(Combines previous stories, adds comments throughout)

By Svetlana Kovalyova and Stephen Jewkes

MILAN, May 11 (Reuters) - Italian energy group ERG is on track to exit the coastal refining business, reducing its exposure to a weak oil refining sector, and will instead expand in renewable energy, its top managers said on Friday.

The outlook for European refiners, battered by weak demand and heavy competition from Asian rivals in the past few years, remains clouded due to Europe's sluggish economy.

"We are reducing our exposure to refinery. We have defined a clear path to exit from the refining business, even though the final decision will be taken next year," ERG CEO Luca Bettonte said in a conference call with analysts.

REDUCING EXPOSURE

ERG, which at the end of January agreed to sell a 20 percent stake in its main ISAB refinery in Sicily with a 320,000 barrel-per-day capacity to Russian oil major Lukoil, has an option to sell its remaining 20 percent to Lukoil in October 2013.

ERG started reducing its stake in ISAB in 2008 when it sold 49 percent of the refinery to Lukoil with an option to sell the rest within four years in one or more installments.

The Italian group has built renewable energy assets over the years and its green energy unit is now Italy's third-biggest renewable power operator, ERG executives said on Friday.

"Out priority is to increase ability to extract value from our assets ... in particular from wind farms and power plants," Bettonte said.

In particular, ERG is looking to expand in green energy in eastern Europe and is planning to acquire three wind farms in Romania, its executives said.

Bettonte took over the top job from Alessandro Garrone at the end of April when shareholders renewed the board.

Garrone, whose family controls ERG and who has become the group's executive vice president in charge of strategy, said on Friday the new top management layout reflected evolution of the group's governance prompted by changes in its business and the challenging global economic environment.

The group has also launched a share buy back programme worth up to 35.2 million euros ($45.62 million), aiming to raise its treasury share stake to 5 percent of share capital from about 1.4 percent at present.

IMPROVED FIRST QUARTER

ERG's adjusted core earnings in the first quarter surged 131 percent from a year earlier to 111 million euros, boosted by its power generation and renewables business, while the refining and marketing business remained weak due to sluggish demand.

Coastal refining margins improved in the first quarter but still remained in the red, rising to -$0.10 per barrel from -$1.18 per barrel in the first quarter of 2011. ERG said it expected refining margins to show slight improvement in 2012.

ERG also has inland refining assets which it does not plan to sell and downstream activity, including a joint venture with France's Total.

ERG confirmed its earlier 2012 guidance, including full year earnings before interest, taxes, depreciation and amortisation at about 400 million euros. ($1 = 0.7716 euros) (Editing by Helen Massy-Beresford)