In the last issue I wrote about the shale oil bust in the Bakken formation. Oil production in the surrounding Williston Basin boomed as crude soared to $100/bbl, but producers there have been hit hard by the subsequent crash.

The Permian and Eagle Ford basins in Texas are much closer to the Gulf Coast’s many large refineries, and they are located in a traditional oil-producing region with plenty of legacy infrastructure. These are just two of the factors contributing to the superior returns in these formations relative to the Bakken.

In fact, Occidental Petroleum (NYSE:OXY) recently said it’s selling its entire Bakken acreage to focus on the Permian. In announcing the sale, Oxy CEO Stephen Chazen noted that the Bakken has been a drag on the company’s cash flow. One reason — as we highlighted in the previous issue — is that Oxy had the worst average production numbers per well among North Dakota’s top 20 oil producers. But let’s take a look and see if there are perhaps some additional insights to be gleaned from Oxy’s move.

The Permian Basin is mostly within Texas but extends into southeastern New Mexico. As an aside, I recently had a long discussion with a cousin who is an assessor for Lea County, New Mexico — the heart of the Permian in the state. We discussed the downturn’s impact on area businesses and the outlook for oil prices over the next year. Her major worries are the expected increase in Iran’s oil production and the persistently high domestic crude inventories, but she still thought oil could get to $60/bbl within six months or so.

The geology of the Permian Basin is rich and complex, both horizontally and vertically. The greater Permian is made up of several subsidiary basins, the largest of which are the Midland and the Delaware.

Source: Bureau of Economic Geology, The University of Texas at Austin

Many of these layers overlap, and while the Williston has multiple formations that produce oil and gas (of which the  Bakken is one), there is probably no U.S. production region with as many stacked production layers as the Permian:

Source: The Wall Street Journal

The Permian is one of the country’s oldest oil production regions. While the Bakken and Eagle Ford only ramped up in the past decade, the Permian Basin began producing oil in 1921. The Texas side of the Permian has now produced some 29 billion barrels of crude, which is equivalent to more than four years of current U.S. demand. And it remains the nation’s most prolific oil producing area. As of October, the Permian accounted for 22% of U.S. oil production.

Permian crude oil production has nearly doubled over the past six years thanks to six low-permeability formations: Spraberry, Wolfcamp, Bone Spring, Glorieta, Yeso and Delaware. About three-quarters of the increase came from the Spraberry, Wolfcamp and Bone Spring formations as a result of horizontal drilling and hydraulic fracturing.

Unlike the Bakken, the Permian Basin has thousands of feet of oil-bearing strata. This explains the longevity of the Permian’s oil production. As of Oct. 23, there were 594 rigs drilling for oil in the U.S. and another 193 drilling for gas. Of the oil rigs, 224 were deployed in the Permian Basin. By contrast, there were 64 rigs drilling for oil in the Williston Basin and another 66 in the Eagle Ford.

While drilling activity everywhere is down a lot since the price of oil crashed, the rig count is down more than 70% in the Williston Basin, over 60% in the Eagle Ford, but only about 54% in the Permian.

Given the Permian’s advantages, companies with a significant fraction of their operations in the area may be in a better position to survive this downturn without absorbing too much financial damage. So who are those producers?

Occidental is by far the largest player not only in the Permian but in all of Texas. Of the ~160 million barrels of oil produced in the Permian Basin during the first half of 2015 Oxy produced 20.8 million, or 13% of the total. The second-largest producer, Apache (NYSE: APA), had less than half of Oxy’s production at 9.9 million barrels.

But Occidental and Apache are both large, international producers. Those looking for a purer Permian play will want to consider some of the many smaller players that are focused predominantly on the region. I will cover them in depth in the next Energy Strategist.

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