Why the Woodside Petroleum (ASX:WPL) share price is dropping lower today

The Woodside Petroleum Limited (ASX: WPL) share price is dropping lower on Monday despite the release of a positive update.

At the time of writing, the energy producer’s shares are down 1.5% to $26.33.

What did Woodside announce?

This morning Woodside announced a positive amendment to its binding long-term sale and purchase agreement with Uniper Global Commodities. This news appears to have been offset by a pullback in oil prices on Friday night due to demand concerns.

According to today’s release, the two companies have agreed to increase the supply of LNG from Woodside’s global portfolio to Uniper materially.

The release explains that the quantity of Woodside LNG to be supplied under the amended agreement has now doubled. As a result, the initial supply commencing in 2021 is for a volume of up to 1 million tonnes per annum (Mtpa). After which, supply will increase to approximately 2 Mtpa from 2026.

However, management advised that the majority of LNG supply from 2025 is conditional upon a final investment decision on the development of the Scarborough gas resource offshore Western Australia. The 13-year term of the agreement remains unchanged.

In addition to this, Woodside and Uniper have agreed to collaborate on potential carbon-neutral LNG, including enhanced carbon accounting, and future hydrogen opportunities.

Final investment decision progress.

Woodside’s CEO, Peter Coleman, believes the expansion of the existing agreement with Uniper demonstrates further progress towards a final investment decision on the Scarborough development.

He commented: “Scarborough is a globally competitive, capital efficient LNG development which supports the decarbonisation ambitions of our customers. We expect the timing to be right for final investment decisions on Scarborough and Pluto Train 2 in the second half of this year.”

Mr Coleman also believes the agreement demonstrates the strong demand for LNG.

“This agreement with Uniper highlights the strong market demand we are seeing for Scarborough LNG as customers consider their energy requirements from the second half of this decade. We have now secured long-term customers for over 40% of our expected Scarborough equity production,” he added.

Lower carbon future.

The two companies also spoke about their aims to deliver a lower carbon future.

Coleman commented: “Woodside and Uniper share a commitment to innovatively deliver a lower-carbon future. Our agreement with Uniper strengthens our common goal of supplying affordable, clean energy to customers in Asia and beyond.”

Uniper’s CEO, Andreas Schierenbeck, notes that the agreement supports its decarbonisation plans.

He said: “With this agreement Uniper continues its path to implement its strategy of growth in Asia, trading in cleaner fuels and decarbonisation. We are also pleased to strengthen our great relationship with Woodside with the additional volume agreed for this contract.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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