SAN ANTONIO -- Tesoro Corporation today reported third quarter 2008 net income of $259 million, or $1.86 per share. Quarterly results include a $0.29 per share after-tax gain associated with LIFO accounting and a charge of $0.06 per share after-tax for the write down and other expenses, associated with the previously announced closing of certain retail sites. Net income for the third quarter of 2007 was $47 million, or $0.34 per share.

For the three quarters ended September 30, 2008, net income was $181 million, or $1.30 per share, versus $606 million, or $4.35 per share a year ago when the company had unusually high refining margins due to significant industry unplanned downtime during the first half of the year.

Gross margins of $16.69 a barrel (bbl) in the quarter showed significant improvement versus the third quarter of 2007 and second quarter of 2008, by 85% and 65%, respectively, due to the Company’s profit improvement initiatives and the benefit of declining crude price.

“While benchmark crack spreads were lower than a quarter ago and flat versus a year ago, we realized record capture rates in almost every region and improved on our internal benchmarks for crude purchasing and product pricing versus the prior quarter. This quarter’s performance highlights our commitment to delivering on our Company’s stated goal of lowering crude costs and increasing product netbacks,” said Bruce A. Smith, Tesoro’s Chairman, President and CEO.

Operating income also rose due to the significant improvement in commercial and retail marketing margins, which are not accounted for in the spot crackspreads. Our retail and commercial marketing margin was $4.77/bbl versus $2.65/bbl a year ago. Retail segment income totaled $34 million due to improved fuel margins along with increased volumes associated with the purchase of the Shell and USA Brand retail assets. Finally, margins for bottom-of-the-barrel products strengthened as benchmark fuel oil prices on the West Coast traded at a $7/bbl discount to ANS versus $16/bbl a year ago.

Also, the third quarter benefited from the first full quarter of operating the delayed coker at Golden Eagle which allowed us to run incremental volumes of less expensive crude. In comparison to the fluid coker, the delayed coker provided an incremental $37 million in EBITDA during the third quarter and is expected to reduce emission levels. Accordingly, we believe it is realistic that the Company will achieve its previously stated goal of generating $100 million in incremental annual EBITDA as a result of this investment.

The Company’s third quarter 2008 throughput was 32,000 barrels per day lower than the third quarter 2007 as we optimized production to meet lower product demand. Going forward, we expect to continue to balance the supply of both production and inventories around consumer demand and profitability of the last barrel produced.

Direct manufacturing costs before depreciation and amortization were $300 million for the third quarter of 2008 versus $247 million a year ago but were in line with costs reported in the second quarter 2008. The year over year increase was primarily due to changes in purchased energy.

Third quarter capital expenditures including turnaround spending amounted to $137 million bringing the year-to-date total to $524 million; accordingly, expected total 2008 capital expenditures should be less than $775 million. At the end of the third quarter, the Company had no borrowings under its revolving credit facility and had a net debt to net capitalization of 30% which is the lowest ratio since the fourth quarter of 2006, before the Los Angeles refinery acquisition.

“We recognize that the highs and lows of margins don’t continue indefinitely. And while some people talk about refining’s Golden Age or the Dark Age, the constant balancing of supply and demand within the marketplace ultimately pushes margins to the middle of the commodity market. The sudden rise in crude prices caused us to make early adjustments to our goal of reducing both operating and crude costs, and these improvements were reflected in this quarter’s record capture rates. Another early goal was to internally fund our operations and to maintain a strong balance sheet by repaying all of our outstanding borrowings under our revolver. In September, we borrowed for one day, domestic crude oil settlement day, and we ended the month with $184 million in cash. Today, the Company is positioned to generate earnings and meet the challenges of slowing global economies,” said Smith.

Board Declares Quarterly Dividend

Tesoro announced today that its Board of Directors has approved a regular quarterly cash dividend of $0.10 per share. The dividend is payable December 15^th, 2008 to shareholders of record as of December 1^st, 2008.

Public Invited to Listen to Analyst Conference Call

At 7:30 a.m., CDT, Thursday, October 30^th, 2008 Tesoro will broadcast, live, its conference call with analysts regarding third quarter 2008 results and other business matters. Interested parties may listen to the live conference call over the Internet by logging on to http://www.tsocorp.com, or via phone by dialing 888-241-0558 (international dial-in: 402-220-1755).

Tesoro Corporation, a Fortune 150 company, is an independent refiner and marketer of petroleum products. Tesoro, through its subsidiaries, operates seven refineries in the western United States with a combined capacity of approximately 660,000 barrels per day. Tesoro's retail-marketing system includes over 880 branded retail stations, of which over 390 are company operated under the Tesoro®, Shell®, Mirastar® and USA Gasoline™ brands.