The Russian government now controls the world's largest oil company.
Rosneft is set to pay BP a mix of $17.1 billion and shares representing 12.84 percent of Rosneft, in exchange for the British oil company's 50 percent stake in TNK-BP. BP also plans to use $4.8 billion to acquire a further 5.66 percent stake in Rosneft from the Russian government.
Rosneft will pay $28 billion for the other half of TNK-BP, currently owned by the AAR consortium, a group of Soviet-born billionaires.
According to Reuters, the terms give Rosneft control of nearly half of Russia's oil output and establishes the state-owned corporation (which has ties to President Vladimir Putin) as the world's largest oil company.
“Rosneft’s acquisition of a strategic stake in TNK-BP would be a major step in expanding the core business of Rosneft," said Igor SechinIgor Sechin, President of Rosneft, in a statement, "and would be a value creating investment for our shareholders given the significant production growth and synergy potential."
The move is in line with President Putin's assertion of state control over oil production in the country since the sector was privatized in 1999.
"This is a good, big deal, not only for the Russian energy sector, but also for the Russian economy," President Putin said Monday, according to Russian news agency Interfax.
The deal marks the end of a testy relationship between BP and AAR. [In June, BP announced plans to sell its half of the venture with Rosneft.
BP aimed to paint the deal as an expansion of the oil and gas company's investments in Russia.
"Our involvement has moved with the times," said BP's chairman Carl-Henric Svanberg, in a statement. "TNK-BP has been a good investment and we are now laying a new foundation for our work in Russia."
Upon completion of the transaction, BP expects to hold 19.75 percent of Rosneft shares and have two seats on its nine person main board.