Fitch Comment: No Immediate Rating Impact from Tracinda Tender for Tesoro Shares

Business Wire, Oct 31, 2007

CHICAGO -- Fitch Ratings does not anticipate an immediate ratings impact on Tesoro Petroleum Corporation's (TSO) ratings following the announcement that Tracinda Corporation, led by Kirk Kerkorian, has launched a cash tender for 21.9 million Tesoro shares. If accepted, the tendered shares, added to Tracinda's current 4% stake, would increase Tracinda's total holdings to 20% of Tesoro's common stock.

Fitch's current ratings for Tesoro are as follows:

--Issuer Default Rating (IDR) 'BB ';

--Bank facility 'BBB-';

--Senior unsecured notes/debentures 'BB '.

The Rating Outlook is Stable.

While the announcement of the tender is not enough to warrant a change in Tesoro's Rating Outlook at this point in time, Fitch notes that the risks to the down side have increased for Tesoro's ratings. Fitch anticipates that the tender, if successful, could raise pressure on management to redirect its free cash flow toward shareholder-friendly activities, an action which could ultimately weaken bondholder protection levels. For the latest 12 months ending June 30, 2007, Tesoro's free cash flow (cash flow from operations - capex - dividends) stood at nearly $1 billion while share buybacks were well below $100 million.

While Fitch believes that the announcement is not a positive for bondholders, Fitch also acknowledges that there are many current uncertainties as to how an increased Tracinda stake in the company would ultimately play out, including the ultimate motivations of the buyer, the willingness of the board to fund increased shareholder activities or future acquisitions through leverage, and the refining crack spread environment going forward. As a result, Fitch's Outlook for Tesoro remains Stable at this point.

Tesoro's ratings are supported by its improving debt metrics, the scale and diversification benefits created by its recent acquisition of Shell's (Shell) 100,000 barrels per day (bpd) Wilmington refinery and retail assets, and the favorable outlook for refining margins, especially in the supply-constrained West Coast market. Offsetting factors include high future capital spending requirements, the possibility of additional leveraging transactions, and the volatility of refining margins.

Tesoro owns and operates seven crude oil refineries with a rated crude oil capacity of approximately 663,000 bpd, including the recently acquired Wilmington refinery in California. Five 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 its network of branded retail outlets.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The issuer did not participate in the rating process other than through the medium of its public disclosure.