The deal will allow Rosneft, already the country's top oil producer, to increase its global profile. The new combined company will leapfrog ExxonMobil Corp. to become the world's largest publicly traded producer of oil and gas, in terms of output. ExxonMobil's latest earnings show its daily output at 4.2 million barrels of oil, below the expanded Rosneft's projected 4.6 million.

As part of the deal, BP succeeds in unloading its stake in a troublesome joint-venture. In return, it gets $17.1 billion in cash from Rosneft and a 12.84 percent stake in Russia's biggest oil company. The British company is also planning to use some of the money it's reaped from the sale to raise its stake in Rosneft to 19.75 percent. BP will also get two seats on the Russian company's nine-member board.

In a parallel development, Rosneft said it had agreed to buy the other 50 percent in the joint venture from AAR, for $28 billion, and that the deal was "entirely independent of the transaction with BP." AAR confirmed that a memorandum of understanding has been signed, but added that it is still subject to other conditions.

Rosneft, formed in 1993 out of the former Soviet state oil and gas authority, is currently 75 percent owned by the government. The remaining shares are either traded publicly on the Russian stock market or owned by the company and its managers. It is not yet clear how much of Rosneft's existing shares BP will take or if the Russian company will have to issue new stock to seal the deal.

Rosneft CEO Igor Sechin broke the news about the deal Monday afternoon to President Vladimir Putin, telling him that the deal would be worth about $61 billion.

"This is a good big deal, which is important not only for Russia's energy sector but for the entire Russian economy," Putin said in remarks carried by Russian television.

Sechin told Russian news agencies following his meeting with Putin that Rosneft would probably use loans from foreign banks as well as funds raised from the sale of non-core assets to pay for TNK-BP. Rosneft should expect to take over TNK-BP entirely within the next six months, he said.

Russia is an important part of BP's business, accounting for a quarter of its oil production. BP Chief Executive Bob Dudley has looked to the country's vast oil resources as a key ingredient to the company's recovery from the disastrous oil spill in the Gulf of Mexico.

The TNK-BP joint venture has been troublesome -- albeit lucrative -- for BP. Dudley served as TNK-BP's chief executive until summer 2008 when he was forced to leave Russia after being denied a visa. Dudley and TNK-BP's Russian billionaire shareholders have had serious disagreements over the company's long-term strategy and Dudley subsequently complained that the Russian shareholders were behind a campaign of harassment.

In 2011, relations worsened when BP tried to strike a separate partnership with Rosneft to explore for oil beneath the Arctic Ocean. AAR subsequently sued and got the deal blocked, alarming BP investors.

Dudley said in the statement Monday that "BP intends to be a long-term investor in Rosneft -- an investment which I believe will deliver value for our shareholders over the next decade and beyond."

Ildar Davletshin, an oil and gas analyst at Renaissance Capital, said the deal "strategically looks very positive for BP," which has replaced "a private partner for a strategic national company which has much bigger access to resources in Russia and has much bigger political support in this country."

Davletshin added that Rosneft will more likely be run "in the interests of shareholders" rather than serving the Kremlin's political agenda since BP will have two board members. Rosneft has been involved in an array of overseas projects largely viewed as unprofitable but designed to prop up the Kremlin's foreign policy.

Sechin sounded optimistic about their tie-up with BP, saying that his company "would benefit from BP's experience and its track record of implementing best international practices in Russia."

Rosneft shares jumped more than 3 percent on the announcement but rolled back to trade only 1.6 percent higher at 218 rubles per share.

BP shares were up 0.57 percent to 453 pence following the announcement.

Ratings agency Fitch last week warned Rosneft of a possible rating downgrade because of the TNK-BP deal. Fitch said the Russian company should have no problems raising the money to pay for 50 percent, but said the purchase of the other 50 percent could require so much borrowing that it could lead to a downgrade.

Barr reported from London; Laura Mills contributed to this report from Moscow.