* Expects $7 billion signature bond from Libra auction
* Firms must offer Brazil 40 pct of Libra profit oil -CNPE
* Libra's oil output seen at more than 1 mln bpd, may startin 5 years
* OGX is qualified to bid
SINGAPORE/RIO DE JANEIRO, July 4 (Reuters) - Brazil expectsan upfront payment of at least 15 billion reais ($7 billion)from the winner of the October auction for rights to developLibra, the country's largest-ever oil discovery, the governmentsaid on Thursday.
The sale, Brazil's first under the production-sharingcontract (PSC) model, requires the winner to give at least 40percent of Libra's output after expenses to the government tosell on its own account, the Energy Planning Council (CNPE)said.
Under the model, initial oil output is credited againstinvestors' exploration and development costs. Once those costsare paid, the "profit oil" is shared between investors and thegovernment.
The profit oil calculation will take into account theupfront signing bonus of the multiple platforms, productionsystems expected for the area, and Libra's cash flow over theduration of the PSC, the CNPE said in the government's OfficialGazette.
President Dilma Rousseff hopes to use profits from theauction to fund education and health initiatives in Brazil,where a new middle class took to the streets last month in thelargest national protest in 20 years to demand better publicservices.
LOCAL CONTENT
The auction requires at least 37 percent of local goods andservices during the exploration stage and 55 to 59 percent inthe development phase, the CNPE said.
Brazil has required foreign firms to buy a certain amount oftheir equipment locally on a number of occasions to protectlocal industry, causing the cost of developing oil assets inBrazil to rise above world market levels.
Under a 2010 law, in the sale of Libra and other unleasedareas in Brazil's Subsalt Polygon, state-run Petroleo BrasileiroSA, or Petrobras, has to be the operator and put up30 percent of all investment, even if it is not part of thewinning bid group.
Libra, with an estimated 12 billion barrels of recoverableoil, or enough to meet 1-1/2 years of U.S. demand, is theworld's biggest prospect to be put up for auction.
Production is expected to begin in five years. The $7billion compares with the $4.6 billion Brazil had consideredearlier.
Brazil expects more than 1 million barrels per day (bpd) ofoil out of Libra, said Magda Chambriard, director-general ofBrazil's National Agency for Petroleum, Natural Gas and Biofuels(ANP), on the sidelines of an industry conference in Singaporeon Thursday.
That would be enough to supply all of Australia's oil needsat 2012 consumption levels. If the Libra area were a country, itwould be the 20th largest oil producer, according to data fromReuters and BP Plc.
Chambriard was in Singapore to promote the auctions ofBrazil's pre-salt oil and onshore natural gas reserve areas.
The Subsalt Polygon is an offshore area half the size ofItaly. It covers oil provinces that produce more than 80 percentof Brazil's output and may contain as much as 100 billionbarrels of oil, according to Rio de Janeiro State University.
The area gets its name from giant discoveries made startingin 2007 below a layer of salt, deep beneath the seabed. Mostcurrent output and much of the remaining potential now liesabove the salt layer.
OGX QUALIFIES
Chambriard also said Brazilian billionaire Eike Batista'sflagship oil company OGX Petroleo e Gas SA hasqualified to participate in the October auction.
"They fulfill the requirements we have and that is enough,"Chambriard said, without providing further details.
OGX on Monday slashed capital spending and pulled the plugon three offshore oil prospects as it continues to struggle toturn promising offshore discoveries into producing fields.
Once Brazil's second-largest oil company by market value anda symbol of the country's stalling, decade-long commoditiesboom, OGX shares are trading at less than 3 percent of theirall-time high.
Brazil held its first oil auction in nearly five years inMay and received serious interest from private investors inhigh-risk frontier regions with little or no oil output.
André Araújo, president of Royal Dutch Shell inBrazil, said his firm was still waiting for more details on theOctober auction, expected later this month, before decidingwhether or not to participate.
"We are awaiting the draft definition of the contract thatwill be even placed in public hearing," he told reporters at anevent in Rio de Janeiro.
