Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended December 31, 2020

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, Supplementary Estimates (A) and Supplementary Estimates (B) for the 2020-21 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, 2020, which include Main Estimates and Supplementary Estimates (A) and (B) for which full supply was released. The details presented in this report focus on and compare the third quarter results of 2020-21 with those of 2019-20.

2.1 Authorities

As per Table 1, presented at the end of this document, and on Graph 1 below, as at December 31, 2020, NRCan has authorities available for use of $1,765.6 million in 2020-21 compared to $2,516.9 million as of December 31, 2019, for a net decrease of $751.3 million or 30%.

Graph 1

Text Version

Graph 1 Comparison of Authorities as at December 31, 2020

Graph 1 Comparison of Authorities as at December 31, 2020

(in millions of dollars)	Fiscal year 2019-20	Fiscal year 2020-21
	total available for use for the year ending	total available for use for the year ending
	31-Mar-20	31-Mar-21
Vote 1 - Operating	613	620
Vote 5 - Capital	17	16
Vote 10 - Grants and contributions	489	746
Statutory	1,397	384
Total budgetary authorities	2,517	1,766

The decrease of $751.3 million in authorities in 2020-21 compared to 2019-20 is primarily due to a decrease in statutory authorities (most notably $950 million for the Federation of Canadian Municipalities, who administer the Green Municipal Fund) offset mainly by an increase in Vote 10 grants and contributions related to the new funding for Emissions Reduction Fund, as well as the net effect of fluctuations within Vote 1 operating expenditures, Vote 5 capital expenditures, and Vote 10 grants and contributions, as per the following:

Changes to Voted and Statutory Authorities (2020-21 compared with 2019-20)

Changes to Voted and Statutory Authorities (2020-21 compared with 2019-20)

(in $000s)
Total available for use for the year ending March 31, 2020	2,516,876
Vote 1 - Operating
New funding  for Emissions Reduction Fund	6,742
Increased funding for Ensuring Better Disaster Management Preparation Program	4,465
Increase in Operating Budget Carry Forward due to a higher lapse in 2019-20	3,194
Funding for Advancing Clean Tech - Clean Growth	1,823
Decrease for the Trans Mountain Expansion Reconsideration Pipeline process as this phase of the program is completed	(12,637)
Decrease for the Major Project Management Office Initiative, as the first year of the renewal is less than last year	(1,440)
Various minor net increases	4,217
Sub total Vote 1 - Operating	6,364
Vote 5 - Capital
Increased funding for Ensuring Better Disaster Management Preparation Program	3,225
Reduction in Capital Budget Carry Forward due to a lower lapse in 2019-20	(1,665)
Decrease in proceeds from the sale of real property	(3,920)
Various minor net increases	777
Sub total Vote 5 - Capital	(1,583)
Vote 10 - Grants & Contributions
New funding  for Emissions Reduction Fund	152,384
Increased funding for the Green Infrastructure initiative	36,387
New funding for COVID-19 Safety Measures in Forest Sector Operations	30,000
New funding for Mountain Pine Beetle	22,000
Increased funding for the Impact Canada Fund	19,362
Transfer from other government department for emergency order for the southern mountain population of woodland caribou	11,400
Transfer from other government department for energy efficiency programming in the automotive sector	10,000
Increased funding for  Accommodation Measures for the Trans Mountain Expansion project	9,800
Funding for Protecting Jobs Eastern Canada's Foresty Sector- Spruce Budworm	5,000
Funding for Implementation of the Indigenous Advisory and Monitoring Committees for Energy Infrastructure Projects	3,500
Decrease in year-over-year funding for the ecoENERGY for Renewable Power program as the program nears completion	(36,760)
Decrease in year-over-year funding for Advancing Clean Technology due to reprofiling of funding	(18,003)
Various net increases	11,895
Sub total Vote 10 - Grants & Contributions	256,965
Statutory
Funding for Expanded Youth Employment and Job Skills	14,523
Funding for Climate Action Support	3,600
Contribution to the Canada/Newfoundland Offshore Petroleum Board due to increased level of activity	1,712
Employee Benefit Plan (EBP) adjustments, due to salary adjustments in 2020-21 compared to 2019-20	1,551
Minister of Natural Resources – Salary and motor car allowance	2
Sunsetting Funding for the Federation of Canadian Municipalities - Green Municipal Fund	(950,000)
Newfoundland Offshore Petroleum Resource Revenue Fund adjustment, as it was forecasted at the time of Main Estimates that less revenue would be collected in 2020-21 than in 2019-20, due to fluctuations in oil prices, variances in production and a decrease in planned expenditures*	(84,410)
Sub total Statutory	(1,013,022)
Total decrease from Previous Year	(751,277)
Total available for use for the year ending March 31, 2021	1,765,599

* In order to establish the statutory authority to be presented in the Main Estimates, NRCan executes its economic forecasting model. The model assesses trends in oil and natural gas prices, production levels, anticipated provincial corporate income taxes, and currency rates, among other things.

2.2 Budgetary Expenditures by Standard Object

The spending for the quarter ending December 31, 2020 amounts to $324.0 million or 18.3% of total funding available for the fiscal year, compared to $316.5 million or 12.6% for the same quarter last year. This increase of $7.5 million in spending is mainly related to an increase in transfer payments in 2020-21 compared to the same type of expenditures in 2019-20. 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

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Graph 2 Comparison of Standard Objects with significant variances as at December 31, 2020

Graph 2 Comparison of Standard Objects with significant variances as at December 31, 2020

(in thousands of dollars)	Fiscal year 2019-20	Fiscal year 2020-21
	Expended during the quarter ended 31-Dec-19	Expended during the quarter ended 31-Dec-20
Transportation and Communication	4,340	872
Rentals	1,185	3,325
Utilities, materials and supplies	3,839	3,327
Transfer Payments	144,547	157,546
All Other Standard Objects	162,598	158,937
Total net budgetary expenditures	316,509	324,007

Variance in Budgetary Expenditures by Standard Object (2020-21 compared with 2019-20)

Variance in Budgetary Expenditures by Standard Object (2020-21 compared with 2019-20)

(in $000s)
Standard Object	Explanation	Variance between 2020-21 and 2019-20 Q3 expenditures October 1 to December 31	Variance between 2020-21 and 2019-20 YTD expenditures April 1 to December 31
Transfer Payments	The year-to-date decrease is primarily due to a decrease in statutory authorities for the Federation of Canadian Municipalities, who administer the Green Municipal Fund. The increase in the third quarter is mainly attributed to transfer of royalties to the province of Nova Scotia as a result of a one-time provincial royalty payment related to the Sable Offshore Energy Project.	12,999	(1,072,166)
Transportation and Communication	The decrease is mainly attributed to the impact of COVID-19 on travel expenditures causing postponement and cancellation of activities and reduction in freight, courier services and transportation of goods and equipment.	(3,468)	(11,616)
Rentals	The year-to-date decrease is mainly due to cancelled aircraft logistics and rentals because of COVID-19 limitations and the closure of Polar Continental Shelf Program’s (PCSP) facility in Resolute. The increase in the third quarter is mainly attributed to the impact of COVID-19 pandemic on the timing of payments from one year to the next.	2,140	(4,826)
Utilities, materials and supplies	The decrease is mainly due to the impact of COVID-19 on general office supply expenditures, a reduction of laboratory materials purchases and the closure of Polar Continental Shelf Program’s (PCSP) facility in Resolute due to the pandemic.	(511)	(4,425)
All Other Standard Objects	Minor decreases within different standard objects.	(3,661)	(5,316)
Total Variance		7,498	(1,098,349)

3. Risks and Uncertainties

Natural resources are a long-standing source of Canadian economic growth and prosperity from coast to coast. They accounted for about 17% of Canada’s nominal Gross Domestic Product and supported 1.9 million jobs in 2019. As with all sectors in the Canadian economy, the natural resources sector experienced a significant disruption due to the spread of COVID-19. During the height of the economic lockdown, gross domestic product in the natural resources sector decreased by approximately 15%, and sector employment decreased by roughly 12%. A recovery is underway, but it may be slowed in the near term by a recent resurgence of COVID-19 cases. However, with the approval of several vaccines and the early roll-out of vaccination campaigns, external economic forecasters have moved up or upgraded the expected economic recovery in 2021.  Since Canada’s natural resources sector is export-intensive and responsive to global markets, the speed and timing of the natural resource sector recovery will be partly determined by how quickly firms and consumers around the world return to a new normal as vaccines are deployed. 

NRCan recognizes that a solid understanding of its risk environment (both internal and external) is fundamental to the delivery of its mandate and fulfilment of its core responsibilities. Risk management has equipped the department to respond proactively to change and uncertainty by defining and understanding its operating environment and the factors that drive risk.  The focus of operational risk management in the third quarter was to continue to pursue responses to risks related to the ongoing COVID-19 public health crisis. Key risks during this time continued to focus on business continuity planning and addressing IM/IT systems to continue to pursue increased effective remote working capacity for the whole Department while maintaining security. NRCan has continued to work with central agencies and other government departments to develop targeted risk mitigation initiatives to address the impacts of COVID-19 on natural resource sectors to stabilize and support their economic recovery. Initiatives like NRCan’s Emissions Reduction Fund were pursued in part to assist the natural resources sector during COVID-19, with a major focus on supporting Canada’s environmental protection goals and strengthening Canada’s competitiveness as it recovers from the global pandemic.

NRCan will continue to monitor and integrate risk information into strategic and operational decision-making in support of Canada’s natural resource sectors during an unprecedented global pandemic.

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

Subsequent to quarter end, Shirley Carruthers was appointed Assistant Deputy Minister, Corporate Management and Services Sector and Chief Financial Officer effective January 25, 2021.

No other significant changes in relation to operations, personnel or programs occurred during the third quarter of 2020-21. However, there has been an impact on how NRCan delivers its operations and programs, with the majority of employees working from home and reductions to field and laboratory work due to COVID-19 pandemic.

Table 1: Statement of Authorities (unaudited)

Table 1: Statement of Authorities (unaudited)

(in thousands of dollars)	Fiscal Year 2020-21			Fiscal Year 2019-20
	Total available for use for the year ending March 31, 2021*	Expended during the quarter ended December 31, 2020	Year-to-date used at quarter-end	Total available for use for the year ending March 31, 2020**	Expended during the quarter ended December 31, 2019	Year-to-date used at quarter-end
Vote 1 - Net Operating Expenditures	619,550	149,559	405,623	613,186	151,197	428,009
Vote 5 - Capital Expenditures	15,560	2,599	4,223	17,143	6,191	7,210
Vote 10 - Grants and Contributions	746,164	71,885	136,267	489,199	74,645	144,432
Statutory Payments
Minister of Natural Resources – Salary and motor car allowance	89	22	67	88	12	56
Contributions to employee benefit plans	60,866	14,278	42,835	59,315	14,544	43,633
Contribution to the Canada/Newfoundland Offshore Petroleum Board	11,187	5,594	5,594	9,475	(43)	3,369
Contribution to the Canada/Nova Scotia Offshore Petroleum Board	4,305	(594)	1,372	4,305	(2,150)	3
Payments to the Nova Scotia Offshore Revenue Account	-	16,722	16,761	-	3,262	4,143
Payments to the Newfoundland Offshore Petroleum Resource Revenue Fund	289,756	62,608	110,254	374,165	68,833	230,408
Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources	-	-	-	-	-	24,862
Spending of amounts equivalent to proceeds from disposal of surplus crown assets	-	-	3	-	18	27
Federation of Canadian Municipalities - Green Municipal Fund	-	-	-	950,000	-	950,000
Youth Employment and Skills Strategy	14,522	-	-
Climate Action Support	3,600	-	281
Payments related to Public Health Events of National Concern and income support	-	1,334	14,523	-	-	-
Total Statutory Payments	384,325	99,964	191,690	1,397,348	84,476	1,256,501
Total Budgetary Authorities	1,765,599	324,007	737,803	2,516,876	316,509	1,836,152

* Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimates and Supplementary Estimates (A) and (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 Estimates, for which full supply was released, and Budget Implementation Vote, which reflects some measures announced in Budget 2019.

Table 2: Budgetary Expenditures by Standard Object (unaudited)

Table 2: Budgetary Expenditures by Standard Object (unaudited)

(in thousands of dollars)	Fiscal Year 2020-21			Fiscal Year 2019-20
	Total available for use for the year ending March 31, 2021*	Expended during the quarter ended December 31, 2020	Year-to-date used at quarter-end	Total available for use for the year ending March 31, 2020*	Expended during the quarter ended December 31, 2019	Year-to-date used at quarter-end
Budgetary Expenditures:
Personnel	467,743	125,631	357,595	462,738	127,815	358,592
Transportation and communication	23,050	872	1,590	19,801	4,340	13,206
Information	11,697	3,593	6,608	9,938	2,061	4,805
Professional and special services	137,079	28,889	64,310	130,001	27,152	66,676
Rentals	17,419	3,325	10,468	20,881	1,185	15,294
Repair and maintenance	8,239	1,597	2,390	9,015	894	2,731
Utilities, materials and supplies	29,296	3,327	5,739	32,274	3,839	10,164
Acquisition of land, buildings and works	3,266	2,103	3,389	6,791	5,707	6,275
Acquisition of machinery and equipment	29,665	3,160	5,282	28,846	2,581	6,094
Transfer payments	1,069,535	157,546	285,052	1,827,144	144,547	1,357,217
Other subsidies and payments	7,193	(835)	6,371	7,088	2,733	9,006
Total Budgetary Expenditures	1,804,182	329,209	748,794	2,554,517	322,854	1,850,060
Less: Total Revenues Netted Against Expenditures	38,583	5,202	10,991	37,641	6,345	13,908
Total Net Budgetary Expenditures	1,765,599	324,007	737,803	2,516,876	316,509	1,836,152

*Total available for use represents planned expenditures for the fiscal year.