Lula wants oil for Petrobras deal at $10 -paper

* Lula wants a price close to ANP's $10-12 range

* Valuation process key to determining stock offer size

BRASILIA Aug 28 (Reuters) - Brazilian President Luiz Inacio Lula da Silva wants the government to charge oil giant Petrobras around $10 for each barrel of oil to be used in an oil-for-shares swap linked with a massive stock offering, Folha de S.Paulo reported on Saturday.

A person involved in the negotiations told Folha the government would set the price closer to the range defended by the oil and energy industry regulatory agency ANP -- between $10 and $12 a barrel.

That is much higher than the $5 to $6 that both Petrobras (PETR4.SA) (PBR.N) and analysts see as fair given the uncertainties of operating in the relatively untested deep waters. The valuation of the oil is a crucial step to calculate the size of a capital injection program for Petrobras.

Under the oil-for-shares capital program, the government will give Petrobras access to up to 5 billion barrels of offshore oil in exchange for shares in the company, while minority shareholders will buy stock to retain their stakes.

The newspaper said a higher price for the oil could allow the government to increase its stake in Petrobras after the capitalization. If the oil-for-shares swap is bigger than investors have estimated then minority shareholders would have to inject more money into the company to avert heavy dilution, Folha said.

The Rio de Janeiro-based company expects to sell up to $25 billion of new shares to stockholders by September and complete the oil-for-shares swap which the government estimates at up to $50 billion before the Oct. 3 presidential election.

ANP and Petrobras have been at odds about the price, because the government is obliged by law to maximize the price of the resources to benefit the country's citizens who own below-ground natural resources.

For Petrobras, which needs cash and the oil to undertake an ambitious plan to tap billions of barrels of oil in deep-sea ocean waters, a price higher than $6 could make the venture costly and risky. (Reporting by Ana Nicolaci da Costa)