RPT-UPDATE 2-Brazil leans toward oil production sharing

(Repeating Friday's report without changes)

* Govt advisers said to favor production-sharing model

* Gabrielli says model better reflects new reality (Adds comments by Petrobras chief, paragraphs 5-9)

By Denise Luna and Brian Ellsworth

RIO DE JANEIRO, May 29 (Reuters) - Brazilian government advisors "strongly support" a production-sharing model to develop massive offshore oil reserves as the country considers revamping its oil law to boost state income from new-found reserves, the energy minister said on Friday.

The administration of President Luiz Inacio Lula da Silva is seeking greater control over oil reserves discovered in 2007 deep under the ocean floor that have built up expectations for Brazil to become a major energy producer and exporter.

"We have consensus on some things. The production-sharing model is one of the proposal that is strongly supported," Edison Lobao told Reuters in Rio de Janeiro.

Under a production-sharing system, the government would own the oil but pay oil companies with part of the proceeds. Under the current system, companies buy concessions in an auction and own the rights to the oil they produce.

Jose Sergio Gabrielli, Chief Executive of Brazilian state-run oil company Petrobras (PETR4.SA)(PBR.N), said in a separate interview production sharing made sense because existing laws are no longer in line with the reality of Brazil's energy sector.

"Brazil's (energy) regulatory structure was created at a time when oil prices were very low, the country did not have access to capital markets, and the deep-water potential was not known," said Gabrielli, one of the advisors on changing the law.

"That system rewarded whoever took on the exploratory risk. But now it is already known that we have oil in certain areas, so you have minimal exploratory risk ... what you have is development risk."

He said oil companies including Petrobras, which participates in auctions along with other foreign and domestic oil companies, would be willing to work under such a system.

Development of the sub-salt area, believed to contain much as 14 billion barrels of oil, involves a range of technical challenges including navigating a thick cap of salt, handling low temperatures and high sub-sea pressures.

Lobao said advisors are expected to present their proposals to Lula in the middle of June, though it will ultimately be Congress that would decide on changes to the oil law.

After the law is approved, he said, Brazil could resume auctions that were suspended after the discovery of the massive Tupi field, believed to contain 5 billion to 8 billion barrels of oil.

"Once the law has been voted on, soon afterward we could hold another round for sub-salt fields," he said, adding the new law could be approved this year.

Analysts caution progress may not be so quick because next year's presidential elections are likely to slow legislative activity.

The Senate is scheduled next week to begin investigating Petrobras for alleged irregularities, including accounting maneuvers to dodge tax payments and political favoritism in use of sponsorship funds. (Editing by Stuart Grudgings, Christian Wiessner and David Gregorio)