WOOD Group has given a gloomy assessment of the prospects for the embattled North Sea oil and gas industry but insisted its planned takeover of Amec Foster Wheeler will provide a boost for the Scottish economy.

Announcing a one third fall in underlying profits, Aberdeen-based Wood highlighted particularly challenging conditions in the North Sea where it said firms continued to slash spending on new projects in the first half.

The results announcement provided the latest evidence that the partial recovery in the crude price since November has failed to provide the kind of boost to activity that it has delivered in other parts of the world.

Asked when conditions might improve off Scotland, chief executive Robin Watson signalled that bosses expect them to remain tough for years.

“The levels of capital investment we anticipate being less in the next five years than they have been in the past five years,” he told journalists.

Wood has won a significant share of its business from helping firms develop new facilities in the North Sea in recent decades. However, orders have been falling since a long period of high oil prices ended in 2014.

The company has shed thousands of UK posts amid the downturn that started in that year. Other services firms have made deep cuts in staffing along with exploration and production giants such as Shell and BP.

“The challenge with jobs is entirely linked with activity levels so as activity levels come down there’s an immediate front line cost,” noted Mr Watson, adding: “That is the remaining challenge for the North Sea basin.”

Against that backdrop, Mr Watson underlined the appeal of the planned £2.2bn takeover of London-based Amec Foster Wheeler. This will take Wood into growth markets such as environmental engineering, reducing its reliance on oil and gas.

The deal was agreed by directors on the basis the FTSE 100 group it would create would be based in Scotland.

“We’re really hopeful that that’s a good news story for the Scottish economy as a whole, because I think that is a big part of wealth distribution across the UK” said Mr Watson.

“We will be having our head office and it will be a head office in Aberdeen, it won’t be a shadow office that really is operated out of London.”

Mr Watson expects the enlarged group to shed around 1,100 jobs globally, two per cent of the total, to help deliver expected cost savings of at least $170m (£133m) a year.

Regarding the impact on Wood’s North Sea business, he said: “We’re very confident that any job losses as a result of the merger will be minimal to zero and in the medium term it should be a growth proposition.”

Wood expects the deal to complete in the fourth quarter.

Credible buyers have put in bids for the North Sea operations that Amec Foster Wheeler plans to sell to address competition concerns about the deal.

Wood’s chief financial officer David Kemp said it was rare to see such a ‘tier one’ business for sale.

Wood noted indications of recovery in some oil and gas markets such as shale areas onshore the US. Production costs are lower in these than in the North Sea.

Mr Watson welcomed moves by independents such as Chrysaor to buy North Sea assets majors decided were non core.They may increase investment in the assets. Wood has won business from some.

But he cautioned: “The creation of work that that gives us probably doesn’t replace the sort of project activity levels we saw 2005 to 2015.”

Wood made $72 million operating profit before exceptionals in the six months to June against $106m last time. Revenues fell to $2.3bn from $2.6bn.

Wood said its full year outlook is unchanged. Shares in the group closed down 2.5p at 572p.