This article was updated on April. 5, 2017, 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 last 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, the bulk of its shale riches is in two sub-basins: the Delaware on the west and the Midland 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 2016 (BOE/d)
Occidental Petroleum ~2.5 million 269,000
Chevron ~2 million 175,000
Apache ~1.7 million 161,000
ExxonMobil ~1.75 million 158,000
Concho Resources ~600,000 150,000

Data source: Rystad Energy and company investor presentations. NOTE: Acreage as of April 5, 2017.

Occidental Petroleum (NYSE:OXY) holds a vast Permian acreage position and is by far the basin's largest producer. It further solidified its top-tier position last year, spending $2 billion for additional acreage. Currently, 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 by a 20% to 30% compound annual rate through 2020, positioning the company to deliver 5% to 8% annual growth in companywide production over the long-term. 

Big Oil giant Chevron (NYSE:CVX) has a long history in the Permian, having already produced 5 billion barrels of oil. That said, its best days appear to lie ahead. As one of the basin's largest acreage holders, Chevron controls an estimated 9.3 billion barrels of oil equivalent resources. The company is just starting to ramp up horizontal drilling in the region, which could fuel 20% to 35% annual production through 2020 depending on oil prices, boosting its Permian output to a range of 250,000-350,000 BOE/d. Meanwhile, there's plenty of growth beyond that, with Chevron believing it has the resources to eventually get its output up to 700,000 BOE/d within a decade. 

Oil Pump Texas Sunrise

Image source: Getty Images. 

Apache (NYSE:APA), likewise, has a large Permian position, though the bulk of its production currently comes from conventional sources. However, that is beginning to change now that the company has shifted to horizontal drilling. In fact, the company expects to grow its shale output by 50% over the next two years, driving companywide production up 7% to 13% per year. One of the drivers of that growth is its recently discovered Alpine High play in a little-known corner of the Basin, which Apache believes holds more than 3 billion barrels of oil.

ExxonMobil (NYSE:XOM) is another major oil company with a significant legacy Permian position. Like its big oil peers, Exxon has taken a methodical approach to developing the Permian. However, the company appears poised to accelerate its growth in the region after spending $5.6 billion late last year to bulk up its position. That deal more than doubled Exxon's resource position to 6 billion BOE, giving it control of an extensive inventory of low-cost drilling locations that it can tap in the years ahead to grow output in an improving oil market. 

Finally, Concho Resources (NYSE:CXO) has quietly built up an extensive position in the Permian via a series of acreage acquisitions and is currently the largest pure-play on the Permian. Overall, the company has 19,000 future drilling locations across the Basin, which it estimates could help it unlock more than 8 billion barrels of oil equivalent resources. Thanks to the low-cost nature of those wells, the company expects to deliver 20% compound annual production growth through 2019 while living within cash flow around current oil prices.  

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. The Motley Fool has a disclosure policy.