The acquisition will boost Rosneft's share of Russian oil production to more than 40%, making it the largest publicly traded oil producer in the world, with daily output of about 4 billion barrels of oil, up from 2.3 billion.

"This is a good, large deal that is necessary not only for the Russian energy sector but also the entire economy," Russian President Vladimir Putin said on Monday at a meeting with Rosneft CEO Igor Sechin to announce the deal.

BP will first sell its 50% stake in TNK-BP, which owns 95% of the listed TNK-BP Holding, to Rosneft for about $26.8 billion, including $17.1 billion in cash and a 12.84% Rosneft stake. Once that is completed, AAR, an investment vehicle controlled by four Russian-born billionaires, will then sell its half-share of TNK-BP to Rosneft for $28 billion in cash.

Rosneft said the deals remained subject to negotiation and approval from the Russian government. It also noted that they were independent of each other. BP and Rosneft have entered into a 90-day exclusivity period as they work toward a definitive sale and purchase agreement, the companies said on Monday.

"TNK-BP has been a good investment and we are now laying a new foundation for our work in Russia," BP chairman Carl-Henric Svanberg said in a statement.

London-based BP said it would use $4.8 billion of the cash from the sale to buy a further 5.66% of Rosneft, taking its stake in Russia's largest oil company to 19.75%, including 1.25% it holds already. BP's initial 12.84% stake will come from Rosneft shares held in treasury, while it will pay $8 per share for the remaining 5.66% stake, which is currently owned by Rosneft parent OAO Rosneftegaz.

Analysts at Tudor, Pickering, Holt & Co. Securities wrote in a report Monday that on first take, the BP deal represents a "fair price" and offers "good alignment" with the Russian government. But they noted it's ultimately questionable for BP's cash flow balance.

RBC Capital Markets LLC's Peter Hutton wrote that although the cash component payable to BP lagged his firm's expectations by $2.7 billion, "we believe that the market will temper any marginal disappointment on exact cash terms with recognition that lower cash converts to a level of ownership in Rosneft which allows recognition of production and reserves, and relief that the deal has been largely completed."

BP and AAR are owed about $2.5 billion of dividends from TNK-BP. The cash will not be paid prior to Rosneft's acquisition of TNK-BP after BP opted to block the release of the funds from the venture. That means that the cash proceeds from the two deals are actually $26.75 billion for AAR and $15.85 billion for BP, falling to $11.05 billion for BP after its acquisition of Rosneft stock.

Based on a deal value of $54.8 billion, Rosneft's acquisition ranks among oil-industry deals as second only to Exxon Corp.'s near-$80 billion takeover of Mobil Corp., which created Exxon Mobil Corp. in 1998, and ahead of BP's $48 billion acquisition of Amoco in the same year.

BP's intention -- and ability -- to sell its stake in TNK-BP had been thrown into doubt last week after it emerged that AAR had struck a $28 billion deal to sell its own 50% stake in TNK-BP to Rosneft. It was the breakdown of the relationship between AAR and BP that pushed the London company to put its stake in the venture on the block in June.

BP's 19.75% stake will make it Rosneft's No. 2 shareholder behind the Russian state. About 15% of Rosneft is in free float. BP will gain two seats on the Rosneft board.

BP's deal disappointed some investors by failing to include any specific exploration partnership. "They are taking a big risk that Rosneft is going to listen to them and presumably treat them as a preferred bidder in future prospecting projects," said one fund manager.

BP and Rosneft last year tried and failed to execute a share swap that was to underpin a joint venture to explore for oil in the Russian Arctic. That deal was blocked by AAR, which won a court case arguing that BP had to conduct all its Russian operations through TNK-BP.

TNK-BP, which operates upstream assets in Siberia and the Volga Ural area of Russia, made net profit of about $9 billion in 2011 and has about 13.8 billion barrels of proven reserves.

BP's stake in TNK-BP has a book value of $10.7 billion.

The U.K. company said it would use the cash from the deal to "at minimum" offset the loss of earnings per share that will result from the sale of TNK-BP. The Russian joint venture paid BP $4.1 billion in dividends in 2011.

BP has had a long relationship with Rosneft, including an alliance that started in 1998 to explore the Russian continental shelf off Sakhalin. Rosneft and BP are 50/50 owners of German refining joint venture Ruhr Oel GmbH.

BP took financial advice from UBS AG's Hew Glyn Davies and Anna Richardson Brown; Morgan Stanley; Goldman Sachs International's Anthony Gutman and Andrew Fry; Lambert Energy Advisory Ltd.; and Renaissance Capital's Stephen Jennings, John Hyman, Alexander Merzlenko, Vladimir Rusinov, Denis Khromov, Andrey Andreev, Deni Digaev, David Christie and Haydn Main. Credit Suisse AG provided a fairness opinion to BP's board. Linklaters LLP's Stephen Griffin, Michael Bennett and Jeremy Parr provided BP's legal counsel.

Rosneft took financial advice from Bank of America Merrill Lynch's Craig Kennedy, Anya Weaving and Dmitri Veremeev as well as Citigroup Global Markets Inc.'s Alberto Verme, Slava Slavinskiy and Wilhelm Schulz. Cleary Gottlieb Steen & Hamilton LLP partners Russel Pollack, Daniel Braverman, Antoine Winckler and Murat Akuyev led the team providing legal advice.

BP shares closed Monday in London at 458 pence, up 7.6 pence, or 1.7%, valuing the equity at £87.3 billion ($139.6 billion). Shares in Rosneft closed at $7.06, up $0.135, or 2%, equating to a market capitalization of about $75 billion.

-- Claire Poole contributed to this report.