WOOD has highlighted a positive outlook for some kinds of work in the North Sea although it said the recovery in oil and gas markets has been slower than expected.

After posting its first increase in profits for five years, the Aberdeen-based engineering giant signalled that conditions are improving in the North Sea oil services market but life in the sector remains tough.

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“We see a positive outlook for modifications work in the North Sea,” said Wood in the results statement.

The comment will be welcomed as a sign of a change in sentiment in the North Sea, which has been driven by the partial recovery in the crude price since late 2016.

Oil and gas firms slashed spending on the kind of platform upgrades that provide an important source of work for Wood during the downturn triggered by the crude price plunge from 2014.

In August Mr Watson said Wood had seen an encouraging if modest increase in North Sea activity after three years of decline, which took a heavy toll on the firm.

In December Wood noted the renewed fall in the crude price since October had impacted on the pace of contract awards in the oil and gas sector globally.

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However, Mr Watson said yesterday the recovery in North Sea activity had been maintained.

Noting signs that the recovery is feeding through to the Aberdeen economy, he said: “It’s been encouraging because the city has actually improved and got a bit of an uplift with increased activity levels.”

Mr Watson said Wood sees a future in the North Sea market, although he has moved to reduce the firm’s reliance on it.

The £2.2 billion acquisition of Amec Foster Wheeler (AFW) which Wood completed in 2017 gave the firm exposure to a wider range of engineering and markets and extended its geographic reach.

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“Although the North Sea is five per cent of our revenue we’re still one of the biggest players and we remain committed to it,” said Mr Watson.

The shake up in the North Sea, which has seen new players buy assets from giants, is creating opportunities.

However, Mr Watson said margins remain under pressure in the North Sea, noting: “It’s challenging.”

The latest North Sea outlook report from industry body Oil & Gas UK, published yesterday, found conditions remained tough in parts of the supply chain.

Wood said the pace of debt reduction would be “more gradual than originally anticipated” at the time of the AFW deal, partly due to the impact of a slower than expected oil and gas sector recovery since completion.

Mr Watson said directors were delighted with the outcome of the AFW deal, which has left the company with what he believes is a strong platform for growth.

The integration has been completed ahead of schedule. Wood now expects to generate $210 million (£158m) cost synergies annually after three years, up 24% on its previous target.

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The company reckons it has achieved revenue synergies of $600m by combining the expertise and market positions of the two businesses.

Mr Watson noted: “Our Aberdeen head count has increased in terms of the deal because our headquarters are in Aberdeen and we’ve high graded some of the positions and jobs and moved some people to the city to reflect the fact that that’s where the decision-making is done ultimately.”

Wood increased underlying earnings before interest, tax and amortisation by 69.4% to $630m from $372m. The group reduced net debt to $1.55bn from $1.65bn.

It declared 35 cents total dividends per share, up from 34.3 cents. Shares in Wood closed down 48.6p at 550p after enjoying a good run since early in February.

The group said its chairman Ian Marchant intends to resign from the board he joined in 2006 within the next twelve months.