This article was updated on Dec. 15, 2016, and originally published July 16, 2016.

The Permian Basin of west Texas and southeast New Mexico is one of the most prolific oil and gas producing regions in the country. The basin produced a prodigious 29 billion barrels of oil since output began in 1921. However, despite that rich production history, its best days could lie ahead. Thanks to new extraction techniques oil companies have finally figured out how to unlock the oil and gas trapped within its unique geology encompassing several stacked layers of hydrocarbon-bearing rock formations. Because of this, analysts at research firm Rystad Energy said this past July that the "U.S. now holds more oil reserves than Saudi Arabia" thanks in part to the Permian. 

With so much oil potential, the Permian Basin is one of the top oil plays in the country, which has producers flocking to unlock its energy resources.

A Silhouette Of An Oil Pump In An Oil Field At Sunset

Image source: Getty Images.

Permian Basin 101

The Permian Basin encompasses an area that stretches 250 miles wide and 300 miles long. However, it can be split into two zones, the Delaware Basin on the west and the Midland Basin to the east. Hydrocarbon-rich layers of rocks lie beneath both sections:

Permian Basin

Source: EIA.  

According to the U.S. Energy Information Administration (EIA), the six formations detailed on the above map fueled a 60% increase in the Permian's output since 2007. That increase pushed it past the Gulf of Mexico as America's leading oil production basin in 2013. Currently, the Permian accounts for about a quarter of the country's oil production.

With output totaling more than 2 million barrels per day, the Permian is the second largest oil field in the world behind Saudi Arabia's Ghawar field. That said, it has quite a way to go before it catches up given that Ghawar produces 5 million barrels per day, which is more than 5% of global oil output. The Permian is also believed to be second to Ghawar in recoverable resources. According to analysis from leading Midland Basin producer Pioneer Natural Resources (NYSE:PXD), the Permian could hold nearly 160 billion barrels of oil equivalent (BOE) recoverable resources, which rivals of Ghawar's estimated 160 billion BOE. That said, most other analysts peg the Permian's number in the 20 billion barrel range, which still puts it as one of the top ten largest oil fields in the world.

The leading Permian Basin players

While there are hundreds of energy companies operating in the Permian Basin, less than 10 producers account for 50% of the basin's output and just five large players control the bulk of the acreage. The most dominant positions are held by:

Permian Basin ProducerPermian Basin AcreageAverage daily production volume in 2015 (BOE/d)
Occidental Petroleum ~2.4 million 255,000
Chevron ~2 million 125,000
Apache ~1.7 million 171,000
ExxonMobil ~1.5 million 115,000
Concho Resources ~700,000 143,000

Data source: Rystad Energy and company investor presentations. NOTE: Acreage as of Dec. 15, 2016.

Occidental Petroleum (NYSE:OXY) holds a vast Permian acreage position and is by far the basin's largest producer. That said, more than half of the company's production comes from using enhanced oil recovery techniques, such as carbon dioxide injection, to coax oil out of legacy formations. However, shale is a major growth driver for Occidental, with its production from tight oil resources expected to grow 13% in 2016 and continue heading higher in 2017. 

Big oil giant Chevron (NYSE:CVX) is currently one the basin's largest acreage holders. While the company has yet to turn that into a leading production position, the oil giant has been rapidly ramping its production, which increased 33% in 2015. Further, the company believes its Permian production can grow to as much as 350,000 barrels of oil equivalent per day (BOE/d) by 2020 if oil prices cooperate. Overall, the oil giant estimates that more than 9 billion barrels of oil equivalent recoverable resources lie beneath its acreage.

Oil Pump Texas Sunrise

Image source: Getty Images. 

Apache (NYSE:APA), likewise, has a vast Permian position with the bulk of its production currently coming from conventional sources. However, that is beginning to change now that the company has shifted to horizontal drilling. In just two years production increased from 155,000 BOE/d to its current rate of around 170,000 BOE/d. That rate is poised to keep going higher as pricing improves and the company ramps up development, especially from its recently discovered Alpine High play in a little-known corner of the basin.

ExxonMobil (NYSE:XOM) is another major oil company with a large legacy Permian position. Like its large peers, Exxon has taken a methodical approach to developing the Permian, though horizontal production has risen sharply over the past year while development costs have plummeted. As a result, Exxon controls an extensive inventory of low-cost drilling locations that it can tap in the years ahead to grow output in an improving oil market. 

Meanwhile, Concho Resources (NYSE:CXO) has quietly built up an extensive position in the Permian via a series of acreage acquisitions. As a result, the company has 18,000 future drilling locations across its acreage, which it estimates holds more than 5 billion barrels of oil equivalent resources. While the company has taken a cautious development approach in 2016 by holding back growth in light of weaker oil prices, it plans to restart its growth engine next year as long as prices cooperate with an aim to deliver 20% compound annual production growth through 2019.

Investor takeaway

The Permian Basin has long been one of America's most vital energy producing regions. However, its importance is growing now that producers discovered how to unlock the oil and gas trapped in the tight rocks stacked below the surface. These companies are just starting to scratch the surface, which suggests that this legacy oil basin's best days could very well be ahead of it.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of ExxonMobil. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.