Despite the fact that it plans to raise its oil production, BP will not be investing in new refineries, but will seek to revamp existing plants and grow its retail network of filling stations to increase free cash flow from downstream operations by $3 billion by 2021, Tufan Erginbilgic, chief executive Downstream at BP, told Reuters.
BP generated $5.6 billion in free cash flow in refining, trading and marketing last year, a 25-percent increase compared to 2014, despite the low refining margins, Erginbilgic told Reuters.
For 2016, the group's total underlying operating cash flow, excluding pre-tax Gulf of Mexico payments, was $17.8 billion, down from $20.3 billion in 2015, BP's 2016 results show.
BP's recent strategy update states that in the upstream business the group expects more than 1 million barrels per day of new oil equivalent production by 2021 from 2016.
By 2021, BP sees the downstream business delivering $9-10 billion of pre-tax free cash flow, with returns of around 20 percent in 2021.
The UK supermajor is happy with its current refining operations portfolio, but it could sell "one or two assets, making very good money today because the tide went up for these assets," the manager told Reuters.
Last year, BP agreed to buy, rebrand and operate 527 fuel and convenience sites, as well as an additional 16 sites currently under construction, from Australian supermarket retailer Woolworths for US$1.3 billion.
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This model could be replicated in markets such as Mexico, Indonesia, China and India, Erginbilgic told Reuters.
The fuel and lubricants marketing business could generate additional $2 billion in cash flow by 2021, double the cash from refining and petrochemicals, according to BP's head of downstream.
Refining margins, which had been shielding integrated oil companies from heftier losses during the worst of the downturn, have been deteriorating and in 2016 they were no longer the one solid source of profit for the majors like they were in recent years.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More