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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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95‑0862768
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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19100 Ridgewood Pkwy, San Antonio, Texas 78259-1828
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(Address of principal executive offices) (Zip Code)
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210-626-6000
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(Registrant’s telephone number, including area code)
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Large accelerated filer
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þ
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
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Page
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PART II. OTHER INFORMATION
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2
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Tesoro Corporation
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FINANCIAL STATEMENTS
|
|
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Three Months Ended
September 30, |
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Nine Months Ended
September 30, |
||||||||||||
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2016
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2015
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2016
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2015
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||||||||
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(In millions, except per share amounts)
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||||||||||||||
Revenues (a)
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$
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6,544
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$
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7,743
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$
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17,930
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$
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22,438
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Costs and Expenses
|
|
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||||||||
Cost of sales (excluding the lower of cost or market inventory valuation adjustment) (a)
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5,232
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5,429
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14,114
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17,090
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||||
Lower of cost or market inventory valuation adjustment
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(20
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)
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83
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(236
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)
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41
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||||
Operating expenses
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652
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640
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1,872
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1,816
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Selling, general and administrative expenses
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107
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103
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283
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285
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||||
Depreciation and amortization expenses
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211
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192
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633
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553
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||||
Loss on asset disposals and impairments
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2
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4
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7
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12
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||||
Operating Income
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360
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1,292
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1,257
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2,641
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||||
Interest and financing costs, net
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(70
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)
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(54
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)
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(190
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)
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(163
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)
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||||
Equity in earnings of equity method investments
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7
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6
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12
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9
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||||
Other income, net
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—
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13
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32
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12
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Earnings Before Income Taxes
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297
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1,257
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1,111
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2,499
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Income tax expense
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95
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458
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362
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888
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Net Earnings from Continuing Operations
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202
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799
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749
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1,611
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Earnings (loss) from discontinued operations, net of tax
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(1
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)
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—
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10
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(4
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)
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Net Earnings
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201
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799
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759
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1,607
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Less: Net earnings from continuing operations attributable to noncontrolling interest
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32
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40
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103
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121
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Net Earnings Attributable to Tesoro Corporation
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$
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169
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$
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759
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$
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656
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$
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1,486
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Net Earnings (Loss) Attributable to Tesoro Corporation
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Continuing operations
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$
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170
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$
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759
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$
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646
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$
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1,490
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Discontinued operations
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(1
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)
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—
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10
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(4
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)
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Total
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$
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169
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$
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759
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$
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656
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$
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1,486
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Net Earnings (Loss) per Share - Basic
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Continuing operations
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$
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1.44
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$
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6.19
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$
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5.43
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$
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11.98
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Discontinued operations
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(0.01
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)
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—
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0.08
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(0.03
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)
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Total
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$
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1.43
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$
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6.19
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$
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5.51
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$
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11.95
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Weighted average common shares outstanding - Basic
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118.2
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122.5
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119.1
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124.3
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Net Earnings (Loss) per Share - Diluted
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Continuing operations
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$
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1.43
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$
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6.13
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$
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5.37
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$
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11.85
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Discontinued operations
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(0.01
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)
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—
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0.08
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(0.03
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)
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Total
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$
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1.42
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$
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6.13
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$
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5.45
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$
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11.82
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Weighted average common shares outstanding - Diluted
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119.3
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123.8
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120.4
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125.7
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Dividends per Share
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$
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0.55
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$
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0.50
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$
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1.55
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$
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1.35
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Supplemental Information
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(a)
Includes excise taxes collected by our marketing
segment
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$
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146
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$
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137
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$
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436
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$
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423
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September 30, 2016
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3
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FINANCIAL STATEMENTS
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September 30,
2016 |
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December 31,
2015 |
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(In millions, except share data)
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||||||
ASSETS
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||||
Current Assets
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||||
Cash and cash equivalents
(TLLP:
$497
and $16, respectively)
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$
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1,387
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$
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942
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Receivables, net of allowance for doubtful accounts
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1,037
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792
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Inventories, net
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2,317
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2,302
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Prepayments and other current assets
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364
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271
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Total Current Assets
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5,105
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4,307
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Property, Plant and Equipment, Net
(TLLP:
$3,129
and $3,467, respectively)
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9,769
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9,541
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Acquired Intangibles, Net
(TLLP:
$955
and $976, respectively)
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1,287
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1,211
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Other Noncurrent Assets, Net
(TLLP:
$492
and $214, respectively)
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1,844
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1,273
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Total Assets
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$
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18,005
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$
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16,332
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||||
LIABILITIES AND EQUITY
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Current Liabilities
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||||
Accounts payable
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$
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1,547
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$
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1,568
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Other current liabilities
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1,146
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962
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Total Current Liabilities
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2,693
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2,530
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Deferred Income Taxes
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1,438
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1,222
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Debt, Net of Unamortized Issuance Costs
(TLLP:
$3,382
and $2,844, respectively)
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4,667
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4,067
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Other Noncurrent Liabilities
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1,012
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773
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Total Liabilities
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9,810
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8,592
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Commitments and Contingencies (Note 9)
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Equity
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||||
Tesoro Corporation Stockholders’ Equity
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||||
Common stock, par value $0.16
2
/
3
; authorized 200,000,000 shares;
159,447,688
shares issued (158,457,663 in 2015)
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27
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26
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Additional paid-in capital
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1,465
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1,391
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Retained earnings
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6,424
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5,954
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Treasury stock,
42,480,330
common shares (39,064,342 in 2015), at cost
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(2,277
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)
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(2,009
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)
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Accumulated other comprehensive loss, net of tax
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(139
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)
|
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(149
|
)
|
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Total Tesoro Corporation Stockholders’ Equity
|
5,500
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5,213
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Noncontrolling Interest
|
2,695
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2,527
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|
||
Total Equity
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8,195
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7,740
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|
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Total Liabilities and Equity
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$
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18,005
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$
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16,332
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4
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Tesoro Corporation
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FINANCIAL STATEMENTS
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|
|
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Nine Months Ended
September 30, |
||||||
|
2016
|
|
2015
|
||||
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(In millions)
|
||||||
Cash Flows From (Used In) Operating Activities
|
|
|
|
||||
Net earnings
|
$
|
759
|
|
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$
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1,607
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Adjustments to reconcile net earnings to net cash from operating activities:
|
|
|
|
||||
Depreciation and amortization expenses
|
633
|
|
|
553
|
|
||
Lower of cost or market inventory valuation adjustment, net
|
(236
|
)
|
|
41
|
|
||
Stock-based compensation expense
|
21
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|
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57
|
|
||
Deferred income taxes
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182
|
|
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157
|
|
||
Turnaround and branding charges
|
(278
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)
|
|
(248
|
)
|
||
Other non-cash operating activities
|
19
|
|
|
—
|
|
||
Changes in current assets and current liabilities
|
52
|
|
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(288
|
)
|
||
Changes in noncurrent assets and noncurrent liabilities
|
49
|
|
|
(32
|
)
|
||
Net cash from operating activities
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1,201
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|
1,847
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|
||
Cash Flows From (Used In) Investing Activities
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|
|
|
||||
Capital expenditures
|
(623
|
)
|
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(773
|
)
|
||
Acquisitions, net of cash
|
(412
|
)
|
|
(6
|
)
|
||
Proceeds from asset sales
|
18
|
|
|
—
|
|
||
Other investing activities
|
(3
|
)
|
|
(4
|
)
|
||
Net cash used in investing activities
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(1,020
|
)
|
|
(783
|
)
|
||
Cash Flows From (Used In) Financing Activities
|
|
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|
||||
Borrowings under revolving credit agreements
|
761
|
|
|
346
|
|
||
Repayments on revolving credit agreements
|
(666
|
)
|
|
(326
|
)
|
||
Proceeds from debt offering
|
701
|
|
|
—
|
|
||
Repayments of debt
|
(258
|
)
|
|
(402
|
)
|
||
Dividend payments
|
(186
|
)
|
|
(169
|
)
|
||
Net proceeds from issuance of Tesoro Logistics LP common units
|
364
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|
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71
|
|
||
Distributions to noncontrolling interest
|
(155
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)
|
|
(135
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)
|
||
Purchases of common stock
|
(242
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)
|
|
(494
|
)
|
||
Taxes paid related to net share settlement of equity awards
|
(25
|
)
|
|
(45
|
)
|
||
Other financing activities
|
(30
|
)
|
|
49
|
|
||
Net cash from (used in) financing activities
|
264
|
|
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(1,105
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)
|
||
Increase (Decrease) in Cash and Cash Equivalents
|
445
|
|
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(41
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)
|
||
Cash and Cash Equivalents, Beginning of Period
|
942
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|
|
1,000
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Cash and Cash Equivalents, End of Period
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$
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1,387
|
|
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$
|
959
|
|
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|
September 30, 2016
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5
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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6
|
Tesoro Corporation
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
|
September 30, 2016
|
7
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
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September 30,
2016 |
|
December 31,
2015 |
||||
Domestic crude oil and refined products
|
$
|
2,050
|
|
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$
|
2,142
|
|
Foreign subsidiary crude oil
|
159
|
|
|
325
|
|
||
Materials and supplies
|
150
|
|
|
140
|
|
||
Oxygenates and by-products
|
81
|
|
|
54
|
|
||
Less: Lower of cost or market reserve
|
(123
|
)
|
|
(359
|
)
|
||
Total Inventories, Net
|
$
|
2,317
|
|
|
$
|
2,302
|
|
|
September 30,
2016 |
|
December 31,
2015 |
||||
Refining
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$
|
8,210
|
|
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$
|
7,457
|
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TLLP
|
3,642
|
|
|
3,894
|
|
||
Marketing
|
929
|
|
|
915
|
|
||
Corporate
|
381
|
|
|
296
|
|
||
Property, Plant and Equipment, at Cost
|
13,162
|
|
|
12,562
|
|
||
Accumulated depreciation
|
(3,393
|
)
|
|
(3,021
|
)
|
||
Property, Plant and Equipment, Net
|
$
|
9,769
|
|
|
$
|
9,541
|
|
8
|
Tesoro Corporation
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
•
|
WATSON COGENERATION COMPANY (“Watson”).
We own a
51%
interest in Watson, which produces steam and electricity at a facility located at our Los Angeles refinery. Our transactions with Watson, which do not have intra-entity profits requiring elimination, consist of sales of fuel gas and water, purchases of steam and electricity and charges for general and administrative support.
|
•
|
RENDEZVOUS GAS SERVICES, L.L.C. (“RGS”).
TLLP has a
78%
interest in RGS, which owns and operates the infrastructure that transports gas from certain fields to several re-delivery points in southwestern Wyoming, including natural gas processing facilities that are owned by TLLP or a third party. Prior to 2016, Tesoro and TLLP consolidated RGS, however, upon the reassessment performed in conjunction with the adoption of ASU 2015-02 as of January 1, 2016, we determined RGS represents a variable interest entity to TLLP for which we are not the primary beneficiary. Under the limited liability company agreement, we do not have voting rights commensurate with our economic interest due to veto rights available to our partner in RGS. Certain business decisions, including, but not limited to, decisions with respect to significant expenditures or contractual commitments, annual budgets, material financings, dispositions of assets or amending the members’ gas servicing agreements, require unanimous approval of the members.
|
•
|
THREE RIVERS GATHERING, LLC (“TRG”).
TLLP owns a
50%
interest in TRG which operates natural gas gathering assets within the southeastern Uinta Basin and is primarily supported by long-term, fee-based gas gathering agreements with minimum volume commitments.
|
•
|
UINTAH BASIN FIELD SERVICES, L.L.C. (“UBFS”).
TLLP owns a
38%
interest in UBFS which owns and operates the natural gas gathering infrastructure located in the southeastern Uinta Basin and is supported by long-term, fee-based gas gathering agreements that contain firm throughput commitments, which generate fees whether or not the capacity is used, and is operated by TLLP.
|
|
|
September 30, 2016
|
9
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Watson
|
|
Vancouver Energy
|
|
TLLP
|
|
|
||||||||||||||||
|
|
|
RGS
|
|
TRG
|
|
UBFS
|
|
Total
|
||||||||||||||
Balance at December 31, 2015
|
$
|
92
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
42
|
|
|
$
|
16
|
|
|
$
|
159
|
|
Effect of deconsolidation (a)
|
—
|
|
|
—
|
|
|
295
|
|
|
—
|
|
|
—
|
|
|
295
|
|
||||||
Effect of consolidation (b)
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
||||||
Equity in earnings (loss)
|
3
|
|
|
(1
|
)
|
|
6
|
|
|
2
|
|
|
2
|
|
|
12
|
|
||||||
Distributions received
|
(5
|
)
|
|
—
|
|
|
(16
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|
(26
|
)
|
||||||
Balance at September 30, 2016
|
$
|
90
|
|
|
$
|
—
|
|
|
$
|
285
|
|
|
$
|
41
|
|
|
$
|
16
|
|
|
$
|
432
|
|
(a)
|
The reassessment of the investments performed by TLLP resulted in the deconsolidation of RGS and the reporting of RGS as an equity method investment. TLLP recognized an increase of
$295 million
to equity method investments as of
January 1, 2016
as a result of the deconsolidation in addition to a cumulative effect reduction to opening equity of
$2 million
related to the difference in earnings under the equity method of accounting in prior periods. The carrying amount of our investment in RGS exceeded the underlying equity in net assets by
$137 million
at
September 30, 2016
.
|
(b)
|
Effective
September 1, 2016
, we became majority owner of our venture with Savage Companies to construct, own and operate a unit train unloading and marine loading terminal at Port of Vancouver, USA (the “Vancouver Energy” terminal). As a result, Vancouver Energy was consolidated.
|
•
|
price risks associated with the purchase or sale of feedstocks, refined products and energy supplies related to our refineries, terminals, marketing fuel inventory and customers;
|
•
|
price risks associated with inventories above or below our target levels;
|
•
|
future emission credit requirements; and
|
•
|
exchange rate fluctuations on our purchases of Canadian crude oil.
|
10
|
Tesoro Corporation
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
||||||||||||
|
Balance Sheet Location
|
|
September 30,
2016 |
|
December 31,
2015 |
|
September 30,
2016 |
|
December 31,
2015 |
||||||||
Commodity Futures Contracts
|
Prepayments and other current assets
|
|
$
|
718
|
|
|
$
|
711
|
|
|
$
|
721
|
|
|
$
|
673
|
|
Commodity Swap Contracts
|
Prepayments and other current assets
|
|
7
|
|
|
15
|
|
|
7
|
|
|
14
|
|
||||
Commodity Swap Contracts
|
Receivables
|
|
2
|
|
|
7
|
|
|
—
|
|
|
—
|
|
||||
Commodity Forward Contracts
|
Receivables
|
|
3
|
|
|
2
|
|
|
—
|
|
|
—
|
|
||||
Commodity Forward Contracts
|
Accounts payable
|
|
—
|
|
|
—
|
|
|
2
|
|
|
4
|
|
||||
Total Gross Mark-to-Market Derivatives
|
|
730
|
|
|
735
|
|
|
730
|
|
|
691
|
|
|||||
Less: Counterparty Netting and Cash Collateral (a)
|
|
(696
|
)
|
|
(675
|
)
|
|
(723
|
)
|
|
(687
|
)
|
|||||
Total Net Fair Value of Derivatives
|
|
$
|
34
|
|
|
$
|
60
|
|
|
$
|
7
|
|
|
$
|
4
|
|
(a)
|
Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously. As of
September 30, 2016
and
December 31, 2015
, we had provided cash collateral amounts of
$27 million
and
$12 million
, respectively, related to our unrealized derivative positions. Cash collateral amounts are netted with mark-to-market derivative assets.
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Commodity Contracts
|
$
|
19
|
|
|
$
|
153
|
|
|
$
|
(25
|
)
|
|
$
|
122
|
|
Foreign Currency Forward Contracts
|
—
|
|
|
(3
|
)
|
|
1
|
|
|
(5
|
)
|
||||
Total Gain (Loss) on Mark-to-Market Derivatives
|
$
|
19
|
|
|
$
|
150
|
|
|
(24
|
)
|
|
$
|
117
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Revenues
|
$
|
10
|
|
|
$
|
30
|
|
|
$
|
5
|
|
|
$
|
28
|
|
Cost of sales
|
9
|
|
|
123
|
|
|
(30
|
)
|
|
94
|
|
||||
Other income (expense), net
|
—
|
|
|
(3
|
)
|
|
1
|
|
|
(5
|
)
|
||||
Total Gain (Loss) on Mark-to-Market Derivatives
|
$
|
19
|
|
|
$
|
150
|
|
|
$
|
(24
|
)
|
|
$
|
117
|
|
|
|
September 30, 2016
|
11
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Contract Volumes by Year of Maturity
|
|
Unit of Measure
|
||||
Mark-to-Market Derivative Instrument
|
2016
|
|
2017
|
|
2018
|
|
|
Crude oil, refined products and blending products:
|
|
|
|
|
|
|
|
Futures - short
|
—
|
|
(4,854)
|
|
(75)
|
|
Barrels
|
Futures - long
|
2,720
|
|
—
|
|
—
|
|
Barrels
|
Swaps - short
|
(2,225)
|
|
—
|
|
—
|
|
Barrels
|
Forwards - short
|
(970)
|
|
—
|
|
—
|
|
Barrels
|
Carbon emissions credits:
|
|
|
|
|
|
|
|
Futures - long
|
4,850
|
|
1,000
|
|
—
|
|
Tons
|
Corn:
|
|
|
|
|
|
|
|
Futures - short
|
(3,245)
|
|
—
|
|
—
|
|
Bushels
|
12
|
Tesoro Corporation
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
September 30, 2016
|
||||||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting and Collateral (a)
|
|
Total
|
||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Commodity Futures Contracts
|
$
|
716
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
(689
|
)
|
|
$
|
29
|
|
Commodity Swap Contracts
|
—
|
|
|
9
|
|
|
—
|
|
|
(7
|
)
|
|
2
|
|
|||||
Commodity Forward Contracts
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|||||
Total Assets
|
$
|
716
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
(696
|
)
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Commodity Futures Contracts
|
$
|
719
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
(716
|
)
|
|
$
|
5
|
|
Commodity Swap Contracts
|
—
|
|
|
7
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|||||
Commodity Forward Contracts
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|||||
Environmental Credit Obligations
|
—
|
|
|
186
|
|
|
—
|
|
|
—
|
|
|
186
|
|
|||||
Total Liabilities
|
$
|
719
|
|
|
$
|
197
|
|
|
$
|
—
|
|
|
$
|
(723
|
)
|
|
$
|
193
|
|
|
December 31, 2015
|
||||||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting and Collateral (a)
|
|
Total
|
||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Commodity Futures Contracts
|
$
|
711
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(660
|
)
|
|
$
|
51
|
|
Commodity Swap Contracts
|
—
|
|
|
22
|
|
|
—
|
|
|
(15
|
)
|
|
7
|
|
|||||
Commodity Forward Contracts
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|||||
Total Assets
|
$
|
711
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
(675
|
)
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Commodity Futures Contracts
|
$
|
673
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(673
|
)
|
|
$
|
—
|
|
Commodity Swap Contracts
|
—
|
|
|
14
|
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|||||
Commodity Forward Contracts
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|||||
Environmental Credit Obligations
|
—
|
|
|
40
|
|
|
—
|
|
|
—
|
|
|
40
|
|
|||||
Total Liabilities
|
$
|
673
|
|
|
$
|
58
|
|
|
$
|
—
|
|
|
$
|
(687
|
)
|
|
$
|
44
|
|
(a)
|
Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously. As of
September 30, 2016
and
December 31, 2015
, we had provided cash collateral amounts of
$27 million
and
$12 million
, respectively, related to our unrealized derivative positions. Cash collateral amounts are netted with mark-to-market derivative assets.
|
|
|
September 30, 2016
|
13
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
September 30,
2016 |
|
December 31,
2015 |
||||
Total debt (a)
|
$
|
4,764
|
|
|
$
|
4,147
|
|
Unamortized issuance costs (b)
|
(82
|
)
|
|
(74
|
)
|
||
Current maturities
|
(15
|
)
|
|
(6
|
)
|
||
Debt, Net of Current Maturities and Unamortized Issuance Costs
|
$
|
4,667
|
|
|
$
|
4,067
|
|
(a)
|
Total debt related to TLLP, which is non-recourse to Tesoro, except for TLGP, was
$3.4 billion
and
$2.9 billion
at
September 30, 2016
and
December 31, 2015
, respectively.
|
(b)
|
Includes unamortized premiums of
$4 million
associated with TLLP’s senior notes at both
September 30, 2016
and
December 31, 2015
.
|
|
Total
Capacity
|
|
Amount Borrowed as of September 30,
2016
|
|
Outstanding
Letters of Credit
|
|
Available Capacity
|
|
Expiration
|
||||||||
Tesoro Corporation Revolving Credit Facility
|
$
|
2,000
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
1,996
|
|
|
September 30, 2020
|
TLLP Revolving Credit Facility
|
600
|
|
|
—
|
|
|
—
|
|
|
600
|
|
|
January 29, 2021
|
||||
TLLP Dropdown Credit Facility
|
1,000
|
|
|
400
|
|
|
—
|
|
|
600
|
|
|
January 29, 2021
|
||||
Letter of Credit Facilities
|
1,555
|
|
|
—
|
|
|
44
|
|
|
1,511
|
|
|
|
||||
Total Credit Facilities
|
$
|
5,155
|
|
|
$
|
400
|
|
|
$
|
48
|
|
|
$
|
4,707
|
|
|
|
•
|
pay dividends and make other distributions with respect to our capital stock and purchase, redeem or retire our capital stock;
|
•
|
enter into certain hedging agreements;
|
•
|
incur additional indebtedness;
|
•
|
sell assets unless the proceeds from those sales are used to repay debt or are reinvested in our business;
|
•
|
incur liens on assets to secure certain debt;
|
•
|
engage in certain business activities;
|
14
|
Tesoro Corporation
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
•
|
make certain payments and distributions from our subsidiaries;
|
•
|
engage in certain investments, mergers or consolidations and transfers of assets; and
|
•
|
enter into non-arm’s length transactions with affiliates.
|
|
|
September 30, 2016
|
15
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Pension Benefits
|
||||||||||||||
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Service cost
|
$
|
11
|
|
|
$
|
11
|
|
|
$
|
34
|
|
|
$
|
34
|
|
Interest cost
|
8
|
|
|
7
|
|
|
23
|
|
|
22
|
|
||||
Expected return on plan assets
|
(6
|
)
|
|
(7
|
)
|
|
(20
|
)
|
|
(20
|
)
|
||||
Amortization of prior service cost
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
Recognized net actuarial loss
|
4
|
|
|
6
|
|
|
14
|
|
|
18
|
|
||||
Recognized curtailment loss and settlement cost
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
||||
Net Periodic Benefit Expense
|
$
|
17
|
|
|
$
|
18
|
|
|
$
|
56
|
|
|
$
|
55
|
|
|
|
|
|
|
|
|
|
||||||||
|
Other Postretirement Benefits
|
||||||||||||||
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Interest cost
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
||||
Amortization of prior service credit
|
(8
|
)
|
|
(8
|
)
|
|
(26
|
)
|
|
(25
|
)
|
||||
Recognized net actuarial loss
|
1
|
|
|
1
|
|
|
3
|
|
|
3
|
|
||||
Net Periodic Benefit Income
|
$
|
(6
|
)
|
|
$
|
(6
|
)
|
|
$
|
(19
|
)
|
|
$
|
(18
|
)
|
16
|
Tesoro Corporation
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
|
September 30, 2016
|
17
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Tesoro
Corporation
Stockholders’
Equity
|
|
Noncontrolling
Interest
|
|
Total Equity
|
||||||
Balance at December 31, 2015 (a)
|
$
|
5,213
|
|
|
$
|
2,527
|
|
|
$
|
7,740
|
|
Net earnings
|
656
|
|
|
103
|
|
|
759
|
|
|||
Purchases of common stock
|
(242
|
)
|
|
—
|
|
|
(242
|
)
|
|||
Dividend payments
|
(186
|
)
|
|
—
|
|
|
(186
|
)
|
|||
Net effect of amounts related to equity-based compensation (b)
|
33
|
|
|
3
|
|
|
36
|
|
|||
Effect of deconsolidation of RGS (c)
|
(2
|
)
|
|
(84
|
)
|
|
(86
|
)
|
|||
Taxes paid related to net share settlement of equity awards
|
(25
|
)
|
|
—
|
|
|
(25
|
)
|
|||
Net proceeds from issuance of Tesoro Logistics LP common units (d)
|
(2
|
)
|
|
366
|
|
|
364
|
|
|||
Distributions to noncontrolling interest
|
—
|
|
|
(155
|
)
|
|
(155
|
)
|
|||
Pension liability adjustment, net of tax
|
10
|
|
|
—
|
|
|
10
|
|
|||
Transfers to (from) Tesoro paid-in capital related to:
|
|
|
|
|
|
||||||
TLLP’s issuance of common units
|
44
|
|
|
(72
|
)
|
|
(28
|
)
|
|||
Other
|
1
|
|
|
7
|
|
|
8
|
|
|||
Balance at September 30, 2016 (a)
|
$
|
5,500
|
|
|
$
|
2,695
|
|
|
$
|
8,195
|
|
(a)
|
We have
5.0 million
shares of preferred stock authorized with
no
par value per share.
No
shares of preferred stock were outstanding as of
September 30, 2016
and
December 31, 2015
.
|
18
|
Tesoro Corporation
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
(b)
|
We issued less than
0.1 million
and approximately
0.3 million
shares during the
nine
months ended
September 30, 2016
and
2015
, respectively, for proceeds of
$2 million
and
$12 million
, respectively, primarily for stock option exercises under our equity-based compensation plans. See Note 11 for more information on stock-based compensation.
|
(c)
|
As a result of the reassessment performed in conjunction with the adoption of ASU 2015-02, we deconsolidated RGS, causing the derecognition of noncontrolling interest for the reporting of RGS as an equity method investment.
|
(d)
|
Includes the closing of TLLP’s registered public offering of
6,325,000
common units representing limited partner interests at a public offering price of
$47.13
per unit on
June 10, 2016
as well as common units issued under TLLP’s continuous offering program during the
nine
months ended
September 30, 2016
.
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||
|
|
||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Weighted average common shares outstanding
|
118.2
|
|
122.5
|
|
119.1
|
|
124.3
|
Common stock equivalents
|
1.1
|
|
1.3
|
|
1.3
|
|
1.4
|
Total Diluted Shares
|
119.3
|
|
123.8
|
|
120.4
|
|
125.7
|
|
|
September 30, 2016
|
19
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Stock appreciation rights (a)
|
$
|
1
|
|
|
$
|
10
|
|
|
$
|
(14
|
)
|
|
$
|
20
|
|
Performance share awards (b)
|
3
|
|
|
3
|
|
|
7
|
|
|
9
|
|
||||
Market stock units (c)
|
7
|
|
|
7
|
|
|
21
|
|
|
19
|
|
||||
Other stock-based awards (d)
|
2
|
|
|
2
|
|
|
7
|
|
|
9
|
|
||||
Total Stock-Based Compensation Expense
|
$
|
13
|
|
|
$
|
22
|
|
|
$
|
21
|
|
|
$
|
57
|
|
(a)
|
We had
$6 million
and
$41 million
recorded in other current liabilities associated with our stock appreciation rights (“SARs”) awards at
September 30, 2016
and
December 31, 2015
, respectively. We paid cash of
$21 million
to settle
0.3 million
SARs that were exercised during the
nine
months ended
September 30, 2016
and
$37 million
to settle
0.5 million
SARs that were exercised during the
nine
months ended
September 30, 2015
.
|
(b)
|
We granted
0.1 million
market condition performance share awards at a weighted average grant date fair value of
$87.90
per share under the amended and restated 2011 Long-Term Incentive Plan (“2011 Plan”) during the
nine
months ended
September 30, 2016
.
|
(c)
|
We granted
0.3 million
market stock units at a weighted average grant date fair value of
$84.84
per unit under the 2011 Plan during the
nine
months ended
September 30, 2016
.
|
(d)
|
We have aggregated expenses for certain award types as they are not considered significant.
|
20
|
Tesoro Corporation
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
(In millions)
|
||||||||||||||
Revenues
|
|
|
|
|
|
|
|
||||||||
Refining:
|
|
|
|
|
|
|
|
||||||||
Refined products
|
$
|
5,641
|
|
|
$
|
6,817
|
|
|
$
|
15,434
|
|
|
$
|
19,867
|
|
Crude oil resales and other
|
257
|
|
|
172
|
|
|
710
|
|
|
780
|
|
||||
TLLP:
|
|
|
|
|
|
|
|
||||||||
Gathering
|
82
|
|
|
87
|
|
|
255
|
|
|
253
|
|
||||
Processing
|
69
|
|
|
71
|
|
|
208
|
|
|
205
|
|
||||
Terminalling and transportation
|
157
|
|
|
124
|
|
|
438
|
|
|
362
|
|
||||
Marketing:
|
|
|
|
|
|
|
|
||||||||
Fuel (a)
|
4,118
|
|
|
5,144
|
|
|
11,493
|
|
|
14,143
|
|
||||
Other non-fuel
|
23
|
|
|
16
|
|
|
65
|
|
|
48
|
|
||||
Intersegment sales
|
(3,803
|
)
|
|
(4,688
|
)
|
|
(10,673
|
)
|
|
(13,220
|
)
|
||||
Total Revenues
|
$
|
6,544
|
|
|
$
|
7,743
|
|
|
$
|
17,930
|
|
|
$
|
22,438
|
|
Segment Operating Income
|
|
|
|
|
|
|
|
||||||||
Refining (b)
|
$
|
52
|
|
|
$
|
899
|
|
|
$
|
475
|
|
|
$
|
1,843
|
|
TLLP (b) (c)
|
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
|
—
|
|
|
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
|
|
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
|
|
(a)
|
Federal and state motor fuel excise taxes on sales by our marketing segment at retail sites where we own the inventory are included in both revenues and cost of sales in our condensed statements of consolidated operations. These taxes totaled
$146 million
and
$137 million
for the
three
months ended
September 30, 2016
and
2015
, respectively, and
$436 million
and
$423 million
for the
nine
months ended
September 30, 2016
and
2015
, respectively.
|
(b)
|
Adjusted for the historical results of the Predecessors.
|
(c)
|
We present TLLP’s segment operating income net of general and administrative expenses totaling
$12 million
and
$16 million
representing TLLP’s corporate costs for the
three
months ended
September 30, 2016
and
2015
, respectively, and
$37 million
and
$43 million
for the
nine
months ended
September 30, 2016
and
2015
, respectively, which are not allocated by TLLP to its operating segments.
|
|
|
September 30, 2016
|
21
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Parent
|
Guarantor
Subsidiaries
|
Non-
Guarantors
|
Consolidating Adjustments
|
Consolidated
|
||||||||||
Revenues
|
$
|
—
|
|
$
|
7,136
|
|
$
|
850
|
|
$
|
(1,442
|
)
|
$
|
6,544
|
|
Costs and Expenses
|
|
|
|
|
|
||||||||||
Cost of sales (excluding the lower of cost or market inventory valuation adjustment)
|
—
|
|
6,059
|
|
533
|
|
(1,360
|
)
|
5,232
|
|
|||||
Lower of cost or market inventory valuation adjustment
|
—
|
|
(20
|
)
|
—
|
|
—
|
|
(20
|
)
|
|||||
Operating, selling, general and administrative expenses
|
2
|
|
696
|
|
143
|
|
(82
|
)
|
759
|
|
|||||
Depreciation and amortization expenses
|
—
|
|
165
|
|
46
|
|
—
|
|
211
|
|
|||||
Loss on asset disposals and impairments
|
—
|
|
1
|
|
1
|
|
—
|
|
2
|
|
|||||
Operating Income (Loss)
|
(2
|
)
|
235
|
|
127
|
|
—
|
|
360
|
|
|||||
Interest and financing costs, net
|
(16
|
)
|
(20
|
)
|
(34
|
)
|
—
|
|
(70
|
)
|
|||||
Equity in earnings of subsidiaries
|
185
|
|
43
|
|
—
|
|
(228
|
)
|
—
|
|
|||||
Equity in earnings of equity method investments
|
—
|
|
4
|
|
3
|
|
—
|
|
7
|
|
|||||
Other income (expense), net
|
(1
|
)
|
1
|
|
—
|
|
—
|
|
—
|
|
|||||
Earnings Before Income Taxes
|
166
|
|
263
|
|
96
|
|
(228
|
)
|
297
|
|
|||||
Income tax expense (benefit) (a)
|
(4
|
)
|
75
|
|
24
|
|
—
|
|
95
|
|
|||||
Net Earnings from Continuing Operations
|
170
|
|
188
|
|
72
|
|
(228
|
)
|
202
|
|
|||||
Loss from discontinued operations, net of tax
|
(1
|
)
|
—
|
|
—
|
|
—
|
|
(1
|
)
|
|||||
Net Earnings
|
169
|
|
188
|
|
72
|
|
(228
|
)
|
201
|
|
|||||
Less: Net earnings from continuing operations attributable to noncontrolling interest
|
—
|
|
—
|
|
32
|
|
—
|
|
32
|
|
|||||
Net Earnings Attributable to Tesoro Corporation
|
$
|
169
|
|
$
|
188
|
|
$
|
40
|
|
$
|
(228
|
)
|
$
|
169
|
|
|
|
|
|
|
|
||||||||||
Comprehensive Income
|
|
|
|
|
|
||||||||||
Total comprehensive income
|
$
|
169
|
|
$
|
188
|
|
$
|
72
|
|
$
|
(228
|
)
|
$
|
201
|
|
Less: Noncontrolling interest in comprehensive income
|
—
|
|
—
|
|
32
|
|
—
|
|
32
|
|
|||||
Comprehensive Income Attributable to Tesoro Corporation
|
$
|
169
|
|
$
|
188
|
|
$
|
40
|
|
$
|
(228
|
)
|
$
|
169
|
|
(a)
|
The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners’ share of partnership income.
|
22
|
Tesoro Corporation
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Parent
|
Guarantor
Subsidiaries
|
Non-
Guarantors
|
Consolidating Adjustments
|
Consolidated
|
||||||||||
Revenues
|
$
|
—
|
|
$
|
8,574
|
|
$
|
1,054
|
|
$
|
(1,885
|
)
|
$
|
7,743
|
|
Costs and Expenses
|
|
|
|
|
|
||||||||||
Cost of sales (excluding the lower of cost or market inventory valuation adjustment)
|
—
|
|
6,491
|
|
748
|
|
(1,810
|
)
|
5,429
|
|
|||||
Lower of cost or market inventory valuation adjustment
|
—
|
|
83
|
|
—
|
|
—
|
|
83
|
|
|||||
Operating, selling, general and administrative expenses
|
2
|
|
674
|
|
142
|
|
(75
|
)
|
743
|
|
|||||
Depreciation and amortization expenses
|
—
|
|
146
|
|
46
|
|
—
|
|
192
|
|
|||||
Loss on asset disposals and impairments
|
—
|
|
4
|
|
—
|
|
—
|
|
4
|
|
|||||
Operating Income (Loss)
|
(2
|
)
|
1,176
|
|
118
|
|
—
|
|
1,292
|
|
|||||
Interest and financing costs, net
|
(11
|
)
|
(17
|
)
|
(26
|
)
|
—
|
|
(54
|
)
|
|||||
Equity in earnings of subsidiaries
|
776
|
|
32
|
|
—
|
|
(808
|
)
|
—
|
|
|||||
Equity in earnings of equity method investments
|
—
|
|
4
|
|
2
|
|
—
|
|
6
|
|
|||||
Other income, net
|
—
|
|
13
|
|
—
|
|
—
|
|
13
|
|
|||||
Earnings Before Income Taxes
|
763
|
|
1,208
|
|
94
|
|
(808
|
)
|
1,257
|
|
|||||
Income tax expense (a)
|
4
|
|
445
|
|
9
|
|
—
|
|
458
|
|
|||||
Net Earnings
|
759
|
|
763
|
|
85
|
|
(808
|
)
|
799
|
|
|||||
Less: Net earnings from continuing operations attributable to noncontrolling interest
|
—
|
|
—
|
|
40
|
|
—
|
|
40
|
|
|||||
Net Earnings Attributable to Tesoro Corporation
|
$
|
759
|
|
$
|
763
|
|
$
|
45
|
|
$
|
(808
|
)
|
$
|
759
|
|
|
|
|
|
|
|
||||||||||
Comprehensive Income
|
|
|
|
|
|
||||||||||
Total comprehensive income
|
$
|
759
|
|
$
|
763
|
|
$
|
85
|
|
$
|
(808
|
)
|
$
|
799
|
|
Less: Noncontrolling interest in comprehensive income
|
—
|
|
—
|
|
40
|
|
—
|
|
40
|
|
|||||
Comprehensive Income Attributable to Tesoro Corporation
|
$
|
759
|
|
$
|
763
|
|
$
|
45
|
|
$
|
(808
|
)
|
$
|
759
|
|
(a)
|
The income tax expense reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners’ share of partnership income.
|
|
|
September 30, 2016
|
23
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Parent
|
Guarantor
Subsidiaries
|
Non-
Guarantors
|
Consolidating Adjustments
|
Consolidated
|
||||||||||
Revenues
|
$
|
—
|
|
$
|
19,664
|
|
$
|
2,401
|
|
$
|
(4,135
|
)
|
$
|
17,930
|
|
Costs and Expenses
|
|
|
|
|
|
||||||||||
Cost of sales (excluding the lower of cost or market inventory valuation adjustment)
|
—
|
|
16,479
|
|
1,528
|
|
(3,893
|
)
|
14,114
|
|
|||||
Lower of cost or market inventory valuation adjustment
|
—
|
|
(237
|
)
|
1
|
|
—
|
|
(236
|
)
|
|||||
Operating, selling, general and administrative expenses
|
6
|
|
1,986
|
|
405
|
|
(242
|
)
|
2,155
|
|
|||||
Depreciation and amortization expenses
|
—
|
|
495
|
|
138
|
|
—
|
|
633
|
|
|||||
Loss on asset disposals and impairments
|
—
|
|
4
|
|
3
|
|
—
|
|
7
|
|
|||||
Operating Income (Loss)
|
(6
|
)
|
937
|
|
326
|
|
—
|
|
1,257
|
|
|||||
Interest and financing costs, net
|
(43
|
)
|
(52
|
)
|
(95
|
)
|
—
|
|
(190
|
)
|
|||||
Equity in earnings of subsidiaries
|
686
|
|
146
|
|
—
|
|
(832
|
)
|
—
|
|
|||||
Equity in earnings of equity method investments
|
—
|
|
2
|
|
10
|
|
—
|
|
12
|
|
|||||
Other income, net
|
1
|
|
25
|
|
6
|
|
—
|
|
32
|
|
|||||
Earnings Before Income Taxes
|
638
|
|
1,058
|
|
247
|
|
(832
|
)
|
1,111
|
|
|||||
Income tax expense (benefit) (a)
|
(8
|
)
|
330
|
|
40
|
|
—
|
|
362
|
|
|||||
Net Earnings from Continuing Operations
|
646
|
|
728
|
|
207
|
|
(832
|
)
|
749
|
|
|||||
Earnings from discontinued operations, net of tax
|
10
|
|
—
|
|
—
|
|
—
|
|
10
|
|
|||||
Net Earnings
|
656
|
|
728
|
|
207
|
|
(832
|
)
|
759
|
|
|||||
Less: Net earnings from continuing operations attributable to noncontrolling interest
|
—
|
|
—
|
|
103
|
|
—
|
|
103
|
|
|||||
Net Earnings Attributable to Tesoro Corporation
|
$
|
656
|
|
$
|
728
|
|
$
|
104
|
|
$
|
(832
|
)
|
$
|
656
|
|
|
|
|
|
|
|
||||||||||
Comprehensive Income
|
|
|
|
|
|
||||||||||
Total comprehensive income
|
$
|
646
|
|
$
|
728
|
|
$
|
207
|
|
$
|
(832
|
)
|
$
|
749
|
|
Less: Noncontrolling interest in comprehensive income
|
—
|
|
—
|
|
103
|
|
—
|
|
103
|
|
|||||
Comprehensive Income Attributable to Tesoro Corporation
|
$
|
646
|
|
$
|
728
|
|
$
|
104
|
|
$
|
(832
|
)
|
$
|
646
|
|
(a)
|
The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners’ share of partnership income.
|
24
|
Tesoro Corporation
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Parent
|
Guarantor
Subsidiaries
|
Non-
Guarantors
|
Consolidating Adjustments
|
Consolidated
|
||||||||||
Revenues
|
$
|
—
|
|
$
|
24,573
|
|
$
|
2,718
|
|
$
|
(4,853
|
)
|
$
|
22,438
|
|
Costs and Expenses
|
|
|
|
|
|
||||||||||
Cost of sales (excluding the lower of cost or market inventory valuation adjustment)
|
—
|
|
19,862
|
|
1,874
|
|
(4,646
|
)
|
17,090
|
|
|||||
Lower of cost or market inventory valuation adjustment
|
—
|
|
41
|
|
—
|
|
—
|
|
41
|
|
|||||
Operating, selling, general and administrative expenses
|
8
|
|
1,889
|
|
411
|
|
(207
|
)
|
2,101
|
|
|||||
Depreciation and amortization expenses
|
—
|
|
416
|
|
137
|
|
—
|
|
553
|
|
|||||
Loss on asset disposals and impairments
|
—
|
|
12
|
|
—
|
|
—
|
|
12
|
|
|||||
Operating Income (Loss)
|
(8
|
)
|
2,353
|
|
296
|
|
—
|
|
2,641
|
|
|||||
Interest and financing costs, net
|
(32
|
)
|
(52
|
)
|
(79
|
)
|
—
|
|
(163
|
)
|
|||||
Equity in earnings of subsidiaries
|
1,527
|
|
85
|
|
—
|
|
(1,612
|
)
|
—
|
|
|||||
Equity in earnings of equity method investments
|
—
|
|
3
|
|
6
|
|
—
|
|
9
|
|
|||||
Other income, net
|
1
|
|
11
|
|
—
|
|
—
|
|
12
|
|
|||||
Earnings Before Income Taxes
|
1,488
|
|
2,400
|
|
223
|
|
(1,612
|
)
|
2,499
|
|
|||||
Income tax expense (benefit) (a)
|
(2
|
)
|
870
|
|
20
|
|
—
|
|
888
|
|
|||||
Net Earnings from Continuing Operations
|
1,490
|
|
1,530
|
|
203
|
|
(1,612
|
)
|
1,611
|
|
|||||
Loss from discontinued operations, net of tax
|
(4
|
)
|
—
|
|
—
|
|
—
|
|
(4
|
)
|
|||||
Net Earnings
|
1,486
|
|
1,530
|
|
203
|
|
(1,612
|
)
|
1,607
|
|
|||||
Less: Net earnings from continuing operations attributable to noncontrolling interest
|
—
|
|
—
|
|
121
|
|
—
|
|
121
|
|
|||||
Net Earnings Attributable to Tesoro Corporation
|
$
|
1,486
|
|
$
|
1,530
|
|
$
|
82
|
|
$
|
(1,612
|
)
|
$
|
1,486
|
|
|
|
|
|
|
|
||||||||||
Comprehensive Income
|
|
|
|
|
|
||||||||||
Total comprehensive income
|
$
|
1,486
|
|
$
|
1,530
|
|
$
|
203
|
|
$
|
(1,612
|
)
|
$
|
1,607
|
|
Less: Noncontrolling interest in comprehensive income
|
—
|
|
—
|
|
121
|
|
—
|
|
121
|
|
|||||
Comprehensive Income Attributable to Tesoro Corporation
|
$
|
1,486
|
|
$
|
1,530
|
|
$
|
82
|
|
$
|
(1,612
|
)
|
$
|
1,486
|
|
(a)
|
The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings from corporate subsidiaries, but does include the tax effect of the corporate partners’ share of partnership income.
|
|
|
September 30, 2016
|
25
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Parent
|
Guarantor
Subsidiaries
|
Non-
Guarantors
|
Consolidating Adjustments
|
Consolidated
|
||||||||||
ASSETS
|
|
|
|
|
|
||||||||||
Current Assets
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
—
|
|
$
|
846
|
|
$
|
541
|
|
$
|
—
|
|
$
|
1,387
|
|
Receivables, net of allowance for doubtful accounts
|
7
|
|
844
|
|
186
|
|
—
|
|
1,037
|
|
|||||
Short-term receivables from affiliates
|
—
|
|
66
|
|
17
|
|
(83
|
)
|
—
|
|
|||||
Inventories, net
|
—
|
|
2,136
|
|
181
|
|
—
|
|
2,317
|
|
|||||
Prepayments and other current assets
|
47
|
|
277
|
|
40
|
|
—
|
|
364
|
|
|||||
Total Current Assets
|
54
|
|
4,169
|
|
965
|
|
(83
|
)
|
5,105
|
|
|||||
Property, Plant and Equipment, Net
|
—
|
|
6,498
|
|
3,271
|
|
—
|
|
9,769
|
|
|||||
Investment in Subsidiaries
|
9,125
|
|
619
|
|
—
|
|
(9,744
|
)
|
—
|
|
|||||
Long-Term Receivables from Affiliates
|
1,454
|
|
—
|
|
—
|
|
(1,454
|
)
|
—
|
|
|||||
Long-Term Intercompany Note Receivable
|
—
|
|
—
|
|
2,026
|
|
(2,026
|
)
|
—
|
|
|||||
Acquired Intangibles, Net
|
—
|
|
316
|
|
971
|
|
—
|
|
1,287
|
|
|||||
Other Noncurrent Assets, Net
|
46
|
|
1,301
|
|
502
|
|
(5
|
)
|
1,844
|
|
|||||
Total Assets
|
$
|
10,679
|
|
$
|
12,903
|
|
$
|
7,735
|
|
$
|
(13,312
|
)
|
$
|
18,005
|
|
|
|
|
|
|
|
||||||||||
LIABILITIES AND EQUITY
|
|
|
|
|
|
||||||||||
Current Liabilities
|
|
|
|
|
|
||||||||||
Accounts payable
|
$
|
1
|
|
$
|
1,393
|
|
$
|
153
|
|
$
|
—
|
|
$
|
1,547
|
|
Short-term payables to affiliates
|
—
|
|
17
|
|
66
|
|
(83
|
)
|
—
|
|
|||||
Other current liabilities
|
125
|
|
860
|
|
161
|
|
—
|
|
1,146
|
|
|||||
Total Current Liabilities
|
126
|
|
2,270
|
|
380
|
|
(83
|
)
|
2,693
|
|
|||||
Long-Term Payables to Affiliates
|
—
|
|
1,223
|
|
231
|
|
(1,454
|
)
|
—
|
|
|||||
Deferred Income Taxes
|
1,443
|
|
—
|
|
—
|
|
(5
|
)
|
1,438
|
|
|||||
Debt, Net of Unamortized Issuance Costs
|
1,189
|
|
39
|
|
3,439
|
|
—
|
|
4,667
|
|
|||||
Other Noncurrent Liabilities
|
395
|
|
568
|
|
49
|
|
—
|
|
1,012
|
|
|||||
Long-Term Intercompany Note Payable
|
2,026
|
|
—
|
|
—
|
|
(2,026
|
)
|
—
|
|
|||||
Equity-Tesoro Corporation
|
5,500
|
|
8,803
|
|
941
|
|
(9,744
|
)
|
5,500
|
|
|||||
Equity-Noncontrolling Interest
|
—
|
|
—
|
|
2,695
|
|
—
|
|
2,695
|
|
|||||
Total Liabilities and Equity
|
$
|
10,679
|
|
$
|
12,903
|
|
$
|
7,735
|
|
$
|
(13,312
|
)
|
$
|
18,005
|
|
26
|
Tesoro Corporation
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Parent
|
Guarantor
Subsidiaries
|
Non-
Guarantors
|
Consolidating Adjustments
|
Consolidated
|
||||||||||
ASSETS
|
|
|
|
|
|
||||||||||
Current Assets
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
—
|
|
$
|
895
|
|
$
|
47
|
|
$
|
—
|
|
$
|
942
|
|
Receivables, net of allowance for doubtful accounts
|
—
|
|
626
|
|
166
|
|
—
|
|
792
|
|
|||||
Short-term receivables from affiliates
|
—
|
|
197
|
|
—
|
|
(197
|
)
|
—
|
|
|||||
Inventories, net
|
—
|
|
1,971
|
|
331
|
|
—
|
|
2,302
|
|
|||||
Prepayments and other current assets
|
116
|
|
140
|
|
16
|
|
(1
|
)
|
271
|
|
|||||
Total Current Assets
|
116
|
|
3,829
|
|
560
|
|
(198
|
)
|
4,307
|
|
|||||
Property, Plant and Equipment, Net
|
—
|
|
6,010
|
|
3,531
|
|
—
|
|
9,541
|
|
|||||
Investment in Subsidiaries
|
8,133
|
|
509
|
|
—
|
|
(8,642
|
)
|
—
|
|
|||||
Long-Term Receivables from Affiliates
|
1,517
|
|
—
|
|
—
|
|
(1,517
|
)
|
—
|
|
|||||
Long-Term Intercompany Note Receivable
|
—
|
|
—
|
|
1,626
|
|
(1,626
|
)
|
—
|
|
|||||
Acquired Intangibles, Net
|
—
|
|
234
|
|
977
|
|
—
|
|
1,211
|
|
|||||
Other Noncurrent Assets, Net
|
33
|
|
1,026
|
|
219
|
|
(5
|
)
|
1,273
|
|
|||||
Total Assets
|
$
|
9,799
|
|
$
|
11,608
|
|
$
|
6,913
|
|
$
|
(11,988
|
)
|
$
|
16,332
|
|
|
|
|
|
|
|
||||||||||
LIABILITIES AND EQUITY
|
|
|
|
|
|
||||||||||
Current Liabilities
|
|
|
|
|
|
||||||||||
Accounts payable
|
$
|
—
|
|
$
|
1,412
|
|
$
|
156
|
|
$
|
—
|
|
$
|
1,568
|
|
Short-term payables to affiliates
|
—
|
|
—
|
|
197
|
|
(197
|
)
|
—
|
|
|||||
Other current liabilities
|
91
|
|
773
|
|
99
|
|
(1
|
)
|
962
|
|
|||||
Total Current Liabilities
|
91
|
|
2,185
|
|
452
|
|
(198
|
)
|
2,530
|
|
|||||
Long-Term Payables to Affiliates
|
—
|
|
1,375
|
|
142
|
|
(1,517
|
)
|
—
|
|
|||||
Deferred Income Taxes
|
1,227
|
|
—
|
|
—
|
|
(5
|
)
|
1,222
|
|
|||||
Debt, Net of Unamortized Issuance Costs
|
1,190
|
|
33
|
|
2,844
|
|
—
|
|
4,067
|
|
|||||
Other Noncurrent Liabilities
|
452
|
|
271
|
|
50
|
|
—
|
|
773
|
|
|||||
Long-Term Intercompany Note Payable
|
1,626
|
|
—
|
|
—
|
|
(1,626
|
)
|
—
|
|
|||||
Equity-Tesoro Corporation
|
5,213
|
|
7,744
|
|
898
|
|
(8,642
|
)
|
5,213
|
|
|||||
Equity-Noncontrolling Interest
|
—
|
|
—
|
|
2,527
|
|
—
|
|
2,527
|
|
|||||
Total Liabilities and Equity
|
$
|
9,799
|
|
$
|
11,608
|
|
$
|
6,913
|
|
$
|
(11,988
|
)
|
$
|
16,332
|
|
|
|
September 30, 2016
|
27
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Parent
|
Guarantor
Subsidiaries
|
Non-
Guarantors
|
Consolidating Adjustments
|
Consolidated
|
||||||||||
Cash Flows From (Used In) Operating Activities
|
|
|
|
|
|
||||||||||
Net cash from (used in) operating activities
|
$
|
(20
|
)
|
$
|
687
|
|
$
|
534
|
|
$
|
—
|
|
$
|
1,201
|
|
Cash Flows From (Used In) Investing Activities
|
|
|
|
|
|
||||||||||
Capital expenditures
|
—
|
|
(484
|
)
|
(139
|
)
|
—
|
|
(623
|
)
|
|||||
Acquisition, net of cash
|
—
|
|
(360
|
)
|
(52
|
)
|
—
|
|
(412
|
)
|
|||||
Proceeds from asset sales
|
17
|
|
1
|
|
—
|
|
—
|
|
18
|
|
|||||
Intercompany notes, net
|
349
|
|
—
|
|
—
|
|
(349
|
)
|
—
|
|
|||||
Notes to General Partner
|
—
|
|
—
|
|
(400
|
)
|
400
|
|
—
|
|
|||||
Investment in subsidiaries
|
(319
|
)
|
(106
|
)
|
—
|
|
425
|
|
—
|
|
|||||
Other investing activities
|
—
|
|
—
|
|
(3
|
)
|
—
|
|
(3
|
)
|
|||||
Net cash from (used in) investing activities
|
47
|
|
(949
|
)
|
(594
|
)
|
476
|
|
(1,020
|
)
|
|||||
Cash Flows From (Used In) Financing Activities
|
|
|
|
|
|
||||||||||
Borrowings under revolving credit agreements
|
—
|
|
—
|
|
761
|
|
—
|
|
761
|
|
|||||
Repayments on revolving credit agreements
|
—
|
|
—
|
|
(666
|
)
|
—
|
|
(666
|
)
|
|||||
Proceeds from debt offering
|
—
|
|
—
|
|
701
|
|
—
|
|
701
|
|
|||||
Repayments of debt
|
—
|
|
(6
|
)
|
(252
|
)
|
—
|
|
(258
|
)
|
|||||
Dividend payments
|
(186
|
)
|
—
|
|
—
|
|
—
|
|
(186
|
)
|
|||||
Net proceeds from issuance of Tesoro Logistics LP common units
|
—
|
|
—
|
|
364
|
|
—
|
|
364
|
|
|||||
Notes from General Partner
|
400
|
|
—
|
|
—
|
|
(400
|
)
|
—
|
|
|||||
Distributions to noncontrolling interest
|
—
|
|
—
|
|
(155
|
)
|
—
|
|
(155
|
)
|
|||||
Purchases of common stock
|
(242
|
)
|
—
|
|
—
|
|
—
|
|
(242
|
)
|
|||||
Taxes paid related to net share settlement of equity awards
|
(25
|
)
|
—
|
|
—
|
|
—
|
|
(25
|
)
|
|||||
Net intercompany repayments
|
—
|
|
(117
|
)
|
(232
|
)
|
349
|
|
—
|
|
|||||
Contribution by parent
|
—
|
|
319
|
|
106
|
|
(425
|
)
|
—
|
|
|||||
Distributions to TLLP unitholders and general partner
|
38
|
|
17
|
|
(55
|
)
|
—
|
|
—
|
|
|||||
Other financing activities
|
(12
|
)
|
—
|
|
(18
|
)
|
—
|
|
(30
|
)
|
|||||
Net cash from (used in) financing activities
|
(27
|
)
|
213
|
|
554
|
|
(476
|
)
|
264
|
|
|||||
Increase (Decrease) in Cash And Cash Equivalents
|
—
|
|
(49
|
)
|
494
|
|
—
|
|
445
|
|
|||||
Cash and Cash Equivalents, Beginning of Period
|
—
|
|
895
|
|
47
|
|
—
|
|
942
|
|
|||||
Cash and Cash Equivalents, End of Period
|
$
|
—
|
|
$
|
846
|
|
$
|
541
|
|
$
|
—
|
|
$
|
1,387
|
|
28
|
Tesoro Corporation
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
Parent
|
Guarantor
Subsidiaries
|
Non-
Guarantors
|
Consolidating Adjustments
|
Consolidated
|
||||||||||
Cash Flows From (Used In) Operating Activities
|
|
|
|
|
|
||||||||||
Net cash from (used in) operating activities
|
$
|
(16
|
)
|
$
|
1,481
|
|
$
|
382
|
|
$
|
—
|
|
$
|
1,847
|
|
Cash Flows From (Used In) Investing Activities
|
|
|
|
|
|
||||||||||
Capital expenditures
|
—
|
|
(527
|
)
|
(246
|
)
|
—
|
|
(773
|
)
|
|||||
Acquisitions
|
—
|
|
—
|
|
(6
|
)
|
—
|
|
(6
|
)
|
|||||
Intercompany notes, net
|
1,077
|
|
—
|
|
—
|
|
(1,077
|
)
|
—
|
|
|||||
Other investing activities
|
—
|
|
(4
|
)
|
—
|
|
—
|
|
(4
|
)
|
|||||
Net cash from (used in) investing activities
|
1,077
|
|
(531
|
)
|
(252
|
)
|
(1,077
|
)
|
(783
|
)
|
|||||
Cash Flows From (Used In) Financing Activities
|
|
|
|
|
|
||||||||||
Borrowings under revolving credit agreements
|
—
|
|
—
|
|
346
|
|
—
|
|
346
|
|
|||||
Repayments on revolving credit agreements
|
—
|
|
—
|
|
(326
|
)
|
—
|
|
(326
|
)
|
|||||
Repayments of debt
|
(398
|
)
|
(4
|
)
|
—
|
|
—
|
|
(402
|
)
|
|||||
Dividend payments
|
(169
|
)
|
—
|
|
—
|
|
—
|
|
(169
|
)
|
|||||
Net proceeds from issuance of Tesoro Logistics LP common units
|
—
|
|
—
|
|
71
|
|
—
|
|
71
|
|
|||||
Distributions to noncontrolling interest
|
—
|
|
—
|
|
(135
|
)
|
—
|
|
(135
|
)
|
|||||
Purchases of common stock
|
(494
|
)
|
—
|
|
—
|
|
—
|
|
(494
|
)
|
|||||
Taxes paid related to net share settlement of equity awards
|
(45
|
)
|
—
|
|
—
|
|
—
|
|
(45
|
)
|
|||||
Net intercompany repayments
|
—
|
|
(998
|
)
|
(79
|
)
|
1,077
|
|
—
|
|
|||||
Distributions to TLLP unitholders and general partner
|
33
|
|
(2
|
)
|
(31
|
)
|
—
|
|
—
|
|
|||||
Other financing activities
|
12
|
|
37
|
|
—
|
|
—
|
|
49
|
|
|||||
Net cash used in financing activities
|
(1,061
|
)
|
(967
|
)
|
(154
|
)
|
1,077
|
|
(1,105
|
)
|
|||||
Decrease in Cash And Cash Equivalents
|
—
|
|
(17
|
)
|
(24
|
)
|
—
|
|
(41
|
)
|
|||||
Cash and Cash Equivalents, Beginning of Period
|
—
|
|
943
|
|
57
|
|
—
|
|
1,000
|
|
|||||
Cash and Cash Equivalents, End of Period
|
$
|
—
|
|
$
|
926
|
|
$
|
33
|
|
$
|
—
|
|
$
|
959
|
|
|
|
September 30, 2016
|
29
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
•
|
OPERATIONAL EFFICIENCY AND EFFECTIVENESS.
Continuously improving safety, compliance, reliability, system improvements and cost leadership;
|
•
|
VALUE CHAIN OPTIMIZATION.
Enhancing margin capture through our supply and trading activities, optimization of our integrated businesses and customer focus;
|
•
|
FINANCIAL DISCIPLINE.
Maintaining a strong financial position by exercising capital discipline and focusing on a balanced use of free cash flow;
|
•
|
VALUE-DRIVEN GROWTH.
Extending our capabilities and growing earnings through growth in our logistics and marketing businesses and other strategic opportunities accretive to shareholder value; and
|
•
|
HIGH PERFORMING CULTURE.
Fostering a performance-based culture that is committed to building leadership at all levels of the organization and across our value chain with employees from diverse backgrounds and experiences who are accountable for delivering on our commitments.
|
30
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Operational
Efficiency &
Effectiveness
|
Value Chain Optimization
|
Financial
Discipline
|
Value
Driven
Growth
|
High Performing Culture
|
Completed the acquisition of crude oil pipeline and gathering system as well as transportation, storage and rail loading facilities in the Williston Basin
|
|
•
|
•
|
•
|
|
Completed the acquisition of refined product terminals, truck racks, storage and rail loading facilities in Alaska along with wholesale fuel marketing contracts
|
|
•
|
•
|
•
|
|
Completed the acquisition of Dakota Prairie Refining, including its refinery (“Dickinson Refinery”) with crude oil capacity of 20 thousand barrels per day (“Mbpd”) and produces ultra-low sulfur diesel, naphtha and atmospheric residuals
|
|
•
|
•
|
•
|
|
TLLP amended its credit agreement and entered into a new dropdown credit facility providing additional resources for organic expansion opportunities and strategic acquisitions
|
|
|
•
|
|
|
TLLP completed a registered senior notes offering using a portion of the proceeds to repay amounts then borrowed on its credit facilities
|
|
|
•
|
|
|
Anacortes refinery achieved one year of operations without an OSHA recordable injury and received the Elite Silver Award from AFPM as part of their Distinguished Safety Awards process
|
•
|
|
|
|
•
|
TLLP’s Colton Clean Products fleet reached 10 years and 8 million miles without an on-road preventable accident
|
•
|
|
|
|
•
|
TLLP completed its acquisition of the Alaska Storage and Terminalling Assets from Tesoro for a purchase price of $444 million of which the first phase for $266 million closed on July 1, 2016 and the second phase for $178 million closed on September 16, 2016
|
|
•
|
•
|
•
|
|
Tesoro acquired 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
|
|
•
|
•
|
•
|
•
|
Tesoro entered into a new senior revolving credit agreement replacing the previous $3.0 billion asset based credit facility, which provides for total available revolving capacity of $2.0 billion not subject to borrowing base redeterminations, becomes unsecured if investment grade credit rating is achieved, and matures in September 2020
|
|
|
•
|
|
|
|
|
September 30, 2016
|
31
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
•
|
Los Angeles improvements include:
|
◦
|
Crude optimizations from sourcing new types of crude oils;
|
◦
|
Crude blending capabilities at the Carson crude terminal that resulted in higher throughput volumes;
|
◦
|
New cargo sharing with our Martinez refinery;
|
◦
|
Improved pipeline connectivity between the Los Angeles refinery sites; and
|
◦
|
West Coast integration of naphtha and gasoline blendstocks.
|
•
|
Re-distributed in-bound crude oil to our Kenai refinery during maintenance and turnaround activities at our Anacortes refinery to optimize our west coast system; and
|
•
|
Benefit from the completed second phase of the Salt Lake City Refinery Expansion project.
|
32
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
•
|
Focusing on stable, fee-based business;
|
•
|
Optimizing its existing asset base;
|
•
|
Pursuing organic expansion opportunities; and
|
•
|
Continued growth through strategic acquisitions.
|
•
|
expand TLLP’s assets on its crude oil gathering and transportation system, located in the Bakken Region (the “High Plains System”) in support of growing third-party demand for transportation services and Tesoro’s increased demand for Bakken crude oil in the mid-continent and west coast refining systems, including:
|
◦
|
further expanding crude oil storage and transportation capacity and capability of TLLP’s common carrier pipeline in North Dakota and Montana;
|
◦
|
expanding TLLP’s gathering footprint in the Bakken Region, including crude oil, natural gas and water, to enhance and improve overall basin logistic efficiencies;
|
◦
|
adding other origin and destination points on the High Plains System to increase volumes; and
|
◦
|
pursuing strategic assets across the Western U.S. including potential acquisitions from Tesoro.
|
•
|
expand and optimize TLLP’s natural gas gathering and processing assets located in the Green River Basin, Uinta Basin and Vermillion Basin in the states of Utah, Colorado and Wyoming including:
|
◦
|
increase compression on its systems in the Green River and Vermillion basins to enhance natural gas volumes recovered from existing wells and support potential new drilling activity; and
|
◦
|
expand its gathering footprint and increase compression capabilities in the Uinta basin to increase volumes on its gathering systems and through its processing assets.
|
•
|
grow TLLP’s terminalling and transportation business across the Western U.S. through:
|
◦
|
increasing its terminalling volumes by expanding capacity and growing third-party services at certain terminals;
|
◦
|
optimize Tesoro volumes and grow third-party throughput at its terminalling and transportation assets; and
|
◦
|
pursuing strategic assets in the Western U.S. such as the acquisition of Tesoro's terminalling assets recently acquired from Flint Hills Resources and Tesoro’s storage assets in Alaska.
|
|
|
September 30, 2016
|
33
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Cash distributions received from TLLP (a):
|
|
|
|
|
|
|
|
||||||||
For common units held
|
$
|
27
|
|
|
$
|
20
|
|
|
$
|
79
|
|
|
$
|
58
|
|
For general partner units held, including IDRs
|
38
|
|
|
18
|
|
|
95
|
|
|
48
|
|
||||
Total Cash Distributions Received from TLLP
|
$
|
65
|
|
|
$
|
38
|
|
|
$
|
174
|
|
|
$
|
106
|
|
(a)
|
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.
|
34
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
•
|
Financial non-GAAP measure of EBITDA, as defined above; 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.
|
•
|
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.
|
|
|
September 30, 2016
|
35
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
(In millions, except per share amounts)
|
||||||||||||||
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
|
(20
|
)
|
|
83
|
|
|
(236
|
)
|
|
41
|
|
||||
Operating expenses
|
652
|
|
|
640
|
|
|
1,872
|
|
|
1,816
|
|
||||
Selling, general and administrative expenses
|
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
|
—
|
|
|
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
|
|
36
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
(In millions)
|
||||||||||||||
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
|
|
|
|
September 30, 2016
|
37
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
38
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Crack Spreads
|
|
|
|
|
|
|
|
||||||||
West Coast 321 (ANS)
|
$
|
15.68
|
|
|
$
|
30.88
|
|
|
$
|
16.74
|
|
|
$
|
26.71
|
|
Mid-Continent 321 (WTI)
|
19.18
|
|
|
22.10
|
|
|
16.94
|
|
|
19.53
|
|
||||
Crude Oil Differentials
|
|
|
|
|
|
|
|
||||||||
Brent to WTI
|
$
|
1.97
|
|
|
$
|
4.03
|
|
|
$
|
1.66
|
|
|
$
|
5.62
|
|
Brent to ANS
|
2.14
|
|
|
(1.05
|
)
|
|
1.35
|
|
|
1.25
|
|
||||
WTI to Bakken (Clearbrook)
|
1.33
|
|
|
2.53
|
|
|
1.12
|
|
|
2.75
|
|
||||
ANS to Bakken (Clearbrook)
|
1.16
|
|
|
7.61
|
|
|
1.44
|
|
|
7.11
|
|
||||
ANS to San Joaquin Valley Heavy (CA)
|
6.29
|
|
|
8.12
|
|
|
6.96
|
|
|
8.41
|
|
||||
ANS to Canadian Lt. Sweet
|
2.18
|
|
|
8.57
|
|
|
2.01
|
|
|
6.99
|
|
•
|
Gross refining margin per barrel calculated by dividing gross refining margin (revenues less costs of feedstocks, purchased refined products, transportation and distribution costs, and any LCM) by total refining throughput; and
|
•
|
Manufacturing costs before depreciation and amortization expenses (“Manufacturing Costs”) per barrel calculated by dividing Manufacturing Costs by total refining throughput.
|
|
|
September 30, 2016
|
39
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Throughput (Mbpd)
|
|
|
|
|
|
|
|
||||||||
Heavy crude (a)
|
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) (b)
|
|
|
|
|
|
|
|
||||||||
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
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Refining Revenues
|
|
|
|
|
|
|
|
||||||||
Refined products (c)
|
$
|
5,641
|
|
|
$
|
6,817
|
|
|
$
|
15,434
|
|
|
$
|
19,867
|
|
Crude oil resales and other
|
257
|
|
|
172
|
|
|
710
|
|
|
780
|
|
||||
Total Revenues
|
5,898
|
|
|
6,989
|
|
|
16,144
|
|
|
20,647
|
|
||||
Refining Cost of Sales
|
|
|
|
|
|
|
|
||||||||
Cost of sales (excluding LCM)
|
5,189
|
|
|
5,367
|
|
|
13,965
|
|
|
16,934
|
|
||||
LCM
|
(20
|
)
|
|
83
|
|
|
(236
|
)
|
|
41
|
|
||||
Total Cost of Sales
|
5,169
|
|
|
5,450
|
|
|
13,729
|
|
|
16,975
|
|
||||
Gross refining margin
|
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)
|
$
|
9.08
|
|
|
$
|
19.43
|
|
|
$
|
10.75
|
|
|
$
|
17.22
|
|
Manufacturing Cost before Depreciation and Amortization Expenses
($/throughput barrel)
|
$
|
5.11
|
|
|
$
|
4.84
|
|
|
$
|
5.22
|
|
|
$
|
5.53
|
|
(a)
|
We define heavy crude oil as crude oil with an American Petroleum Institute gravity of 24 degrees or less.
|
(b)
|
Sources of total refined product sales include refined products manufactured at our refineries and refined products purchased from third parties. Total refined product sales include sales of manufactured and purchased refined products. Refined product sales include all sales through our marketing segment as well as in bulk markets and exports through our refining segment.
|
(c)
|
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.
|
40
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
California (Martinez and Los Angeles)
|
|
|
|
|
|
|
|
||||||||
Refining Revenues
|
|
|
|
|
|
|
|
||||||||
Refined products
|
$
|
3,680
|
|
|
$
|
4,525
|
|
|
$
|
10,358
|
|
|
$
|
13,501
|
|
Crude oil resales and other (a)
|
55
|
|
|
94
|
|
|
157
|
|
|
233
|
|
||||
Total Revenue
|
3,735
|
|
|
4,619
|
|
|
10,515
|
|
|
13,734
|
|
||||
Refining Cost of Sales
|
|
|
|
|
|
|
|
||||||||
Cost of sales (excluding LCM) (a)
|
3,292
|
|
|
3,547
|
|
|
9,076
|
|
|
11,296
|
|
||||
LCM
|
(10
|
)
|
|
56
|
|
|
(154
|
)
|
|
26
|
|
||||
Total Cost of Sales
|
3,282
|
|
|
3,603
|
|
|
8,922
|
|
|
11,322
|
|
||||
Gross refining margin
|
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
|
|
Refining throughput (Mbpd)
|
533
|
|
|
534
|
|
|
504
|
|
|
494
|
|
||||
Gross refining margin per throughput barrel
|
$
|
9.24
|
|
|
$
|
20.68
|
|
|
$
|
11.54
|
|
|
$
|
17.88
|
|
Manufacturing costs per throughput barrel
|
$
|
5.79
|
|
|
$
|
5.79
|
|
|
$
|
5.97
|
|
|
$
|
6.32
|
|
Pacific Northwest (Washington and Alaska)
|
|
|
|
|
|
|
|
||||||||
Refining Revenues
|
|
|
|
|
|
|
|
||||||||
Refined products
|
$
|
1,146
|
|
|
$
|
1,332
|
|
|
$
|
2,934
|
|
|
$
|
3,771
|
|
Crude oil resales and other (a)
|
89
|
|
|
53
|
|
|
175
|
|
|
314
|
|
||||
Total Revenue
|
1,235
|
|
|
1,385
|
|
|
3,109
|
|
|
4,085
|
|
||||
Refining Cost of Sales
|
|
|
|
|
|
|
|
||||||||
Cost of sales (excluding LCM) (a)
|
1,117
|
|
|
1,129
|
|
|
2,778
|
|
|
3,434
|
|
||||
LCM
|
(8
|
)
|
|
18
|
|
|
(60
|
)
|
|
10
|
|
||||
Total Cost of Sales
|
1,109
|
|
|
1,147
|
|
|
2,718
|
|
|
3,444
|
|
||||
Gross refining margin
|
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
|
|
Refining throughput (Mbpd)
|
191
|
|
|
192
|
|
|
178
|
|
|
168
|
|
||||
Gross refining margin per throughput barrel
|
$
|
7.17
|
|
|
$
|
13.47
|
|
|
$
|
8.02
|
|
|
$
|
13.98
|
|
Manufacturing costs per throughput barrel
|
$
|
3.87
|
|
|
$
|
3.35
|
|
|
$
|
3.87
|
|
|
$
|
3.97
|
|
(a)
|
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.
|
|
|
September 30, 2016
|
41
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Mid-Continent (North Dakota and Utah)
|
|
|
|
|
|
|
|
||||||||
Refining Revenues
|
|
|
|
|
|
|
|
||||||||
Refined products
|
$
|
815
|
|
|
$
|
960
|
|
|
$
|
2,142
|
|
|
$
|
2,595
|
|
Crude oil resales and other
|
113
|
|
|
25
|
|
|
378
|
|
|
233
|
|
||||
Total Revenue
|
928
|
|
|
985
|
|
|
2,520
|
|
|
2,828
|
|
||||
Refining Cost of Sales
|
|
|
|
|
|
|
|
||||||||
Cost of sales (excluding LCM)
|
780
|
|
|
691
|
|
|
2,111
|
|
|
2,204
|
|
||||
LCM
|
(2
|
)
|
|
9
|
|
|
(22
|
)
|
|
5
|
|
||||
Total Cost of Sales
|
778
|
|
|
700
|
|
|
2,089
|
|
|
2,209
|
|
||||
Gross refining margin (a)
|
150
|
|
|
285
|
|
|
431
|
|
|
619
|
|
||||
Expenses
|
|
|
|
|
|
|
|
||||||||
Manufacturing costs
|
58
|
|
|
40
|
|
|
159
|
|
|
145
|
|
||||
Other operating expenses (a)
|
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
|
|
Refining throughput (Mbpd)
|
149
|
|
|
135
|
|
|
138
|
|
|
119
|
|
||||
Gross refining margin per throughput barrel
|
$
|
10.94
|
|
|
$
|
22.95
|
|
|
$
|
11.40
|
|
|
$
|
19.05
|
|
Manufacturing costs per throughput barrel
|
$
|
4.27
|
|
|
$
|
3.19
|
|
|
$
|
4.21
|
|
|
$
|
4.45
|
|
(a)
|
Included in the Mid-Continent region’s other operating expenses is
$43 million
for the
nine
months ended
September 30, 2016
, related to our acquisition of Great Northern Midstream LLC. Revenues associated with those costs are recognized in gross refining margin.
|
42
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
|
September 30, 2016
|
43
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Gathering
|
|
|
|
|
|
|
|
||||||||
Gas gathering throughput (thousands of MMBtu/d) (a)
|
887
|
|
|
1,115
|
|
|
881
|
|
|
1,069
|
|
||||
Average gas gathering revenue per MMBtu (a)
|
$
|
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/d)
|
625
|
|
|
767
|
|
|
648
|
|
|
742
|
|
||||
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
|
|
(a)
|
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
.
|
44
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016 (a)
|
|
2015 (a)
|
|
2016 (a)
|
|
2015 (a)
|
||||||||
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
|
|
||||
Total Revenues (b)
|
308
|
|
|
282
|
|
|
901
|
|
|
820
|
|
||||
Expenses
|
|
|
|
|
|
|
|
||||||||
Operating expenses (c)
|
104
|
|
|
103
|
|
|
313
|
|
|
294
|
|
||||
General and administrative expenses (d)
|
24
|
|
|
28
|
|
|
70
|
|
|
81
|
|
||||
Depreciation and amortization expenses
|
45
|
|
|
45
|
|
|
134
|
|
|
133
|
|
||||
Loss on asset disposals and impairments
|
2
|
|
|
—
|
|
|
3
|
|
|
—
|
|
||||
Segment Operating Income
|
$
|
133
|
|
|
$
|
106
|
|
|
$
|
381
|
|
|
$
|
312
|
|
(a)
|
Adjusted to include the historical results of TLLP’s Predecessors. Refer to “Items Impacting Comparability” for further discussion.
|
(b)
|
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.
|
(c)
|
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 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.
|
(d)
|
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
, and are eliminated upon consolidation. TLLP segment third-party 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.
|
|
|
September 30, 2016
|
45
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
46
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Marketing 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
|
|
||||
Marketing 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
|
|
||||
Marketing Gross Margin
|
|
|
|
|
|
|
|
||||||||
Fuel
|
345
|
|
|
460
|
|
|
881
|
|
|
951
|
|
||||
Other non-fuel
|
18
|
|
|
16
|
|
|
52
|
|
|
45
|
|
||||
Total Gross Margin
|
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)
|
|
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
|
|
|
|
September 30, 2016
|
47
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
September 30,
2016 |
|
December 31,
2015 |
||||
Debt, including current maturities:
|
|
|
|
||||
Tesoro Senior Notes
|
$
|
1,225
|
|
|
$
|
1,225
|
|
Term Loan Facility (a)
|
65
|
|
|
—
|
|
||
Capital lease obligations and other
|
46
|
|
|
39
|
|
||
Tesoro Debt
|
1,336
|
|
|
1,264
|
|
||
TLLP Credit Facilities
|
400
|
|
|
555
|
|
||
TLLP Senior Notes
|
3,020
|
|
|
2,320
|
|
||
TLLP Capital lease obligations and other
|
8
|
|
|
8
|
|
||
TLLP Debt
|
3,428
|
|
|
2,883
|
|
||
Total Debt
|
4,764
|
|
|
4,147
|
|
||
Unamortized Issuance Costs (b)
|
(82
|
)
|
|
(74
|
)
|
||
Debt, Net of Unamortized Issuance Costs
|
4,682
|
|
|
4,073
|
|
||
Total Equity
|
8,195
|
|
|
7,740
|
|
||
Total Capitalization
|
$
|
12,877
|
|
|
$
|
11,813
|
|
(a)
|
In connection with our acquisition of the Dickinson Refinery, as discussed in Note 3 to our condensed consolidated financial statements in Part I, Item 1, we assumed
$66 million
of term loan debt.
|
(b)
|
The unamortized issuance costs for TLLP were
$46 million
and
$39 million
as of
September 30, 2016
and
December 31, 2015
, respectively, which includes unamortized premiums of
$4 million
as of both
September 30, 2016
and
December 31, 2015
.
|
|
September 30,
2016 |
|
December 31,
2015 |
||||
Tesoro Consolidated Debt (a)
|
$
|
4,682
|
|
|
$
|
4,073
|
|
TLLP Debt (a)
|
3,382
|
|
|
2,844
|
|
||
Tesoro Debt Excluding TLLP (a)
|
$
|
1,300
|
|
|
$
|
1,229
|
|
|
|
|
|
||||
Tesoro Consolidated Equity
|
$
|
8,195
|
|
|
$
|
7,740
|
|
Noncontrolling Interest
|
2,695
|
|
|
2,527
|
|
||
Tesoro Stockholder’s Equity
|
$
|
5,500
|
|
|
$
|
5,213
|
|
|
|
|
|
||||
Tesoro Debt to Capitalization Ratio (a)
|
36
|
%
|
|
34
|
%
|
||
Tesoro Debt to Capitalization Ratio Excluding TLLP and NCI (a)
|
19
|
%
|
|
19
|
%
|
(a)
|
These amounts and calculations are shown net of unamortized issuance costs.
|
48
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Total
Capacity
|
|
Amount Borrowed as of September 30,
2016
|
|
Outstanding
Letters of Credit
|
|
Available Capacity
|
|
Expiration
|
||||||||
Tesoro Corporation Revolving
Credit Facility
|
$
|
2,000
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
1,996
|
|
|
September 30, 2020
|
TLLP Revolving Credit Facility
|
600
|
|
|
—
|
|
|
—
|
|
|
600
|
|
|
January 29, 2021
|
||||
TLLP Dropdown Credit Facility
|
1,000
|
|
|
400
|
|
|
—
|
|
|
600
|
|
|
January 29, 2021
|
||||
Letter of Credit Facilities (a)
|
1,555
|
|
|
—
|
|
|
44
|
|
|
1,511
|
|
|
|
||||
Total Credit Facilities
|
$
|
5,155
|
|
|
$
|
400
|
|
|
$
|
48
|
|
|
$
|
4,707
|
|
|
|
(a)
|
Letters of credit outstanding under these agreements incur fees ranging from
0.40%
to
0.90%
and are secured by the crude oil inventories for which they are issued. Capacity under these letter of credit agreements is available on an uncommitted basis and can be terminated by either party at any time.
|
|
|
September 30, 2016
|
49
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
Credit Facility
|
30 Day Eurodollar (LIBOR) Rate at September 30, 2016
|
|
Eurodollar Margin
|
|
Base Rate
|
|
Base Rate Margin
|
|
Commitment Fee
(unused portion) |
Tesoro Corporation Revolving Credit Facility
($2.0 billion)
|
0.53%
|
|
1.75%
|
|
3.50%
|
|
0.75%
|
|
0.30%
|
TLLP Revolving Credit Facility ($600 million)
|
0.53%
|
|
2.00%
|
|
3.50%
|
|
1.00%
|
|
0.38%
|
TLLP Dropdown Credit Facility ($1.0 billion) (a)
|
0.53%
|
|
2.01%
|
|
3.50%
|
|
1.01%
|
|
0.38%
|
(a)
|
The weighted average interest rate for borrowings under the secured TLLP Dropdown Credit Facility was
2.54%
at
September 30, 2016
.
|
|
Nine Months Ended
September 30, |
||||||
|
2016
|
|
2015
|
||||
Cash Flows From (Used in):
|
|
|
|
||||
Operating activities
|
$
|
1,201
|
|
|
$
|
1,847
|
|
Investing activities
|
(1,020
|
)
|
|
(783
|
)
|
||
Financing activities
|
264
|
|
|
(1,105
|
)
|
||
Increase (Decrease) in Cash and Cash Equivalents
|
$
|
445
|
|
|
$
|
(41
|
)
|
50
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
Three Months Ended
September 30, 2016 |
|
Nine Months Ended
September 30, 2016 |
||||||||||||
Project Category
|
Tesoro (a)
|
|
TLLP
|
|
Tesoro (a)
|
|
TLLP
|
||||||||
Growth
|
$
|
69
|
|
|
$
|
26
|
|
|
$
|
207
|
|
|
$
|
89
|
|
Maintenance
|
79
|
|
|
16
|
|
|
187
|
|
|
36
|
|
||||
Regulatory
|
37
|
|
|
—
|
|
|
105
|
|
|
—
|
|
||||
Total 2016 Capital Expenditures
|
$
|
185
|
|
|
$
|
42
|
|
|
$
|
499
|
|
|
$
|
125
|
|
(a)
|
Tesoro capital expenditures exclude TLLP.
|
Major Projects
|
Total Project Expected Capital Expenditures
|
|
Actual 2016
Capital Expenditures
|
||||
Los Angeles Refinery Integration and Compliance Project (a)
|
$
|
510
|
|
|
$
|
76
|
|
Mixed Xylenes Project (b)
|
410
|
|
|
23
|
|
||
Enterprise Resource Planning Project (c)
|
210
|
|
|
54
|
|
||
Vancouver Energy Terminal Project (d)
|
210
|
|
|
3
|
|
||
Avon Wharf Project (e)
|
190
|
|
|
51
|
|
||
Naphtha Isomerization Project (f)
|
170
|
|
|
21
|
|
(a)
|
The integration and compliance project at the Los Angeles refinery is designed to improve the flexibility of gasoline and diesel yields and reduce carbon dioxide emissions. The proposed project, subject to project scoping, engineering and regulatory approval, includes decommissioning the fluid catalytic cracking unit at our Wilmington refinery. Of the total expected capital expenditure related to this project, we anticipate a portion may be incurred and paid by TLLP.
|
(b)
|
The Mixed Xylenes Project is a portion of the Clean Products Upgrade Project at our Anacortes, Washington refinery that will help diversify our product mix through the extraction of existing mixed xylene from gasoline and improve our capability to deliver cleaner local transportation fuels and global feedstocks, primarily for polyester. The Mixed Xylenes Project and its components remain subject to final board and regulatory approval.
|
(c)
|
The Enterprise Resource Planning Project will simplify business processes by implementing a standardized and scalable platform across the Company to transform our business information and technology systems and to further streamline our operations, reduce costs and provide for future growth. We expect this project to be a complex, multi-year process that will require significant investments in software and technology. We completed the design phase in October 2016 and have transitioned to the build phase of this process.
|
(d)
|
Effective
September 1, 2016
, we became majority owner of Vancouver Energy and as a result are reporting the total project costs above. For further discussion and the status of the related construction project, refer to the Vancouver Energy discussion in the “Business Strategy and Overview” section.
|
|
|
September 30, 2016
|
51
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
(e)
|
The regulatory and compliance project for the Avon Wharf in Martinez, California is required under the California building code for Marine Oil Terminal Engineering and Maintenance Standards (“MOTEMS”). The project is nearly complete and has replaced the marine berth with a MOTEMS compliant structure that will improve clean product movements and has received all regulatory approval and permits.
|
(f)
|
The Naptha Isomerization Project is a portion of the Clean Products Upgrade Project at our Anacortes, Washington refinery that will improve our capability to deliver cleaner local transportation fuels. The project is progressing with construction and is designed to lower the sulfur content in gasoline, which aligns with the new Federal Tier 3 standards.
|
|
Nine Months Ended
September 30, 2016 |
|
2016 Expected
|
||||
Turnarounds and catalysts
|
$
|
233
|
|
|
$
|
320
|
|
Branding charges
|
55
|
|
|
80
|
|
||
Total expenditures
|
$
|
288
|
|
|
$
|
400
|
|
|
Los Angeles
|
Martinez
|
Anacortes
|
Kenai
|
Mandan
|
Salt Lake City
|
Planned 2016
|
●
|
●
|
|
●
|
●
|
●
|
Completed during 2016
|
●
|
●
|
|
●
|
|
|
52
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
|
September 30, 2016
|
53
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
•
|
the constantly changing margin between the price we pay for crude oil and other refinery feedstocks as well as RINs and environmental credits, and the prices at which we are able to sell refined products;
|
•
|
our ability to deliver anticipated annual improvements to operating income and the impact of the commodity price environment on our targeted improvements;
|
•
|
changes in the expected value of and benefits derived from acquisitions;
|
•
|
changes in global economic conditions and the effects of the global economic downturn on our business, especially in California, and the business of our suppliers, customers, business partners and credit lenders;
|
•
|
changes in fuel and utility costs for our facilities;
|
•
|
changes in the cost or availability of third-party vessels, pipelines and other means of transporting crude oil feedstocks and refined products;
|
•
|
regulatory and other requirements concerning the transportation of crude oil, particularly from the Bakken area;
|
•
|
changes in the carrying costs of our inventory;
|
•
|
the timing and extent of changes in commodity prices and underlying demand for our refined products, natural gas and NGLs;
|
•
|
the availability and costs of crude oil, other refinery feedstocks, refined products and RINs;
|
•
|
changes in our cash flow from operations;
|
•
|
earthquakes or other natural disasters affecting operations;
|
•
|
direct or indirect effects on our business resulting from actual or threatened terrorist or activist incidents, cyber-security breaches or acts of war;
|
•
|
weather conditions affecting our operations or the areas in which our refined products are marketed;
|
•
|
actions of customers and competitors;
|
•
|
state and federal environmental, economic, health and safety, energy and other policies and regulations, including those related to climate change and any changes therein, and any legal or regulatory investigations, delays, compliance costs or other factors beyond our control;
|
•
|
delays in obtaining necessary approvals and permits;
|
•
|
adverse rulings, judgments, or settlements in litigation or other legal or tax matters, including unexpected environmental remediation costs in excess of any reserves;
|
•
|
operational hazards inherent in refining operations and in transporting and storing crude oil and refined products;
|
•
|
changes in our credit profile;
|
•
|
changes in capital requirements or in execution of planned capital projects;
|
•
|
disruptions due to equipment interruption or failure at our facilities or third-party facilities;
|
•
|
seasonal variations in demand for refined products and natural gas;
|
54
|
Tesoro Corporation
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
•
|
risks related to labor relations and workplace safety; and
|
•
|
political developments.
|
|
|
September 30, 2016
|
55
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
|
|
|
Three Months Ended
September 30, |
||||||
|
2016
|
|
2015
|
||||
Unrealized loss carried on open derivative positions from prior period
|
$
|
24
|
|
|
$
|
13
|
|
Realized gain (loss) on settled derivative positions
|
(5
|
)
|
|
104
|
|
||
Unrealized gain on open net derivative positions
|
—
|
|
|
36
|
|
||
Net Gain
|
$
|
19
|
|
|
$
|
153
|
|
56
|
Tesoro Corporation
|
|
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
|
|
|
|
September 30, 2016
|
57
|
LEGAL PROCEEDINGS AND RISK FACTORS
|
|
|
58
|
Tesoro Corporation
|
|
|
UNREGISTERED SALES OF EQUITY SECURITIES AND OTHER INFORMATION
|
|
|
Period
|
Total Number of
Shares
Purchased (a)
|
|
Average Price
Paid
per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)
|
|
Approximate Dollar
Value of Shares that May Yet Be Purchased Remaining at Period End Under the Plans or Programs (In Millions) (b) |
||||||
July 2016
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
1,256
|
|
August 2016
|
754,716
|
|
|
$
|
75.53
|
|
|
749,692
|
|
|
$
|
1,199
|
|
September 2016
|
1,080,743
|
|
|
$
|
79.56
|
|
|
1,077,591
|
|
|
$
|
1,114
|
|
Total
|
1,835,459
|
|
|
|
|
1,827,283
|
|
|
|
(a)
|
Includes
8,176
shares acquired from employees during the third quarter of 2016 to satisfy tax withholding obligations in connection with the vesting of performance share awards, market stock units and restricted stock issued to them.
|
(b)
|
Our Board of Directors (“Board”) authorized a
$1.0 billion
share repurchase program in July 2014. Under the program, management is permitted to purchase Tesoro common stock at its discretion in the open market. On
October 28, 2015
, our Board authorized a new
$1.0 billion
share repurchase program to become effective upon the full completion of our current
$1.0 billion
share repurchase authorization. The authorization has no time limit and may be suspended or discontinued at any time.
|
(a)
|
Exhibits
|
Exhibit Number
|
|
Description of Exhibit
|
|
|
|
2.1
|
|
Contribution, Conveyance and Assumption Agreement, dated as of July 1, 2016, among Tesoro Logistics LP, Tesoro Logistics GP, LLC, Tesoro Logistics Operations LLC, Tesoro Alaska Company LLC and Tesoro Corporation (incorporated by reference herein to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 7, 2016, File no. 1-3473).
|
|
|
|
*2.2
|
|
Revision to the Contribution, Conveyance and Assumption Agreement, dated as of July 27, 2016, among Tesoro Logistics LP, Tesoro Logistics GP, LLC, Tesoro Logistics Operations LLC, Tesoro Alaska Company LLC and Tesoro Corporation.
|
|
|
|
3.1
|
|
Amended and restated by-laws of Tesoro Corporation effective November 1, 2016 (incorporated by reference herein to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 25, 2016, File no. 1-3473).
|
|
|
|
4.1
|
|
Supplemental Indenture, dated as of
January 7, 2016, among Tesoro Corporation, Tesoro Great Plains Holdings Company LLC, as new guarantor, and U.S. Bank National Association, as trustee, relating to the 4.250% Senior Notes due 2017 and the 5.375% Senior Notes due 2022 (incorporated by reference herein to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, File No. 1-3473).
|
|
|
|
4.2
|
|
Supplemental Indenture, dated as of
January 7, 2016, among Tesoro Corporation, Tesoro Great Plains Holdings Company LLC, as new guarantor, and U.S. Bank National Association, as trustee, relating to the 5.125% Senior Notes due 2024 (incorporated by reference herein to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, File No. 1-3473).
|
|
|
|
|
|
September 30, 2016
|
59
|
EXHIBITS
|
|
|
Exhibit Number
|
|
Description of Exhibit
|
4.3
|
|
Supplemental Indenture, dated as of April 26, 2016, among Tesoro Corporation, certain subsidiary guarantors, and U.S. Bank National Association, as trustee, relating to the 4.250% Senior Notes due 2017 and the 5.375% Senior Notes due 2022 (incorporated by reference herein to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, File No. 1-3473).
|
|
|
|
4.4
|
|
Supplemental Indenture, dated as of April 26, 2016, among Tesoro Corporation, certain subsidiary guarantors, and U.S. Bank National Association, as trustee, relating to the 5.125% Senior Notes due 2024 (incorporated by reference herein to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, File No. 1-3473).
|
|
|
|
4.5
|
|
Fifth Supplemental Indenture, dated as of May 12, 2016, among Tesoro Logistics LP, Tesoro Logistics Finance Corp., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the 6.125% Senior Notes due 2021 (incorporated by reference herein to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on May 17, 2016, File No. 1-3473).
|
|
|
|
4.6
|
|
Indenture (including form of note), dated as of May 12, 2016, among Tesoro Logistics LP, Tesoro Logistics Finance Corp., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the 6.375% Senior Notes due 2024 (incorporated by reference herein to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on May 17, 2016, File No. 1-3473).
|
|
|
|
10.1
|
|
Ground Lease, dated as of July 1, 2016, between Tesoro Alaska Company LLC and Tesoro Logistics Operations LLC (incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 7, 2016, File No. 1-3473).
|
|
|
|
10.2
|
|
Second Amended and Restated Schedules to the Third Amended and Restated Omnibus Agreement, dated as of July 1, 2016, among Tesoro Logistics LP, Tesoro Logistics GP, LLC, Tesoro Corporation, Tesoro Refining & Marketing Company LLC, Tesoro Alaska Company LLC and Tesoro Companies, Inc. (incorporated by reference herein to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 7, 2016, File No. 1-3473).
|
|
|
|
10.3
|
|
Kenai Storage Services Agreement, dated as of July 1, 2016, among Tesoro Alaska Company LLC, Tesoro Logistics Operations LLC, Tesoro Logistics GP, LLC and Tesoro Logistics LP (incorporated by reference herein to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on July 7, 2016, File No. 1-3473).
|
|
|
|
10.4
|
|
Amendment No.1 to the Second Amended and Restated Master Terminalling and Service Agreement, dated as of September 16, 2016, among Tesoro Refining & Marketing Company, LLC, Tesoro Alaska Company LLC, and Tesoro Logistics Operations LLC (incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 22, 2016, File No. 1-3473).
|
|
|
|
10.5
|
|
Alaska Terminalling Services Agreement, dated as of September 16, 2016, among Tesoro Alaska Company LLC, Tesoro Logistics Operations LLC, Tesoro Alaska Terminals, LLC, Tesoro Logistics GP, LLC, and Tesoro Logistics LP (incorporated by reference herein to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 22, 2016, File No. 1-3473).
|
|
|
|
10.6
|
|
Second Amended and Restated Representation and Services Agreement for Oil Spill Contingency Planning Response and Remediation, dated as of September 16, 2016, among Tesoro Companies, Inc., Tesoro Maritime Company, Tesoro Refining & Marketing Company LLC, Tesoro Alaska Company LLC, Kenai Pipe Line Company, Tesoro Alaska Pipeline Company LLC, Carson Cogeneration Company, Tesoro Great Plains Midstream LLC, Tesoro Great Plains Gathering & Marketing LLC, Bakkenlink Pipeline LLC, ND Land Holdings LLC, Tesoro Logistics Operations LLC, Tesoro High Plains Pipeline Company LLC, Tesoro Logistics Pipelines LLC, Tesoro Logistics Northwest Pipeline LLC, Tesoro SoCal Pipeline Company LLC, QEP Field Services, LLC, QEPM Gathering I, LLC, Green River Processing, LLC, Rendezvous Pipeline Company, LLC, and Tesoro Alaska Terminals, LLC (incorporated by reference herein to Exhibit 10.3 to the Company’s Current Report of Form 8-K filed on September 22, 2016, File No. 1-3473).
|
|
|
|
10.7
|
|
Third Amended and Restated Schedules to Third Amended and Restated Omnibus Agreement, dated as of September 16, 2016, among Tesoro Corporation, Tesoro Refining & Marketing Company LLC, Tesoro Companies, Inc., Tesoro Alaska Company LLC, Tesoro Logistics LP and Tesoro Logistics GP, LLP (incorporated by reference herein to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on September 22, 2016, File No. 1-3473).
|
|
|
|
10.8
|
|
Credit Agreement, dated as of September 30, 2016, among Tesoro Corporation, JP Morgan Chase Bank, N.A., as administrative agent, and a syndicate of banks and financial institutions as lenders (incorporated by reference herein to Exhibit 10.1 to the Company’s current 8-K filed on October 3, 2016, File No. 1-3473).
|
|
|
|
*31.1
|
|
Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*31.2
|
|
Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*32.1
|
|
Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*32.2
|
|
Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
**101.INS
|
|
XBRL Instance Document
|
|
|
|
60
|
Tesoro Corporation
|
|
|
EXHIBITS
|
|
|
Exhibit Number
|
|
Description of Exhibit
|
**101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
**101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
**101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
**101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
**101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
*
|
Filed herewith.
|
**
|
Submitted electronically herewith.
|
|
|
September 30, 2016
|
61
|
|
|
TESORO CORPORATION
|
|
|
|
Date:
|
November 1, 2016
|
/s/ GREGORY J. GOFF
|
|
|
Gregory J. Goff
|
|
|
Chairman, President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
Date:
|
November 1, 2016
|
/s/ STEVEN M. STERIN
|
|
|
Steven M. Sterin
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
62
|
Tesoro Corporation
|
|
|
Re:
|
Contribution, Conveyance and Assumption Agreement, dated as of July 1, 2016 (the “
Contribution Agreement
”), among Tesoro Logistics LP (the “
Partnership
”), Tesoro Logistics GP, LLC (the “
General Partner
”), Tesoro Logistics Operations LLC, Tesoro
Alaska Company LLC and Tesoro Corporation
|
TESORO CORPORATION
By:
/s/ GREGORY J. GOFF
Gregory J. Goff
President and Chief Executive Officer
|
TESORO ALASKA COMPANY LLC
By:
/s/ GREGORY J. GOFF
Gregory J. Goff
President
|
|
|
TESORO LOGISTICS GP, LLC
TESORO LOGISTICS OPERATIONS LLC
By:
/s/ PHILLIP M. ANDERSON
Phillip M. Anderson
President
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Tesoro Corporation;
|
2.
|
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this quarterly report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
|
(d)
|
Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date:
|
November 1, 2016
|
/s/ GREGORY J. GOFF
|
|
|
Gregory J. Goff
|
|
|
Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Tesoro Corporation;
|
2.
|
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this quarterly report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
|
(d)
|
Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date:
|
November 1, 2016
|
/s/ STEVEN M. STERIN
|
|
|
Steven M. Sterin
|
|
|
Chief Financial Officer
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ GREGORY J. GOFF
|
|
Gregory J. Goff
|
|
Chief Executive Officer
|
|
November 1, 2016
|
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ STEVEN M. STERIN
|
|
Steven M. Sterin
|
|
Chief Financial Officer
|
|
November 1, 2016
|
|