(Updated with details from BP's press release announcing the joint venture.)

NEW YORK ( TheStreet) -- BP ( BP) and the Russian oil giant Rosneft will form a joint venture to explore for petroleum in the Siberian Arctic.

BP chief Bob Dudley announced the deal in London Friday evening after meeting with Russian Prime Minister Vladimir Putin earlier in the day in Moscow.

Under the deal's terms, Rosneft will hold a 5% stake in BP's ordinary shares, while the U.K. oil giant will own 9.5% of the state-controlled Rosneft. BP will issue 988.7 million shares to its partner, worth about $7.8 billion as of the close of trading in London on Friday, the company said in a press release.

"This historic agreement creates the first major equity-linked partnership between a national and international oil company," BP said.

BP, troubled financially in the wake of the Gulf oil spill, already owns 1% of Rosneft. It used the stake as collateral for an emergency loan from the Russian company in the midst of the Deepwater Horizon crisis.

The joint venture will explore about 125,000 square kilometers in the South Kara Sea, part of the Arctic Ocean off the northern coast of Siberia.

In his prepared statement, Dudley touted the deal as "a new type of relationship" that would bring together "technology, exploration and safe and responsible field development skills."

On the New York Stock Exchange Friday, BP shares closed at $49.25, up $1.71, or 3.6%. Trading was frantic as word of a potential deal emerged during the session. Volume approached 35 million shares, almost quadruple the daily average turnover in the name.

-- Written by Scott Eden in New York

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