Embattled retailer Woolworths said Wednesday it has decided to sell to BP, after negotiations dragged on for several months. Caltex, the current supplier to Woolworths petrol stations, was the underbidder and it will see its share of the market shrink with the sale.

"We obviously want the ACCC to look at this deal from a competition perspective," NRMA spokesman Peter Khoury​ said, pointing out that depending on where you live, competition between petrol retailers can be limited.

The competition watchdog, the Australian Competition and Consumer Commission, said it will call for submissions on the planned deal before holding a public review.

"We will commence a public review once we receive a submission from the parties," an ACCC spokeswoman said, with any review unlikely to occur before February

The NRMA said it is anxious to ensure competition doesn't decline with any sale to BP, so that households do not end up losing out.

"Our own survey found that four of the 10 cheapest service stations in Sydney were operated by BP franchisees, and we'd be keen to ensure that doesn't change if this deal goes ahead," Mr Khoury said.

The public review by the ACCC is expected to take time to finalise, with speculation it could result in the forced divestiture of some assets. As a result, Woolworths said the deal is unlikely to be approved and completed until early 2018.

Woolworths and Coles each hold an estimated 24 per cent of the national market, with Caltex holding 18 per cent in its own name, ahead of BP's 15 per cent, according to ACCC data. The purchase of the Woolworths outlets would give BP a dominant 39 per cent market share, sparking immediate competition concerns.

Caltex said it was disappointed to have missed out, while pointing out the share of the market held by Woolworths and Coles has been dwindling in recent years. Both Coles and Woolworths have built strong positions in the market thanks to a 4¢ a litre discount offered to shoppers. But the launch of the new Fuelcheck website by the NSW government, for example, has undermined the discount available to shoppers at Coles and Woolworths, the NRMA's Mr Khoury said.

"The shopper docket is largely redundant, especially in NSW,"  he said. "The NSW reforms mean that real-time data is now available, so you can find the cheapest retailer in your neighbourhood."

Often the petrol station offering the 4¢ a litre discount is not the cheapest service station you can find locally, he said.

Along with gaining approval from the ACCC, BP must obtain approval from the Foreign Investment Review Board for the deal to proceed.

Woolworths said the sale will help strengthen its balance sheet after losing supermarket sales to Coles, while its Masters hardware venture is being wound up after it failed to gain traction against Bunnings, which is also owned by Coles. Woolworths needs the cash from selling its petrol stations to reduce debt as it seeks to revive its faltering earnings and shrinks back to its core supermarket and Big W retail offering.

The deal between BP and Woolworths will enable the Woolworths 4¢ a litre discount to be extended to BP outlets, the retailer said, which will lift to 80 per cent from 75 per cent the number of its outlets with a service station nearby. A core part of the deal involves the operation of convenience stores at the service stations, with BP to trial the Woolworths Metro format at its service stations prior to committing to rolling them out across 200 of its petrol stations – a small part of its 1400 outlets across the country.

BP's purchase of all 527 Woolworths petrol stations comes as the industry continues to consolidate following Vitol's purchase of Shell's Victorian refinery and 870 branded petrol stations in 2014, while another global trader, Trafigura, bought the Gull, CCG, Matilda and Neumann Petroleum outlets, which now trade under the Puma Energy brand.

The Woolworths fuel business has annual revenue of $4.6 billion and earned a pre-tax profit of $117 million last financial year. Caltex said it supplies 3.5 billion litres of fuel oil to the Woolworths petrol stations and until the deal with BP is finalised, it will continue to supply the outlets.

Caltex stressed it had exercised "financial discipline" in the offer it lodged to buy the petrol stations. Caltex said it will pursue business opportunities adjacent to its existing fuel sales via its push into convenience retailing, along with product sourcing via its recently established trading arm in Singapore.

Woolworths shares surged 2.5 per cent to $24.44 on the sale with Caltex slipping 1.5 per cent to $30.15 as recent gains were eroded.