HAVANA, Oct 31 (Reuters) - Brazilian state-owned oil company Petrobras signed an agreement on Friday to explore for oil in Cuba's still untapped offshore fields, which Cuban energy officials say may hold more than 20 billion barrels of reserves.
Petrobras agreed to make an initial investment of $8 million to begin exploration of the block, just off Cuba's northern coast east of Havana.
The contract gives the Brazilians seven years to explore and 25 years to produce oil and gas in a production-sharing contract with Cuba.
Cuba has divided its offshore area in the Gulf of Mexico into into 59 blocks, about half of of which have been leased to seven companies from around the world -- none of them American due to the U.S. trade embargo against the communist-run island.
Brazil got block 37 near the onshore fields from which Cuba currently produces most of its 60,000 barrels per day of oil.
The fields include onshore wells that use horizontal drilling to draw oil from reservoirs several miles (kilometers) offshore.
Petrobras' block covers 1,600 square kilometers and includes waters 1,640 feet (500 meters) to 5,250 feet (1,600 meters) deep.
Brazilian President Luiz Inacio Lula da Silva and Cuban President Raul Castro attended the signing ceremony in the Cuban capital.
Cuban estimates that its offshore areas hold at least 20 billion barrels of oil are based on comparisons with oil production from similar geological structures in adjacent U.S. and Mexican waters.
Only one test well has been drilled off Cuba's coast, that by a consortium led by Spanish oil company Repsol-YPF, which is expected to drill a second well next year.
(Reporting by Rosa Tania Valdes; editing by Jeff Franks and Patricia Zengerle)