Oil production in Saskatchewan hit a new record in 2012, according to statistics released by the Ministry of the Economy on January 31.

Crude oil production in the province reached 172.9 million barrels in 2012, up more than seven per cent from the previous record of 161.0 million barrels set in 2008.

"In 2012, Saskatchewan's oil industry had an exceptional year," Minister responsible for Energy and Resources Tim McMillan said. "Our economy continues to be one of the strongest in the country, and this record year in oil production proves that we have the resources and business climate the industry is looking for."

On a daily average basis, oil production was 473,600 barrels per day, up from the previous record set in 2008 of 441,200 barrels per day.

“The technology and the drilling that we've seen is transitioning from vertical wells to a lot of horizontals, which traditionally have (generated) larger production,” said McMillan.

The oil patch is technologically-driven, McMillan said, and horizontal drilling is included in technology shifts. He expects to see those advances continue, and help the Saskatchewan oil patch.

The record-setting year in 2012 came amid challenges facing the industry, including the backlog of oil waiting to be transported via pipelines. He expects the challenges related to capacity to continue in the short-term and in the medium-term futures.

“There are very some very big projects that are currently in some very important stages,” said McMillan. “The Keystone XL Pipeline is probably the one that is the closest to potentially going ahead.”

Railroads have taken an important role in moving oil that previously couldn't be shipped to market, McMillan said.

“There is a different cost structure between pipelines and rail, but rail has some advantages as far as the speed with which you can move oil, and also how nimble it can be,” said McMillan. “They can get specific oils to specific refineries to take advantage of whatever a refinery might need in the short term.”

About 10 per cent of the oil produced in the province last year was transported by railroads, he said.

The combined value of oil and gas sales for 2012 was estimated at $12.5 billion, which was up from $11.7 billion a year earlier. The industry provides more than 34,000 direct and indirect jobs to people in the province. It continues to be one of the largest contributors to the Saskatchewan economy, as it represents about 20.7 per cent of the province's GDP.

“This is a big piece of why Saskatchewan is growing, and why Saskatchewan is leading the country in economic growth,” said McMillan. “We've either been No. 1 or No. 2 in past years and in coming years.”

Saskatchewan is the second-largest oil producing province in Canada and has an estimated 1.2 billion barrels of remaining established crude oil reserves.