BP slumped to a 969 million US dollar (£645m) loss in the final quarter of 2014 as boss Bob Dudley said the company faced a “challenging phase of low oil prices”.
Mr Dudley said the focus was on “resetting” BP for the new reality of lower prices as he slashed investment plans for 2015 by as much as 6 billion US dollars (£4bn).
The replacement cost loss compares with a profit of 1.51 billion US dollars (£1bn) for the same period last year.
On an underlying basis, BP’s replacement cost profit for the final three months of 2014 was 2.24 billion US dollars (£1.49bn).
But this was dragged down by a 3.6 billion US dollar (£2.4bn) charge to account for factors including the “near-term lower oil price environment”.
The price of a barrel of Brent crude has slumped by more than half since last summer and fell to nearly 45 US dollars last month though it has seen a partial rebound in recent days to 55 US dollars.
Mr Dudley said: “We have now entered a new and challenging phase of low oil prices through the near and medium term.
“Our focus must now be on resetting BP: managing and rebalancing our capital programme and cost base for the new reality of lower prices while always maintaining safe, reliable and efficient operations.”
Annual replacement cost profit for 2014 was down 66 per cent to 8.07 billion US dollars (£5.37bn), while on an underlying basis it was down 10 per cent to 12.14 billion US dollars (£8.08 bn).
Despite the loss for the latest period, the oil giant - a mainstay of UK pension funds - announced a quarterly dividend of 10 cents (6.7p) per share, to be paid in March.
Mr Dudley said: “Throughout the work to reset BP, the dividend remains the first priority within our financial framework.”
The company said it was “now taking action to respond to the likelihood of oil prices remaining low into the medium term”.
Shares responded positively, climbing on opening.
BP said it planned to reduce spending on exploration and postpone projects in its upstream business - which includes oil and natural gas field development, production, storage and processing.
It will also mothball some projects in its downstream operations - the part of the business that includes refineries and manufacturing as well as fuel marketing and global oil supply.
As a result capital expenditure will total 20 billion US dollars (£13bn) this year, a fifth lower than previous guidance of 24-26 billion US dollars (£16-17bn), the group said.
BP also said it would continue its divestments, of which it has agreed 4.7 billion (£3.1bn) since 2013, with the total expected to double to 10 billion US dollars (£6.7bn) by the end of 2015.
It added that total cash costs for last year fell by more than 1 billion US dollars (£670m) and it was “in action to deliver further efficiencies in 2015”.
The company, which employs 15,000 people in the UK, said last month that it would cut 300 North Sea jobs following a review of its operations.
BP’s results come a day after US rival Exxon Mobile said fourth quarter earnings fell by 21 per cent due to the sharp slump in oil prices.