Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended June 30, 2023

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 (A) for the 2023-24 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, 2023, which include Main Estimates and Supplementary Estimates (A) for which full supply was released. The details presented in this report focus on and compare the first 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 June 30, 2023, NRCan has authorities available for use of $4,912.2M compared to $3,609.4M in 2022-23, for a net increase of $1,302.8M or 36.1%.

Graph 1

Text Version

Graph 1 : Comparison of Authorities as at June 30, 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	722	814
Vote 5 - Capital	37	32
Vote 10 - Grants and contributions	2,245	2,279
Statutory	605	1,787
Total budgetary authorities	3,609	4,912

The increase of $1,302.8M in authorities in 2023-24 compared to 2022-23 is mainly explained by the net effect of fluctuations within the statutory authorities of $1,182.4M as well as minor 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	3,609,353
Vote 1 - Operating
Increased/(Decreased) Funding Profile
Critical Minerals	28,710
Clean Technology Stream and Clean Growth Program	16,375
Emissions Reduction Plan (ERP) - Canada Green Buildings Strategy	11,955
Atomic Workers Recognition Program	(14,897)
Impact Assessment and Regulatory Processes - Cumulative effects	(11,504)
All other net increases less than $10M individually	61,223
Sub–total Vote 1 - Operating	91,862
Vote 5 - Capital
Increased/(Decreased) Funding Profile
Funding to address Canadian Data Receiving Infrastructure	(3,734)
Critical Minerals	(3,597)
All other net increases less than $3M individually	2,240
Sub–total Vote 5 - Capital	(5,091)
Vote 10 - Grants & Contributions
New Funding
Oil to Heat Pump Affordability Program	59,173
Increased/(Decreased) Funding Profile
Smart Renewables and Electrification Pathways Program	99,308
Natural Climate Solution Fund - 2B Tree	88,500
Electricity Predevelopment Program	75,000
Clean Technology Stream and Clean Growth Program	45,000
Fighting and Managing Wildfires in a Changing Climate	41,600
Decarbonization of On-road Transportation - Green Freight Program	40,909
Decarbonization of On-road Transportation - Zero-Emission Vehicle Infrastructure Program	26,808
Partenering with Indigenous Peoples on Natural Resource Projects	26,500
Clean Fuels Fund	26,000
Emissions Reduction Plan (ERP) - Green Industrial Facilities and Manufacturing Program	20,000
Greener Homes - Home Retrofits	(27,675)
Sunsetters
Emissions Reduction Fund	(384,000)
Investments in Forest Industry Transformation Program (Approved Renewal coming through Supplementary Estimates (B))	(62,968)
Mountain Pine Beetle	(25,873)
Forest Innovation Program (Approved Renewal coming through Supplementary Estimates (B))	(21,600)
All other net increase less than $20M individually	7,040
Sub–total Vote 10 - Grants & Contributions	33,722
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	9,745
Sub–total Statutory	1,182,391
Total increase from previous year due to year-over-year changes	1,302,886
Total available for use for the year ending March 31, 2024	4,912,239

2.2. Budgetary Expenditures by Standard Object

The spending for the quarter ending June 30, 2023 amounts to $381.4M or 7.8% of total funding available for the fiscal year, compared to $284.3M or 7.9% for the same quarter last year. This increase of $97.1M 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

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Graph 2 : Comparison of Standard Objects with significant variances as at June 30, 2023

(in millions of dollars)	Fiscal year 2022-23	Fiscal year 2023-24
	Expended during the quarter ended 30-Jun-22	Expended during the quarter ended 30-Jun-23
Personnel	127,982	140,789
Professional and special services	21,259	25,489
Transfer payments	126,055	193,620
All Other Standard Objects	9,026	21,483
Total net budgetary expenditures	284,322	381,380

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 Q1 expenditures
Personnel	The increase is mainly due to programming growth related to various initiatives such as Fighting and Managing Wildfires in a Changing Climate, Emissions Reduction Plan (ERP), Smart Renewables Electrification Pathways (SREP), Electricity Predevelopment, Off-Diesel, Grid Council and Critical Mineral Geoscience & Data, as well as additional hires related to enhance cyber security and corporate services.	12,807
Professional and special services	The increase is mainly due to incremental spending to support new/recent programs such as ERP, onboarding support contract related to Zero Emissions Vehicles Infrastructure program; increased program activities that have been accelerated in an attempt to offset the many delays and challenges that resulted from the COVID pandemic and market study to support regulatory efforts.	4,230
Transfer Payments	The increase is mainly attributed to new spending for 2 Billion Trees and SREP; increase in payments under the Greener Home Program completed earlier this fiscal year and the Science and Technology Internship Program which received an increased budget for the 2023-24 fiscal year compared to the previous year.	67,564
Other subsidies and payments	The increase is mainly related to disbursements of ex-gratia payments for the Atomic Workers Recognition Program, and timing of OGD transfers that occurred earlier in the year.	7,252
All Other Standard Objects	Represents minor increases and/or decreases across all other Standard Objects.	5,205
Total Variance		97,058

3. Risks and Uncertainties

Canada’s vast natural resource sectors continue to contribute significantly to economic growth across the country and play a vital role in creating jobs, fostering growth and prosperity for Canadians. In addition, Canada continues to support national and international focus on actions to adapt to the impacts of a changing climate and major climate events. NRCan continues to work with other government departments, provincial partners, and central agencies to address risks that have an impact on the natural resources sector while strengthening the economy for all Canadians.

The global economy continues to face an elevated level of uncertainty due to the ongoing war in Ukraine as well as pressure on the global supply chain caused by post-pandemic excess demand. One of the biggest challenges of the Canadian natural resources sector is the uncertainty surrounding commodity demand and prices, combined with persistent inflation, high borrowing costs and labour shortages, in the context of an expected economic slowdown.

Real GDP of the natural resources sector dropped 0.1% in the first quarter of 2023 relative to the previous quarter. In contrast, the economy-wide real GDP rose 0.7%. Mining, quarrying, and oil and gas extraction contracted for a second consecutive quarter. A strong decline in December 2022, due in part to unplanned maintenance and an oil spill in Kansas, more than offset increases in the sector from January to March 2023. Support activities for mining, and oil and gas extraction contributed the most to the quarterly decline. The forestry subsector was impacted by reduced housing market activity and higher interest rates, which put downward pressure on lumber demand and prices. As for the employment level, the natural resources sector declined 1.8% in the first quarter of 2023 compared to a 0.4% increase across the entire Canadian economy. In the OECD’s Economic Outlook, Canadian real GDP growth is projected to slow from 3.4% in 2022 to 1.4% this year, due to higher borrowing costs, deteriorating conditions abroad and lower capital expenditures.

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, 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. NRCan maintains its commitment to Indigenous economic reconciliation in the natural resources sectors by advancing shared governance of Canada’s resources, building meaningful relationships and partnerships with Indigenous organizations and communities, and developing a new national benefits-sharing framework to ensure that Indigenous communities benefit from major resource projects.

NRCan is strengthening its abilities to manage risks and uncertainty, while maintaining the focus to deliver its mandate and core responsibilities. The Department continues to improve the integration of risk management, priority setting, and decision-making to support results delivery. As outlined in the 2023-24 Departmental Plan, the Department is monitoring six strategic risks and three operational risks. Strategic risks threaten an organization’s ability to deliver expected outcomes and mandate. Operational risks stem from inadequate internal procedures or operations that relate to the effectiveness and/or efficiencies of our activities. NRCan will monitor these key corporate risks to inform decision-making and priority setting, while continuing to support Canadians and the natural resources sector in 2023-24.

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

On May 30, 2023, Prime Minister Justin Trudeau announced the appointment of John Hannaford as Clerk of the Privy Council, effective June 24, 2023, and that Mollie Johnson would assume the duties of Deputy Minister of Natural Resources on an interim basis. As a result, Mollie Johnson assumed the position of Deputy Minister of Natural Resources on June 1, 2023.

On July 14, 2023, Prime Minister Justin Trudeau announced the appointment of Michael Vandergrift as Deputy Minister of Natural Resources, and the appointment of Mollie Johnson as the Deputy Secretary to the Cabinet (Plans and Consultations), Privy Council Office, both effective July 24, 2023.

Finally, further to the Budget 2023 reduction measures announced earlier this spring, the department is reviewing its programs and operations in support of the government's efforts to refocus spending.