UPDATE 2-Petrobras 3rd quarter profits slump 5.6 pct

* Petrobras revenues slump 5.6 pct quarter on quarter

* Tax and lower fuel prices offset higher revenues (Adds background, comment from CEO, details about tax dispute settlement, currency impact, paragraphs 2-4, 11)

By Brian Ellsworth and Denise Luna

SAO PAULO/RIO DE JANEIRO, Nov 13 (Reuters) - Brazil's state oil company Petrobras' third quarter profits slumped 5.6 percent quarter-on-quarter as lower fuel prices and a tax provision offset the benefit of higher oil prices.

The results largely reflect Petrobras's (PETR4.SA) (PBR.N) June reduction in its domestic prices for gasoline and diesel.

The company also agreed to pay the government 2.05 billion reais to settle a dispute over taxes on production from the Marlim field, which had an after-tax effect of 1.15 billion reais.

"Given the settlement for Marlim, the results are very positive and reflect an increasing production and the maintenance of operational costs," said Petrobras CEO Almir Barbassa.

Petrobras said net earnings were 7.30 billion reais ($4.24 billion) compared with 7.73 billion reais in the second quarter.

Earnings before interest, taxes, depreciation and amortization, a measure of cash flow known as EBITDA, were 13.99 billion reais compared with 17.51 billion reais the previous quarter.

Seven analysts polled by Reuters had forecast on average that earnings would slump 9.2 percent quarter-on-quarter to 7.02 billion reais.

Oil and gas production in the quarter was 2.53 million barrels per day of oil equivalent, roughly the same as the previous quarter, but up 4 percent from the same period a year earlier.

Revenues rose to 47.88 billion reais from 44.61 the previous quarter, driven by a 15 percent increase in oil prices.

Third-quarter investments were 18.18 billion reais, nearly equal to the second quarter.

A strengthening real currency, which rallied around 11 percent during the quarter, helped trim the cost of servicing a dollar-denominated loan with the state-run bank.

The company hopes to turn Brazil into a major energy exporter by developing subsalt reserves discovered in 2007 that are believed to contain billions of barrels of crude.

It intends to invest $174 billion through 2013 as part of broad plan that includes developing the little-explored Santos Basin that holds the massive Tupi field.

New subsalt exploration has been halted as the government prepares an overhaul of existing oil legislation expected to boost Petrobras' role in offshore development and give the state a greater percentage of revenues. ($1=1.722 reais) (Editing by David Gregorio)