Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended December 31, 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 and Supplementary (B) 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 December 31, 2022, which include Main Estimates and Supplementary Estimates (B) for which full supply was released. The details presented in this report focus on and compare the third 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 December 31, 2022, NRCan has authorities available for use of $3,966.8M compared to $2,694.9M in 2021-22, for a net increase of $1,271.9M or 47.2%.

Graph 1

Text Version

Graph 1 : Comparison of Authorities as at December 31, 2022

(in millions of dollars)	Fiscal year 2021-22	Fiscal year 2022-23
	Total available for use for the year ending 31-Mar-22	Total available for use for the year ending 31-Mar-23
Vote 1 - Operating	779	806
Vote 5 - Capital	27	52
Vote 10 - Grants and Contributions	1,610	2,500
Statutory	279	609
Total budgetary authorities	2,695	3,967

The increase of $1,271.9M 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)

Total available for use for the year ending March 31, 2022	2,694,898
Vote 1 - Operating
New funding
Carbon Capture, Utilization and Storage	24,633
Energy System Transformation and Net Zero Growth	16,746
Clean Fuels Fund	12,329
Increased/(Decreased) Funding Profile
Atomic Workers Recognition Program	21,221
Flood Hazard Identification and Mapping Program	17,607
Polar Continental Shelf Program Reinvestment	11,491
Greener Homes (Home Retrofit)	(75,269)
Indigenous Natural Resource Partnership	(15,952)
Increase in Operating Budget Carry Forward	8,957
All other net increases less than $10M individually	5,219
Sub–total Vote 1 - Operating	26,982
Vote 5 - Capital
New funding
Critical Minerals	3,445
Increased Funding Profile
Funding to address Canadian Data Receiving Infrastructure (Budget 2021)	13,669
Increase in Capital Budget Carry Forward	4,141
All other net increases less than $3M individually	4,147
Sub–total Vote 5 - Capital	25,402
Vote 10 - Grants & Contributions
New Funding
Clean Fuels Fund	348,400
Decarbonization of On-road Transportation	97,077
Energy System Transformation and Net Zero Growth	50,964
Partner with Indigenous Peoples on Natural Resource Projects	26,500
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)	50,583
Mountain Pine Beetle	20,770
Emissions Reduction Fund	(297,356)
Youth Employment Strategy - Green Jobs	(34,518)
Green Infrastructure Phase II - Emerging Renewable Power	(24,559)
Sunsetters
Climate Change Renewal - Advancing Clean Tech - Clean Growth	(28,227)
Impacts Canada Fund (Clean Technology Stream)	(27,418)
Green Infrastructure - Phase II - Electric Vehicles & Alternative Fuel	(23,360)
All other net decreases less than $20M individually	(6,479)
Sub–total Vote 10 - Grants & Contributions	890,331
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	1,700
Sub–total Statutory	329,165
Total increase from previous year due to year-over-year changes	1,271,880
Total available for use for the year ending March 31, 2023	3,966,778

2.2.  Budgetary Expenditures by Standard Object

The spending for the quarter ending December 31, 2022 amounts to $516.8M or 13.0% of total funding available for the fiscal year, compared to $340.3M or 12.6% for the same quarter last year. This increase of $176.5M 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

Text Version

Graph 2 : Comparison of Standard Objects with significant variances as at December 31, 2022

(in millions of dollars)	Fiscal year 2021-22	Fiscal year 2022-23
	Expended during the quarter ended 31-Dec-21	Expended during the quarter ended 31-Dec-22
Personnel	131	141
Professional and special services	33	36
Transfer payments	175	314
All Other Standard Objects	1	26
Total net budgetary expenditures	340	517

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 Q3 expenditures	Variance between 2022-23 and 2021-22 YTD expenditures
Personnel	The increase is mainly due incremental hires to support new/recent programs such as Energy System Transformation and Net Zero Growth, Greener Homes, Carbon Capture, Utilization and Storage (CCUS), Clean Fuels Fund, Atomic Workers Recognition Program, etc.	9,641	28,817
Professional and special services	The increase is mainly due to incremental spending to support new/recent programs such as Critcal Minerals, Greener Homes, Fighting and Managing Wildfires in a Changing Climate, Forest Mapping and Energy System Transformation and Net Zero Growth (Electricity Pre-Development Projects); increased cost for IT and building modernization to facilitate the Future of Work; translation services for the Offshore Committee Official Language program (OCOL); increased spending due to the lifting of  travel restrictions in 2022-23 as well as contracts that were deferred from 2021-22.	3,184	19,993
Transfer Payments	The increase is mainly attributed to new spending for Smart Renewable and Electrification Pathways program as significant expenses were incurred for approved construction projects; increased grant spending for Greener Homes; and transfers in the form of royalties & forfeitures to the Offshore Accounts; offset by sunsetting programs, late funding approval or reduced funding initiatives such as Impact Canada Initiative, Clean Growth Program, Spruce Budworm and Green Jobs/Science and Technology Internship Program.	139,200	238,631
Other subsidies and payments	The increase is mainly related to disbursements of ex-gratia payments for the Atomic Workers Recognition Program, and timing of OGD transfers expected to occur in the next quarter.	17,564	9,911
All Other Standard Objects	Represents minor increases and/or decreases across all other Standard Objects.	6,920	19,939
Total Variance		176,509	317,292

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. In addition, Canada continues to support international focus on adaptation actions to build capacity to adapt to the impacts of a changing climate. 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.

The consequences of the COVID-19 pandemic and the war in Ukraine have continued to cause severe impacts and disruptions to the global economy and exposed the Canadian natural resources sector to a higher degree of uncertainty. One of the biggest impacts on the Canadian natural resources economy is the elevated commodity prices, combined with persistent inflation, high interest rates and labour shortages across the country, in the context of an expected economic slowdown. Between the higher cost of living, supply chain issues, China’s economic concerns, declining household wealth and monetary tightening, Canadian economic activity is still facing and dealing with a variety of significant challenges as it moves ahead.

Real GDP of the natural resources sector edged up 0.9% in the third quarter of 2022 relative to the previous quarter. In contrast, the economy-wide real GDP rose 0.7%. Oil sands extraction led the way in the energy subsector, owed to increased production of crude bitumen in Alberta despite maintenance activity. The gain in the mineral and mining subsector was driven in part by increased potash mining, as exports of the commodity have grown strongly following Russia's invasion of Ukraine. The forestry subsector was impacted by reduced housing market activity and higher interest rates, which put downward pressure on lumber demand and prices. As for the employment level, the natural resources sector rose 0.3% in the third quarter of 2022 compared to a 0.3% reduction across the entire Canadian economy. In OECD’s Economic Outlook, Canadian real GDP growth is projected to slow from 3.2% this year to 1% in 2023, due to higher borrowing costs, deteriorating conditions abroad and labour market pressures.

The Government of Canada’s Budget 2022 investments have positioned NRCan to continue to assist in laying 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 to bolster the economy, 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, risk mitigation, 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 looks to ensure 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 integrate and achieve moving ahead in 2023. NRCan continues to foster inclusive growth in the natural resource sectors and to remain fully committed to advancing reconciliation, collaboration, and partnerships with Indigenous Peoples in the natural resource sectors.

Moving ahead into a post-pandemic world, NRCan has also coordinated plans on the future of work and continues advancing business continuity and a safe work environment as it sees employees returning to the office. Improvements have been made, for example by upgrading NRCan’s technology and modernizing the current 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.

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

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

During the 3^rd quarter of 2022-23, senior management announced that Brenda Dogbey would assume the leadership of the office of Inclusion, Diversity, Equity and Accessibility (IDEA), effective November 28, 2022.

In addition, NRCan is continuing its transition 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.

Table 1: Statement of Authorities (unaudited)

(in thousands of dollars)	Fiscal Year 2022-23			Fiscal Year 2021-22
	Total available for use for the year ending March 31, 2023*	Expended during the quarter ended December 31, 2022	Year-to-date used at quarter-end	Total available for use for the year ending March 31, 2022**	Expended during the quarter ended December 31, 2021	Year-to-date used at quarter-end
Vote 1 - Net Operating Expenditures	806,326	182,530	505,863	779,344	146,235	432,243
Vote 5 - Capital Expenditures	52,071	4,192	8,590	26,669	4,130	6,383
Vote 10 - Grants and Contributions	2,499,895	188,662	376,827	1,609,564	116,284	220,292
Statutory Payments
Minister of Natural Resources – Salary and motor car allowance	93	23	69	91	23	68
Contributions to employee benefit plans	67,713	16,041	48,124	63,389	15,106	45,317
Contribution to the Canada/Newfoundland Offshore Petroleum Board	11,187	(4,947)	(2,433)	11,677	(2,205)	149
Contribution to the Canada/Nova Scotia Offshore Petroleum Board	2,693	327	1,518	3,932	(266)	1,080
Payments to the Nova Scotia Offshore Revenue Account	-	717	19,438	-	-	-
Payments to the Newfoundland Offshore Petroleum Resource Revenue Fund	526,800	129,248	297,528	199,335	60,776	232,508
Spending of amounts equivalent to proceeds from disposal of surplus crown assets	-	48	73	-	31	47
Climate Action Support	-	-	-	897	218	218
Total Statutory Payments	608,486	141,457	364,317	279,321	73,683	279,387
Total Budgetary Authorities	3,966,778	516,841	1,255,597	2,694,898	340,332	938,305

* Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimates and Supplementary Estimates (B), for which full supply was released.
** Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimate and Supplementary Estimates (A) and (B), for which full supply was released.

Table 2: Budgetary Expenditures by Standard Object (unaudited)

(in thousands of dollars)	Fiscal Year 2022-23			Fiscal Year 2021-22
	Total available for use for the year ending March 31, 2023*	Expended during the quarter ended December 31, 2022	Year-to-date used at quarter-end	Total available for use for the year ending March 31, 2022**	Expended during the quarter ended December 31, 2021	Year-to-date used at quarter-end
Budgetary Expenditures:
Personnel	513,154	140,720	409,455	497,591	131,079	380,638
Transportation and communication	26,217	4,135	9,262	34,312	1,505	3,756
Information	32,265	2,627	6,065	20,775	1,998	4,824
Professional and special services	216,414	36,168	89,468	207,953	32,984	69,475
Rentals	32,577	3,748	16,717	33,520	3,566	14,577
Repair and maintenance	12,169	839	1,666	11,069	711	2,351
Utilities, materials and supplies	42,355	3,786	9,319	41,323	3,796	7,642
Acquisition of land, buildings and works	8,886	1,521	2,796	6,144	1,590	2,402
Acquisition of machinery and equipment	65,520	6,995	15,076	44,866	4,063	7,679
Transfer payments	3,040,574	314,007	692,878	1,825,406	174,807	454,247
Other subsidies and payments	14,821	8,546	16,758	8,800	(9 018)	6,847
Total Budgetary Expenditures	4,004,952	523,092	1,269,460	2,731,760	347,081	954,438
Less: Total Revenues Netted Against Expenditures	38,174	6,251	13,863	36,861	6,749	16,133
Total Net Budgetary Expenditures	3,966,778	516,841	1,255,597	2,694,898	340,332	938,305

* Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimates and Supplementary Estimates (B), for which full supply was released.
** Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimate and Supplementary Estimates (A) and (B), for which full supply was released.