Oct. 31 (Bloomberg) -- Brazil's Petroleo Brasileiro SA and Cuba's state-run petroleum company have signed an agreement to explore for oil off the communist island's coastline about 100 miles from Key West, Florida.

Brazilian President Luiz Inacio Lula da Silva signed the agreement with his Cuban counterpart, Raul Castro, at a ceremony today in Havana. Petrobras, as the Brazilian company is known, and Cuba Petroleo, or Cupet, will explore Block 37, which begins three kilometers (1.9 miles) from the Carribbean resort town of Varadero and is close to Cuban onshore oil fields.

In September the U.S. allowed a 27-year ban on offshore drilling along much of the U.S. coast, including waters adjacent to Cuba, to lapse. Rio de Janeiro-based Petrobras has been one of the biggest buyers of offshore oil leases in recent years in sections of the U.S. Gulf of Mexico where drilling is allowed.

Petrobras is eyeing Cuba as it aims to focus non-Brazilian operations in the Gulf, Chief Executive Officer Jose Sergio Gabrielli has said in the company's 2008-2012 strategic plan.

Cupet is seeking technology from Petrobras, which produces more than 80 percent of Brazil's oil from offshore fields and holds many deepwater drilling records.

The agreement allows for a seven-year exploration period. If oil is found, production can continue for 25 more years under a shared production arrangement. Cupet has the right to can take sole possession of the finds after reimbursing Petrobras' exploration costs.

The accord is Petrobras' first with Cuba. The initial investment will be $8 million.

To contact the reporter on this story: Joshua Goodman in Rio de Janeiro at jgoodman19@bloomberg.net; Jeb Blount in Rio de Janeiro at jblount@bloomberg.net

Last Updated: October 31, 2008 15:15 EDT