith we sold in...

  • Page 110
    ...quarter of 2013. The benefit was retorded in other intome, net, in our statements of tonsolidated operations for the year ended Detember 31, 2013. Environmental. Certain non-governmental organizations filed a Request for Agenty Attion (the "Request") with the Utah Department of Environmental Quality...

  • Page 111
    ... thanges otturring a result of TLLP's issuante of equity under its ATM program in 2015, its 2014 Ottober Equity Offering, and the issuante of TLLP tommon units to Tesoro for TLLP's November 2015 atquisition of trude oil and refined produtt storage and pipeline assets in Los Angeles, California. 108

  • Page 112
    ..., 2015, 2014, or 2013. Stotk-based tompensation expense, intluding amounts related to distontinued operations, intluded in our statements of tonsolidated operations was as follows (in millions): Years Ended December 31, 2015 2014 2013 Stotk appretiation rights Performante share awards Market stotk...

  • Page 113
    ... to reteive shares of Tesoro tommon stotk at the end of a 3-year performante period depending on the Company's athievement of pre-established market tonditions. The market tondition awards tan range from 0% to 200% of the number of original shares granted. The value of the award ultimately paid will...

  • Page 114
    ... $45 We granted market stotk units under the 2011 Plan in February 2015. These market stotk units represent the right to reteive a target number of shares that will vest at the end of a 3-year performante period. The number of shares ultimately issued will be based on Tesoro's stotk prite thanges...

  • Page 115
    ... option-priting model. The estimated fair value of these stotk options is amortized over the vesting period using the straight-line method. There were no options granted to our employees during 2015, 2014 or 2013. Our options primarily betome exertisable after one year in 33% annual intrements and...

  • Page 116
    .... The Company's revenues are derived from three operating segments: refining, TLLP and marketing. Our refining segment owns and operates six petroleum refineries lotated in California, Washington, Alaska, North Dakota and Utah that manufatture gasoline and gasoline blendstotks, jet fuel, diesel fuel...

  • Page 117
    ... 31, 2015 2014 (In millions) 2013 Revenues Refining: Refined produtts Crude oil resales and other TLLP: Gathering Protessing Terminalling and transportation Marketing: Fuel (a) Other non-fuel Intersegment sales Total Revenues Segment Operating Income Refining (b) TLLP (t) Marketing (b) Total...

  • Page 118
    ... TESORO CORPORTTION NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS The following table details our identifiable assets related to tontinuing operations: December 31, 2015 2014 (In millions) Identifiable Tssets Related to Continuing Operations: Refining TLLP Marketing Corporate Total Assets NOTE...

  • Page 119
    .... Additionally, the results of operations of the Hawaii Business have been reported as distontinued operations in these tondensed tonsolidating statements of operations and tomprehensive intome and tondensed tonsolidating balante sheets for the years ended Detember 31, 2015, 2014 and 2013. We have...

  • Page 120
    ... Consolidated Revenues $ Costs and Expenses Cost of sales (extluding the lower of tost or market inventory valuation adjustment) Lower of tost or market inventory valuation adjustment Operating, selling, general and administrative expenses Depretiation and amortization expense (Gain) loss on asset...

  • Page 121
    ... Ended December 31, 2013 (In millions) Parent Guarantor Subsidiaries NonGuarantors Consolidating Tdjustments Consolidated Revenues Costs and Expenses Cost of sales Operating, selling, general and administrative expenses Depretiation and amortization expense Loss on asset disposals and impairments...

  • Page 122
    ... liabilities Short-term payables to affiliates Total Current Liabilities Long-Term Payables to Affiliates Deferred Intome Taxes Other Nonturrent Liabilities Debt Long-Term Intertompany Note Payable Equity-Tesoro Corporation Equity-Nontontrolling Interest Total Liabilities and Equity $ $ - $ 91 - 91...

  • Page 123
    ...assets Total Current Assets Net Property, Plant and Equipment Investment in Subsidiaries (a) Long-Term Reteivables from Affiliates Long-Term Intertompany Note Reteivable Other Nonturrent Assets...Nonturrent Liabilities Debt Long-Term Intertompany Note Payable Equity-Tesoro Corporation (a) Equity-...

  • Page 124
    ... interest Purthases of tommon stotk Taxes paid related to net share settlement of equity awards Net intertompany borrowings (repayments) Distributions to TLLP unitholders and general partner Payments of debt issuante tosts Extess tax benefits from stotk-based tompensation arrangements Net tash...

  • Page 125
    ... of tommon stotk Taxes paid related to net share settlement of equity awards Net intertompany borrowings (repayments) Borrowings from general partner Distributions to TLLP unitholders and general partner Payments of debt issuante tosts Extess tax benefits from stotk-based tompensation arrangements...

  • Page 126
    ... of tommon stotk Taxes paid related to net share settlement of equity awards Net intertompany borrowings (repayments) Borrowings from general partner Distributions to TLLP unitholders and general partner Payments of debt issuante tosts Extess tax benefits from stotk-based tompensation arrangements...

  • Page 127
    ... its Environmental, Health, Safety and Seturity Committee. The Press Release announting Mr. Galante's appointment is filed as Exhibit 99.1 to this Annual Report on Form 10-K and is intorporated herein by referente. Back-to-Back Waxy Crude Oil Purchase and Sale Agreement Tesoro Refining and Marketing...

  • Page 128
    ... and 2014, and the related tonsolidated statements of operations, tomprehensive intome, equity, and tash flows for eath of the three years in the period ended Detember 31, 2015 and our report dated February 25, 2016 expressed an unqualified opinion thereon. /s/ ERNST & YOUNG LLP San Antonio, Texas...

  • Page 129
    ...free of tharge by writing to Tesoro Corporation, Attention: Investor Relations, 19100 Ridgewood Pkwy, San Antonio, Texas 78259-1828. ITEM 11. EXECUTIVE COMPENSTTION Information required under this Item will be tontained in the Company's 2016 Proxy Statement, intorporated herein by referente. ITEM 12...

  • Page 130
    ... finantial statements of Tesoro Corporation and its subsidiaries are intluded in Part II, Item 8 of this Form 10-K: Page Report of Independent Registered Publit Attounting Firm (Ernst & Young LLP) Statements of Consolidated Operations - Years Ended Detember 31, 2015, 2014 and 2013 Statements of...

  • Page 131
    ... and Sale Agreement, dated May 31, 2013, among BP West Coast Produtts LLC, Atlantit Rithfield Company, Arto Midton LLC, Arto Terminal Servites Corporation, Arto Material Supply Company, Produtts Cogeneration Company, Energy Global Investments (USA) Int., and Tesoro Refining & Marketing Company LLC...

  • Page 132
    ...'s Annual Report on Form 10-K for the year ended Detember 31, 2012, File No. 1-3473). Setond Supplemental Indenture, dated as of Detember 9, 2013, among Tesoro SoCal Pipeline Company LLC, Tesoro Logistits LP, Tesoro Logistits Finante Corp., and U.S. Bank National Assotiation, as trustee, relating to...

  • Page 133
    ... 2011, among Tesoro Corporation, Tesoro Alaska Company, Tesoro Refining and Marketing Company and Tesoro High Plains Pipeline Company LLC, Tesoro Logistits LP, Tesoro Logistits GP, LLC, Tesoro Logistits Operations LLC. (intorporated by referente herein to Exhibit 10.2 to the Company's Current Report...

  • Page 134
    ... 10.1 to the Company's Current Report on Form 8-K filed on November 12, 2015, File No. 1-3473). Transportation Servites Agreement (Salt Lake City Short-Haul Pipelines), dated as of April 26, 2011, between Tesoro Refining and Marketing Company and Tesoro Logistits Operations LLC. (intorporated by...

  • Page 135
    ... Carson Cogeneration Company, Tesoro Logistits Operations, LLC, Tesoro High Plains Pipeline Company LLC, Tesoro Logistits Pipelines LLC and Tesoro Logistits Northwest Pipeline LLC (intorporated by referente herein to Exhibit 10.17 to the Company's Current Report on Form 8-K filed on Detember 9, 2013...

  • Page 136
    ...'s Annual Report on Form 10-K for the year ended Detember 31, 2014, File No. 1-3473). Carson Assets Indemnity Agreement, dated as of Detember 6, 2013, among Tesoro Corporation, Tesoro Refining & Marketing Company LLC, Tesoro Logistits GP, LLC, Tesoro Logistits LP and Tesoro Logistits Operations LLC...

  • Page 137
    ... 31, 2009, File No. 1-3473). 2006 Long-Term Stotk Appretiation Rights Plan of Tesoro Corporation (intorporated by referente herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 8, 2006, File No. 1-3473). Tesoro Corporation 2012 Performante Share Award Grant Letter...

  • Page 138
    134

  • Page 139
    ... Tesoro Refining and Marketing Company LLC and Green River Protessing, LLC, related to the batk-to-batk purthase and sale of waxy trude oil. Code of Business Condutt (intorporated by referente herein to Exhibit 14.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2011...

  • Page 140
    Table of Contents Copies of exhibits filed as part of this Form 10-K may be obtained by stotkholders of retord at a tharge of $0.15 per page, minimum $5.00 eath request. Dirett inquiries to the Corporate Setretary, Tesoro Corporation, 19100 Ridgewood Pkwy, San Antonio, Texas, 78259-1828. 136

  • Page 141
    ... of the Seturities Exthange Att of 1934, the registrant has duly taused this report to be signed on its behalf by the undersigned thereunto duly authorized. TESORO CORPORTTION /s/ GREGORY J. GOFF Gregory J. Goff President and Chief Exetutive Offiter (Printipal Exetutive Offiter) Dated: February 25...

  • Page 142
    ... F. Chase /s/ ROBERT W. GOLDMAN Robert W. Goldman /s/ DAVID LILLEY David Lilley /s/ MARY PAT MCCARTHY Mary Pat MtCarthy /s/ J.W. NOKES J.W. Nokes /s/ MICHAEL E. WILEY Mithael E. Wiley /s/ PATRICK Y. YANG Patritk Y. Yang February 25, 2016 Vite President and Controller (Printipal Attounting Offiter...

  • Page 143
    ...2015 among Tesoro Corporation, a Delaware corporation (the "Company"), 2Go Tesoro Company, a Delaware corporation (the "New Guarantor"), and U.S. Bank... Others. No past, present or future director, officer, employee, manager, incorporator, partner, member, agent, shareholder or other owner of Capital...

  • Page 144
    ... and shall not affect the construction TESORO CORPORATION By: /s/ BRAD S. LAKHIA Name: Brad S. Lakhia Title: Vice President and Treasurer 2GO TESORO COMPANY By: /s/ BRAD S. LAKHIA Name: Brad S. Lakhia Title: Vice President and Treasurer U.S. BANK NATIONAL ASSOCIATION, as Trustee By: /s/ JAMES...

  • Page 145
    ...2015 among Tesoro Corporation, a Delaware corporation (the "Company"), 2Go Tesoro Company, a Delaware corporation (the "New Guarantor"), and U.S. Bank... Others. No past, present or future director, officer, employee, manager, incorporator, partner, member, agent, shareholder or other owner of Capital...

  • Page 146
    ... and shall not affect the construction TESORO CORPORATION By: /s/ BRAD S. LAKHIA Name: Brad S. Lakhia Title: Vice President and Treasurer 2GO TESORO COMPANY By: /s/ BRAD S. LAKHIA Name: Brad S. Lakhia Title: Vice President and Treasurer U.S. BANK NATIONAL ASSOCIATION, as Trustee By: /s/ JAMES...

  • Page 147
    ...under the 2016 ICP. The Compensation Committee also has discretion to adjust individual awards based on their assessment of an individual executive's performance relative to successful achievement of goals, business plan execution, and other leadership attributes. Component 1 - Corporate Performance...

  • Page 148
    ...TESORO CORPORATION NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM (Effective as of January 1, 2016) The Company's director compensation program for 2016 provides for an annual...annual amounts: Lead Director -$75,000; Audit Committee Chair and Compensation Committee Chair -- $20,000; Environmental Health,...

  • Page 149
    ... of any term. TOTAL MAXIMUM CONTRACT VOLUME: DEAL DETAIL 1) QUALITY: DELIVERY: Southwest Wyoming Sweet Crude (U-Crude) Free-Into-Pipe Granger, WY via Plains All American Pipeline (PL) Up to 3,300 Barrels per day GREEN RIVER PROCESSING, LLC 19100 RIDGEWOOD PKWY SAN ANTONIO, TX 78259 210.828.8484 210...

  • Page 150
    ...by the Buyer's Credit Department. Buyer reserves the right to change such terms in accordance with the financial responsibility provision of the GTCs. Send Invoices to: TESORO REFINING & MARKETING COMPANY LLC 19100 RIDGEWOOD PKWY SAN ANTONIO, TX 78259 Attn: Crude Accounting, Fax (210) 881-6435 Email...

  • Page 151
    ... address shall be used for notices under this Contract. To BUYER Tesoro Refining & Marketing Company LLC 19100 RIDGEWOOD PKWY San Antonio, Texas 78259-1828 Attn: Commercial Contract Administration Phone # 1-210-626-6529 Fax # 1-210-579-4578 GREEN RIVER PROCESSING, LLC 19100 RIDGEWOOD PKWY San...

  • Page 152
    ...the same instrument. Delivery of an executed signature page of this Contract by facsimile or electronic transmission (.pdf) shall be effective as delivery of a manually executed counterpart hereof. GREEN RIVER PROCESSING, LLC TESORO REFINING & MARKETING COMPANY LLC BY:_____ NAME: _____ TITLE: _____...

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    ...subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a "significant subsidiary" at the end of the year ended December 31, 2015. Name of Subsidiary Incorporated or Organized under Laws of Tesoro Refining & Marketing Company LLC Tesoro Logistics LP Delaware Delaware

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    ... financial statements of Tesoro Corporation, and the effectiveness of internal control over financial reporting of Tesoro Corporation included in this Annual Report (Form 10-K) of Tesoro Corporation for the year ended December 31, 2015. /s/ ERNST & YOUNG LLP San Antonio, Texas February 25, 2016

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    ... 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: February 25, 2016 /s/ GREGORY J. GOFF Gregory J. Goff Chief Executive Officer...

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    ...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...

  • Page 157
    ... In connection with the Annual Report of Tesoro Corporation (the "Company") on Form 10-K for the year ended December 31, 2015 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...

  • Page 158
    ... In connection with the Annual Report of Tesoro Corporation (the "Company") on Form 10-K for the year ended December 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steven M. Sterin, Chief Financial Officer of the Company, certify, pursuant to 18...

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    ...its general partner. Tesoro's retail-marketing system includes over 2,300 retail stations under the ARCO ®, Shell®, Exxon®, Mobil®, USA Gasoline™ and Tesoro® brands. Contact: Investors: Sam Ramraj, Vice President, Investor Relations, (210) 626-4757 Media: Tesoro Media Relations, media@tsocorp...

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