BP has agreed a peace deal with the Russian investors with whom it has been at loggerheads that could ensure the survival of the company's key joint venture and help the country win more foreign investment.

The oil giant said it had signed a memorandum of understanding (MOU) with the Alpha Access-Renova vehicle, owned by billionaires including Mikhail Fridman, under which BP will retain its 50% stake in the venture. In addition to being a vital source of output for BP, this is one of the biggest foreign investments in Russia.

In a deal negotiated by Tony Hayward, BP's chief executive, the company has agreed to sacrifice Robert Dudley, head of the venture, who will be replaced by a Russian-speaking executive. BP has also agreed to allow the venture partners to get some cash out of the business, subject to the agreement of Russian authorities.

The concessions may be a price worth paying to help end months of acrimony, during which BP has faced a series of obstacles. In July Dudley quit Russia following what BP's chairman Peter Sutherland described as sustained harassment.

In the same month Hayward warned BP would "not be intimidated by strong arm tactics" and accused the firm's Russian partners of wanting to tear up the agreement that founded TNK-BP in 2003. He said that BP would "vigorously defend" its rights using "all legal means" at its dis- posal, in what appeared to have become a battle for control of the business.

Alpha Access-Renova's owners made it clear they thought BP was running TNK-BP chiefly for its own benefit, Fridman complaining of BP's "arrogance" and "condescension".

The terms of the agreement with Alpha Access-Renova have still to be finalised in negotiations that BP said would take months to complete.

However, following a long period in which steadily escalating tension between the parties sparked fears that BP could end up losing at least some of its stake in TNK-BP, Hayward appeared very pleased to have reached an agreement in principle yesterday.

"We've made some modest adjustments to give the company a little more freedom," he said.

"I now look forward to the fruitful conclusion of negotiations so that we can rebuild trust with AAR and resume our record of success for the benefit of all parties."

While BP's bosses have carefully discounted speculation that the Kremlin had any hand in the company's difficulties, Sutherland said the government would be one of the main winners of the deal.

"(The MOU) will create a stable base from which to grow the joint venture to the benefit of everyone involved, including the Russian state, for which strong capital investment and continued technical innovation to boost declining output are so important."

A senior figure close to Russia's president, Dmitry Medvedev, seemed to agree.

"This resolution will benefit the shareholders, the com- pany itself and naturally Russia as a whole," said Arkady Dvorkovich, economics advisor to the president.

"The resolution will undoubtedly have a favourable influence on Russia's investment climate."

Under the MOU, the TNK-BP board will be restructured so that BP and Alpha Access-Renova nominate four directors each, with three new independent directors holding the balance.

Dudley will step down before the end of the year. BP will nominate a Russian-speaking replacement with extensive experience in the country.

BP said: "The CEO will be explicitly incentivised to focus on further improving transparency, financial returns and the market value of the company's shares."

The agreement includes an option to float up to 20% of TNK-BP on inter- national financial markets "at an appropriate future point, subject to the consent of the Russian authorities".

Richard Griffith, an analyst at brokerage Evolution Secur-ities, said the deal offered a much better outcome for BP than the market had been expecting.