WOOD Group has reported a strong performance by its North Sea business in the first half of the year but highlighted concern about cost increases in the area.

The Aberdeen-based oil services giant said it is seeing good demand in the North Sea, where oil and gas firms are trying to maximise production.

The Wood Group PSN arm which works on existing assets has won a number of significant contract renewals over the last 18 months and a new award from Iona Energy, an oil and gas independent.

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The Wood Group engineering unit which works on new assets is busy on subsea projects off the UK.

Wood's chief financial officer, Alan Semple, told analysts: "The UK oil and gas sector's operating costs rose an estimated 15 per cent last year and commentators note that the industry needs to control costs to maximise economic recovery over the longer term."

He noted Wood Group last month moved to cut the pay rates of around 1,500 freelance contractors by 10 per cent.

"We were the first in the sector to take such steps, which position us well for future opportunities and have received a favourable reaction from clients," said Mr Semple.

In an update on trading in the six months to June, Wood Group said it expects full year earnings to be in line with expectations, and up on 2013.

Performance so far is ahead of expectations in Wood Group PSN, helped by strong activity in US shale markets.

The engineering arm is performing in line with expectations.

Financial performance in the gas turbines business is behind plan.