TSO
$90.39
Tesoro Petroleum
$1.66
1.87%
Earnings Details
3rd Quarter September 2016
Monday, October 31, 2016 4:41:35 PM
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Summary

Tesoro Petroleum (TSO) Recent Earnings

Tesoro Petroleum (TSO) reported 3rd Quarter September 2016 earnings of $1.43 per share on revenue of $6.5 billion. The consensus earnings estimate was $1.42 per share on revenue of $6.9 billion. Revenue fell 15.5% compared to the same quarter a year ago.

Tesoro Corp is an independent petroleum refiner and marketer in the United States. Its subsidiaries operate through three business segments, transport crude oil and manufacture, transport and sell transportation fuels.

Results
Reported Earnings
$1.43
Earnings Whisper
-
Consensus Estimate
$1.42
Reported Revenue
$6.54 Bil
Revenue Estimate
$6.90 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

TESORO CORPORATION REPORTS 2016 THIRD QUARTER RESULTS

- Net earnings from continuing operations of $170 million, or $1.43 per diluted share, consolidated net earnings of $201 million and EBITDA of $577 million

- Total Refining throughput was 873 thousand barrels per day and utilization was 98%

- Logistics operating income grew 25% year-over-year to $133 million

- Marketing operating income of $273 million; total branded stations increased by 178 year-over-year

- Returned $215 million to shareholders; $150 million in share repurchases and $65 million in dividends

- Closed sale of Alaska Storage and Terminalling Assets to TLLP for $444 million

SAN ANTONIO - October 31, 2016 - Tesoro Corporation (TSO) today reported third quarter net earnings from continuing operations of $170 million, or $1.43 per diluted share, compared to net earnings from continuing operations of $759 million, or $6.13 per diluted share a year ago. Consolidated net earnings were $201 million for the third quarter 2016 compared to $799 million for the same period last year. EBITDA for the third quarter of 2016 was $577 million compared to $1.5 billion last year.

Three Months Ended
Nine Months Ended
September 30,
September 30,
(In millions, except per share data)
2016
2015
2016
2015
Segment Operating Income
Refining
$
52
$
899
$
475
$
1,843
TLLP
133
106
381
312
Marketing
273
379
661
724
Total Segment Operating Income
$
458
$
1,384
$
1,517
$
2,879
Net Earnings From Continuing Operations Attributable to $
170
$
759
$
646
$
1,490
Tesoro
Diluted EPS - Continuing Operations
$
1.43
$
6.13
$
5.37
$
11.85
Diluted EPS - Discontinued Operations
(0.01
)
-
0.08
(0.03
)
Total Diluted EPS
$
1.42
$
6.13
$
5.45
$
11.82

"We are pleased with the results for the quarter, which are attributable to our integrated business model and the continued execution of our operating improvements," said Greg Goff, Chairman and CEO. "Our refining operational reliability was very strong, resulting in 98% utilization. Combined with our continued growth in logistics and marketing business, this resulted in strong operating cash flows. Also, we returned $215 million to shareholders in the form of share repurchases and dividends. We are successfully delivering the improvements to operating income that we identified as part of our 2016 plan and remain committed to meeting or exceeding our target of $400 to $500 million."

For the third quarter, the Company recorded segment operating income of $458 million compared to segment operating income of $1.4 billion in the third quarter of 2015. Operating income in the third quarter 2016 grew in Logistics but was lower year-over-year in Refining and Marketing due to a stronger than normal market environment in 2015.

SEGMENT RESULTS

REFINING. Refining operating income was $52 million for the third quarter 2016 compared to $899 million in 2015 and segment EBITDA was $204 million compared to $1.0 billion in 2015. Third quarter 2016 operating income and segment EBITDA include a pre-tax benefit of $20 million related to a lower of cost or market (LCM) inventory adjustment offset by a $14 million charge related to a contract dispute with a supplier.

The Tesoro Index(a) was $12.45 per barrel for the third quarter with a gross refining margin of $9.08 per barrel or 73% capture of the Tesoro Index. For the year ago period, the Tesoro Index was $23.09 per barrel with a gross refining margin of $19.43 per barrel or 84% capture of the Tesoro Index. Refining margins in the third quarter 2016 were negatively impacted by rising RINs prices and the resulting transfer price to Marketing, and by a reduction of inventory in the quarter. Total refinery throughput for the quarter was 873 thousand barrels per day, or 98% utilization. Manufacturing costs in the third quarter of 2016 increased $0.27 per barrel over last year to $5.11 per barrel primarily due to the addition of the Dickinson Refinery and the Tesoro Great Plains assets in 2016.

LOGISTICS. Logistics operating income increased to $133 million in the third quarter 2016 from $106 million in 2015 and segment EBITDA increased to $181 million from $153 million last year. This performance was driven by year-over-year growth in Tesoro Logistics LP (TLLP) crude oil gathering, terminalling and transportation throughput as well as contributions from the acquisitions of Los Angeles Storage and Pipeline Assets last year and the Alaska Storage and Terminalling Assets completed during the quarter.

MARKETING. Marketing operating income was $273 million, segment EBITDA was $285 million and fuel margins were 14.9 cents per gallon in the third quarter 2016. This compares to operating income of $379 million, segment EBITDA of $390 million and fuel margins of 20.5 cents per gallon a year ago. The year-over-year comparison to operating results reflect the stronger than normal market conditions in 2015. However, consumer demand remained strong in the third quarter 2016 and the Company’s total branded stations increased by 178 over the year ago period.

CORPORATE AND OTHER

Corporate and unallocated costs for the third quarter 2016 were $98 million. Net interest was $70 million, which includes a $6 million write-off for the unamortized financing costs related to refinancing Tesoro’s revolving credit facility in the quarter. The effective tax rate was 32% for the quarter.

BALANCE SHEET AND CASH FLOW

Tesoro ended the third quarter with $1.4 billion in cash and cash equivalents compared to $942 million at the end of 2015. Tesoro has $2.0 billion of availability under its new revolving credit facility. Total debt, net of unamortized issuance costs, was $4.7 billion or 36% of total capitalization at the end of the third quarter. Excluding TLLP debt and equity, total debt was $1.3 billion or 19% of total capitalization.

Capital spending for the third quarter was $185 million for Tesoro and $42 million for TLLP. Turnaround expenditures for the third quarter were $42 million.

The Company executed 1.9 million of share repurchases for approximately $150 million in the third quarter and paid cash dividends of $65 million. Tesoro today announced that its board of directors has declared a quarterly cash dividend of $0.55 per share payable on December 15, 2016 to all holders of record as of November 30, 2016. Tesoro continues to maintain a strong balance sheet while investing in high-return capital projects and acquisitions as well as returning cash to shareholders.

STRATEGIC UPDATE

During the quarter, Tesoro closed both portions of the sale of the Alaska Storage and Terminalling Assets to TLLP for a total consideration of $444 million, which included cash proceeds of $400 million and the issuance of common and general partner units to Tesoro, valued at approximately $44 million.

Also during the quarter, the Company closed the acquisition of Virent, Inc., an innovative renewable fuels and chemicals company that supports Tesoro’s renewable fuels strategy of developing high-quality, lower-carbon, renewable feedstocks and blendstocks that can either be co-processed in existing refineries or blended seamlessly with traditional fuels. By generating valuable credits, this strategy may lower Tesoro’s compliance costs with the federal renewable fuel standard and California’s low carbon fuel standard.

On September 30, 2016, the Company entered into a new $2.0 billion senior secured revolving credit agreement. This new four-year cash flow credit facility replaces Tesoro’s previous $3.0 billion asset based credit facility, which was scheduled to mature in November 2019. While the new credit facility is currently guaranteed by certain Tesoro subsidiaries and collateral, these will be released and the facility will become unsecured upon Tesoro achieving an investment grade credit rating from either Moody’s Investors Service or S&P Global Ratings.

On October 14, 2016, S&P Global Ratings upgraded TLLP’s credit rating to BB+ with a stable outlook from the previous rating of BB. This rating is now the same rating as that of Tesoro and one level below investment grade.

At Tesoro’s 2015 Investor and Analyst Day, the Company provided its expectations for 2016. These included a Tesoro Index of $12 to $14 per barrel, Marketing segment fuel margins of 11? to 14? per gallon and crude oil differentials reflecting transportation costs. Through the first nine months of 2016, the Tesoro Index and Marketing fuel margins are in line with expectations. Crude oil differentials continue to be significantly narrower than expectations and have resulted in lower capture rates and lower refining profitability than the Company’s expectations. Tesoro continues to expect year-over-year improvements from higher utilization and operational efficiencies of $400 to $500 million.

The Company committed to delivering $400 to $500 million of annual improvements to operating income in 2016, consisting of $200 to $250 million in Refining, $175 to $200 million in Logistics and $25 to $50 million in Marketing. Even in the current challenging market environment, Tesoro remains confident in delivering these annual improvements to operating income. Through the first nine months of the year, estimated Refining and Marketing improvements are trending above the range. However, estimated Logistics improvements are trending slightly below the range, primarily due to the weak commodity price environment, which has impacted organic growth and volumes.

PUBLIC INVITED TO LISTEN TO ANALYST AND INVESTOR CONFERENCE CALL

Tesoro will live broadcast its conference call at 7:30 a.m. CT tomorrow morning to discuss third quarter 2016 results and other business matters. Interested parties may listen to the live conference call over the Internet by logging on to http://www.tsocorp.com.

2016 INVESTOR AND ANALYST DAY

Tesoro Corporation will host its 2016 Investor and Analyst Day at The St. Regis Hotel in New York City on December 6, 2016 at 9:00 a.m. ET. Because space is limited, reservations are required to attend and will be accepted on a first-come, first-serve basis. Interested parties can request an invitation by contacting the Investor Relations department via email at irelations@tsocorp.com. The presentation will also be webcast live at http://www.tsocorp.com.

ABOUT TESORO CORPORATION

Tesoro Corporation, a Fortune 100 company, is an independent refiner and marketer of petroleum products. Tesoro, through its subsidiaries, operates seven refineries in the western United States with a combined capacity of over 895,000 barrels per day and ownership in a logistics business, which includes an interest in Tesoro Logistics LP (TLLP) and ownership of its general partner. Tesoro’s retail-marketing system includes over 2,400 retail stations under the ARCO(R), Shell(R), Exxon(R), Mobil(R), USA Gasoline(TM), Rebel(TM) and Tesoro(R) brands.

This earnings release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation statements concerning: our operational, financial and growth strategies, including maintaining a strong balance sheet, investing in high-return capital projects and acquisitions, returning cash to our shareholders, and delivering our targeted annual improvements to operating income; our ability to successfully effect those strategies and the expected timing and results thereof; our financial and operational outlook, and ability to fulfill that outlook; our financial position, liquidity and capital resources; the expected benefits to us of our recent acquisition of Virent, Inc.; and expectations regarding annual improvements to operating income, including expectations with respect to each segment. For more information concerning factors that could affect these statements, see our annual report on Form 10-K, quarterly reports on Form 10-Q, and other public filings and press releases, available at www.tsocorp.com. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.

Contact:

Investors:

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

Media:

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

(a) As a performance benchmark, we utilize crack spreads and the Tesoro Index to measure the difference between market prices for crude oil and refined products. Crack spreads are a commonly used proxy within the industry to estimate or identify trends in gross refining margins, while the Tesoro Index is more specifically designed around Tesoro’s assets. Crack spreads and the Tesoro Index can fluctuate significantly over time as a result of market conditions and supply and demand balances. For example, The West Coast 321 crack spread is calculated using three barrels of Alaska North Slope crude oil (ANS) producing two barrels of Los Angeles CARB gasoline and one barrel of Los Angeles CARB diesel. In comparison the Tesoro Index uses several crude oils and approximately 8 to 10 products to provide a potentially closer representation of the trends in the available margin. Our actual gross refining margins differ from these crack spreads and the Tesoro Index based on the actual slate of crude oil we run at our refineries and the products we produce or yield.

TESORO CORPORATION

2016 FOURTH QUARTER GUIDANCE (Unaudited)

Throughput (Mbpd)
California
500 - 525
Pacific Northwest
180 - 190
Mid-Continent
125 - 140
Consolidated
805 - 855
Manufacturing Cost ($/throughput barrel)
California
$6.20 - 6.45
Pacific Northwest
$3.90 - 4.15
Mid-Continent
$4.65 - 4.90
Consolidated
$5.45 - 5.70
Corporate/System ($ millions)
Refining depreciation
$150
TLLP depreciation
$50
Corporate expense (before depreciation)
$95 - 105
Interest expense (before interest income) $72
Noncontrolling Interest
$35 - 40

2016 CAPITAL OUTLOOK (Unaudited) (in millions)

2016 Capital Expenditures Outlook
Capital Expenditures
Tesoro Corporation
$
700
Tesoro Logistics LP
200
Total Capital Expenditures $
900

ITEMS IMPACTING COMPARABILITY

The TLLP financial and operational data presented include the historical results of all assets acquired from Tesoro prior to the acquisition dates. The acquisitions from Tesoro were transfers between entities under common control. Accordingly, the financial information of TLLP contained herein has been retrospectively adjusted to include the historical results of the assets acquired in the acquisitions from Tesoro prior to the effective date of each acquisition for all periods presented. The TLLP financial data is derived from the combined financial results of the TLLP predecessor (the "TLLP Predecessor"). We refer to the TLLP Predecessor and, prior to each acquisition date, the acquisitions from Tesoro collectively, as "TLLP’s Predecessors."

NON-GAAP MEASURES

Our management uses certain performance "non-GAAP" measures to analyze operating segment performance. Our management also uses additional measures that are known as "non-GAAP" financial measures in its evaluation of past performance and prospects for the future to supplement our financial information presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). These financial non-GAAP measures are important factors in assessing our operating results and profitability and include the following:

- U.S. GAAP-based net earnings before interest, income taxes, and depreciation and amortization expenses ("EBITDA");

- Segment EBITDA is defined as a segment’s U.S. GAAP operating income before depreciation and amortization expenses plus equity in earnings (loss) of equity method investments and other income (expense), net; and

- Debt to capitalization ratio excluding TLLP, reflects the ratio achieved by dividing the net result of our consolidated debt less all debt owed by TLLP (both net of unamortized issuance costs) by the sum of our consolidated debt less TLLP’s total debt (both net of unamortized issuance costs) and our total equity less noncontrolling interest associated with the public ownership of TLLP.

We present the measures defined above because we believe these measures help us analyze our results of operations and liquidity in conjunction with our U.S. GAAP results. Investors, analysts, lenders and ratings agencies may use these measures to help analyze our results of operations and liquidity in conjunction with our U.S. GAAP results, including but not limited to the following:

- our operating performance as compared to other publicly traded companies in the refining, logistics and marketing industries, without regard to historical cost basis or financing methods;

- our ability to incur and service debt and fund capital expenditures; and

- the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

In addition, these measures are used by management to assess internal performance. We believe these measures, when supplemental to information presented under U.S. GAAP, may provide meaningful information to the users of our financial statements. Each of the performance measures should not be used in isolation from their comparable U.S. GAAP measure and thus should not be considered as alternatives to any U.S. GAAP measure. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income.

TESORO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions)

September 30,
December 31,
2016
2015
ASSETS
Current Assets
Cash and cash equivalents (TLLP: $497 and $16, respectively)
$
1,387
$
942
Receivables, net of allowance for doubtful accounts
1,037
792
Inventories, net (b)
2,317
2,302
Prepayments and other current assets
364
271
Total Current Assets
5,105
4,307
Property, Plant and Equipment, Net (TLLP: $3,129 and $3,467, respectively)
9,769
9,541
Other Noncurrent Assets, Net (TLLP: $1,447 and $1,190, respectively)
3,131
2,484
Total Assets
$
18,005
$
16,332
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
$
1,547
$
1,568
Other current liabilities
1,146
962
Total Current Liabilities
2,693
2,530
Deferred Income Taxes
1,438
1,222
Other Noncurrent Liabilities
1,012
773
Debt, Net of Unamortized Issuance Costs (TLLP: $3,382 and $2,844, respectively) 4,667
4,067
Equity
8,195
7,740
Total Liabilities and Equity
$
18,005
$
16,332

(b) We recorded a lower of cost or market ("LCM") reserve of $123 million and $359 million at September 30, 2016 and December 31, 2015, respectively, to cost of sales for our crude oil, refined products, oxygenates and by-product inventories to adjust carrying value of our inventories to reflect replacement cost as of those reporting dates.

TESORO CORPORATION

RESULTS OF CONSOLIDATED OPERATIONS (Unaudited) (in millions, except per share amounts)

Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Revenues
$
6,544
$
7,743
$
17,930
$
22,438
Costs and Expenses:
Cost of sales (excluding the lower of cost or market inventory valuation adjustment)
5,232
5,429
14,114
17,090
Lower of cost or market inventory valuation adjustment (b)
(20
)
83
(236
)
41
Operating expenses
652
640
1,872
1,816
Selling, general and administrative expenses (c)
107
103
283
285
Depreciation and amortization expenses
211
192
633
553
Loss on asset disposals and impairments
2
4
7
12
Operating Income
360
1,292
1,257
2,641
Interest and financing costs, net
(70
)
(54
)
(190
)
(163
)
Equity in earnings of equity method investments
7
6
12
9
Other income, net (d)
-
13
32
12
Earnings Before Income Taxes
297
1,257
1,111
2,499
Income tax expense
95
458
362
888
Net Earnings From Continuing Operations
202
799
749
1,611
Earnings (loss) from discontinued operations, net of tax
(1
)
-
10
(4
)
Net Earnings
201
799
759
1,607
Less: Net earnings from continuing operations attributable to noncontrolling interest 32
40
103
121
Net Earnings Attributable to Tesoro Corporation
$
169
$
759
$
656
$
1,486
Net Earnings (Loss) Attributable to Tesoro Corporation:
Continuing operations
$
170
$
759
$
646
$
1,490
Discontinued operations
(1
)
-
10
(4
)
Total
$
169
$
759
$
656
$
1,486
Net Earnings (Loss) Per Share - Basic:
Continuing operations
$
1.44
$
6.19
$
5.43
$
11.98
Discontinued operations
(0.01
)
-
0.08
(0.03
)
Total
$
1.43
$
6.19
$
5.51
$
11.95
Weighted average common shares outstanding - Basic
118.2
122.5
119.1
124.3
Net Earnings (Loss) Per Share - Diluted:
Continuing operations
$
1.43
$
6.13
$
5.37
$
11.85
Discontinued operations
(0.01
)
-
0.08
(0.03
)
Total
$
1.42
$
6.13
$
5.45
$
11.82
Weighted average common shares outstanding - Diluted
119.3
123.8
120.4
125.7

(c) Includes stock-based compensation expense of $13 million and $22 million for the three months ended September 30, 2016 and 2015, respectively, and expense of $21 million and $57 million for the nine months ended September 30, 2016 and 2015, respectively. The significant impact to stock-based compensation expense is primarily a result of changes in Tesoro’s stock price.

(d) Other income, net for the nine months ended September 30, 2016 included insurance proceeds related to a shipment of contaminated crude oil that was received in 2014 as well as a refund of certain tariff charges that were disputed. Additionally, a gain recognized by TLLP on a settlement of amounts disputed by one of its customers on the annual calculation of the natural gas gathering rate is included for the nine months ended September 30, 2016. During the three and nine months ended September 30, 2015, we recorded a gain of $11 million as other income for insurance proceeds related to the settlement of claims associated with the Washington Refinery Fire.

TESORO CORPORATION

SELECTED SEGMENT OPERATING DATA (Unaudited) (in millions)

Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Earnings Before Income Taxes
Refining
$
52
$
899
$
475
$
1,843
TLLP
133
106
381
312
Marketing
273
379
661
724
Total Segment Operating Income
458
1,384
1,517
2,879
Corporate and unallocated costs (c)
(98
)
(92
)
(260
)
(238
)
Operating Income
360
1,292
1,257
2,641
Interest and financing costs, net
(70
)
(54
)
(190
)
(163
)
Equity in earnings of equity method investments 7
6
12
9
Other income, net (d)
-
13
32
12
Earnings Before Income Taxes
$
297
$
1,257
$
1,111
$
2,499
Depreciation and Amortization Expenses
Refining
$
148
$
133
$
445
$
373
TLLP
45
45
134
133
Marketing
12
11
36
34
Corporate
6
3
18
13
Total Depreciation and Amortization Expenses
$
211
$
192
$
633
$
553
Segment EBITDA
Refining
$
204
$
1,036
$
947
$
2,219
TLLP
181
153
531
451
Marketing
285
390
697
758
Total Segment EBITDA
$
670
$
1,579
$
2,175
$
3,428
Capital Expenditures
Refining
$
153
$
152
$
409
$
483
TLLP
42
93
125
237
Marketing
3
8
22
20
Corporate
29
6
68
16
Total Capital Expenditures
$
227
$
259
$
624
$
756

TESORO CORPORATION

RECONCILIATION OF AMOUNTS REPORTED UNDER U.S. GAAP (Unaudited) (in millions)

Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Reconciliation of Net Earnings to EBITDA
Net earnings
$
201
$
799
$
759
$
1,607
Depreciation and amortization expenses
211
192
633
553
Interest and financing costs, net
70
54
190
163
Income tax expense
95
458
362
888
EBITDA
$
577
$
1,503
$
1,944
$
3,211
Reconciliation of Refining Operating Income to Refining Segment EBITDA
Operating income
$
52
$
899
$
475
$
1,843
Depreciation and amortization expenses
148
133
445
373
Equity in earnings of equity method investments
4
4
2
3
Other income, net (d)
-
-
25
-
Segment EBITDA
$
204
$
1,036
$
947
$
2,219
Reconciliation of TLLP Operating Income to TLLP Segment EBITDA
Operating income
$
133
$
106
$
381
$
312
Depreciation and amortization expenses
45
45
134
133
Equity in earnings of equity method investments
3
2
10
6
Other income, net (d)
-
-
6
-
Segment EBITDA
$
181
$
153
$
531
$
451
Reconciliation of Marketing Operating Income to Marketing Segment EBITDA
Operating income
$
273
$
379
$
661
$
724
Depreciation and amortization expenses
12
11
36
34
Segment EBITDA
$
285
$
390
$
697
$
758

TESORO CORPORATION

OTHER SUMMARY FINANCIAL INFORMATION (Unaudited) (in millions)

Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Cash Flows From (Used in):
Operating activities
$
573
$
940
$
1,201
$
1,847
Investing activities
(214
)
(235
)
(1,020
)
(783
)
Financing activities
(93
)
(724
)
264
(1,105
)
Increase (Decrease) in Cash and Cash Equivalents
$
266
$
(19
)
$
445
$
(41
)
September 30,
December 31,
2016
2015
Working capital (current assets less current liabilities)
$
2,412
$
1,777
Total market value of TLLP common units held by Tesoro (e)
$
1,608
$
1,633
Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Cash distributions received from TLLP (f):
For common units held
$
27
$
20
$
79
$
58
For general partner units held
38
18
95
48
Total Cash Distributions Received from TLLP $
65
$
38
$
174
$
106

TESORO CORPORATION

RECONCILIATION OF AMOUNTS REPORTED UNDER U.S. GAAP (Unaudited) (in millions, except percentages)

September 30,
December 31,
2016
2015
Tesoro consolidated debt (g)
$
4,682
$
4,073
TLLP debt (g)
3,382
2,844
Tesoro Debt Excluding TLLP (g)
$
1,300
$
1,229
Total equity
$
8,195
$
7,740
Noncontrolling interest
2,695
2,527
Tesoro Corporation Stockholders’ Equity
$
5,500
$
5,213
Tesoro debt, net of unamortized issuance costs, to capitalization ratio (g)
36
%
34
%
Tesoro debt, net of unamortized issuance costs, to capitalization ratio excluding 19
%
19
%
TLLP and noncontrolling interest (g)

(e) Represents market value of the 33,194,109 and 32,445,115 common units held by Tesoro at September 30, 2016 and December 31, 2015, respectively. The market values were $48.44 and $50.32 per unit based on the closing unit price at September 30, 2016 and December 31, 2015, respectively.

(f) Represents distributions received from TLLP during the three and nine months ended September 30, 2016 and 2015 on common units and general partner units held by Tesoro.

(g) These amounts and calculations are shown net of unamortized issuance costs.

TESORO CORPORATION

SEGMENT OPERATING DATA AND RESULTS (Unaudited) (dollars in millions, except per barrel amounts)

Three Months Ended
Nine Months Ended
September 30,
September 30,
REFINING SEGMENT
2016
2015
2016
2015
Total Refining Segment
Throughput (Mbpd)
Heavy crude (h)
186
178
176
150
Light crude
636
635
595
575
Other feedstocks
51
48
49
56
Total Throughput
873
861
820
781
Yield (Mbpd)
Gasoline and gasoline blendstocks
455
438
449
405
Diesel fuel
202
195
183
166
Jet fuel
133
122
117
119
Heavy fuel oils, residual products, internally produced fuel and other
143
158
126
140
Total Yield
933
913
875
830
Refined Product Sales (Mbpd) (i)
Gasoline and gasoline blendstocks
531
530
527
510
Diesel fuel
215
213
204
198
Jet fuel
158
148
145
153
Heavy fuel oils, residual products and other
112
101
105
91
Total Refined Product Sales
1,016
992
981
952
Revenues
Refined products (j)
$
5,641
$
6,817
$
15,434
$
19,867
Crude oil resales and other
257
172
710
780
Refining Revenues
5,898
6,989
16,144
20,647
Cost of Sales
Cost of sales (excluding lower of cost or market adjustments)
5,189
5,367
13,965
16,934
Lower of cost or market adjustments (b)
(20
)
83
(236
)
41
Refining cost of sales
5,169
5,450
13,729
16,975
Gross refining margin (k)
729
1,539
2,415
3,672
Expenses
Operating expenses
Manufacturing costs
412
383
1,172
1,177
Other operating expenses
116
117
318
259
Selling, general and administrative expenses
1
5
5
12
Depreciation and amortization expenses
148
133
445
373
Loss on asset disposals and impairments
-
2
-
8
Segment Operating Income
$
52
$
899
$
475
$
1,843
Gross Refining Margin ($/throughput barrel) (l) (m)
$
9.08
$
19.43
$
10.75
$
17.22
Manufacturing Cost before Depreciation and Amortization Expenses ($/throughput barrel) (l) $
5.11
$
4.84
$
5.22
$
5.53

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

(i) Sources of total refined product sales include refined products manufactured at our refineries and refined products purchased from third parties.

(j) Refined product sales include intersegment sales to our Marketing segment of $3.6 billion and $4.5 billion for the three months ended September 30, 2016 and 2015, respectively, and $10.2 billion and $12.8 billion for the nine months ended September 30, 2016 and 2015, respectively.

(k) Gross refining margin approximates total refining throughput multiplied by the gross refining margin per barrel. Consolidated gross refining margin combines gross refining margin for each of our regions adjusted for other amounts not directly attributable to a specific region. Gross refining margin includes the effect of intersegment sales to the Marketing segment and services provided by TLLP. Gross refining margin reflects the incremental expense or benefit associated with the LCM adjustments for all periods presented.

(l) Management uses various measures to evaluate performance and efficiency and to compare profitability to other companies in the industry, including gross refining margin per barrel, manufacturing costs before depreciation and amortization expenses ("Manufacturing Costs") per barrel. We calculate gross refining margin per barrel by dividing gross refining margin (revenues for manufactured refined products sold less costs of feedstocks, purchased refined products, transportation and distribution) by total refining throughput. We calculate Manufacturing Costs per barrel by dividing Manufacturing Costs by total refining throughput.

(m) Gross refining margin per throughput barrel on a consolidated and regional basis includes the incremental expense or benefit associated with the LCM adjustments for all periods presented.

TESORO CORPORATION

SEGMENT OPERATING DATA AND RESULTS (Unaudited) (dollars in millions, except per barrel amounts)

Three Months Ended
Nine Months Ended
September 30,
September 30,
Refining By Region
2016
2015
2016
2015
California (Martinez and Los Angeles)
Throughput (Mbpd)
Heavy crude (h)
177
172
170
144
Light crude
321
328
301
313
Other feedstocks
35
34
33
37
Total Throughput
533
534
504
494
Yield (Mbpd)
Gasoline and gasoline blendstocks
297
279
293
265
Diesel fuel
120
111
107
98
Jet fuel
79
76
71
76
Heavy fuel oils, residual products, internally produced fuel and other
86
109
78
94
Total Yield
582
575
549
533
Revenues
Refined products (j)
$
3,680
$
4,525
$
10,358
$
13,501
Crude oil resales and other (n)
55
94
157
233
Regional Revenue
3,735
4,619
10,515
13,734
Cost of Sales
Cost of sales (excluding LCM) (n)
3,292
3,547
9,076
11,296
LCM
(10
)
56
(154
)
26
Regional Cost of Sales
3,282
3,603
8,922
11,322
Gross refining margin (k)
453
1,016
1,593
2,412
Expenses
Manufacturing costs
285
284
823
851
Other operating expenses
57
78
152
164
Selling, general and administrative expenses
1
5
4
11
Depreciation and amortization expenses
95
88
285
249
Loss on asset disposals and impairments
-
1
-
3
Operating Income
$
15
$
560
$
329
$
1,134
Gross Refining Margin ($/throughput barrel) (l) (m)
$
9.24
$
20.68
$
11.54
$
17.88
Manufacturing Cost before Depreciation and Amortization Expenses ($/throughput barrel) (l) $
5.79
$
5.79
$
5.97
$
6.32
Capital Expenditures
$
91
$
85
$
244
$
198

TESORO CORPORATION

SEGMENT OPERATING DATA AND RESULTS (Unaudited) ($ in millions, except per barrel amounts)

Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Pacific Northwest (Washington and Alaska)
Throughput (Mbpd)
Heavy crude (h)
9
6
6
6
Light crude
171
177
161
147
Other feedstocks
11
9
11
15
Total Throughput
191
192
178
168
Yield (Mbpd)
Gasoline and gasoline blendstocks
79
84
79
74
Diesel fuel
37
41
34
31
Jet fuel
40
36
34
33
Heavy fuel oils, residual products, internally produced fuel and other
42
38
36
36
Total Yield
198
199
183
174
Revenues
Refined products (j)
$
1,146
$
1,332
$
2,934
$
3,771
Crude oil resales and other (n)
89
53
175
314
Regional Revenue
1,235
1,385
3,109
4,085
Cost of Sales
Cost of sales (excluding LCM) (n)
1,117
1,129
2,778
3,434
LCM
(8
)
18
(60
)
10
Regional Cost of Sales
1,109
1,147
2,718
3,444
Gross refining margin (k)
126
238
391
641
Expenses
Manufacturing costs
69
59
190
181
Other operating expenses
16
20
43
48
Selling, general and administrative expenses
-
-
1
-
Depreciation and amortization expenses
24
24
69
64
Loss on asset disposals and impairments
-
1
-
1
Operating Income
$
17
$
134
$
88
$
347
Gross Refining Margin ($/throughput barrel) (l) (m)
$
7.17
$
13.47
$
8.02
$
13.98
Manufacturing Cost before Depreciation and Amortization Expenses ($/throughput barrel) (l) $
3.87
$
3.35
$
3.87
$
3.97
Capital Expenditures
$
29
$
32
$
95
$
87

(n) Certain of our foreign operations that are typically reported with our Pacific Northwest region were erroneously reported in our California region during the three and six months ended June 30, 2016 and 2015 with no impact on regional or consolidated gross refining margins presented for those periods. For the three and nine month periods ended September 30, 2016 and 2015 presented above, those foreign operations are reported in the correct regions impacting comparability period over period.

TESORO CORPORATION

SEGMENT OPERATING DATA AND RESULTS (Unaudited) ($ in millions, except per barrel amounts)

Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Mid-Continent (North Dakota and Utah)
Throughput (Mbpd)
Light crude
144
130
133
115
Other feedstocks
5
5
5
4
Total Throughput
149
135
138
119
Yield (Mbpd)
Gasoline and gasoline blendstocks
79
75
77
66
Diesel fuel
45
43
42
37
Jet fuel
14
10
12
10
Heavy fuel oils, residual products, internally produced fuel and other
15
11
12
10
Total Yield
153
139
143
123
Revenues
Refined products (j)
$
815
$
960
$
2,142
$
2,595
Crude oil resales and other
113
25
378
233
Regional Revenue
928
985
2,520
2,828
Cost of Sales
Cost of sales (excluding LCM)
780
691
2,111
2,204
LCM
(2
)
9
(22
)
5
Regional Cost of Sales
778
700
2,089
2,209
Gross refining margin (k)
150
285
431
619
Expenses
Manufacturing costs
58
40
159
145
Other operating expenses
43
19
123
47
Selling, general and administrative expenses
-
-
-
1
Depreciation and amortization expenses
29
21
91
60
Loss on asset disposals and impairments
-
-
-
4
Operating Income
$
20
$
205
$
58
$
362
Gross Refining Margin ($/throughput barrel) (l) (m)
$
10.94
$
22.95
$
11.40
$
19.05
Manufacturing Cost before Depreciation and Amortization Expenses ($/throughput barrel) (l) $
4.27
$
3.19
$
4.21
$
4.45
Capital Expenditures
$
33
$
35
$
70
$
198

TESORO CORPORATION

SEGMENT OPERATING DATA AND RESULTS (Unaudited) (dollars in millions, except per barrel and MMBtu amounts)

Three Months Ended
Nine Months Ended
September 30,
September 30,
TLLP SEGMENT
2016
2015
2016
2015
Gathering
Gas gathering throughput (thousands of MMBtu/day) (o)
887
1,115
881
1,069
Average gas gathering revenue per MMBtu (o)
$
0.48
$
0.45
$
0.51
$
0.44
Crude oil gathering pipeline throughput (Mbpd)
206
199
210
182
Average crude oil gathering pipeline revenue per barrel $
1.71
$
1.71
$
1.73
$
1.77
Crude oil trucking volume (Mbpd)
32
34
30
42
Average crude oil trucking revenue per barrel
$
3.25
$
3.14
$
3.26
$
3.24
Processing
NGLs processing throughput (Mbpd)
6.7
7.8
7.4
7.5
Average keep-whole fee per barrel of NGLs
$
38.35
$
35.75
$
36.58
$
34.26
Fee-based processing throughput (thousands of MMBtu/
625
767
648
742
day)
Average fee-based processing revenue per MMBtu
$
0.50
$
0.39
$
0.45
$
0.40
Terminalling and Transportation
Terminalling throughput (Mbpd)
1,023
964
998
932
Average terminalling revenue per barrel
$
1.33
$
1.05
$
1.27
$
1.08
Pipeline transportation throughput (Mbpd)
908
838
866
819
Average pipeline transportation revenue per barrel
$
0.38
$
0.40
$
0.39
$
0.39
Segment Operating Income
Revenues
Gathering
Gas gathering
$
39
$
46
$
122
$
128
Crude oil gathering pipeline
33
31
100
88
Crude oil trucking
9
10
27
37
Other
1
-
6
-
Processing
NGLs processing
23
26
74
71
Fee-based processing
29
28
80
81
Other processing
17
17
54
53
Terminalling and transportation
Terminalling
125
93
345
275
Pipeline transportation
32
31
93
87
TLLP Revenues (p)
308
282
901
820
Expenses
Operating expenses (q)
104
103
313
294
General and administrative expenses (r)
24
28
70
81
Depreciation and amortization expenses
45
45
134
133
Gain on asset disposals and impairments
2
-
3
-
Segment Operating Income
$
133
$
106
$
381
$
312

(o) Prior to the deconsolidation of Rendezvous Gas Services, L.L.C. ("RGS") as of January 1, 2016, fees paid by TLLP to RGS were eliminated upon consolidation and third-party transactions, including revenue and throughput volumes, were included in TLLP’s results of operations. Third party volumes associated with RGS, included in gas gathering volume for the three and nine months ended September 30, 2015, were 142 thousand and 145 thousand MMBtu/d and reduced our average gas gathering revenue per MMBtu for both periods by $0.05.

(p) TLLP segment revenues from services provided to our Refining segment were $184 million and $152 million for the three months ended September 30, 2016 and 2015, respectively, and $521 million and $454 million for the nine months ended September 30, 2016 and 2015, respectively. These amounts are eliminated upon consolidation.

(q) TLLP segment operating expenses include amounts billed by Tesoro for services provided to TLLP under various operational contracts. Amounts billed by Tesoro totaled $40 million and $33 million for the three months ended September 30, 2016 and 2015, respectively, and $113 million and $93 million for the nine months ended September 30, 2016 and 2015, respectively. Operating expenses also include imbalance gains and reimbursements pursuant to the Amended Omnibus Agreement of $5 million and $12 million for the three months ended September 30, 2016 and 2015, respectively, and $17 million and $31 million for the nine months ended September 30, 2016 and 2015, respectively. These amounts are eliminated upon consolidation. TLLP segment third-party operating expenses related to the transportation of crude oil and refined products related to Tesoro’s sale of those refined products during the ordinary course of business are reclassified to cost of sales in our condensed statements of consolidated operations upon consolidation.

(r) TLLP segment general and administrative expenses include amounts charged by Tesoro for general and administrative services provided to TLLP under various operational and administrative contracts. These amounts totaled $18 million and $16 million for the three months ended September 30, 2016 and 2015, respectively, and $51 million for both the nine months ended September 30, 2016 and 2015, respectively, and are eliminated upon consolidation. General and administrative expenses are reclassified to cost of sales as it relates to Tesoro’s sale of refined products in our condensed statements of consolidated operations upon consolidation.

TESORO CORPORATION

SEGMENT OPERATING DATA AND RESULTS (Unaudited) (dollars in millions, except cents per gallon)

Three Months Ended
Nine Months Ended
September 30,
September 30,
MARKETING SEGMENT
2016
2015
2016
2015
Revenues
Fuel
$
4,118
$
5,144
$
11,493
$
14,143
Other non-fuel
23
16
65
48
Total Revenues
4,141
5,160
11,558
14,191
Cost of Sales
Fuel
3,773
4,684
10,612
13,192
Other non-fuel
5
-
13
3
Total Cost of Sales
3,778
4,684
10,625
13,195
Gross Margin
Fuel (s)
345
460
881
951
Other non-fuel
18
16
52
45
Total Gross Margins
363
476
933
996
Expenses
Operating expenses
73
82
221
223
Selling, general and administrative expenses
5
3
12
12
Depreciation and amortization expenses
12
11
36
34
Loss on asset disposals and impairments
-
1
3
3
Segment Operating Income
$
273
$
379
$
661
$
724
Fuel Sales (millions of gallons)
2,311
2,249
6,698
6,408
Fuel Margin (?/gallon) (s)
14.9
?
20.5
?
13.2
?
14.8
?
Number of Branded Stations (at the end of the period)
MSO operated
590
579
Jobber/Dealer operated
1,877
1,710
Total Stations
2,467
2,289

(s) Management uses fuel margin per gallon to compare fuel results to other companies in the industry. There are a variety of ways to calculate fuel margin per gallon and different companies may calculate it in different ways. We calculate fuel margin per gallon by dividing fuel gross margin by fuel sales volumes. Fuel margin and fuel margin per gallon include the effect of intersegment purchases from the Refining segment.

TESORO CORPORATION

RECONCILIATION OF AMOUNTS REPORTED UNDER U.S. GAAP (Unaudited) (in millions)

Northern California
Assets Acquisition
Reconciliation of Projected Net Earnings to Projected Annual EBITDA:
Projected net earnings
$
28 - 33
Add: Depreciation and amortization expenses
8
Add: Interest and financing costs, net
9
Expected Annual EBITDA
$
45 - 50
TLLP 2017 Annual Expected Segment EBITDA
Reconciliation of Projected Operating Income to Projected Annual Segment EBITDA:
Projected operating income
$
820
Add: Depreciation and amortization expenses
180
Projected Annual Segment EBITDA
$
1,000

This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.

The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.

Source: Tesoro Corporation via Globenewswire