Very early in his tenure as GM, Craig MacTavish decided that it was best for the organization (and the players) if it parted ways with the final 2 members of the 2005-06 Stanley Cup finalist team. The team couldn't find a suitor to provide an acceptable return for Ales Hemsky, but they managed to find one for former captain Shawn Horcoff. Phillip Larsen (along with a 7th round pick sometime in the next 40 years), was that return and he clocks in at #18 in the Copper & Blue Top 25 Under 25.
Larsen is one of those tweener players in that he's not quite good enough to be anything more than a depth defenseman, while still being young enough that there is still potential for growth. It's a rather similar situation to another Oiler defenseman, Corey Potter who hung around the Rangers organization a long time before getting a shot in the NHL with the Oilers. Granted, Larsen is further ahead at this point in his career than Potter was (Larsen saw his first NHL action at 19 while Potter was 24), but I think that's the sort of comparable you are looking at going forward until Larsen can fully establish himself.
Larsen is a good skating defenseman who can move the puck rather well. The flip side is that in his limited time in Edmonton he's been a bit of a horror show in his own end. Poor coverage reads and some bad decisions with the puck have hurt him this year. He's also been bit hard by the injury bug, missing 25 games with a back injury and another 18 with some sort of illness that apparently no one could figure out. How much of an impact that had on some of his issues is unknown, but can't be overlooked. In spite of the health issues and in zone blunders, Larsen has had put up some relatively decent underlying numbers compared to the rest of the blueline. He's faced mid range competition and has a Corsi that significantly out performs veterans like Andrew Ference, Nick Schultz and the guy I compared him to Corey Potter. The underlying numbers this year suggest Larsen should get some more time in the NHL so the Oilers can make a better decision on him going forward. The season is basically lost, so there's really nothing he can do to hurt the team and the possibility exists that he might be a cheap option in a depth role going forward.
Larsen is getting to the age where players start getting less and less opportunities to make the NHL. You reach an age and if you aren't established, you tend to get over looked even if you might be a better option than guys chosen above you. The change from "not there but still young enough" to "hasn't established himself in the time he's been given" is a rapid one. The biggest hurdle for Larsen going forward is that the Oilers have a log jam of young defensemen who have all shown some positive signs. Martin Marincin, Oscar Klefbom, and Darnell Nurse are just some of the more high profile guys that Larsen will be battling with. Marincin already looks ready to take an NHL spot, the organization has been enthralled with Klefbom for a long time and Nurse is the new darling of the organization. Larsen's in tough to get NHL opportunities going forward.