BP and Woolworths also signed an agreement to continue a fuel voucher scheme where both companies will jointly trial a convenience business at 200 of the fuel stations.
The deal will include 527 Woolworths-owned petrol stations and 16 committed development sites.
The sale is still subject to regulatory approvals from the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board (FIRB).
Apart from this, an improved convenience store offering is said to be developed though the partnership by the combination of Woolworth's expertise in grocery and BP's global know-how in developing convenience offerings.
The Woolworths fuel business has annual revenue of $4.6 billion and earned a pretax profit of $117 million last financial year.
The deal will also extend the Woolworths Rewards program and reward customers for loyalty and support.
The deal with BP involves all 527 Woolworths outlets and is expected to take up to 12 months to finalise, Woolworths said.
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The fuel sold at Woolworths' petrol stations is now supplied by Caltex Australia, which also bid for the business.
BP will also retain Woolies' 4c per litre fuel discount at the Woolworths fuel outlets "and expand this offer to additional BP sites".
At the start of December, BP announced that it would inject nearly 1 billion United States dollars (£800 million) to explore the Tortue gas field off the coasts of Mauritania and Senegal.
Woolworths CEO Brad Banducci says the deal is a win for Woolworths customers and shareholders.
For our shareholders, once the Strategic Partnership is established, it will result in Woolworths having a larger platform for our redemption and reward program, as well as providing us with a unique opportunity to partner with and draw on BP's success in rolling out market-leading convenience food offers globally.
So yesterday Woolworths announced that it is going to sell its entire petrol retailing operation to fuel giant BP.
The move follows the success of BP's Simply Food forecourt chain in the United Kingdom, which it runs with Marks & Spencer.