The main reasons are plunging crude prices and a $700 million hit on TNK-BP
The loss was $3.3 billion, or 18 cents a share, compared with net income of $4.4 billion, or 23 cents, a year earlier.
Excluding one-time items and gains or losses from inventories, earnings missed analyst estimates.
Oil prices plunged in the fourth quarter, but the increase to a peak above $147 per barrel in July ensured record annual results for BP.
The results include a loss of $700 million from the company's 50-50 joint venture TNK-BP, related to the effect of lagged tax charges, lower oil prices and asset impairment charges.
BP also said it did not book east Siberia-based Kovykta gas resources this year after talks with Gazprom on the sale of the asset stalled.
New oil and gas discoveries will help BP achieve a resource-to-production replacement ratio of more than 200 percent and reserves replacement of over 100 percent as of the end of 2008, BP chief executive Tony Hayward said.
"We don't have any resources, or indeed reserves, obviously booked for Kovykta currently," Hayward said on a conference call. The company included Kovykta resources in its calculations for 2007, he said.
Gazprom reached an initial sale agreement with TNK-BP in June 2007 after environmental regulators threatened to withdraw the license for Kovykta. The field has enough gas reserves to supply Asia for five years.
Hayward also said Western oil majors could merge with state-owned oil companies but dismissed mergers between the majors themselves, saying the logic wasn't "terribly compelling."