UPDATE 2-Eni misses forecasts as Libya woes cloud outlook

(Recasts lead, adds detail, comment) By Oleg Vukmanovic and Stephen Jewkes MILAN, July 31 (Reuters) - Increasing instability in Libya led Italian oil major Eni to miss second-quarter forecasts for oil and gas output, although it still saw a 50 percent boost in net profit. The company, which expects lower gas sales for the year due to poor European demand, said on Thursday the worsening crisis in Libya was the main cause for a rare 12.6 percent drop in profit in its exploration and production business. The decline underscored the risks facing new CEO Claudio Descalzi, who is attempting to focus the company on the bread-and-butter job of finding oil and gas. That strategy was on show earlier when Eni announced a potential new 500 million barrels of oil equivalent gas discovery offshore Gabon, where it has stepped up exploration. "The reorganisation under way shows E&P (exploration and production) will continue to be the jewel in the crown of Eni in the future," said Nicolo Sartori, energy analyst at the Institute for International Affairs in Rome. "But the focus on E&P also means diversifying geographically to spread risk, in particular into Asia and non-conventional markets," he said. Eni, Africa's biggest foreign oil producer, is slowly shifting focus away from the north to sub-Saharan nations, where new finds in Mozambique, Congo and Ghana offer steadier returns. It is also pursuing opportunities in Asia and has announced a production sharing agreement in Myanmar. Descalzi, former head of the E&P division, faces growing investor calls to address Eni's over-reliance on a handful of unstable producers in places such as Egypt and Libya. Oil theft also put the brakes on output in Nigeria, analysts say. In the second quarter Eni said its adjusted net profit was 0.87 billion euros, below a Reuters analyst sounding of eight analysts of 1.012 billion euros ($1.36 billion). The positive impact from gas contract renegotiations, especially with Russia's Gazprom, and a better performance from its Saipem subsidiary helped offset weakness at the exploration and production division. The E&P division saw a drop in operating profit to 2.981 billion euro, Eni said, while confirming it expected hydrocarbon output for the year to be substantially in line with 2013. REFINING WOES The focus on high-margin upstream growth leaves little room at Eni for loss-making business lines such as its Italian refining business and plans have already been aired to close or convert the majority of its facilities. In the second quarter of 2014, the group's refining and marketing division posted an adjusted operating loss of 219 million euros as the group cuts refining capacity. Europe's refining sector is under growing pressure from increasing international competition, excess production capacity and weak domestic consumption. On Tuesday 90 percent of Eni's Italian workers went on strike to protest against the company's plan for changes, giving some indication of the battle in store for the CEO. "In 2014 the overall market environment has deteriorated compared to last year, in particular in the European refining sector where margins have collapsed..causing us to accelerate the restructuring of our plants," Descalzi said in a statement. ($1 = 0.7465 Euros) (Reporting by Stephen Jewkes and Oleg Vukmanovic. Editing by Jeremy Gaunt)