UPDATE 2-Eni promises richer returns after exploration success

* Raises dividend to 0.83 euros from 0.80

* Says share buyback possible

* Investment level seen unchanged at 32 bln euros 2018-2021

* Raises output growth target to 3.5 pct/yr

* Shares up 1.7 pct(Recasts, adds management and analyst comments)

By Giancarlo Navach and Stephen Jewkes

LONDON/MILAN, March 16 (Reuters) - Italian oil major Enihiked its dividend on Friday and held out the prospectof a share buyback after promising higher growth in productionand more cash.

Eni was the first oil major to cut its dividend three yearsago after a steep decline in the oil price forced the industryto tighten its belt.

But as crude prices recover, the focus of the world'sbiggest oil companies is slowly shifting from slashing jobs andinvestment to boosting shareholder returns and growth.

So far this year, Total has raised dividends, BPflagged a resumption of share buybacks and Shellscrapped its scrip dividend.

State-controlled Eni said in its new business plan to 2021that it would pay a dividend this year of 0.83 euros ($1.02) pershare, 3.7 percent more than last year. It also said a sharebuyback remained an option to distribute excess cash.

"All the work of the last three-four years is finally payingdividends. It's a much better company now," said AlessandroPozzi, oil analyst at Mediobanca.

Eni, the world's most successful explorer in recent yearsafter finds in Egypt and Mozambique, said it would not becutting investments, spending almost 32 billion euros over theduration of the plan.

It said it aimed to increase production by 3.5 percent peryear, up from a 3 percent target in its previous plan. Outputwould grow by 4 percent this year.

"During the downturn we tripled our acreage and this is thebig potential Eni has," Chief Executive Claudio Descalzi said.

The company, the biggest foreign oil and gas producer inAfrica, will add 2 billion barrels of new oil and gas productionover the next four years with free cash flow from its upstreamoperations totalling 22 billion euros.

Since taking over as CEO in 2014, oil veteran Descalzi hasstreamlined the company, sharpening its focus on finding oil andgas.

"We will be making the final investment decision on five keyprojects this year," added Chief Financial Officer MassimoMonduzzi.

The discovery of two world-class gas fields, in Mozambiqueand Egypt, added 115 trillion cubic feet of resources to itsportfolio, opening up opportunities in liquefied natural gas(LNG).

It is working with Exxon on LNG development at itsgiant mamba field in Mozambique, and said the group aimed toincrease LNG sales to 12 million tonnes per year by 2021 and 14MTPA by 2025.

Eni, which currently generates around 80 percent of itsbusiness from upstream activities, also said it was looking todevelop its chemicals, refining and retail divisions.

"We have completed the transformation of mid-downstreambusinesses and now we are ready for their expansion and growthin value," Descalzi said.

Some investors have said Eni needs to bolster its midstreamand downstream businesses as a hedge against oil price swings.

At 1430 GMT, Eni shares were up 1.7 percent at 14.06 euros,outpacing a 1 percent rise in Europe's oil and gas sector.

($1 = 0.8114 euros)(Reporting by Giancarlo Navach and Stephen Jewkes; Editing byDasha Afanasieva and John Stonestreet)