BP disappointed analysts on Tuesday morning, reporting lower-than-expected net income in the fourth quarter and annual earnings that dipped to at least a 10-year low. Its shares were down by 2.4 percent in early trade.

The oil giant said underlying replacement cost profit, which it uses to measure net income, was $400 million for the quarter, an improvement from a year ago, but below the $560 million that analysts polled by Reuters were expecting.

Replacement cost profit is a common accounting measure to report profits in the oil industry which takes into account the fluctuations in the price of oil. For the year, this measure came in at $2.59 billion, which was down from $5.9 billion in 2015. Reuters reported that this metric had hit its lowest in at least 10 years in 2016.

The improved figures from a year ago were due to higher oil prices and significantly lower costs. BP added that it is prepared for any volatility that may affect oil prices in the future.

"We have adapted by cutting our controllable cash costs by $7 billion from 2014 - a full year earlier than planned. Continued tight discipline on costs remains essential," Bob Dudley, BP group chief executive, said in the accompanying press release.

"With our Deepwater Horizon financial liabilities now substantially behind us, BP is fully focused on the future," he added.