Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended September 30, 2022

Statement outlining results, risks and significant changes in operations, personnel and programs

1. Introduction

This quarterly financial report should be read in conjunction with the Main Estimates and any Supplementary Estimates approved in a given year by the date of this report. It has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by Treasury Board. This quarterly financial report has not been subject to an external audit or review.

1.1 Authority, Mandate and Programs

Natural Resources Canada (NRCan) works to improve the quality of life of Canadians by ensuring that our natural resources are developed sustainably, providing a source of jobs, prosperity, and opportunity, while preserving our environment and respecting our communities and Indigenous peoples.

Further details on NRCan’s authority, mandate and programs can be found in Part II of the Main Estimates.

1.2 Basis of Presentation

This quarterly financial report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes NRCan’s spending authorities granted by Parliament, and those used by NRCan are consistent with the Main Estimates for the 2022-23 fiscal year. This quarterly report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before money can be spent by the Government. Approvals are given in the form of annually approved limits through appropriation acts, or through legislation in the form of statutory spending authority for specific purposes.

NRCan uses the full accrual method of accounting to prepare and present its annual unaudited departmental financial statements that are part of the departmental results reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

2. Highlights of Fiscal Quarter and Fiscal Year-to-Date Results

This Departmental Quarterly Financial Report reflects the results as of September 30, 2022, which include Main Estimates for which full supply was released. The details presented in this report focus on and compare the second quarter results of 2022-23 with those of 2021-22.

2.1. Authorities

As per Table 1, presented at the end of this document, and on Graph 1 below, as at September 30, 2022, NRCan has authorities available for use of $3,650.9M compared to $2,619.1M in 2021-22 for a net increase of $1,031.8M or 39.4%.

Graph 1

Comparison of Authorities as at September 30, 2022 Graph 1

Text Version

Graph 1 Comparison of Authorities as at September 30, 2022
(in millions of dollars)	Fiscal year 2021-22 total available for use for the year ending 31-Mar-22	Fiscal year 2022-23 total available for use for the year ending 31-Mar-23
Vote 1 - Operating	745	759
Vote 5 - Capital	16	42
Vote 10 - Grants and contributions	1,581	2,245
Statutory	277	605
Total budgetary authorities	2,619	3,651

The increase of $1,031.8M in authorities in 2022-23 compared to 2021-22 is explained by the net effect of fluctuations within Vote 1 operating expenditures, Vote 5 capital expenditures, Vote 10 grants and contributions, and statutory authorities, as per the following:

Changes to Voted and Statutory Authorities (2022-23 compared with 2021-22)
(in $000s)
Vote 1 - Operating
Total available for use for the year ending March 31, 2022	2,619,082
New funding
Carbon Capture, Utilization and Storage	24,633
Critical Minerals	14,722
Clean Fuels Fund	12,329
Increased/(Decreased) Funding Profile
Flood Hazard Identification and Mapping Program	17,608
Atomic Workers Recognition Program	14,805
Greener Homes (Home Retrofit)	(76,461)
Increase in Operating Budget Carry Forward	8,957
All other net decreases less than $10M individually	(3,016)
Sub–total Vote 1 - Operating	13,577
Vote 5 - Capital
New funding
Critical Minerals	4,420
Increased Funding Profile
Funding to address Canadian Data Receiving Infrastructure (Budget 2021)	13,712
Increase in Capital Budget Carry Forward	4,141
All other net increases less than $3M individually	4,180
Sub–total Vote 5 - Capital	26,453
Vote 10 - Grants & Contributions
New Funding
Clean Fuels Fund	348,400
Carbon Capture, Utilization and Storage	23,250
Increased/(Decreased) Funding Profile
Greener Homes - Home Retrofits	324,550
Smart Renewables and Electrification Pathways Program	208,489
Natural Climate Solution Fund - 2B Tree	136,500
Encouraging Canadians to Use Zero Emission Vehicles (Top-up)	45,165
Investments in Forest Industry Transformation Program (Top-up)	38,118
Emissions Reduction Fund	(297,356)
Youth Employment Strategy - Green Jobs	(34,518)
Green Infrastructure Phase II - Emerging Renewable Power	(24,559)
Sunsetters
Protecting Jobs Eastern Canada's Forestry Sector - Spruce Budworm	(29,000)
Climate Change Renewal - Advancing Clean Tech - Clean Growth	(28,227)
Impacts Canada Fund (Clean Technology Stream)	(23,868)
Green Infrastructure - Phase II - Electric Vehicles & Alternative Fuel	(23,360)
All other net increases less than $20M individually	701
Sub–total Vote 10 - Grants & Contributions	664,285
Statutory
Newfoundland Offshore Petroleum Resources Revenue Fund (Forecasts are revised annually based on projected oil & natural gas production levels, prices, exchange rates and operator's costs)	327,465
All other net increases	30
Sub–total Statutory	327,495
Total increase from previous year due to year-over-year changes	1,031,810
Total available for use for the year ending March 31, 2023	3,650,892

2.2. Budgetary Expenditures by Standard Object

The spending for the quarter ending September 30, 2022 amounts to $454.4M or 12.4% of total funding available for the fiscal year, compared to $362.6M or 13.8% for the same quarter last year. This increase of of $91.8M in spending is mainly related to an increase in expenditures for Personnel, Professional and Special Services and Transfer Payments in 2022-23 compared to the same type of expenditures in 2021-22. Further analysis has been done on standard objects with significant expenses, as noted in Graph 2 below. Table 2 at the end of this document presents the spending for all standard objects.

Graph 2

Comparison of Standard Objects with significant variances as at September 30, 2022

Text Version

**Graph 2 Comparison of Standard Objects with significant variances as at September 30, 2022**
(in thousands of dollars)	Fiscal year 2021-22 Expended during the quarter ended 30-Sep-21	Fiscal year 2022-23 Expended during the quarter ended 30-Sep-22
Personnel	125,908	140,754
Professional and special services	18,805	32,041
Transfer payments	196,782	252,815
All Other Standard Objects	21,094	28,824
Total net budgetary expenditures	362,589	454,434

Variance in Budgetary Expenditures by Standard Object (2022-23 compared with 2021-22)
(in $000s)
Standard Object	Explanation	Variance between 2022-23 and 2021-22 Q2 expenditures	Variance between 2022-23 and 2021-22 year-to-date expenditures
Personnel	The increase is mainly due to incremental hires to support new programs and/or programs approved in Q2 2021-22 or thereafter such as Smart Renewables and Electrification Pathways Program (SREPs), Greener Homes, Carbon Capture, Utilization and Storage (CCUS), Clean Fuels, etc.	14,846	19,177
Professional and special services	The increase is mainly attributed to incremental spending to support new programs such as Critical Minerals and Greener Homes; increased cost for IT and building modernization to facilitate the Future of Work; increased spending due to the lifting of travel restrictions in 2022-23; as well as contracts that were deferred from 2021-22 and are expected to resume in 2022-23.	13,236	16,809
Transfer Payments	The increase is mainly attributed to new spending for SREPs as significant expenses were incurred during this quarter's key construction period; increased grant spending for Greener Homes, a demand-driven program, and forfeitures payments to the Offshore Nova Scotia Revenue Account; offset by reduced contribution spending for the Spruce Budworm and the Green Jobs/Science and Technology Internship Program, an initiative with a reduced budget in 2022-23 compared to 2021-22.	56,033	99,431
Other subsidies and payments	The decrease is mainly attributed to the timing of OGD transfers expected to occur in the next quarter.	(2,290)	(7,654)
All Other Standard Objects	Represents minor increases and/or decreases across all other Standard Objects.	10,020	13,019
Total Variance		91,845	140,782

3. Risks and Uncertainties

Canada’s vast natural resource sectors contribute significantly to economic growth across the country and play a vital role in creating jobs, fostering growth and prosperity for Canadians. NRCan continues to work with other government departments and central agencies to address risks that have an impact on the natural resources sector while strengthening the economy.

Russia’s invasion of Ukraine in February 2022 has continued to cause severe impacts and disruptions to the global economy and exposed the Canadian natural resource sector to a higher degree of uncertainty. One of the biggest impacts on the Canadian natural resource economy is the rapid rise of global energy and oil prices, combined with a high inflation, rising interest rates and labour shortages across the country, in the context of an expected economic slowdown. As the country continues to recover from the consequences of the COVID-19 pandemic, Canadian economic activity is still facing and dealing with a variety of significant impacts as it moves ahead.

Real GDP of the natural resources sector edged up 2.7% in the second quarter of 2022 relative to the previous quarter. In contrast, the economy-wide real GDP rose 1.0%. Production in the natural resources sector was affected by maintenance at a number of oil sands facilities, increased exports of minerals, and higher capital spending in oil and gas in Alberta. As for the employment level, the natural resources sector rose 3.4% in the second quarter of 2022 compared to 3.3% growth across the entire Canadian economy. In OECD’s Economic Outlook, Canadian GDP growth for 2022 was revised down to 3.4% from 3.8% due to broad-based inflationary pressures and labour market pressures. Similarly, the International Monetary Fund also revised down its 2022 forecast for Canadian GDP growth to 3.3% from 3.4% in its October World Economic Outlook, citing record high inflation, tightening financial conditions and spillover impacts from the war.

The Government of Canada’s Budget 2022 investments position NRCan to help lay the foundation for Canada’s transition to net-zero by 2050, from clean energy to critical minerals to combatting wildfires. For example, in collaboration with partners, NRCan initiatives contribute to strengthening energy efficiency and climate resilience for Canadian homes, investing in natural resources workers and the creation of inclusive green jobs, advancing net-zero electricity generation, enhancing critical minerals development, building new wildfire monitoring satellite systems, and supporting Indigenous partnerships, capacity building and benefits sharing.

NRCan continues to manage internal and external risks to deliver its mandate and core responsibilities. Internal processes continue to strengthen the integration of risk management, priority setting and decision-making to support results delivery, including assessment and monitoring of strategic and operational risks. As Canada transitions to a low-carbon economy, NRCan also ensures that its programs, policies and processes are inclusive by design and address systemic barriers. Inclusion, diversity, equity, and accessibility are key outcomes that NRCan strives to achieve. NRCan has identified as ongoing priority to foster inclusive growth in the natural resource sectors and to remain fully committed to advancing reconciliation and partnerships with Indigenous Peoples in the natural resource sectors.

NRCan has also coordinated plans on the future of work and continues advancing business continuity and safe work environment for all employees as it seeks to return employees to the office following the COVID-19 pandemic. Improvements have been made, for example by upgrading NRCan’s technology and modernizing the workspace, as well as collaborating with other government departments to ensure that NRCan has the tools in place to track and manage work arrangements in a consistent way. Appropriate adjustments and communications have also been incorporated as steps are taken to evolve the future of a hybrid working environment.

Managing risks and uncertainties remain a high priority for the Department, and NRCan will continue to monitor risks to inform decision-making and support Canadians and the natural resources sector in 2022-23 and beyond.

4. Significant Changes in Relation to Operations, Personnel, Programs

Several significant changes have occurred during the 2^nd quarter of 2022-23, namely:

Erin O’Brien assumed the position of Assistant Deputy Minister for the Fuels Sector, as of August 2^nd.
Dr. Ranjana Sharma joined NRCan as the Chief Scientist, as of September 1^st.
Effective September 6^th and 19^th, Heather Beaton, Executive Director and General Counsel for NRCan, left the Legal Services Unit (LSU) for another opportunity within the Federal government and Zahira Sookhdeo was appointed as her replacement.

In addition, NRCan is transitioning toward a hybrid work model that is flexible, productive, agile and inclusive to enable work–life balance while maximizing efficiency and effectiveness; achieve greater diversity and be more regionally inclusive; and provide access to talent and skills from across Canada.

Original signed by:

John F.G. Hannaford
Deputy Minister

Date signed
November 25, 2022
Ottawa, Canada