Under the deal, all of Woolworths' 527 petrol/convenience store sites will be sold to BP, along with an additional 16 sites now earmarked for development.
The supermarket's four-cent-a-litre discount offer and rewards programs will be expanded to some BP stations, giving motorists more places to get cheaper petrol and collect points for airline tickets.
"The release of $1.785 billion from the sale will be used to strengthen our balance sheet and reinvest in our core businesses", Woolworths chief executive Brad Banducci said in a statement to the stock exchange.
The deal is subject to approval from the Australian Competition & Consumer Commission (ACCC).
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.
Filling your tank at a BP service station next year may provide the option of earning Qantas or Virgin Australia frequent flyer points at the pump, following BP's $1.8 billion purchase of the Woolworths/Caltex chain.
Another win is that the current Woolworths/Caltex outlets now don't let you earn Woolworths Point at the service stations' Star Mart and Star Shop retail stores.
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'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, ' he told the Australian Securities Exchange.
Regardless, a key component of the deal will see the preservation of Woolworths' precious fuel discount docket scheme.
BP has previously struck deals with retailers including Marks & Spencer Plc in the United Kingdom and REWE in Germany.
Caltex Australia chief executive Julian Segal said in a statement he was "disappointed" that his company's supply arrangement with Woolworths would end.
Caltex Australia had also made a confidential offer to Woolworths for its fuel business.
Woolworths knocked back an offer from Caltex to buy their service stations.