NORTH Sea engineering giant Amec Foster Wheeler has slashed its dividend and said it expects profit margins to fall as the company prepares for what it expects will be a long downturn in oil and gas markets.

Amec, which employs around 5,000 people in the North Sea on work like running offshore platforms, highlighted challenging trading conditions for services firms as oil and gas companies cut activity in response to the crude price slump.

In an update on recent trading, chief executive Samir Brikho said: “For more than a year - across many parts of our business - we have seen customers reducing capital expenditure and putting more pricing pressure on the supply chain. We see no sign of these trends changing.”

He added: “We are managing the business on the assumption of an extended period of weakness.”

Shares in the company plunged 23 per cent following the update, which appeared to rattle investors.

With the London-based company promising to increase its focus on growth areas and intensify cost cutting the update will likely provoke concern in the North Sea.

In its interim results announcement in August Amec noted that revenues fell in the North Sea in the first half.

Chief financial officer Ian McHoul said then that workers numbers in the North Sea had fallen by about five per cent since January.

Amec’s experience highlights the toll that the downturn triggered by the fall in the crude price since June last year has taken on the North Sea.

The basin contains many ageing fields and operating costs spiralled during the boom that ended last year, as supplies started running well ahead of demand.

Brent crude has fallen from $115per barrel in June last year to around $50/bbl.

Oil and gas firms have shed 5,500 jobs in the UK so far this year in response. Oil and Gas UK has warned more losses are likely and said firms must become sustainable in a $60per barrel world.

In September the trade body launched a task force charged with making the industry more competitive, led by John Pearson, head of Amec Foster Wheeler’s operations in Northern Europe and Russia.

The group was created through the £2bn takeover of America’s Foster Wheeler by Amec in November last year.

It is also active in areas such as electricity network maintenance and renewable energy and has offices in Aberdeen, Glasgow and Edinburgh.

The company said it was reviewing low-growth parts of its business with a view to driving an underlying improvement or exiting them. It declined to identify which businesses or markets were under review.

In August directors said the firm had a good pipeline of oil and gas and clean energy projects in the Middle East and Africa.

The company said yesterday it would recommend a final 2015 dividend of 14.2 pence, half the amount it paid a year earlier.

With oil prices set to remain "lower for even longer", Mr McHoul said the company would have been unable to generate enough cash to cover its previous dividend.

"We would have to borrow to cover the (previous) dividend each year," he told Reuters. "That is unsustainable."

McHoul said he expected the dividend cut to save Amec about £85 million pounds a year.

Amec said it expected second-half margins to be lower than in the first half of the year.

The company also raised its cost-savings target by $55m (£36m) to $180m by 2017, having identified additional savings from general expenses and support functions.

Shares in Amec Foster Wheeler closed down 23 per cent, 173p, at 574p.