Western Midstream Partners (WES) just delivered a first-quarter earnings beat that sent ripples through the energy sector. The headline numbers were impressive: record net income, record quarterly adjusted EBITDA, and raised guidance for the full year. Analysts are buzzing, but amidst the celebration, a quiet detail emerged, a subtle shift in strategy that could hint at an even more explosive future for WES.

The key lies in the newly operational Mentone Train III, a gas processing plant in the heart of the Delaware Basin. While the company assured investors it's operating at full capacity, a closer look reveals a potential game changer. WES is still utilizing offloads, a temporary solution to handle excess gas until North Loving Train I comes online in early 2025. This is where the story gets interesting.

The prevailing narrative suggests WES believes North Loving Train I will be sufficient to handle the projected gas growth in the Delaware Basin. They've confidently stated that, based on current forecasts, they don't foresee the need for additional processing capacity beyond 2025. But is this the whole story?

Consider the context. WES has consistently emphasized its commitment to "capital discipline," prioritizing sustainable free cash flow generation and a robust distribution to its unitholders. This newfound fiscal restraint stands in stark contrast to the "build it and they will come" mentality that dominated the midstream sector in years past. Could it be that WES is intentionally downplaying its growth prospects to appease a market still wary of overbuilding?

Here's where the numbers get intriguing. WES projects low to mid-teens percentage growth for natural gas throughput in 2024, exceeding the anticipated flat growth for the Delaware Basin as a whole. This suggests that their specific acreage within the Basin is outperforming the average, potentially driven by factors like strong well performance, longer laterals, and aggressive third-party customer acquisition.

"CEO, Michael Ure, stated in the Q1 2024 Earnings Call: "At this stage, we're not actually seeing the need to have -- to add another plant at North Loving. Again, a reminder, we're expecting to have North Loving One come online Q1 to 2025. And as it sits right now, we're not actually seeing the need to add incremental plant capacity after that.""

Now, let's imagine WES's internal projections for 2025 and beyond are significantly higher than what they've publicly disclosed. Offloads, often viewed as a cost-intensive last resort, could actually be a deliberate strategy to maximize cash flow in the near term while quietly building a backlog of demand. This suppressed growth scenario would perfectly align with their "capital discipline" mantra, keeping expenditures in check until they have enough firm commitments to justify another North Loving Train.

Projected Natural Gas Throughput Growth

The following chart compares WES's projected natural gas throughput growth in the Delaware Basin to the anticipated growth for the basin as a whole.

Think about the implications. If WES is playing a long game, patiently accumulating pent-up demand, they could be sitting on a hidden monster in the Delaware Basin. By the time North Loving Train I comes online, they could have a mountain of committed volumes ready to be processed, instantly catapulting their financial performance and potentially triggering massive distribution increases.

This is, of course, a hypothesis, but it's one supported by subtle shifts in WES's language and strategic decisions. The whispers of Mentone III, operating at full capacity but still reliant on offloads, might just be the first clues to a bold, understated strategy that could redefine the company's trajectory and unlock unprecedented value for its unitholders.

Key Financial Data

"Fun Fact: Did you know WES owns and operates the longest pipeline in Texas, stretching over 600 miles? It transports natural gas from the Permian Basin to the Gulf Coast, powering homes and businesses across the state."