Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended December 31, 2023

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 2023-24 fiscal year, as well as budget adjustments approved by Treasury Board (TB) up to December 31, 2023. 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, 2023, which include Main Estimates and Supplementary Estimates (A) and (B) for which full supply was released, as well as TB approved adjustments. The details presented in this report focus on and compare the third quarter results of 2023-24 with those of 2022-23.

2.1. Authorities

As per Table 1, presented at the end of this document, and on Graph 1 below, as at December 31, 2023, NRCan has authorities available for use of $5,207.9M compared to $3,966.8M in 2022-23, for a net increase of $1,241.1M or 31.3%.

 

Graph 1

Text Version

Graph 1 : Comparison of Authorities as at December 31, 2023

(in millions of dollars)	Fiscal year 2022-23	Fiscal year 2023-24
	Total available for use for the year ending 31-Mar-23	Total available for use for the year ending 31-Mar-24
Vote 1 - Operating	806	944
Vote 5 - Capital	52	50
Vote 10 - Grants and contributions	2,500	2,422
Statutory	609	1,792
Total budgetary authorities	3,967	5,208

The increase of $1,241.1M in authorities in 2023-24 compared to 2022-23 is mainly explained by the increase within the statutory authorities of $1,183.4M as well as the net effect of smaller 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 (2023-24 compared with 2022-23)
(in $000s)

Total available for use for the year ending March 31, 2023	3,966,778
Vote 1 - Operating
Increased/(Decreased) Funding Profile
Critical Minerals	35,027
Clean Technology Stream and Clean Growth Program	16,375
Emissions Reduction Plan (ERP) - Canada Green Buildings Strategy	11,955
Flood Hazard Identification and Mapping Program	11,208
Atomic Workers Recognition Program	(19,183)
Impact Assessment and Regulatory Processes - Cumulative effects	(11,504)
Increase in Collective Bargaining Agreements	33,386
All other net increases less than $10M individually	60,736
Sub-total Vote 1 - Operating	138,000
Vote 5 - Capital
Increased/(Decreased) Funding Profile
Critical Minerals	(4,797)
Funding to address Canadian Data Receiving Infrastructure	(4,621)
All other net increases less than $3M individually	7,483
Sub-total Vote 5 - Capital	(1,935)
Vote 10 - Grants & Contributions
New Funding
Oil to Heat Pump Affordability Program	59,173
Critical Minerals Infrastructure Program	103,996
Increased/(Decreased) Funding Profile
Smart Renewables and Electrification Pathways Program	99,308
Natural Climate Solution Fund - 2B Trees	88,500
Electricity Predevelopment Program	75,000
Clean Technology Stream and Clean Growth Program	45,000
Decarbonization of On-road Transportation - Zero-Emission Vehicle Infrastructure Program	26,808
Fighting and Managing Wildfires in a Changing Climate	26,000
Clean Fuels Fund	26,000
Emissions Reduction Plan (ERP) - Green Industrial Facilities and Manufacturing Program	20,000
Investments in Forest Industry Transformation Program	(62,883)
Decarbonization of On-road Transportation - Green Freight Program	(56,168)
Accelerating Energy System Transformation and Net-Zero Growth - Regional Energy Resource Tables	(50,964)
Greener Homes - Home Retrofits	(27,675)
Sunsetters
Emissions Reduction Fund	(384,000)
Mountain Pine Beetle	(39,730)
All other net decreases less than $20M individually	(26,749)
Sub-total Vote 10 - Grants & Contributions	(78,383)
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)	1,172,646
All other net increases	10,756
Sub-total Statutory	1,183,402
Total increase from previous year due to year-over-year changes	1,241,083
Total available for use for the year ending March 31, 2024	5,207,861

2.2. Budgetary Expenditures by Standard Object

The spending for the quarter ending December 31, 2023 amounts to $676.6M or 13.0% of total funding available for the fiscal year, compared to $516.8M or 13.0% for the same quarter last year. The increase of $159.8M in spending is mainly related to an increase in expenditures for personnel, professional and special services and transfer payments in 2023-24 compared to the same type of expenditures in 2022-23. 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, 2023

(in millions of dollars)	Fiscal year 2022-23	Fiscal year 2023-24
	Expended during the quarter ended 31-Dec-22	Expended during the quarter ended 31-Dec-23
Personnel	141	181
Professional and special services	36	41
Transfer Payments	314	431
All Other Standard Objects	26	24
Total net budgetary expenditures	517	677

 

Variance in Budgetary Expenditures by Standard Object (2023-24 compared with 2022-23)
(in $000s)

Standard Object	Explanation	Variance between 2023-24 and 2022-23 Q3 expenditures	Variance between 2023-24 and 2022-23 YTD expenditures
Personnel	The increase is mainly due to programming growth related to various initiatives such as 2 Billion Trees (2BT), Greener Homes (GH), Oil to Heat Pump Affordability (OPHA), Smart Renewables Electrification Pathways (SREP), Electricity Predevelopment, Off-Diesel, Grid Council, Impact Assessment and Regulatory Process (IARP), Emission Reduction Plan (ERP) and Critical Minerals; additional hires to enhance cyber security and corporate services; and salary pay increases, including retroactive payments, that were processed during the 3rd quarter this year following the ratification of collective agreements for multiple employee groups.	39,880	73,402
Professional and special services	The increase is mainly due to incremental spending to support new and recent programs such as ERP, Clean Fuels Fund, and Zero Emissions Vehicles Infrastructure program (ZEVIP); and other annual recurring payments processed earlier this year.	4,975	15,541
Transfer Payments	The increase is mainly attributed to Statutory Offshore transfer payments (province of Newfoundland and Labrador); increase in payments under GH, and new spending for 2BT, SREP, and the ZEVIP which received increased budgets this year.	117,236	522,698
Other subsidies and payments	The decrease is mainly attributed to a decrease in disbursements of ex-gratia payments for the Atomic Workers Recognition Program and the timing of OGD transfers and associated payments.	(7,128)	(6,768)
All Other Standard Objects	Represents minor increases and/or decreases across all other Standard Objects.	4,778	11,762
Total Variance		159,741	616,635

3. Risks and Uncertainties

Canada’s vast natural resource sectors continually contribute significantly to economic growth across the country and play a vital role in creating jobs, fostering growth and prosperity for Canadians. Additionally, Canada continues to support national and international actions to confront the impacts of a changing climate and major climate events that are becoming more prevalent. NRCan maintains its ongoing work to develop policies and programs that enhance the contribution of the natural resources sector, while working with other government departments, provincial partners, and Indigenous Partners to address risks that have an impact on the environment and natural resources while strengthening the economy for all Canadians.

The global economy continues to face an elevated level of uncertainty due to the war between Israel and Hamas, the ongoing war in Ukraine, the Red Sea route and Panama Canal disruptions, as well as increasing geoeconomic fragmentation. One of the biggest challenges of the Canadian natural resources sector is the uncertainty surrounding commodity demand and prices, combined with high borrowing costs, in the context of a global economic slowdown.

Real GDP of the natural resources sector dropped 0.2% in the third quarter of 2023 relative to the previous quarter. In contrast, the economy-wide real GDP was essentially unchanged at -0.05%. Despite the decline of the natural resources sector, the mining, oil and gas industry grew in the third quarter, driven by oil and gas extraction. This sector rebounded from the effect of forest fires on natural gas extraction in the second quarter, while oil sands extraction continued to expand for the second consecutive quarter. As for the employment level, the natural resources sector increased by 3.0% in the third quarter of 2023, compared to a modest 0.4% growth across the entire Canadian economy. According to the OECD (Economic Outlook, Nov. 2023), Canadian GDP growth will drop to 0.8% in 2024 (from 1.4% in its previous report), reflecting slowing domestic demand in the wake of high borrowing costs, and subdued foreign demand.

The accelerating transition to net-zero has started a global race to attract investments in building clean economies and Canada must keep pace at the international level to meet the country's global commitments related to the sustainable development of natural resources. The Government of Canada’s Budget 2023 investments have positioned NRCan to continue laying the foundation for Canada’s transition to net-zero by 2050, from clean energy to critical minerals to combatting wildfires. For example, it introduced tools to put Canada’s electricity sector on the path to a net-zero electricity grid by 2035, building Canada’s clean economy, tax credits to advance Canada’s leadership in critical minerals, and investments in sustainable forestry.

As Canada transitions to a low-carbon economy, NRCan continues to ensure that its programs, policies, and processes are inclusive by design and address systemic barriers. Advancing the principles of inclusion, diversity, equity, and accessibility along with utilizing gender-based plus analysis, the Department will consider the impacts on vulnerable, marginalized, and underrepresented groups and work to embed concrete measures in policy and program design in the development of natural resource projects that support the transition to a clean energy future. In addition, NRCan maintains its commitment to reconciliation by promoting an integrated and coordinated approach to Indigenous partnerships and economic reconciliation-focused initiatives in the natural resources sectors. This will be achieved by advancing shared governance of Canada’s resources, building meaningful relationships and collaborative partnerships with Indigenous organizations and communities, and developing a new national benefits-sharing framework to ensure that Indigenous communities benefit from major resource projects.

To adapt to the ever-evolving digital world, including hybrid work and cybersecurity, the Department will work to implement an integrated plan to respond to Canada’s Digital Ambition. By investing in the use of technology, data, cybersecurity, and upskilling staff, NRCan will seek to strengthen the foundations required to deliver improved digital services. Given that cyber security is an increasingly high priority in light of rising cyber threats across the natural resource sectors, and the global landscape, ensuring proper actions are taken to secure digital resources and information will only increase NRCan’s ability to maintain delivery of key functions while ensuring protection of data.

NRCan continues to strengthen the Department’s capabilities to manage risks effectively, while maintaining the focus to deliver its mandate and core responsibilities. The Department is moving forward with the integration of risk management, which will aid in priority setting and decision-making to support results delivery by effectively and efficiently implementing key mitigation strategies. As outlined in the 2023-24 Departmental Plan, the Department is monitoring the following six strategic risks and three operational risks:

Strategic Risks

• External Engagement
• Policy, Funding Authority
• Federal Alignment
• Regulatory Regime
• Reconciliation
• Inclusion, Diversity, Equity and Accessibility

Operational Risks

• Cyber Security
• Workplace Wellness
• Corporate Service Delivery

Strategic risks threaten the Department as a whole, and its ability to deliver expected outcomes and mandates. Concurrently, Operational risks relate to the effectiveness and/or efficiencies of our activities. NRCan will monitor these key corporate risks closely and routinely to inform leadership on risk status and if further action is required, while continuing to support Canadians and the natural resources sector in 2023-24.

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

Several significant changes have occurred during the 3^rd quarter of 2023-24, namely:

• Effective October 23^rd, Francis Brisson became the Chief Financial Officer for NRCan and Assistant Deputy Minister of the Corporate Management Services Sector.
• It was announced on October 3^rd that Rinaldo Jeanty will be assuming the role of ADM of the Lands and Minerals Sector (LMS).

No further significant changes to report.