BP lifts outlook for core oil business after cost cuts

* Company to break even at $35-40/bbl by 2021

* Upstream to generate free cash flow of $13-14 bln by 2021

* Downstream free cash flow expected at $9-10 bln by 2021 (Adds details, background, CFO comment, share price)

By Karolin Schaps and Ron Bousso

LONDON, Feb 28 (Reuters) - British oil major BP lifted the outlook for its core oil and gas divisions on Tuesday, saying it would be able to balance its books with crude prices as low as $35 to $40 a barrel by 2021 thanks to its tough spending cuts.

BP said its upstream business, which includes its main oil and gas production fields, is expected to generate free cash flow of $13 billion to $14 billion by 2021, nearly double an outlook presented last year of $7 billion to $8 billion by 2020.

The refining and marketing business, known as downstream, is expected to generate $9 billion to $10 billion of free cash flow by 2021, BP said.

The oil major, which was forced to raise billions of dollars from asset sales to pay for the clean-up of its 2010 Gulf of Mexico oil spill, made around $7 billion in cost cuts last year by tightening investments, cutting staff numbers and through depreciation in service costs.

"We expect this combination of continued cost discipline with the growing cash flow from our core businesses will steadily drive down the cash balance point of the business," BP Chief Financial Officer Brian Gilvary said.

"Over the next five years we expect this to fall to around $35-40 a barrel for the group overall."

Earlier this month, BP lifted this year's break-even oil price to $60 a barrel because it is investing more in new projects.

BP's shares were up 0.4 percent at 1513 GMT, slightly outperforming the sector index which was up 0.2 percent. (Editing by Susan Fenton and Susan Thomas)