Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended December 31, 2021

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 Estimates (A) and (B) for the 2021-22 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, 2021, which include Main Estimates and Supplementary Estimates for which full supply was released. The details presented in this report focus on and compare the third quarter results of 2021-22 with those of 2020-21.

2.1 Authorities

As per Table 1, presented at the end of this document, and on Graph 1 below, as at December 31, 2021, NRCan has authorities available for use of $2,695 million in 2021-22 compared to $1,766 million as of December 31, 2020, for a net increase of $929 million or 53%.

Graph 1

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Graph 1 Comparison of Authorities as at December 31, 2021

(in millions of dollars)	Fiscal year 2020-21 total available for use for the year ending 31-Mar-21	Fiscal year 2021-22 total available for use for the year ending 31-Mar-22
Vote 1 - Operating	620	779
Vote 5 - Capital	16	27
Vote 10 - Grants and contributions	746	1,610
Statutory	384	279
Total budgetary authorities	1,766	2,695

The increase of $929 million in authorities in 2021-22 compared to 2020-21 is primarily due to increased funding for the Emissions Reduction Fund program and new funding to support Greener Homes program. The increase in authorities is also 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 (2021-22 compared with 2020-21)
(in thousands of dollars)

Total available for use for the year ending March 31, 2021	1,765,599
Vote 1 - Operating
New funding for Greener Homes	98,099
Increased funding for Geo-Mapping for Energy and Minerals Initiative, funding renewed late in 2020-21	14,640
New funding for wildfire and flood preparedness and response capacity	12,766
Increase in Operating Budget Carry Forward	10,998
New funding for Natural Climate Solutions (2 Billion Trees)	10,339
New funding for collective bargaining to cover wage increases for 2021-22	9,799
Various minor net increases	3,153
Sub total Vote 1 - Operating	159,794
Vote 5 - Capital
New funding for Canadian Data Receiving Infrastructure	3,844
Increased funding for Ensuring Better Disaster Management Preparation Program	2,600
New funding to support the development of Canadian critical mineral value chains	2,175
New funding for the Polar Continental Shelf Program	1,920
Increased funding for Geo-Mapping for Energy and Minerals Initiative, funding renewed late in 2020-21	1,095
Various minor net decrease	(525)
Sub total Vote 5 - Capital	11,109
Vote 10 - Grants & Contributions
Increased funding for Emissions Reduction Fund	528,972
New funding for Greener Homes	210,500
New funding for Natural Climate Solutions (2 Billion Trees)	59,500
Increased funding for Youth Employment and Skills Strategy - Green Jobs	41,658
Increased funding for Green Infrastructure Program	26,565
Increased funding for Zero Emission Vehicles Program	22,950
Decreased funding for the ecoENERGY for Renewable Power as the program has been completed	(39,851)
Decreased funding for COVID-19 Safety Measures in Forest Sector Operations	(30,000)
Various net increases	43,107
Sub total Vote 10 - Grants & Contributions	863,401
Statutory
Employee Benefit Plan (EBP) adjustments, due to salary adjustments in 2021-22 compared to 2020-21	2,524
Contribution to the Canada/Newfoundland Offshore Petroleum Board due to increased level of activity	490
Canada Nova Scotia Offshore Petroleum Board	(373)
Decreased funding for Climate Action Support Payments - Energy Manager Program	(2,703)
Decreased funding for Expanding Existing Federal Employment, Skills Development, Student and Youth Programming	(14,523)
Newfoundland Offshore Petroleum Resource Revenue Fund adjustment, as it was forecasted at the time of Main Estimates that less revenue would be collected in 2021-22 than in 2020-21, due to fluctuations in oil prices, variances in production and a decrease in planned expenditures*	(90,421)
Sub total Statutory	(105,006)
Total increase from previous year due to year-over-year changes	929,299
Total available for use for the year ending March 31, 2022	2,694,898
* 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, 2021 amounts to $340.3 million or 13% of total funding available for the fiscal year, compared to $324.0 million or 18% for the same quarter last year. This increase of $16.3 million in spending is mainly related to an increase in expenditures for personnel, professional and special services and transfer payments in 2021-22 compared to the same type of expenditures in 2020-21. 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, 2021

(in thousands of dollars)	Fiscal year 2020-21 Expended during the quarter ended 31-Dec-20	Fiscal year 2021-22 Expended during the quarter ended 31-Dec-21
Personnel	125,631	131,079
Professional and special services	28,889	32,984
Transfer payments	157,546	174,807
All Other Standard Objects	11,941	1,462
Total net budgetary expenditures	324,007	340,332

Variance in Budgetary Expenditures by Standard Object (2021-22 compared with 2020-21)
(in thousands of dollars)

Standard Object	Explanation	Variance between 2021-22 and 2020-21 Q3 expenditures October 1 to December 31	Variance between 2021-22 and 2020-21 year-to-date expenditures April 1 to December 31
Personnel	The increase is mainly due to higher expenses related to retroactive payments and wage increases from collective bargaining settlements as well as new hires to support new programs.	5,448	23,043
Professional and special services	The increase is mainly due to the resumption of regular activities, with COVID-19 pandemic having less of an impact on the operating environment, as well as an increase in contracts related to new programs.	4,095	5,165
Transfer Payments	The increase is mainly attributed to increased offshore activity, which resulted in an increase in transfers’ payment to the province of Newfoundland and Labrador and Nova Scotia as well as payments related to Emission Reduction Fund and 2 Billion Trees contribution Programs.	17,261	169,195
Rentals	The increase is mainly attributed to resumption of regular activities in resolute facility, with COVID-19 pandemic having less of an impact on the operating environment resulting in an increase of aircraft rental activities.	241	4,109
Other subsidies and payments	The decrease in the third quarter spending is mainly due to timing of OGD transfers and associated payments from one year to the next.	(8,183)	476
All Other Standard Objects	Minor decreases within different standard objects.	(2,537)	(1,486)
Total Variance		16,325	200,502

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. Since September 2021, the ongoing COVID-19 pandemic and emergence of the Omicron variant exacerbated the short-term outlook for economic recovery with stricter public health measures and renewed lockdowns. Expanded vaccine eligibility and increased delivery of booster shots, however, could help dampen negative impacts. Other concerns included a possible hike in interest rates to control rising inflation and severe flooding in British Columbia coupled with already existing supply chain disruptions and higher energy prices. For instance, while Canadian exports of natural resources increased by 3.8% in November 2021, natural resources exports from British Columbia fell by 7.8% due to transportation disruptions caused by flooding and landslides. Consequently, economic recovery might extend well into 2022 considering COVID-19 responses and climate change impacts.

Compared to March 2021, real GDP for the natural resources sector rose 2.7% by September 2021 while Canada’s economy-wide GDP increased by 1.2%. For employment rates, the natural resources sector observed 3.0% declines between July and September 2021 compared to 2.2% growth across the entire Canadian economy. By the end of September 2021, however, employment in the natural resource sector was within 0.3% of February 2020 pre-pandemic levels and real GDP for the sector reached pre-pandemic levels. In November 2021, Finance Canada revised its forecast for Canadian GDP growth down to 4.6% from 5.8% in Budget 2021 due to the effects of the Delta and newer COVID-19 variants, supply chain disruptions, and inflation concerns. These figures demonstrate that Canada’s economy recovery is underway but may be slower than anticipated.

The release of the Minister’s December 2021 Mandate Letter underline NRCan’s Budget 2021 initiatives that could support economic recovery for Canadians and the natural resources sector. 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, fostering battery innovation, and supporting Indigenous partnerships, capacity building and benefits sharing. NRCan continues to support research, development, and demonstrations that supports the transition to a low carbon future. The Department also works with other government departments and central agencies to address risks that have an impact on the natural resources sector while strengthening the economy.

NRCan also continues to manage internal and external risks to deliver its mandate and core responsibilities. Internal processes were initiated to strengthen the integration of risk management, priority setting and decision-making to support effective results delivery. To ensure the health and safety of its employees and the Canadians they serve, the Department implemented the Government of Canada’s COVID-19 vaccination requirements for its public service in October 2021. Coordinated plans on the future of work were also advanced to ensure business continuity and a safe work environment for NRCan employees, with appropriate adjustments and communications as impacts of the new COVID-19 variants evolved. Managing risks and uncertainties remain a 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 and beyond.

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

Subsequent to quarter end, John Hannaford was appointed Deputy Minister of Natural Resources Canada, effective January 10, 2022.

No other significant change in relation to operations, personnel or programs occurred during the third quarter of 2021-22. However, there has been an impact on how NRCan delivers its operations and programs, with the majority of employees continuing to work from home and reductions to field and laboratory work due to COVID-19 pandemic.

Table 1: Statement of Authorities (unaudited)

(in thousands of dollars)	Fiscal Year 2021-22			Fiscal Year 2020-21
	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	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
Vote 1 - Net Operating Expenditures	779,344	146,235	432,243	619,550	149,559	405,623
Vote 5 - Capital Expenditures	26,669	4,130	6,383	15,560	2,599	4,223
Vote 10 - Grants and Contributions	1,609,564	116,284	220,292	746,164	71,885	136,267
Statutory Payments
Minister of Natural Resources – Salary and motor car allowance	91	23	68	89	22	67
Contributions to employee benefit plans	63,389	15,106	45,317	60,866	14,278	42,835
Contribution to the Canada/Newfoundland Offshore Petroleum Board	11,677	(2,205)	149	11,187	5,594	5,594
Contribution to the Canada/Nova Scotia Offshore Petroleum Board	3,932	(266)	1,080	4,305	(594)	1,372
Payments to the Nova Scotia Offshore Revenue Account	-	-	-	-	16,722	16,761
Payments to the Newfoundland Offshore Petroleum Resource Revenue Fund	199,335	60,776	232,508	289,756	62,608	110,254
Spending of amounts equivalent to proceeds from disposal of surplus crown assets	-	31	47	-	-	3
Federation of Canadian Municipalities - Green Municipal Fund	-	-	-	-	-	-
Expanded Youth Employment and Job Skills	-	-	-	14,522	-	-
Climate Action Support	897	218	218	3,600	-	281
Payments related to Public Health Events of National Concern and income support	-	-	-	-	1,334	14,523
Total Statutory Payments	279,321	73,683	279,387	384,325	99,964	191,690
Total Budgetary Authorities	2,694,898	340,332	938,305	1,765,599	324,007	737,803
* 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.

Table 2: Budgetary Expenditures by Standard Object (unaudited)

(in thousands of dollars)	Fiscal Year 2021-22			Fiscal Year 2020-21
	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	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
Budgetary Expenditures:
Personnel	497,591	131,079	380,638	467,743	125,631	357,595
Transportation and communication	34,312	1,505	3,756	23,050	872	1,590
Information	20,775	1,998	4,824	11,697	3,593	6,608
Professional and special services	207,953	32,984	69,475	137,079	28,889	64,310
Rentals	33,520	3,566	14,577	17,419	3,325	10,468
Repair and maintenance	11,069	711	2,351	8,239	1,597	2,390
Utilities, materials and supplies	41,323	3,796	7,642	29,296	3,327	5,739
Acquisition of land, buildings and works	6,144	1,590	2,402	3,266	2,103	3,389
Acquisition of machinery and equipment	44,866	4,063	7,679	29,665	3,160	5,282
Transfer payments	1,825,406	174,807	454,247	1,069,535	157,546	285,052
Other subsidies and payments	8,800	(9,018)	6,847	7,193	(835)	6,371
Total Budgetary Expenditures	2,731,759	347,081	954,438	1,804,182	329,209	748,794
Less: Total Revenues Netted Against Expenditures	36,861	6,749	16,133	38,583	5,202	10,991
Total Net Budgetary Expenditures	2,694,898	340,332	938,305	1,765,599	324,007	737,803