Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended December 31, 2015 (Revised)

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

Erratum

Date: March 30, 2016
Location: Budgetary Expenditures by Standard Object (unaudited), Planned expenditures for the year ending March 31, 2015.
Revision: “Budgetary Expenditures – Transfer payments $1,822,802 thousands” replaces “Budgetary Expenditures – Transfer payments $1,882,802 thousands”.
Rationale for the revision: Original amount reported was not correct.

1. Introduction

This quarterly financial report should be read in conjunction with the Main Estimates, Supplementary Estimates (A), and Supplementary Estimates (B) as well as Canada’s Economic Action Plan 2015 (Budget 2015). 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) seeks to enhance the responsible development and use of Canada’s natural resources and the competitiveness of Canada’s natural resource sectors. The department is an established leader in science and technology in the fields of energy, forests, and minerals and metals, and applies its expertise in earth sciences to build and maintain an up-to-date knowledge base of Canada’s landmass. NRCan develops policies and programs that enhance the contribution of the natural resource sectors to the economy and improve the quality of life of Canadians.^{Footnote 1}

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, Supplementary Estimates (A), and Supplementary Estimates (B) for the 2015-16 fiscal year.  This quarterly report has been prepared using a special purpose financial reporting framework.

The authority of Parliament is required before monies 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.

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year. As the Federal Budget is typically tabled around the same time as Main Estimates, measures announced in the Budget are not included in Main Estimates for either 2014-15 or 2015-16.  

In fiscal year 2015-16, frozen allotments will be established by Treasury Board authority in departmental votes to prohibit the spending of funds identified as savings measures in Budget 2015. The changes to departmental authorities for future years will be implemented through the Annual Reference Level Update, as approved by Treasury Board, and reflected in the subsequent Main Estimates tabled in Parliament. The same approach was taken in 2014-15 for savings measures in Budget 2014.

NRCan uses the full accrual method of accounting to prepare and present its annual unaudited departmental financial statements, which are part of the Departmental Performance Report. 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 at December 31, 2015, including Main Estimates, Supplementary Estimates (A) 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 2015-16 with those of 2014-15.

Authorities

As per Table 1, presented at the end of this document, and on Graph 1 below, as at December 31, 2015, NRCan has authorities available for use of $2,523.2 million in 2015-16 compared to $2,810 million as of December 31,  2014, for a net decrease of $286.8 million or 10%.

Graph 1

The decrease of $286.8 million in authorities in 2015-16 compared to 2014-15 is explained by the net effect of both increases and decreases within Vote 1 operating expenditures, Vote 5 capital expenditures, Vote 10 grants and contributions, and statutory authorities, as per the following:

For Vote 1 operating expenditures, a net increase of $8.5 million between the authorities available for use at the end of the third quarters of 2015-16 ($923.7 million) and 2014-15 ($915.2 million) is explained mainly by the following year-over-year changes:

Increases:

• $36.3 million for the Nuclear Legacy Liabilities Program as part of a planned adjustment to the program financial profile;
• $18.1 million for the Port Hope Area Initiative as part of a planned adjustment to the program financial profile;
• $5.3 million for the Federal Infrastructure Initiative, which is new in fiscal year 2015-16; and,
• $4.3 million for the Geo-mapping for Energy and Minerals Program as part of a planned adjustment to the program financial profile.

Decreases:

• $20.3 million for the Stakeholder Engagement and Outreach Campaign to Build Prosperity for Canada - International Advertising Component, as the program sunsetted on March 31, 2015;
• $9.9 million for the Operating Budget Carried Forward (OBCF), as there was less authorities available to carry forward in 2015-16;
• $8.5 million for Advisory Services for the restructuring of Atomic Energy of Canada Limited, as part of a planned adjustment to the program financial profile;
• $5.2 million for the transfers between Operating and Capital as part of an alignment exercise;
• $3.4 million for the Major Project Management Office Initiative which had sunset but was renewed in Budget 2015, therefore funds are expected in the fourth quarter of 2015-16;
• $2.3 million for the ecoENERGY Innovation Initiative as part of a planned adjustment to the program financial profile;
• $2.2 million for the Revitalization of NRCan’s satellite station facilities across Canada, as the program sunsetted on March 31, 2015;
• $2.1 million for the transfer from National Defence for ongoing repair and maintenance of the Natural Resources Resolute facility related to the Canadian Forces Arctic Training Centre due to the transfer occurring in the fourth quarter of 2015-16, as compared to the third quarter in 2014-15; and,
• $1.5 million for the Targeted Geoscience Initiative as part of a planned adjustment to the program financial profile.

For Vote 5 capital expenditures, a net increase of $38 million between the authorities available for use at the end of the third quarters of 2015-16 ($54.3 million) and 2014-15 ($16.3 million) is explained mainly by the following year-over-year changes:

Increases:

• $38.6 million for the Federal Infrastructure Initiative, which is new in fiscal year 2015-16;
• $5.2 million for the transfers between Operating and Capital as part of an alignment exercise; and,
• $1 million for the Targeted Geoscience Initiative as part of a planned adjustment to the program financial profile.

Decreases:

• $4.2 million for the Revitalization of NRCan’s satellite station facilities across Canada as the program sunsetted on March 31, 2015; and,
• $3.1 million for the Capital Budget Carried Forward (CBCF), as there was less authorities available to carry forward in 2015-16.

For Vote 10 grants and contributions, a net decrease of $143.4 million between the authorities available for use at the end of the third quarters of 2015-16 ($306.6 million) and 2014-15 ($450 million) is explained mainly by the following year-over-year changes:

Increases:

• $15 million for the Investments in Forest Industry Transformation Program due to a planned adjustment to the program financial profile.

Decreases:

• $99 million for the ecoENERGY for Biofuels Producer Incentive due to a planned adjustment to the program financial profile;
• $25 million for the grant to Sustainable Development Technology Canada for the Next Generation Biofuels Fund as the appropriated portion of the program sunsetted on March 31, 2015;
• $9.4 million for the Clean Energy Fund, as the program sunsetted on March 31, 2015;
• $6.5 million for the contribution to Sustainable Development Technology Canada for the Sustainable Development Technology Fund due to a planned adjustment to the program financial profile;
• $5.4 million for the Wind Power Production Incentive Program as part of a planned adjustment to the program financial profile;
• $4.6 million for the ecoENERGY Innovation Initiative as part of a planned adjustment to the program financial profile;
• $2.3 million for the Climate Change Impacts and Adaptation Program as part of a planned adjustment to the program financial profile; and,
• $2 million for Funding to support Innovation and Market Access of Forest Products as part of a planned adjustment to the program financial profile.

For statutory items, a net decrease of $189.8 million between the third quarters of 2015-16 ($1,238.7 million) and 2014-15 ($1,428.5 million) is explained mainly by:

Increases:

• $6.5 million in the Nova Scotia Offshore Revenue Account as expectations at the time of Main Estimates were that more revenue will be collected in 2015-16 than in 2014-15.

Decreases:

• $118.2 million in the Newfoundland Offshore Petroleum Resource Revenue Fund as expectations at the time of Main Estimates were that less revenue will be collected in 2015-16 than in 2014-15;
• $79 million for the Canada Foundation for Sustainable Development Technology - Next Generation Biofuels Fund – Statutory as the expectation at the time of Main Estimates was that no statutory funding would be disbursed; and,
• $1.3 million pertaining to the Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources due to a planned adjustment to the program financial profile.

In addition to the above detail, other minor increases and decreases occurred within the appropriated funding and in other statutory departmental programs. 

Budgetary Expenditures by Standard Object

The spending for the quarter ending December 31, 2015 amounts to $254.8 million, compared to $426.4 million for the same quarter last year. This decrease is mainly related to a decrease in transfer payments and operating expenditures in 2015-16 compared to those in 2014-15. Further analysis has been done on standard objects with significant expenses, which is represented on Graph 2 below, and Table 2 at the end of this document presents the spending for all standard objects.

Graph 2

In the third quarter of 2015-16, NRCan’s personnel expenditures ($100.1 million) are consistent with the personnel expenditures in the same period of 2014-15 ($99.4 million).

The net decrease of $1.6 million in personnel expenditures between the year-to-date expenditures at the end of the third quarters of 2015-16 ($307.5 million) and 2014-15 ($309.1 million) is related mainly to reduced staffing levels through attrition.

In the third quarter of 2015-16, NRCan has $42 million less professional and special services ($38.5 million) as compared to 2014-15 ($80.5 million) mainly due to the transfer of responsibility for the Nuclear Legacy Liabilities Program and the Port Hope Area Initiative from NRCan to Atomic Energy of Canada Limited in 2015-16.

The net decrease of $50.6 million in expenditures for professional and special services between the year-to-date expenditures at the end of third quarters of 2015-16 ($151.3 million) and 2014-15 ($201.9 million) is mainly related to the same reason as above.

In the third quarter of 2015-16, NRCan has $125 million less expenditures for transfer payments ($108.8 million) as compared to 2014-15 ($233.8 million) primarily due to:

Decreases:

• $100.4 million in statutory Atlantic offshore transfers resulting from the reduction in oil and natural gas prices; and,
• $19.4 million due to a reduction in incentive rates paid by the ecoENERGY Biofuels program as per program design and a reduction of active contribution agreements as the program nears its closure.

The net decrease of $405.8 million in expenditures for transfer payments between the year-to-date expenditures at the end of the third quarter of 2015-16 ($336.6 million) and 2014-15 ($742.4 million) is mainly related to the same reasons as above and roughly in the same proportions as above.  

In the third quarter of 2015-16, NRCan has $4.1 million less expenditures for other subsidies and payments ($0.7 million) as compared to 2014-15 ($4.8 million) largely due to the transfer of responsibility for the Port Hope Area Initiative from NRCan to Atomic Energy of Canada Limited in 2015-16.

The net decrease of $15.4 million in expenditures for other subsidies and payments between the year-to-date expenditures at the end of the third quarter of 2015-16 ($15.0 million) and 2014-15 ($30.4 million) is mainly due to the same reason as above in addition to a one-time transition payment of $12.3 million for implementing salary payment in arrears by the Government of Canada in 2014-15.

3. Risks and Uncertainties

NRCan recognizes that a solid understanding of its risk environment is fundamental in achieving its strategic outcomes and maintaining operational efficiency and effectiveness. Within the confines of its mandate and the authority at its disposition, NRCan endeavours to respond to uncertainties, including opportunities, in the global and domestic contexts and their potential impacts on Canada’s natural resource sectors.

Natural resources are highly traded commodities and, in most cases, prices are set by global markets. Canada is a price taker and, thus, subject to market fluctuations. Energy, mineral and metal prices have declined recently, generally as result of oversupply in global markets. Price fluctuations have created challenges for Canada’s natural resources sector and have had spillover effects on national, provincial and territorial economies. Looking ahead, commodity prices are expected to remain low in the near term and rise in the future. Of note, despite low oil prices, Canadian production is forecast to grow as projects currently under construction continue to move ahead.

For the Department, this means closely monitoring the impacts of these developments on the achievement of the government’s priorities in resource-related infrastructure, market development and environmental performance. It also means leveraging, to the extent possible, its policies and programs to help the natural resources sector to mitigate short-term risks and address structural challenges. 

In addition to being responsive to its external context, NRCan also manages uncertainties regarding its future funding level and spending. On the funding front, a number of its programs are sunsetting, which will impact both its grants and contributions programs and its operating and capital budgets. With regard to spending, the Department is working to mitigate the costs related to unfunded collective bargaining. The Department tracks its financial risks through scenario planning, monthly analysis of trends and forecasting in both salary and non-salary expenditures, and comprehensive quarterly reviews. NRCan has taken steps to stabilize the funding for its internal services, while providing flexibility to adjust them as the size of the Department evolves. Finally, NRCan continues to engage with central agencies to manage the financial uncertainty associated with the sunsetting of specific programs.

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

The appointment on November 4, 2015 of the Honourable James Gordon Carr as the Minister of Natural Resources occurred in the third quarter of 2015-16.

In addition, on November 4, 2015, an order in council designated the Minister of Industry (now the Minister of Innovation, Science and Economic Development) as the Minister for the purposes of the Canada Foundation for Sustainable Development Technology Act. NRCan will continue to disburse funds from its reference levels toward both Sustainable Development Technology Canada’s Next Generation Biofuels Fund and Sustainable Development Technology Fund. These disbursements will remain equally shared between NRCan and Environment and Climate Change Canada (ECCC) until the transfer occurs.

Original signed by:

Table 1: Statement of Authorities (unaudited)

(in thousands of dollars)	Fiscal year 2015-16			Fiscal year 2014-15
	Total available for use for the year ending March 31, 2016*	Used during the quarter ended December 31, 2015	Used year-to-date at quarter-end	Total available for use for the year ending March 31, 2015**	Used during the quarter ended December 31, 2014	Used year-to-date at quarter-end
Vote 1 - Net Operating Expenditures	923,658	124,029	448,741	915,223	175,453	524,939
Vote 5 - Capital Expenditures	54,302	7,565	14,388	16,280	3,174	8,286
Vote 10 - Grants and Contributions	306,609	46,670	121,906	450,039	71,695	170,417
Statutory Payments
Minister of Natural Resources – Salary and motor car allowance	82	16	57	80	20	60
Contributions to employee benefit plans	56,645	14,082	42,249	55,632	13,792	41,376
Spending of amounts equivalent to proceeds from disposal of surplus crown assets	-	285	285	-	88	96
Contribution to the Canada/Newfoundland Offshore Petroleum Board	8,835	1,822	6,240	7,756	2,208	6,626
Contribution to the Canada/Nova Scotia Offshore Petroleum Board	3,965	-	2,121	3,550	(89)	1,894
Payments to the Nova Scotia Offshore Revenue Account	74,752	5,472	14,751	68,216	25,638	54,205
Payments to the Newfoundland Offshore Petroleum Resource Revenue Fund	1,081,331	54,473	178,954	1,199,509	134,406	509,320
Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources	13,055	-	12,322	14,394	-	-
Grants to the Canada Foundation for Sustainable Development Technology	-	338	338	79,338	-	-
Total Statutory Payments	1,238,666	76,488	257,317	1,428,476	176,062	613,578
Total Budgetary Authorities	2,523,235	254,752	842,352	2,810,018	426,385	1,317,219

* Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimates, Supplementary Estimates (A), Supplementary Estimates (B),  as well as carry forward from fiscal year 2014-15 and does not reflect measures announced in Budget 2015.
** Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimates Supplementary Estimates (A), Supplementary Estimates (B),  as well as carry forward from fiscal year 2013-14 and does not reflect measures announced in Budget 2014.

Table 2: Budgetary Expenditures by Standard Object (unaudited)

(in thousands of dollars)	Fiscal year 2015-16			Fiscal year 2014-15
	Planned expenditures for the year ending March 31, 2016*	Expended during the quarter ended December 31, 2015	Year-to-date used at Quarter- end	Planned expenditures for the year ending March 31, 2015**	Expended during the quarter ended December 31, 2014	Year-to-date used at Quarter- end
Budgetary Expenditures:
Personnel	394,827	100,123	307,544	395,052	99,369	309,093
Transportation and communication	15,926	3,822	10,261	27,118	3,446	9,117
Information	12,915	779	2,038	9,951	1,010	3,106
Professional and special services	523,576	38,504	151,288	475,625	80,481	201,947
Rentals	15,276	1,986	15,599	36,029	1,748	14,855
Repair and maintenance	9,832	2,722	5,356	5,794	1,107	1,920
Utilities, materials and supplies	33,329	3,613	10,018	29,077	3,771	9,827
Acquisition of land, buildings and works	7,071	553	1,018	7,001	73	299
Acquisition of machinery and equipment	51,483	2,375	5,637	28,400	3,217	9,578
Transfer payments	1,488,547	108,774	336,631	1,822,802	233,784	742,387
Other subsidies and payments	5,532	696	15,011	8,218	4,829	30,361
Total Budgetary Expenditures	2,558,313	263,947	860,401	2,845,067	432,835	1,332,490
Less:
Total Revenues Netted Against Expenditures	35,079	9,194	18,049	35,051	6,450	15,271
Total Net Budgetary Expenditures	2,523,235	254,753	842,352	2,810,018	426,385	1,317,219

* Planned expenditures do not reflect measures announced in Budget 2015.
** Planned expenditures do not reflect measures announced in Budget 2014.