(Releads, adds quotes, detail on asset sales and acquisitions)
By Nia Williams
July 24 (Reuters) - Canada's Encana Corp, which is restructuring operations to end its reliance on low-value natural gas, said on Thursday oil and natural gas liquids production climbed 43 percent year-on-year in the second quarter of 2014.
Canada's largest natural gas producer, also reported a steeper-than-expected 31 percent fall in quarterly operating profit, hurt by lower natural gas production and prices.
Analysts said overall the outlook for the company was positive given rapid progress in switching to more liquids production and cutting drilling costs.
Encana shares climbed 1.8 percent on the Toronto Stock Exchange to C$24.14.
"If you look at the headline numbers there was a slight miss relative to market consensus but look at it more from an operating perspective and the big picture is this was a good quarter," said Lanny Pendill, senior energy analyst at Edward Jones.
After years of weak profits caused by its reliance on natural gas, Encana Chief Executive Doug Suttles has moved to rapidly boost oil production.
The company acquired properties in the booming Eagle Ford shale oil play in south Texas earlier this year, where it will have four drilling rigs by the end of 2014, and is also boosting production in areas such as the liquids-rich Montney in Canada.
Encana is paying for its oil acquisitions by selling gas fields as it concentrates its operations on six oil and natural-gas liquids-rich regions.
In June, the company said it would sell its Bighorn gas properties in Alberta and in March, it sold off properties in Wyoming's Jonah natural gas field.
In May, it completed the spinoff of PrairieSky Royalty Ltd , which holds the company's wholly owned lands in Western Canada, through an initial public offering.
Suttles declined to comment on speculation that Encana may sell its Deep Panuke natural gas project off Nova Scotia's Atlantic coast by the end of 2014.
Despite Encana's strategy of shifting towards more oil production, the company is not exiting the gas business completely, he added.
"We have some real high quality gas assets in our portfolio. But today under today's market conditions, we don't think is the time to invest into those," Suttles said, pointing to the Haynesville gas play in the southern United States.
Operating profit, which excludes one-time items, fell to $171 million, or 23 cents per share, in the second quarter, from $247 million, or 34 cents per share, a year earlier.
Analysts on average had expected the company to earn 24 cents per share, according to Thomson Reuters I/B/E/S.
Encana said net income attributable to shareholders fell to $271 million from $730 million a year earlier.
Output of oil and natural gas liquids rose 43 percent to average 68,200 barrels per day (bpd) in the quarter. Natural gas production fell 8 percent to 2.54 billion cubic feet per day.
The company raised its 2014 total liquids production forecast to 86,000 to 91,000 bpd from 68,000 to 73,000 bpd.
Encana's cash flow, a key indicator of its ability to pay for new projects and drilling, fell to $656 million, or 89 cents per share, from $665 million, or 90 cents per share. (Additional reporting Ashutosh Pandey in Bangalore; Editing by Savio D'Souza and Marguerita Choy)