The company said its clients had been reluctant to expand their exploration and production programs, preferring to maximise cash flow from existing operations.

"Prices have been driven by security of supply issues rather than demand," said chief executive John Dawson.

"In the near term, the market outlook for oil and gas demand is linked to the pace of global economic recovery and in the coming year it is expected to be modest."

Dawson said a number of factors contributed to the shortfall in expectations. Sharp declines in oilfield activity in the Gulf of Mexico were partially offset by strong performances in Africa, the Former Soviet Union and Middle East.

"In Asia Pacific, activity slowed following completion of the Malampaya project in the early part of the year, whilst in Europe business was maintained at last year's levels despite the reduction in client capital spending in this area. Delays and deferrals to client projects from the second half into the following year also contributed to the general weakness."

Pre-tax profits, excluding goodwill amortisation and exceptional items, at £20.0m was 19% below prior year, with EPS on the same basis at 22.1p, down 18%, with EBITDA before exceptional items only 6% below the previous year's level at £43.4m.

"Our financial condition continued to improve, as we repaid debt, reducing gearing in the period from 106% to 43%, with net debt at the year-end of £42.4m. The improvement to the Group's net debt position through strong operational cash flow was further significantly enhanced by the receipt from Baker Hughes Inc. of $30m, on the creation of the QuantX joint venture.

"The long-term fundamentals for oil and gas are very positive, a recent International Energy Agency study for oil and gas production, forecast an increase of 25% in demand by the end of the decade. This requires massive investment by the operators in order to add to capacity, whilst at the same time overcoming the declining productivity from existing sources of production," said Dawson.