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Dana Petroleum has confirmed that its flagship £1bn Western Isles oil field development in the North Sea will come on stream two years later than planned.

Production from the Harris and Barra fields - which lie about 100 miles east of Shetland - was due to start in 2015.

But Dana is not expecting first oil to flow now until the second half of 2017.

It said construction of a floating production, storage and offloading vessel (FPSO) for the project was taking longer than expected in China.

Dana also strongly denied that the development could cost twice as much as its original $1.6bn (£1bn) budget.

A company spokesman dismissed a figure of $3bn quoted in the publication Energy Voice.

He said: "The project is estimated to come in around $2bn, not $3bn.

"Dana has undertaken a number of interventions to ensure that the project is set up for success.

"A new management team was put in charge of the project at the end of 2014 with a remit to get more certainty and control over delivery, and to ensure that the FPSO will fully meet UK legislation.

"This is the first ever FPSO built by the shipyard we are using in China and it has taken longer than expected.

"However, we believe the project is now fully on track for first oil in the second half of 2017."

The Western Isles development was cleared by the UK government in 2012, with first production flow being achieved in April last year.

Western Isles involves a subsea development of at least five production and four water injection wells tied back to a FPSO.

Peak production is expected to be about 40,000 barrels a day. The estimated life of the field is 15 years.

Dana, which has a 77% stake in the project, is owned by the Korean National Oil Corporation.