WOOD Group has poured cold water on talk of a recovery in the hard-pressed North Sea oil and gas industry highlighting a material drop in business in the area in the first half.

The Aberdeen-based firm noted there had been a significant fall in spending on new facilities in the North Sea in recent months accompanied by pressure on margins for maintenance work.

“In the first half we have seen continued challenges in our core oil & gas market with modest recovery only in certain areas,” said Wood Group. “Robust activity in the West … is being more than offset by weaker activity in the East, where we have seen a further reduction in projects & modifications work, particularly in the North Sea.”

The comments in an update on trading since 1 January provide a gloomy perspective on conditions in the key oil services sector.

As the industry enters the fourth year of a deep downturn Wood Group still appears to see no prospect of an improvement in conditions in UK waters.

The update highlights the continued impact on workloads of cuts in investment in the North Sea by oil and gas firms in response to the fall in crude prices since 2014.

It underlines the pressure on the supply chain as oil and gas companies expect firms to accept cuts in margins to help compensate for the drop in crude prices.

Led by chief executive Robin Watson, Wood has struck a similarly downbeat note about the outlook for the North Sea in other announcements over the last 18 months.

However, the latest comment may create the most alarm in Scotland, where the partial recovery in crude prices since last year has fuelled hopes a recovery may be on the way in the North Sea.

Last week Bank of Scotland said a survey it completed of oil services firms suggested the industry was turning a corner with conditions for growth more favourable than for some time.

The latest oil and gas sector sector survey by Aberdeen and Grampian Chamber of Commerce signalled a marked increase in confidence among services firms from the historic lows seen in the last 18 months.

The start up of the giant Kraken heavy oil field off Shetland on Monday boosted sentiment.

Hurricane Energy wants to raise $520m to fund work on bringing a big find it made West of Shetland onstream.

But Wood has only seen the benefit of the increase in the crude price since November in a few areas, such as onshore shale fields in the USA.

This may have implications for North Sea jobs, although Wood made no comment on the subject. Wood has cut more than 2,000 jobs in the UK since 2014 and Mr Watson has noted employment numbers are closely linked to activity levels.

Victoria McCulloch, analyst at RBC, said the update underlined the motivation for Wood’s £2.2 billion recommended bid for the Amec Foster Wheeler engineering combine. The takeover would help reduce Wood’s reliance on the oil and gas market.

Amec Foster Wheeler has a big North Sea business. Wood has said it may sell the bulk of the unit to help allay concerns about the impact of the AFW acquisition on competition.

Any potential buyer might expect to squeeze significant costs out of the business.

As shareholders have approved the AFW acquisition, Wood is focused on integration planning.

It has said around 1,200 jobs will be shed globally under plans to realise £165 million synergies from the enlarged firm. The takeover is expected to complete in the 4th quarter, subject to competition approvals.

Wood said: “First half performance is down on 2016 and weaker than anticipated. We are more cautious on the full year outlook but anticipate a stronger second half.”

Wood still plans to pursue a progressive dividend policy. Shares in the group closed down two per cent, 16p, at 644.5p.