Tesoro Requests Review of Impacts of California Ethanol Requirements for Gasoline

Tesoro Corporation (NYSE: TSO) today announced that its operating subsidiary, Tesoro Refining & Marketing Co., has filed a lawsuit against the California Air Resources Board (CARB) to prevent the implementation of a new regulation, which would essentially mandate the addition of more crop-based ethanol to gasoline in the State of California. In addition, the company is seeking a temporary injunction to stop enforcement of the rule while the lawsuit is being heard.

On August 29, 2008, CARB finalized a rule concerning gasoline specifications for the State of California. The new rule would result in refiners increasing the amount of crop-based ethanol in gasoline from the current level of 5.7 percent to as much as 10 percent by December 31, 2009.

"To date, refiners have made significant investments in California to reduce emissions in the State and to ensure full compliance with existing ethanol requirements. However, more and more questions are emerging about the impact crop-based ethanol has on our environment and food supply. We think greater review of the environmental and economic impact of this fuel supply is needed before we increase the ethanol requirements in California gasoline,” said Bruce Smith, Tesoro Chairman, President and Chief Executive Officer.

Tesoro noted that the impact of crop-based ethanol is multi-faceted and that even the future availability of the fuel could be at risk if the current $0.51 per gallon subsidy is overturned. At a minimum, recent scientific evidence reveals that crop-based ethanol is harmful to the environment in terms of increases in greenhouse gas emissions, damage due to runoff from greater fertilizer use, and higher water usage.

Tesoro is concerned that the new fuel standards conflict with an existing California requirement, which calls for greenhouse gas emissions in the State to be reduced.

"The CARB rule which results in the increase of crop-based ethanol in gasoline violates the intent established by another California regulation (AB 32), which calls for a decrease in greenhouse gas emissions to 1990 levels by 2020,” added Smith. "This new rule increases greenhouse gases – through the addition of more crop-based ethanol – at the same time we are investing to reduce greenhouse gases.”

Tesoro is also concerned that more needs to be done to better understand the impact of crop-based ethanol use on food prices across the country.

"We support the need for a comprehensive energy plan that includes alternative fuels, petroleum products and conservation. We believe there is an important and necessary role for alternative fuels but we want industry and business leaders, elected officials, and regulators to proceed in a cautious, thoughtful manner to ensure we consider environmental and economic impacts when policies are created,” said Smith.

In addition to the lawsuit, Tesoro intends to meet with other industry and business participants, elected officials, and regulators to urge a more comprehensive approach to ethanol use in the state and ultimately across the country.

Tesoro has a significant presence in California with its refinery in Martinez, the second-largest refinery in Northern California, which employs 700 full-time workers, and its refinery in Los Angeles that employs 450 full-time workers. Notably, Tesoro recently invested more than $600 million at the Martinez refinery to reduce 3,000 tons of criteria pollutants each year. At its Los Angeles refinery, the company recently invested over $125 million on new equipment that has reduced particulate emissions. The Company’s California retail system, including the Tesoro®, USA Gasoline™, Mirastar® and Shell® brands, consists of 429 branded retail stations, employing 1,135 full and part-time associates.

Tesoro expects a ruling on the temporary injunction in the next 30-60 days. A final ruling should be completed within the year.

Manatt, Phelps & Phillips, LLP is serving as legal counsel to Tesoro.

About Tesoro Corporation

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 900 branded retail stations, of which more than 430 are company owned under the Tesoro®, Shell®, Mirastar® and USA Gasoline™ brands.