Fitch Ratings Places Tesoro Petroleum on Rating Watch Positive

Business Wire, June 7, 2004

Business Editors

CHICAGO--(BUSINESS WIRE)--June 7, 2004

Fitch Ratings has placed the debt ratings of Tesoro Petroleum Corporation (Tesoro) on Rating Watch Positive in anticipation of Tesoro's redemption of its $297.5 million of outstanding 9% senior subordinated notes. Fitch rates Tesoro's debt as follows:

-- Senior secured revolving credit facility 'BB-';

-- Senior secured notes 'BB-';

-- Senior secured term loan 'BB-';

-- Senior subordinated notes 'B'.

Tesoro has publicly announced its intent to call its outstanding 9% senior subordinated notes due 2008 on July 1, 2004 when the call premium on the notes drops to 3%. Fitch expects Tesoro to pay for the redemption primarily through cash on hand given Tesoro's cash position of $116.7 million at March 31, 2004 and the strong industry wide margins throughout the second quarter. With the redemption of the notes and the expectation that any required revolver borrowings would be minimal, Fitch will raise Tesoro's senior secured ratings to 'BB' and its senior subordinated notes to 'B ' with a Stable Rating Outlook.

Management has recently amended its credit facility to increase its capacity to $650 million and allow for up to $100 million of borrowings to repay subordinated debt. At March 31, 2004, Tesoro had approximately $1.6 billion of balance sheet debt. Tesoro also had no cash borrowings and $216 million in letters of credit outstanding under its revolver.

Additional positive rating actions could result from further improvement in the capital structure or conservative financing of future growth opportunities. Tesoro should also continue to benefit from its modest capital program compared with other refiners which has allowed Tesoro to generate free cash flow even under more modest refining margins. Tesoro's West Coast asset base has already been substantially modified to meet the upcoming federal low sulfur regulations. Under Fitch's expectations for refining margins, Tesoro should generate EBITDA to interest coverage of more than 5.0 times (x) with leverage as measured by balance sheet debt to EBITDA of 2.0x to 2.5x.

While Tesoro's credit profile has improved considerably since the Golden Eagle acquisition, Fitch continues to have concerns with Tesoro's long-term commitment to maintaining a stronger balance sheet. Management has shown a willingness to pay for sizable acquisitions primarily with debt as shown with Golden Eagle in May 2002 and the BP refineries in late 2001. As noted, Tesoro has since benefited from the stronger asset base and the prolonged improvement in industry margins to repair its balance sheet.

Tesoro owns and operates six crude oil refineries with a rated crude oil capacity of 560,000 barrels per day. Four of Tesoro's refineries are on the West Coast, with facilities in California, Alaska, Hawaii and Washington. Tesoro also has refineries in Salt Lake City, Utah and Mandan, North Dakota. Tesoro sells refined products wholesale or through approximately 550 branded retail outlets.