BP said on Monday it was in "advanced" talks to sell its profitable 50-percent stake in Russian joint venture TNK-BP to state giant Rosneft in a deal reportedly worth about $27 billion (20.7 billion euros).
A deal would create a new leading player in the global oil sector with big implications for exploration in the Arctic region.
"BP confirms it is in advanced discussions with Rosneft regarding the sale of its 50-percent interest in TNK-BP," the British oil company said in a brief statement.
"No agreement has yet been reached. A further announcement will be made if and when an agreement is reached."
The Financial Times, citing a person familiar with the matter, reported that the company's board had already approved the cash-and-shares deal.
A transaction could be announced later on Monday following a meeting between Rosneft chief executive Igor Sechin and Russian President Vladimir Putin, the newspaper added.
The deal, which would catapult Rosneft into becoming the world's biggest publicly-traded oil company and second in size only to Saudi Arabia's Aramco, was reportedly worth about $27 billion (20.6 billion).
The Wall Street Journal valued the deal at between $26.6 billion and $28 billion, depending on how calculations are made.
Moscow's Kommersant business daily cited its own sources as saying that the deal, which it also valued at $27 billion, was for $17 billion in cash and a 12.53-percent stake in Rosneft shares.
That would take BP's stake in Rosneft to 14 percent and make it the second-biggest shareholder in Rosneft after the Russian state.
Kommersant added that BP would probably be awarded one seat on the Rosneft board.
The sale would end BP's profitable but fraught tie-up with TNK-BP, which has provided $19 billion in dividend payments since the joint venture was set up in 2003.
Following the deal, Rosneft's daily crude output will surge to more than three million barrels a day -- which is far more than current leader ExxonMobil's production of 2.3 million barrels.
Rosneft is expected to follow up the sale with a potential $29-billion buyout of the four ex-Soviet billionaires who own the remaining half of TNK-BP, bringing Russian state control to over 40 percent of the nation's oil output.
The deal should relieve tensions at one of Russia's most profitable oil companies -- a venture BP launched in 2003 to expand its presence in a country with the world's biggest oil and natural gas output.
TNK-BP has generated tens of billions of dollars and was responsible for more than a quarter of BP's crude output last year.
However, tensions reached breaking point over BP's efforts early in 2011 to strike a separate Arctic oil tie-up with Rosneft.
That Arctic deal was blocked by the Soviet billionaires in a shock move which only worsened their relations with both Rosneft and BP still further.
In early trading on Monday, BP's share price fell 0.46 percent to 448.35 pence on London's FTSE 100 index of leading companies, which was down 0.21 percent at 5,884.33 points.