Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended June 30, 2018

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, as well as Canada’s Budget 2018. 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 allocations through the Budget Implementation Vote for the 2018-19 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 June 30, 2018, which include Main Estimates and allocations from the Budget Implementation Vote for which full supply was released, whereas the June 30, 2017 results include Main Estimates and Supplementary Estimates (A). The details presented in this report focus on and compare the first quarter results of 2018-19 with those of 2017-18.

Authorities

As per Table 1, presented at the end of this document, and on Graph 1 below, as at June 30, 2018, NRCan has authorities available for use of $1,466.3 million in 2018-19 compared to $1,348.7 million as of June 30, 2017, for a net increase of $117.6 million or 9%.

The increase of $117.6 million in authorities in 2018-19 compared to 2017-18 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:

For Vote 1 operating expenditures, a net increase of $42.8 million between the authorities available for use at the end of the first quarters of 2018-19 ($540.2 million) and 2017-18 ($497.4 million) is explained mainly by the following year-over-year changes:

Increases:

• $20.2 million in new and increased funding for the Green Infrastructure initiative programs, due to a planned adjustment to the program financial profile;
• $13.2 million for collective bargaining;
• $8.8 million in new funding for Advancing Clean Technology;
• $3.9 million in new funding for the Implementation of the Indigenous Advisory and Monitoring Committees for Energy Infrastructure Projects;
• $2.5 million in new funding for Greening Government Operations; and,
• $2.0 million in new funding for Softwood Lumber.

Decreases:

• $6.0 million for the transfers from Operating to Capital, as part of a planned increase in capital spending; and,
• $6.0 million for the Federal Infrastructure Initiative (FII), due to a planned adjustment to the program financial profile.

For Vote 5 capital expenditures, a net decrease of $35.7 million between the authorities available for use at the end of the first quarters of 2018-19 ($20.1 million) and 2017-18 ($55.8 million) is explained mainly by the following year-over-year changes:

Decreases:

• $46.1 million for the FII, due to a planned adjustment to the program financial profile.

Increases:

• $6.0 million for the transfers from Operating to Capital, as part of a planned increase in capital spending; and,
• $4.9 million in proceeds from the sale of real property.

For Vote 10 grants and contributions, a net increase of $105.6 million between the authorities available for use at the end of the first quarters of 2018-19 ($438.5 million) and 2017-18 ($332.9 million) is explained mainly by the following year-over-year changes:

Increases:

• $58.7 million in new and increased funding for the Green Infrastructure initiative, due to a planned adjustment to the program financial profile;
• $46.1 million in new funding for Advancing Clean Technology;
• $26.3 million in new funding for the Impact Canada initiative;
• $13.5 million in new funding for the Implementation of the Indigenous Advisory and Monitoring Committees for Energy Infrastructure Projects; and,
• $9.2 million in new funding for Protecting Jobs Eastern Canada’s Forestry Sector (Spruce Budworm Early Intervention Strategy).

Decreases:

• $44.5 million for the sunsetting of the Oil and Gas Clean Technology Program in 2017-18; and,
• $12.9 million for the ecoENERGY for Renewable Power program, due to a planned adjustment to the program financial profile.

For statutory items, a net increase of $5.0 million between the first quarters of 2018-19 ($467.6 million) and 2017-18 ($462.6 million) is explained mainly by:

Increases:

• $5.1 million in the Newfoundland Offshore Petroleum Resource Revenue Fund, as it was forecasted at the time of Main Estimates that more revenue would be collected in 2018-19 than in 2017-18, due to fluctuations in oil prices and variances in production^{Footnote 1} ; and,
• $2.5 million in Employee Benefit Plan (EBP) adjustments, due to increased salaries in 2018-19 compared to 2017-18, which was slightly offset by the EBP rate decrease in 2018-19 compared to 2017-18.

Decreases:

• $1.4 million in the Payments of the Crown Share Adjustment for Nova Scotia Offshore Petroleum Resources, as it reflects the declining production at the Sable Energy Project and its expected decommissioning by 2018-19; and,
• $1.3 million in the Nova Scotia Offshore Revenue Account, as it was forecasted at the time of Main Estimates that less revenue would be collected in 2018-19 than in 2017-18 due to variances in production and fluctuations in natural gas prices^{Footnote 1}.

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 June 30, 2018 amounts to $200.9 million or 14% of total funding available for the fiscal year, compared to $202.4 million or 15% for the same quarter last year. This decrease of $1.5 million in spending is mainly related to a decrease in expenditures for professional and special services and transfer payments in 2018-19 compared to the same type of expenditures in 2017-18. Further analysis has been done on standard objects with significant expenses, some of which are grouped under All Other Standard Objects, as noted in Graph 2 below. Table 2 at the end of this document presents the spending for all standard objects.

There is no significant variation for personnel expenditures between the first quarters of 2018-19 ($111.2 million) and 2017-18 ($110.7 million).

The net decrease of $2.7 million in professional and special services between the first quarters of 2018-19 ($15.9 million) and 2017-18 ($18.6 million) primarily consists of:

Decreases:

• $2.5 million due to the timing of payments to and from Other Government Departments from one year to the next; and,
• $1.2 million due to a coding change to more appropriately record the FII expenditures under acquisition of land, buildings and works.

Increases:

• $0.7 million for increased spending under the Targeted Geoscience Initiative.

The increase of $1.2 million in expenditures for acquisition of land, buildings and works between the first quarters of 2018-19 ($1.2 million) and 2017-18 ($0 million) is primarily due to a coding change to more appropriately record the FII expenditures (see comment under professional and special services section).

The net decrease of $7.5 million in expenditures for transfer payments between the first quarters of 2018-19 ($60.5 million) and 2017-18 ($68.0 million) primarily consists of:

Decreases:

• $9.5 million for statutory Atlantic offshore transfers mainly as a result of lower offshore oil production.

Increases:

• $1.2 million for the ecoENERGY for Renewable Power program due to increased production, which led to higher incentive payments in 2018-19; and,
• $0.7 million for Expanding Market Opportunities, as more advances were issued in the first quarter of 2018-19 than 2017-18.

The increase of $3.8 million in expenditures for other subsidies and payments between the first quarters of 2018-19 ($4.0 million) and 2017-18 ($0.2 million) is primarily due to a timing difference.

In addition to the above details, other minor increases and decreases were observed within different standard objects.  

3. Risks and Uncertainties

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 equips the department to respond proactively to change and uncertainty by defining and understanding its operating environment and the factors that drive risk.  Risk considerations are integrated into strategic and operational decision-making, priority setting, and resource allocation in order to minimize potential negative impacts and maximize opportunities across the diverse range of services and operations.  NRCan’s approach to risk management is codified in the Integrated Risk Management Policy Framework, which is aligned with the Treasury Board Framework for the Management of Risk.

Natural resources are at the nexus of Canada’s economic and environmental agendas. They confer significant large economic benefits, accounting for about 17% of Canada’s nominal Gross Domestic Product and the creation of 1.8 million jobs in 2017. Furthermore, our natural resources sectors inform Canada’s environmental performance. Our collective challenge is to set and implement a plan that will ensure the growth of the resource sectors and the achievement of our goals in terms of the reduction of our greenhouse gas emissions.

During the last quarter of 2017-18 and the first quarter of 2018-19, the department focused on managing its risks to advance priorities in the areas of energy infrastructure, softwood lumber, regulatory review, Canada-U.S. relations (including North American Free Trade Agreement and aluminium and steel tariffs), clean technology, Indigenous reconciliation and Budget 2018 implementation, including funding for actions to support the Pan-Canadian Framework on Clean Growth and Climate Change.

NRCan also managed uncertainties regarding its future funding level and spending. The Department continuously tracks program spending, following best practices that comply with the Financial Administration Act and requesting the reprofiling of funds, as required, to ensure program objectives continue to be met. NRCan pro-actively engages with central agencies to manage the financial uncertainty associated with the sunsetting of specific time-limited programs. The department also continues to assess ways to realign resources to address pressures and multi-year transformation initiatives. NRCan mitigates its financial risks through scenario planning, monthly analysis of trends and forecasting in both salary and non-salary expenditures, and comprehensive quarterly reviews.

NRCan will continue to monitor and integrate risk information into strategic and operational decision-making in support of advancing the prosperity of Canada’s natural resource sectors while also achieving environmental results through sustainable practices.

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

The appointment of a new Assistant Deputy Minister for Indigenous Affairs and Reconciliation occurred during the first quarter of 2018-19.

Table 1: Statement of Authorities (unaudited)

	Fiscal year 2018-19			Fiscal year 2017-18
(in thousands of dollars)	Total available for use for the year ending March 31, 2019*	Used during the quarter ended June 30, 2018	Used year-to-date at quarter-end	Total available for use for the year ending March 31, 2018**	Used during the quarter ended June 30, 2017	Used year-to-date at quarter-end
Vote 1 - Net Operating Expenditures	540,156	124,385	124,385	497,392	117,558	117,558
Vote 5 - Capital Expenditures	20,072	2,089	2,089	55,781	3,465	3,465
Vote 10 - Grants and Contributions	438,470	25,262	25,262	332,870	23,294	23,294
Statutory Payments
Minister of Natural Resources – Salary and motor car allowance	86	22	22	84	21	21
Contributions to employee benefit plans	55,986	13,903	13,903	53,524	13,351	13,351
Contribution to the Canada/ Newfoundland Offshore Petroleum Board	8,835	-1,530	-1,530	8,835	-	-
Contribution to the Canada/Nova Scotia Offshore Petroleum Board	4,355	1,076	1,076	4,355	1,089	1,089
Payments to the Nova Scotia Offshore Revenue Account	5,356	605	605	6,624	740	740
Payments to the Newfoundland Offshore Petroleum Resource Revenue Fund	392,507	35,061	35,061	387,367	42,925	42,925
Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources	438	-	-	1,818	-	-
Total Statutory Payments	467,563	49,137	49,137	462,607	58,126	58,126
Total Budgetary Authorities	1,466,261	200,873	200,873	1,348,650	202,443	202,443

 

* Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimates and Budget Implementation Vote which reflects some measures announced in Budget 2018.
** 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) which reflects some measures announced in Budget 2017.

 

Table 2:  Budgetary Expenditures by Standard Object (unaudited)

(in thousands of dollars)	Fiscal year 2018-2019			Fiscal year 2017-2018
	Planned expenditures for the year ending March 31, 2019*	Expended during the quarter ended June 30, 2018	Year-to-date used at Quarter-end	Planned expenditures for the year ending March 31, 2018**	Expended during the quarter ended June 30, 2017	Year-to-date used at Quarter-end
Budgetary Expenditures:
Personnel	425,488	111,174	111,174	395,879	110,721	110,721
Transportation and communication	15,883	3,179	3,179	13,028	2,805	2,805
Information	6,745	697	697	4,980	701	701
Professional and special services	111,083	15,896	15,896	99,119	18,563	18,563
Rentals	18,510	3,571	3,571	33,166	2,084	2,084
Repair and maintenance	7,793	418	418	5,333	1,250	1,250
Utilities, materials and supplies	46,311	1,939	1,939	36,987	1,955	1,955
Acquisition of land, buildings and works	14,469	1,234	1,234	2,121	2	2
Acquisition of machinery and equipment	6,398	1,739	1,739	53,669	946	946
Transfer payments	849,961	60,474	60,474	741,868	68,048	68,048
Other subsidies and payments	745	4,043	4,043	965	183	183
Total Budgetary Expenditures	1,503,386	204,364	204,364	1,387,115	207,258	207,258
Less:
Total  Revenues Netted Against Expenditures	37,125	3,491	3,491	38,465	4,815	4,815
Total Net Budgetary Expenditures	1,466,261	200,873	200,873	1,348,650	202,443	202,443

 

* Planned expenditures reflect some measures announced in Budget 2018.
** Planned expenditures reflect some measures announced in Budget 2017.