EXHIBIT 10.5
EXECUTION VERSION
OPERATIONAL SERVICES AGREEMENT
     THIS OPERATIONAL SERVICES AGREEMENT (this “Agreement”), dated as of
April 26, 2011, is made and entered into by and among Tesoro Companies, Inc.
(“TCI”), Tesoro Refining and Marketing Company, a Delaware corporation (“TRMC”),
Tesoro Alaska Company, a Delaware corporation (“TAK” and, together with TCI and
TRMC, the “Tesoro Group”), Tesoro Logistics GP, LLC, a Delaware limited
liability company (the “General Partner”), Tesoro Logistics Operations LLC, a
Delaware limited liability company (“TLO”) and Tesoro High Plains Pipeline
Company LLC, a Delaware limited liability company (“THPPC” and together with the
General Partner and TLO, the “Logistics Group”). Each of TCI, TRMC, TAK, the
General Partner, TLO and THPPC is referred to herein as a “Party” and
collectively as the “Parties.”
RECITALS:
     WHEREAS, in connection with the initial public offering of common units
representing limited partner interests in Tesoro Logistics LP (the
“Partnership”), the ownership interests in THPPC shall be contributed to the
Partnership;
     WHEREAS, as of the effective date of such equity contribution to the
Partnership (the “Commencement Date”), the Logistics Group desires for the
Tesoro Group to provide to the Logistics Group certain services necessary to
operate, manage, maintain and report the operating results of the Logistics
Group’s assets, including gathering pipelines, transportation pipelines, storage
tanks, trucks, truck racks, terminal facilities, offices and related equipment,
real estate and other assets or portions thereof of the Logistics Group, on the
terms and conditions described herein; and
     WHEREAS, there may be certain circumstances during the Term of this
Agreement in which the Tesoro Group will desire for the Logistics Group to
provide it with various services.
     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:
1. DEFINITIONS
As used in this Agreement, the following capitalized terms have the meanings set
forth below:
     “AFE” has the meaning set forth in Section 2(c).
     “Agreement” has the meaning set forth in the Preamble.
     “Affiliate” means, with respect to any Person, (a) any other Person
directly or indirectly controlling, controlled by or under common control with
such Person or (b) any Person owning or controlling fifty percent (50%) or more
of the voting interests of such Person. For purposes of this definition, the
term “controls,” “is controlled by” or “is under common control with” shall mean
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
     “Annual Fee” has the meaning set forth in Section 2(d).

 

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     “Applicable Law” means any applicable statute, law, regulation, ordinance,
rule, determination, judgment, rule of law, order, decree, permit, approval,
concession, grant, franchise, license, requirement, or any similar form of
decision of, or any provision or condition of any permit, license or other
operating authorization issued by any Governmental Authority having or asserting
jurisdiction over the matter or matters in question, whether now or hereafter in
effect.
     “Business Day” means a day, other than a Saturday or Sunday, on which banks
in New York, New York are open for the general transaction of business.
     “Claim” means any existing or threatened future claim, including
third-party claims, demand, suit, action, investigation, proceeding,
governmental action or cause of action of any kind or character (in each case,
whether civil, criminal, investigative or administrative), known or unknown,
under any theory, including those based on theories of contract, tort, statutory
liability, strict liability, employer liability, premises liability, products
liability, breach of warranty or malpractice.
     “Commencement Date” has the meaning set forth in the Recitals.
     “Confidential Information” means all confidential, proprietary or
non-public information of a Party, whether set forth in writing, orally or in
any other manner, including all non-public information and material of such
Party (and of companies with which such Party has entered into confidentiality
agreements) that another Party obtains knowledge of or access to, including
non-public information regarding products, processes, business strategies and
plans, customer lists, research and development programs, computer programs,
hardware configuration information, technical drawings, algorithms, know-how,
formulas, processes, ideas, inventions (whether patentable or not), trade
secrets, schematics and other technical, business, marketing and product
development plans, revenues, expenses, earnings projections, forecasts,
strategies, and other non-public business, technological, and financial
information.
     “Contribution Agreement” means that certain Contribution, Conveyance and
Assumption Agreement by and among Tesoro Logistics LP, Tesoro Logistics GP, LLC,
Tesoro Corporation, Tesoro Alaska Company, Tesoro Refining and Marketing Company
and Tesoro High Plains Pipeline Company LLC, dated as of the date hereof.
     “Control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract, or otherwise.
     “Extension Period” has the meaning set forth in Section 5.
     “Facilities” means Mandan Rack, North Dakota; Anchorage Terminal, Alaska;
Salt Lake City Rack, Utah; Salt Lake City Storage Facility, Utah; Vancouver
Terminal, Washington; Boise Terminal, Idaho; Burley Terminal, Idaho; Stockton
Terminal, California; Wilmington Terminal, California; Salt Lake City Pipelines,
Utah; and High Plains Pipeline System, North Dakota and Montana.
     “Force Majeure” means circumstances not reasonably within the control of
the Service Provider and which, by the exercise of due diligence, the Service
Provider is unable to prevent or overcome that prevent performance of the
Service Provider’s obligations, including: acts of God, strikes, work stoppages,
lockouts or other industrial disturbances, wars, riots, fires, floods, storms,
orders of courts or Governmental Authorities, explosions, terrorist acts,
breakage, accident to machinery, storage tanks or lines of pipe and inability to
obtain or unavoidable delays in obtaining material or equipment and similar
events.

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     “Force Majeure Notice” has the meaning set forth in Section 11(a).
     “General Partner” means Tesoro Logistics GP, LLC, and its successors and
assigns, who is the general partner of the Partnership.
     “Governmental Authority” means any federal, state, local or foreign
government or any provincial, departmental or other political subdivision
thereof, or any entity, body or authority exercising executive, legislative,
judicial, regulatory, administrative or other governmental functions or any
court, department, commission, board, bureau, agency, instrumentality or
administrative body of any of the foregoing.
     “Logistics Assets” means the gathering pipelines, transportation pipelines,
storage tanks, trucks, truck racks, terminal facilities, offices and related
equipment, real estate and other assets, or portions thereof, conveyed,
contributed or otherwise transferred or intended to be conveyed, contributed or
otherwise transferred pursuant to the Contribution Agreement, together with the
additional conveyance documents and instruments contemplated or referenced
thereunder, to any member of the Logistics Group, or owned by, leased by or
necessary for the operation of the business, properties or assets of any member
of the Logistics Group, prior to or as of the Commencement Date.
     “Logistics Group” has the meaning set forth in the Preamble.
     “Logistics Group Indemnified Parties” has the meaning set forth in
Section 10(a).
     “Loss” and “Losses” shall have the meaning set forth in Section 10(a).
     “Partnership” has the meaning set forth in the Recitals.
     “Partnership Change of Control” means Tesoro Corporation ceases to Control
the general partner of the Partnership.
     “Person” means any individual, partnership, limited partnership, joint
venture, corporation, limited liability company, limited liability partnership,
trust, unincorporated organization or Governmental Authority or any department
or agency thereof.
     “Receiving Party Personnel” has the meaning set forth in Section 14(d).
     “Service Coordinator” has the meaning set forth in Section 6(a).
     “Service Provider” has the meaning set forth in Section 3(a).
     “Service Recipient” has the meaning set forth in Section 3(a).
     “Services” has the meaning set forth in Section 2(a).
     “Service Schedules” has the meaning set forth in Section 2(a).
     “TAK” has the meaning set forth in the Preamble.
     “TCI” has the meaning set forth in the Preamble.
     “Term” and “Initial Term” shall have the meaning set forth in Section 5.

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     “Terminated Service” has the meaning set forth in Section 8(a).
     “Tesoro Group” has the meaning set forth in the Preamble.
     “Tesoro Group Indemnified Parties” has the meaning set forth in
Section 10(b).
     “Tesoro Services” has the meaning set forth in Section 2(b).
     “THPPC” has the meaning set forth in the Preamble.
     “TLO” has the meaning set forth in the Preamble.
     “TRMC” has the meaning set forth in the Preamble.
2. SERVICES; FEES
     (a) The Tesoro Group shall provide to the Logistics Group the services set
forth below (the “Services,” at the Facilities, as more particularly described
in the Schedule for each Facility attached to this Agreement (the “Service
Schedules”). The Services provided by the Tesoro Group shall include, but are
not limited to, the following: (i) communications; (ii) electricity;
(iii) environmental permitting and maintenance and related services (including
permitting and wastewater management); (iv) Facility maintenance; (v) fire and
safety; (vi) natural gas; (vii) plant air; (viii) security; (ix) steam;
(x) personnel support; and (xi) software services. In addition, the Parties
acknowledge and agree that there may be certain future matters, from time to
time, for which the Tesoro Group will need to provide assistance to the
Logistics Group. These items will be negotiated in good faith by the Parties and
the Services will be revised in writing by the Parties from time to time.
     (b) The Parties may from time to time, by mutual agreement, agree on
various services to be provided by TLO or the General Partner to TRMC (the
“Tesoro Services”). The Tesoro Services shall be provided at fees to be agreed
upon by the Parties. The Tesoro Services shall be exclusive of the primary
services being provided by TLO to the Tesoro Group under the commercial
agreements and that certain Omnibus Agreement between the Parties dated as of
the date hereof.
     (c) Reimbursement
     (i) The Logistics Group shall reimburse the Tesoro Group for any direct
costs actually incurred by the Tesoro Group in providing the Services, provided
that TLO shall not be required to pay or reimburse TRMC for Services that TRMC
otherwise provides to support its own assets or the assets of its Affiliates
(other than the Logistics Group). Notwithstanding the foregoing, to the extent
that TLO requests TRMC to provide a Service (or acquire equipment or inventory
in connection with such Service), specifically for a Logistics Asset, TRMC shall
prepare a work order for such Service (or related equipment or inventory) or a
capital or expense approval for expenditure (“AFE”), and TLO shall pay and
reimburse TRMC for such Service (or related equipment or inventory), at TRMC’s
actual cost, without additional markup.
     (ii) The Tesoro Group shall reimburse the Logistics Group for any direct
costs actually incurred by the Logistics Group in providing the Tesoro Services,
provided that TRMC shall not be required to pay or reimburse the Logistics Group
for Tesoro Services that TLO otherwise provides to support its own assets or the
assets of its Affiliates. Notwithstanding the foregoing, to the extent that TRMC
requests the Logistics Group to provide a Tesoro Service (or acquire equipment
or inventory in connection with such Tesoro Service), the Logistics Group

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shall prepare a work order for such Tesoro Service (or related equipment or
inventory) or a capital or expense AFE, and TRMC shall pay and reimburse the
Logistics Group for such Tesoro Service (or related equipment or inventory), at
TLO or the General Partner’s actual cost, without additional markup.
     (d) TLO shall pay to TRMC an annual fee, initially in the amount of
$343,000 (the “Annual Fee”) for certain Services performed by certain of TRMC’s
field-level employees at the Mandan Rack and Salt Lake City Storage Facility, as
set forth on Schedule A, which Services, the Parties agree, shall be performed
under the direction and control of TLO.
     (e) TRMC and TLO shall review the Annual Fee each year to determine whether
an increase or decrease is appropriate with respect to the Services provided
hereunder. If the Annual Fee is not otherwise adjusted, the Annual Fee shall be
increased on July 1 of each year of the Term (as defined below), on an annual
basis by a percentage equal to the greater of zero or the positive change in the
Consumer Price Index — All Urban Consumers, U.S. City Average, Not Seasonally
Adjusted over the previous 12 calendar months or to reflect any increase in the
cost of providing Services to TLO due to changes in Applicable Law, including
any interpretation of such Applicable Laws.
3. PAYMENTS; AUDIT
     (a) The Party providing the Services or the Tesoro Services (the “Service
Provider”), as the case may be, shall invoice the recipient of Services or the
Tesoro Services (the “Service Recipient”) on a monthly basis and the Service
Recipient shall pay all amounts due no later than ten (10) calendar days after
its receipt of the Service Provider’s invoices. Any past due payments owed by
the Service Recipient to the Service Provider shall accrue interest, payable on
demand, at the rate of eight percent (8%) per annum from the due date of the
payment through the actual date of payment.
     (b) The Parties shall keep books of account and other records, in
reasonable detail and in accordance with generally accepted accounting
principles and industry standards, consistently applied, with respect to the
provision of the Services or the Tesoro Services and the fees charged, including
time logs (or similar time allocation materials), receipts, and other related
back-up materials. Such books of account and other records shall be open for the
Service Recipient’s inspection during normal business hours upon at least five
(5) Business Days’ prior written notice for twelve (12) months following the end
of the calendar year in which such Services or Tesoro Services were rendered.
This inspection right will include the right of the Service Recipient to have
its accountants or auditors review such books and records. If an audit reveals
that the Service Recipient paid more than the applicable fees for any applicable
audited period or service, the Service Provider shall reimburse the Service
Recipient for any amounts overpaid together with interest at a rate equal to the
prime rate of interest on the original due date published by The Wall Street
Journal, accruing from the date paid by the Service Recipient to the date
reimbursed by the Service Provider.

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4. COMMENCEMENT DATE
     The Parties anticipate that the Commencement Date will be April 26, 2011.
The actual Commencement Date shall be the date specified by TLO in a written
notice to TRMC. The Parties agree that there are a number of factors that may
affect the actual Commencement Date. Consequently, neither Party shall have any
right or remedy against the other Party if the actual Commencement Date is
earlier or later than the anticipated Commencement Date.
5. TERM; RENEWAL
     This Agreement shall have a term beginning on the Commencement Date and
shall terminate on April 30, 2021 (the “Initial Term”). This Agreement may be
extended by the Tesoro Group for up to two (2) renewal terms of five (5) years
each (each, an “Extension Period,” and together with the Initial Term, the
“Term”). To commence an Extension Period, the Tesoro Group shall provide written
notice of its intent to the Logistics Group no less than ninety (90) days prior
to the end of the Initial Term or the then-current Extension Period.
6. COVENANTS
     (a) Service Coordinators. The Logistics Group and the Tesoro Group shall
each appoint a contact person (each, a “Service Coordinator”) who shall serve as
the primary point of contact for communications among the Parties relating to
the day-to-day operations of the Services or the Tesoro Services, have overall
responsibility for managing and coordinating the performance of the Parties’
obligations under this Agreement, and be authorized to act for and on behalf of
the appointing Parties concerning all matters relating to this Agreement. Either
of the Logistics Group and the Tesoro Group may appoint a new Service
Coordinator upon written notice to the other’s Service Coordinator. If a Service
Coordinator is reassigned or removed by the Party that appointed it, such Party
shall promptly appoint a new Service Coordinator and provide notice to the other
Parties of the new Service Coordinator so appointed.
     (b) Access to Premises. Each Party shall give the other Parties reasonable
access to its premises as may be required for the other Parties to provide or
receive the Services or the Tesoro Services, as applicable, hereunder. Unless
otherwise agreed to in writing by the Parties, each Party shall: (i) use the
premises of the other Parties solely for the purpose of providing or receiving
the Services or the Tesoro Services and not to provide goods or services to or
for the benefit of any third party or for any unlawful purpose; (ii) comply with
all policies and procedures governing access to and use of such premises made
known to such Party in advance, including all reasonable security requirements
applicable to accessing the premises and any systems, technologies, or assets of
the other Parties; (iii) instruct its employees and personnel, when visiting the
premises, not to photograph or record, duplicate, remove, disclose, or transmit
to a third party any of the other Parties’ Confidential Information, except as
necessary to perform or receive the Services and/or the Tesoro Services; and
(iv) return such space to the other Parties in the same condition it was in
prior to such Party’s use of such space, ordinary wear and tear excepted.
     (c) Access to Systems. If any Party has access (either on-site or remotely)
to any other Party’s computer systems and/or information stores in connection
with the Services and/or the Tesoro Services, such Party shall limit such access
solely to the use of such systems for purposes of the provision or receipt of
the Services or the Tesoro Services and shall not access, or attempt to access,
the other Party’s computer systems, files, or software other than those agreed
to by the Parties as being required for the Services or the Tesoro Services, or
those that are publicly available (e.g., public websites). Each Party shall
limit such access to those of its employees, agents, and representatives with a
bona fide need to have

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such access in connection with the Services or the Tesoro Services. Each Party
shall follow, and shall cause all of its applicable employees, agents, and
representatives to follow, all of the other Parties’ security rules and
procedures when accessing the other Parties’ systems. All user identification
numbers and passwords disclosed by any Party to another Party and any
information obtained by any Party as a result of such Party’s access to and use
of any other Party’s computer systems shall be deemed to be, and treated as,
Confidential Information of the other Party. The Tesoro Group and the Logistics
Group shall cooperate in the investigation of any apparent unauthorized access
to any computer system and/or information stores of any Party.
     (d) Data Back Up and Security. The Parties shall maintain industry standard
data back up and recovery procedures, as well as an industry standard disaster
avoidance and recovery plan, in connection with all of its systems used in
performing the Services and the Tesoro Services. The Parties shall maintain and
enforce physical, technical and logical security procedures with respect to the
access and maintenance of any Confidential Information of the other Parties that
is in the Service Provider’s possession, which procedures shall: (i) be at least
equal to industry standards; (ii) be in full compliance with Applicable Law; and
(iii) provide reasonably appropriate physical, technical and organizational
safeguards against accidental or unlawful destruction, loss, alteration,
unauthorized disclosure, theft or misuse.
     (e) Use of Resources. In the provision of Services and Tesoro Services
hereunder, the Parties shall have the right to use contractors, subcontractors,
vendors or other third parties to assist the Service Provider in the provision
of the Services or Tesoro Services, provided that such contractors,
subcontractors, vendors or other third parties were providing services similar
to the Services or the Tesoro Services, as applicable, during the twelve months
prior to the Commencement Date. The Service Provider shall be responsible for
the Services or the Tesoro Services performed by its subcontractors and the
Service Provider shall be the Service Recipient’s primary point of contact
regarding the Services or the Tesoro Services performed hereunder including with
respect to payment. No subcontractor will be provided access to any Confidential
Information of the other Party without first agreeing to protect the
Confidential Information.
     (f) Taxes. The Service Recipient shall pay or cause to be paid all taxes,
levies, royalties, assessments, licenses, fees, charges, surcharges and sums due
of any nature whatsoever (other than income taxes, gross receipt taxes and
similar taxes) imposed by any federal, state or local government that the
Service Provider incurs on its behalf for the services provided by the Service
Provider under this Agreement. If the Service Provider is required to pay any of
the foregoing, the Service Recipient shall promptly reimburse the Service
Provider in accordance with the payment terms set forth in this Agreement.
7. STANDARD OF PERFORMANCE
     The Parties shall perform the Services and the Tesoro Services, as
applicable, using at least the same level of care, quality, timeliness, skill
and adherence to applicable industry standards, in providing the Services and
Tesoro Services, as applicable, as such Parties do in providing the Services and
the Tesoro Services to such Party’s subsidiaries and Affiliates.
8. TERMINATION
     (a) Termination for Convenience. Any specific service from the Service
Schedules may be terminated by TLO (each such specific Service that has been
terminated by TLO, a “Terminated Service”) upon ninety (90) days’ prior written
notice to TRMC.

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     (b) Termination for Default.
          A Party shall be in default under this Agreement if:
     (i) the Party materially breaches any provision of this Agreement and such
breach is not cured within fifteen (15) Business Days after notice thereof
(which notice shall describe such breach in reasonable detail) is received by
such Party;
     (ii) the Party (A) files a petition or otherwise commences, authorizes or
acquiesces in the commencement of a proceeding or cause of action under any
bankruptcy, insolvency, reorganization or similar Applicable Law, or has any
such petition filed or commenced against it, (B) makes an assignment or any
general arrangement for the benefit of creditors, (C) otherwise becomes bankrupt
or insolvent (however evidenced) or (D) has a liquidator, administrator,
receiver, trustee, conservator or similar official appointed with respect to it
or any substantial portion of its property or assets; or
     (iii) If any of the Parties is in default as described above, then (i) if
any member of the Tesoro Group is in default, the Logistics Group may or (ii) if
any member of the Logistics Group is in default, any of the Tesoro Group may:
(1) terminate this Agreement upon notice to the defaulting Parties; (2) withhold
any payments due to the defaulting Parties under this Agreement; and/or
(3) pursue any other remedy at law or in equity.
     (c) Effect of Termination. Upon expiration or termination of this
Agreement, all rights and obligations of the Parties under this Agreement shall
terminate; provided, however, that such termination shall not affect or excuse
the performance of any Party (i) for any breach of this Agreement occurring
prior to such termination or (ii) under any of the following provisions of this
Agreement that survive the termination of this Agreement indefinitely:
Section 5; Section 10; Section 14; and Section 15. Upon expiration or
termination of this Agreement or any Service, the each Party shall return to the
other Party any equipment or other property or materials of such other Party
(including but not limited to any materials containing Confidential Information)
that are in the possession or control of such Party or any of its contractors
(except to the extent they are required for use in connection with any
non-terminated Services).
9. RELATIONSHIP OF THE PARTIES
     This Agreement does not form a partnership or joint venture between the
Parties. This Agreement does not make any member of the Tesoro Group an agent or
a legal representative of any member of the Logistics Group. No member of the
Tesoro Group shall assume or create any obligation, liability, or
responsibility, expressed or implied, on behalf of or in the name of any member
of the Logistics Group.
10. INDEMNIFICATION
     (a) Indemnification by the Tesoro Group. The Tesoro Group, jointly and
severally, shall indemnify and hold harmless the Logistics Group, and the
officers, directors, employees, agents and representatives of each member of the
Logistics Group (collectively, the “Logistics Group Indemnified Parties”) from
and against all Claims, and upon demand by the Logistics Group, shall protect
and defend the Logistics Group Indemnified Parties from the same, alleged,
asserted or suffered by or arising in favor of any Person, and shall pay any and
all judgments or settlements of any kind or nature (to include interest) as well
as court costs, reasonable attorneys’ fees and expenses, and any expenses
incurred in

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enforcing this indemnity provision (each a “Loss” and collectively, “Losses”),
incurred by, imposed upon or rendered against one or more of the Logistics Group
Indemnified Parties, whether based on contract, or tort, or pursuant to any
statute, rule or regulation, and regardless of whether the Claims are
foreseeable or unforeseeable, all to the extent that such Losses are in respect
of or arise from (i) willful and material breaches by the Tesoro Group of this
Agreement, or (ii) Claims by a third-party relating to (A) willful and material
breaches by the Tesoro Group of this Agreement or (B) the Tesoro Group’s gross
negligence or willful misconduct in connection with the performance of the
Services, PROVIDED THAT THE TESORO GROUP SHALL NOT BE OBLIGATED TO INDEMNIFY OR
HOLD HARMLESS THE LOGISTICS GROUP INDEMNIFIED PARTIES FROM AND AGAINST ANY
CLAIMS TO THE EXTENT THEY RESULT FROM THE BREACH OF CONTRACT, GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF ANY LOGISTICS GROUP INDEMNIFIED PARTY.
     (b) Indemnification by the Logistics Group. The Logistics Group shall
indemnify and hold harmless the Tesoro Group, and the officers, directors,
employees, agents and representatives of the Tesoro Group (collectively, the
“Tesoro Group Indemnified Parties”) from and against all Claims, and upon demand
by the Tesoro Group, shall protect and defend the Tesoro Group Indemnified
Parties from the same, alleged, asserted or suffered by or arising in favor of
any Person, and shall pay any and all Losses incurred by, imposed upon or
rendered against one or more of the Tesoro Group Indemnified Parties, whether
based on contract, or tort, or pursuant to any statute, rule or regulation, and
regardless of whether the Claims are foreseeable or unforeseeable, all to the
extent that such Losses are in respect of or arise from (i) willful and material
breaches by the Logistics Group of this Agreement or (ii) Claims by a
third-party relating to (A) willful and material breaches by the Logistics Group
of this Agreement or (B) the Logistics Group’s gross negligence or willful
misconduct in connection with the performance of the Tesoro Services, PROVIDED
THAT THE LOGISTICS GROUP SHALL NOT BE OBLIGATED TO INDEMNIFY OR HOLD HARMLESS
THE TESORO GROUP INDEMNIFIED PARTIES FROM AND AGAINST ANY CLAIMS TO THE EXTENT
THEY RESULT FROM THE BREACH OF CONTRACT, GROSS NEGLIGENCE, OR WILLFUL MISCONDUCT
OF ANY TESORO GROUP INDEMNIFIED PARTY.
     (c) Indemnification Procedure. The indemnified Party agrees that within a
reasonable period of time after it becomes aware of facts giving rise to a claim
for indemnification under this Section 10, it will provide notice thereof in
writing to the indemnifying Party, specifying the nature of and specific basis
for such Claim.
     (i) The indemnifying Party shall have the right to control all aspects of
the defense of (and any counterclaims with respect to) any Claims brought
against the indemnified Party that are covered by the indemnification under this
Section 10, including, without limitation, the selection of counsel,
determination of whether to appeal any decision of any court and the settling of
any such claim or any matter or any issues relating thereto; provided, however,
that no such settlement shall be entered into without the consent of the
indemnified Party unless it includes a full release of the Indemnified Party
from such Claim.
     (ii) The indemnified Party agrees to cooperate fully with the indemnifying
Party, with respect to all aspects of the defense of any Claims covered by the
indemnification under this Section 10, including, without limitation, the prompt
furnishing to the indemnifying Party of any correspondence or other notice
relating thereto that the indemnified Party may receive, permitting the name of
the indemnified Party to be utilized in connection with such defense, the making
available to the indemnifying Party of any files, records or other information
of the indemnified Party that the indemnifying Party considers relevant to such
defense and the making available

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to the indemnifying Party of any employees of the indemnified Party; provided,
however, that in connection therewith the indemnifying Party agrees to use
reasonable efforts to minimize the impact thereof on the operations of the
indemnified Party and further agrees to maintain the confidentiality of all
files, records, and other information furnished by the indemnified Party
pursuant to this Section 10(c). In no event shall the obligation of the
indemnified Party to cooperate with the indemnifying Party as set forth in the
immediately preceding sentence be construed as imposing upon the indemnified
Party an obligation to hire and pay for counsel in connection with the defense
of any claims covered by the indemnification set forth in this Section 10;
provided, however, that the indemnified Party may, at its own option, cost and
expense, hire and pay for counsel in connection with any such defense. The
indemnifying Party agrees to keep any such counsel hired by the indemnified
Party informed as to the status of any such defense, but the indemnifying Party
shall have the right to retain sole control over such defense.
     (iii) In determining the amount of any loss, cost, damage or expense for
which the indemnified Party is entitled to indemnification under this Agreement,
the gross amount of the indemnification will be reduced by (i) any insurance
proceeds realized by the indemnified Party, and such correlative insurance
benefit shall be net of any incremental insurance premium that becomes due and
payable by the Indemnified Party as a result of such claim and (ii) all amounts
recovered by the indemnified Party under contractual indemnities from third
Persons.
     (d) Limitation on Liability. Notwithstanding anything to the contrary
contained herein, neither Party shall be liable or responsible to the other
Party or such other Party’s Affiliates for any consequential, incidental, or
punitive damages, or for loss of profits or revenues (collectively referred to
as “special damages”) incurred by such Party or its Affiliates that arise out of
or relate to this Agreement, regardless of whether any such Claim arises under
or results from contract, tort, or strict liability; provided that the foregoing
limitation is not intended and shall not affect special damages imposed in favor
of unaffiliated Persons that are not Parties to this Agreement.
11. FORCE MAJEURE
     (a) The Service Provider’s obligations under this Agreement may be
temporarily suspended during the occurrence of, and for the entire duration of,
a Force Majeure. As soon as possible upon the occurrence of a Force Majeure, the
Service Provider shall provide the Service Recipient with written notice of the
occurrence of such Force Majeure (a “Force Majeure Notice”). The Service
Provider shall identify in such Force Majeure Notice the approximate length of
time that it reasonably believes in good faith such Force Majeure shall
continue. During the period of the Force Majeure event, the Service Provider
shall be excused from the performance with respect to its obligations related to
the provision of the applicable Service(s) or Tesoro Service(s) hereunder. The
Service Recipient shall not be required to pay fees for any affected Service(s)
or Tesoro Service(s), as the case may be, during the Force Majeure. The Service
Provider shall use commercially reasonable efforts to mitigate and to overcome
the effects of such event or circumstances and shall resume performance of its
obligations as soon as practicable.
     (b) If a Force Majeure preventing performance of any of the Services or any
of the Tesoro Services hereunder continues for twelve (12) consecutive months or
more, either Party shall have the right to terminate its obligations under this
Agreement with respect to the applicable Service or the applicable Tesoro
Service suspended by such Force Majeure.

10

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12. ASSIGNMENT; PARTNERSHIP CHANGE OF CONTROL
     (a) Neither the Logistics Group nor the Tesoro Group may assign this
Agreement without the prior written consent of the other Party; provided,
however, that either Party may subcontract any of the Services or Tesoro
Services provided hereunder so long as such Services or Tesoro Services continue
to be provided in a manner consistent with past practices and industry standards
and in accordance with Section 6(e) above. Notwithstanding the foregoing, the
Logistics Group shall be permitted to make a collateral assignment of this
Agreement solely to secure working capital financing for TLO. This Agreement
shall be binding upon and inure to the benefit of the Parties hereto and their
respective successors and permitted assigns.
     (b) The Tesoro Group may terminate this Agreement upon a Partnership Change
of Control. The Logistics Group shall provide the Tesoro Group with notice of
any Partnership Change of Control at least sixty (60) days prior to the
effective date thereof.
13. NOTICE
     All notices, requests, demands, and other communications hereunder will be
in writing and will be deemed to have been duly given: (i) if by transmission by
facsimile or hand delivery, when delivered; (ii) if mailed via the official
governmental mail system, five (5) Business Days after mailing, provided said
notice is sent first class, postage pre-paid, via certified or registered mail,
with a return receipt requested; (iii) if mailed by an internationally
recognized overnight express mail service such as Federal Express, UPS, or DHL
Worldwide, one (1) Business Day after deposit therewith prepaid; or (iv) if by
e-mail, one Business Day after delivery with receipt confirmed. All notices will
be addressed to the Parties at the respective addresses as follows:
If to the Tesoro Group, to:
c/o Tesoro Refining and Marketing Company
19100 Ridgewood Parkway
San Antonio, Texas 78259
For legal notices:
Attention: Charles S. Parrish, General Counsel
phone: (210) 626-4280
fax: (210) 745-4494
email: charles.s.parrish@tsocorp.com
For all other notices and communications:
Attention: Ralph J. Grimmer, Vice President, Logistics
phone: (210) 626-4379
fax: (210) 745-4631
email: Ralph.J.Grimmer@tsocorp.com
If to the Logistics Group, to:
c/o Tesoro Logistics Operations LLC
19100 Ridgewood Parkway
San Antonio, Texas 78259
For legal notices:
Attention: Charles S. Parrish, General Counsel
phone: (210) 626-4280
fax: (210) 745-4494
email: charles.s.parrish@tsocorp.com

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For all other notices and communications:
Attention: Victoria R. Somers, Contracts Administrator — Logistics
phone: (210) 626-6390
fax: (210) 745-4490
email: victoria.r.somers@tsocorp.com
or to such other address or to such other person as either Party will have last
designated by notice to the other Party.
14. CONFIDENTIAL INFORMATION
     (a) Obligations. Each Party shall use reasonable efforts to retain the
other Parties’ Confidential Information in confidence and not disclose the same
to any third party nor use the same, except as authorized by the disclosing
Party in writing or as expressly permitted in this Section 14. Each Party
further agrees to take the same care with the other Party’s Confidential
Information as it does with its own, but in no event less than a reasonable
degree of care. Excepted from these obligations of confidence and non-use is
that information which:
          (i) is available, or becomes available, to the general public without
fault of the receiving Party;
          (ii) was in the possession of the receiving Party on a
non-confidential basis prior to receipt of the same from the disclosing Party
(it being understood, for the avoidance of doubt, that this exception shall not
apply to information of the Logistics Group that was in the possession of the
Tesoro Group or any of its Affiliates as a result of their ownership or
operation of the Logistics Assets prior to the Commencement Date);
          (iii) is obtained by the receiving Party without an obligation of
confidence from a third party who is rightfully in possession of such
information and, to the receiving Party’s knowledge, is under no obligation of
confidentiality to the disclosing Party; or
          (iv) is independently developed by the receiving Party without
reference to or use of the disclosing Party’s Confidential Information.
For the purpose of this Section 14, a specific item of Confidential Information
shall not be deemed to be within the foregoing exceptions merely because it is
embraced by, or underlies, more general information in the public domain or in
the possession of the receiving Party.
     (b) Required Disclosure. Notwithstanding Section 14(a) above, if the
receiving Party becomes legally compelled to disclose the Confidential
Information by a court, Governmental Authority or Applicable Law, or is required
to disclose by the listing standards of the New York Stock Exchange, any of the
disclosing Party’s Confidential Information, the receiving Party shall promptly
advise the disclosing Party of such requirement to disclose Confidential
Information as soon as the receiving Party becomes aware that such a requirement
to disclose might become effective, in order that, where possible, the
disclosing Party may seek a protective order or such other remedy as the
disclosing Party may consider appropriate in the circumstances. The receiving
Party shall disclose only that portion of the disclosing Party’s Confidential
Information that it is required to disclose and shall cooperate with the
disclosing Party in allowing the disclosing Party to obtain such protective
order or other relief.
     (c) Return of Information. Upon written request by the disclosing Party,
all of the disclosing Party’s Confidential Information in whatever form shall be
returned to the disclosing Party upon

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termination of this Agreement or destroyed with destruction certified by the
receiving Party, without the receiving Party retaining copies thereof except
that one copy of all such Confidential Information may be retained by a Party’s
legal department solely to the extent that such Party is required to keep a copy
of such Confidential Information pursuant to Applicable Law and the receiving
Party shall be entitled to retain any Confidential Information in the electronic
form or stored on automatic computer back-up archiving systems during the period
such backup or archived materials are retained under such Party’s customary
procedures and policies; provided, however, that any Confidential Information
retained by the receiving Party shall be maintained subject to confidentiality
pursuant to the terms of this Section 14, and such archived or back-up
Confidential Information shall not be accessed except as required by Applicable
Law.
     (d) Receiving Party Personnel. The receiving Party will limit access to the
Confidential Information of the disclosing Party to those of its employees,
attorneys and contractors that have a need to know such information in order for
the receiving Party to exercise or perform its rights and obligations under this
Agreement (the “Receiving Party Personnel”). The Receiving Party Personnel who
have access to any Confidential Information of the disclosing Party will be made
aware of the confidentiality provision of this Agreement, and will be required
to abide by the terms thereof. Any third party contractors that are given access
to Confidential Information of a disclosing Party pursuant to the terms hereof
shall be required to sign a written agreement pursuant to which such Receiving
Party Personnel agree to be bound by the provisions of this Agreement, which
written agreement will expressly state that it is enforceable against such
Receiving Party Personnel by the disclosing Party.
     (e) Survival. The obligation of confidentiality under this Section 14 shall
survive the termination of this Agreement for a period of two (2) years.
15. MISCELLANEOUS
     (a) Modification; Waiver. This Agreement may be terminated, amended or
modified only by a written instrument executed by the Parties. Any of the terms
and conditions of this Agreement may be waived in writing at any time by the
Party entitled to the benefits thereof. No waiver of any of the terms and
conditions of this Agreement, or any breach thereof, will be effective unless in
writing signed by a duly authorized individual on behalf of the Party against
which the waiver is sought to be enforced. No waiver of any term or condition or
of any breach of this Agreement will be deemed or will constitute a waiver of
any other term or condition or of any later breach (whether or not similar), nor
will such waiver constitute a continuing waiver unless otherwise expressly
provided.
     (b) Entire Agreement. This Agreement, together with the Schedules,
constitutes the entire agreement among the Parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
Parties in connection therewith.
     (c) Governing Law; Jurisdiction. This Agreement shall be governed by the
laws of the State of Texas without giving effect to its conflict of laws
principles. Each Party hereby irrevocably submits to the exclusive jurisdiction
of any federal court of competent jurisdiction situated in the United States
District Court for the Western District of Texas, San Antonio Division, or if
such federal court declines to exercise or does not have jurisdiction, in the
district court of Bexar County, Texas. The Parties expressly and irrevocably
submit to the jurisdiction of said Courts and irrevocably waive any objection
which they may now or hereafter have to the laying of venue of any action, suit
or proceeding arising out of or relating to this Agreement brought in such
Courts, irrevocably waive any claim that any such action, suit or proceeding
brought in any such Court has been brought in an inconvenient forum and further
irrevocably waive the right to object, with respect to such claim, action, suit
or proceeding brought in any such Court, that such Court does not have
jurisdiction over such Party. The Parties hereby irrevocably

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consent to the service of process by registered mail, postage prepaid, or by
personal service within or without the State of Texas. Nothing contained herein
shall affect the right to serve process in any manner permitted by law.
     (d) Counterparts. This Agreement may be executed in one or more
counterparts (including by facsimile or portable document format (pdf)) for the
convenience of the Parties hereto, each of which counterparts will be deemed an
original, but all of which counterparts together will constitute one and the
same agreement.
     (e) Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be valid and effective under Applicable Law,
but if any provision of this Agreement or the application of any such provision
to any person or circumstance will be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision hereof, and the Parties
will negotiate in good faith with a view to substitute for such provision a
suitable and equitable solution in order to carry out, so far as may be valid
and enforceable, the intent and purpose of such invalid, illegal or
unenforceable provision.
     (f) No Third Party Beneficiaries. It is expressly understood that the
provisions of this Agreement do not impart enforceable rights in anyone who is
not a Party or successor or permitted assignee of a Party.
     (g) WAIVER OF JURY TRIAL. EACH PARTY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY PROCEEDINGS RELATING TO THIS AGREEMENT OR ANY PERFORMANCE OR FAILURE TO
PERFORM OF ANY OBLIGATION HEREUNDER.
     (h) Schedules. Each of the Schedules attached hereto and referred to herein
is hereby incorporated in and made a part of this Agreement as if set forth in
full herein.
[Signatures of the Parties follow on the next page.]

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     IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as
of the date first written above.

                                TESORO COMPANIES, INC.   TESORO LOGISTICS GP,
LLC  
 
             
By: 
/s/ Gregory J. Goff   By:  /s/ Phillip M. Anderson                 Name:  
Gregory J. Goff     Name:  Phillip M. Anderson     Title:   President    
Title:  President  
 
              TESORO REFINING AND MARKETING COMPANY   TESORO LOGISTICS
OPERATIONS LLC  
 
              By:  /s/ Gregory J. Goff   By:  TESORO LOGISTICS LP,              
    Name:  Gregory J. Goff     its sole member     Title:  President          
 
                      By:  TESORO LOGISTICS GP, LLC,             its general
partner  
 
                      By:  /s/ Phillip M. Anderson                          
Name:  Phillip M. Anderson  
 
        Title:  President  
 
              TESORO ALASKA COMPANY   TESORO HIGH PLAINS PIPELINE COMPANY LLC  
 
              By: /s/ Gregory J. Goff   By: TESORO LOGISTICS     Name:
Title: Gregory J. Goff
President     OPERATIONS LLC,
its sole member  
 
             
 
      By:  TESORO LOGISTICS LP,
its sole member  
 
             
 
      By:  TESORO LOGISTICS GP, LLC,
its general partner  
 
             
 
      By:  /s/ Phillip M. Anderson  
 
        Name: Phillip M. Anderson  
 
        Title: President  

Operational Services Agreement

 

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Schedule A
Mandan Rack, North Dakota
Unless otherwise noted below, TRMC will provide the following Services to TLO in
accordance with Section 2 of the Agreement:

          Service   Amounts
Communications
       
Electricity
  $ 30,000  
Environmental Permitting and Maintenance
       
Facility Maintenance
       
Fire and Safety
       
Natural Gas
       
Water
       
Wastewater
       
Personnel Support — Operations, Supply & Trading, Marketing, Security and
Maintenance
  $ 213,000  

 

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Schedule B
Anchorage Terminal, Alaska
Unless otherwise noted below, TRMC will provide the following Services to TLO in
accordance with Section 2 of the Agreement:

          Service        
Communications
       
Electricity
       
Environmental Permitting and Maintenance
       
Facility Maintenance
       
Fire and Safety
       
Natural Gas
       
Water
       
Wastewater
       

 

--------------------------------------------------------------------------------

 

Schedule C
Salt Lake City Rack, Utah
Unless otherwise noted below, TRMC will provide the following Services to TLO in
accordance with Section 2 of the Agreement:

          Service        
Communications
       
Electricity
       
Environmental Permitting and Maintenance
       
Facility Maintenance
       
Fire and Safety
       
Natural Gas
       
Plant Air
       
Steam
       
Water
       
Wastewater
       

 

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Schedule D
Salt Lake City Storage Facility, Utah
Unless otherwise noted below, TRMC will provide the following Services to TLO in
accordance with Section 2 of the Agreement:

          Service   Amounts
Communications
       
Electricity
       
Environmental Permitting and Maintenance
       
Facility Maintenance
       
Fire and Safety
       
Water
       
Wastewater
       
Personnel Support — Maintenance and Operations
  $ 100,000  

 

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Schedule E
Vancouver Terminal, Washington
Unless otherwise noted below, TRMC will provide the following Services to TLO in
accordance with Section 2 of the Agreement:

          Service        
Communications
       
Electricity
       
Environmental Permitting and Maintenance
       
Facility Maintenance
       
Fire and Safety
       
Water
       
Wastewater
       

 

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Schedule F
Boise Terminal, Idaho
Unless otherwise noted below, TRMC will provide the following Services to TLO in
accordance with Section 2 of the Agreement:

          Service        
Communications
       
Electricity
       
Environmental Permitting and Maintenance
       
Facility Maintenance
       
Fire and Safety
       
Natural Gas
       
Water
       
Wastewater
       

 

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Schedule G
Burley Terminal, Idaho
Unless otherwise noted below, TRMC will provide the following Services to TLO in
accordance with Section 2 of the Agreement:

          Service        
Communications
       
Electricity
       
Environmental Permitting and Maintenance
       
Facility Maintenance
       
Fire and Safety
       
Natural Gas
       
Water
       
Wastewater
       

 

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Schedule H
Stockton Terminal, California
Unless otherwise noted below, TRMC will provide the following Services to TLO in
accordance with Section 2 of the Agreement:

          Service        
Communications
       
Electricity
       
Environmental Permitting and Maintenance
       
Facility Maintenance
       
Fire and Safety
       
Water
       
Wastewater
       

 

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Schedule I
Wilmington Terminal, California
Unless otherwise noted below, TRMC will provide the following Services to TLO in
accordance with Section 2 of the Agreement:

    Service
Communications
 
Electricity
 
Environmental Permitting and Maintenance
 
Facility Maintenance
 
Fire and Safety
 
Natural Gas
 
Water
 
Wastewater
 

 

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Schedule J
Salt Lake City Pipelines, Utah
Unless otherwise noted below, TRMC will provide the following Services to TLO in
accordance with Section 2 of the Agreement:

          Service        
Communications
       
Electricity
       
Environmental Permitting and Maintenance
       
Facility Maintenance
       
Fire and Safety
       
Water
       
Wastewater
       

 

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Schedule K
High Plains Pipeline System, North Dakota and Montana
Unless otherwise noted below, TRMC will provide the following Services to TLO in
accordance with Section 2 of the Agreement:

          Service        
Communications
       
Electricity
       
Environmental Permitting and Maintenance
       
Facility Maintenance
       
Fire and Safety
       
Water
       
Wastewater