BP is to take a near-20% stake in what will become the world's largest publicly listed oil producer as part of a £16.7 billion deal.
State-backed Russian energy firm Rosneft has agreed to buy BP's 50% stake in its troubled TNK-BP joint venture for $17.1 billion (£10.7 billion) in cash and $9.7 billion (£6 billion) worth of Rosneft shares.
The deal, which is subject to state and regulatory approvals, will see BP grab a 19.75% stake in Rosneft, which will become the world's biggest publicly traded oil company with daily crude output of more than three million barrels.
BP chairman Carl-Henric Svanberg hailed the move as "an important day for BP".
BP will reinvest $4.8 billion (£2.9 billion) of the cash received in the deal to buy part of its eventual stake in Rosneft, equal to around 5.66%.
Signing of the definitive agreements is conditional on the Russian government agreeing to the sale of this part of the stake.
BP expects to have two seats on Rosneft's nine-person main board as part of the deal.
BP and Rosneft now have an exclusivity period of 90 days to negotiate fully-termed sale and purchase agreements.
Completion is also subject to certain closing conditions, including governmental, regulatory and anti-trust approvals, which is currently expected to happen in the first half of 2013.
Mr Svanberg continued: "Russia is vital to world energy security and will be increasingly significant in years to come.
"Russia has also been an important country for us over the past 20 years. Our involvement has moved with the times. TNK-BP has been a good investment and we are now laying a new foundation for our work in Russia."
Rosneft and the four Russian billionaires who own the other half of TNK-BP - known as Alfa-Access-Renova (AAR) - have also signed a memorandum of understanding that would see Rosneft acquire their stake at a later date.
BP said it supports Rosneft in its plans to acquire additional equity stakes from other shareholders in TNK-BP.
TNK-BP is Russia's third largest oil producer, which employs around 50,000 staff and has assets across Russia and the Ukraine, and had an average daily production in 2011 of 1.987 million barrels of oil equivalent a day.
BP has had a fraught relationship with AAR, although the TNK-BP venture is thought to have earned the British firm $19 billion (£11.8 billion) in dividends.
A dispute between BP and AAR effectively sank a proposed tie-up between the British supermajor and Rosneft last year, which included Arctic exploration plans.
In 2011, Rosneft produced 2.45 million barrels a day of oil, up 52% since 2006, and its net income totalled $10.8 billion (£6.7 billion).