Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended September 30, 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) 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 September 30, 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 second 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 September 30, 2021, NRCan has authorities available for use of $2,619 million in 2021-22 compared to $1,225 million as of September 30, 2020, for a net increase of $1,394 million or 114%.

Graph 1

Text Version

Graph 1 Comparison of Authorities as at September 30, 2021

(in millions of dollars)	Fiscal year 2020-21	Fiscal year 2021-22
	total available for use for the year ending	total available for use for the year ending
	31-Mar-21	31-Mar-22
Vote 1 - Operating	448	745
Vote 5 - Capital	10	16
Vote 10 - Grants and contributions	404	1,581
Statutory	364	277
Total budgetary authorities	1,225	2,619

The increase of $1,394 million in authorities in 2021-22 compared to 2020-21 is explained by the availability of supply in 2021-22. In 2020-21, due to COVID-19 pandemic, there were limited sessions available for Parliament to study the Main Estimates. As a result, as of September 30th, 2020 Parliament had only approved departments to spend 75% of their Main Estimates, compared to 2021-22 where Parliament has approved 100% of Main Estimates. 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 $000s)
Total available for use for the year ending March 31, 2021	1,225,488

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
Increase in Operating Budget Carry Forward	11,293
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
New funding for Emissions Reduction Fund	9,242
New funding for Smart Renewables and Electrification Pathways Program	8,852
Decreased funding for Advancing Clean Tech - Clean Growth	(6,890)
Various minor net increases	1,812
Sub total Vote 1 - Operating	157,186

Vote 5 - Capital
Increased funding for Geo-Mapping for Energy and Minerals Initiative, funding renewed late in 2020-21	1,095
New funding for Natural Climate Solutions (2 Billion Trees)	700
Increased funding for Targeted Geoscience Initiative	700
Various minor net increases	520
Sub total Vote 5 - Capital	3,015

Vote 10 - Grants & Contributions
New funding for Emissions Reduction Fund	681,356
New funding for Greener Homes	210,500
Increased funding for Smart Renewables and Electrification Pathways Program	74,848
New funding for Natural Climate Solutions (2 Billion Trees)	59,500
Increased funding for Youth Employment and Skills Strategy - Green Jobs	42,102
Decreased funding for the ecoENERGY for Renewable Power as the program has been completed.	(39,851)
Decreased funding for the Impact Canada Fund due to reprofiling of funding	(23,803)
Various net increases	60,659
Sub total Vote 10 - Grants & Contributions	1,065,311

Statutory
Employee Benefit Plan (EBP) adjustments, due to salary adjustments in 2021-22 compared to 2020-21	4,245
Contribution to the Canada/Newfoundland Offshore Petroleum Board due to increased level of activity	490
Minister of Natural Resources – Salary and motor car allowance	1
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)
Canada Nova Scotia Offshore Petroleum Board	(373)
Sub total Statutory	(86,058)

Total increase from previous year due to year-over-year changes	1,139,454

In fiscal year 2020-21 NRCan received a reduced supply of the Main Estimates due to the COVID-19 pandemic and limited sessions in the spring 2020 for Parliament to study supply, the Standing Orders of the House of Commons were amended to extend the supply period into the Fall 2020. Full supply was received in Spring 2021	254,140

Total available for use for the year ending March 31, 2022	2,619,082

* 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 September 30, 2021 amounts to $362.6 million or 14% of total funding available for the fiscal year, compared to $241.0 million or 20% for the same quarter last year. This increase of $121.6 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 September 30, 2021

(in thousands of dollars)	Fiscal year 2020-21	Fiscal year 2021-22
	Expended during the quarter ended	Expended during the quarter ended
	30-Sep-20	30-Sep-21
Personnel	115,993	125,908
Professional and special services	23,529	18,805
Transfer Payments	89,202	196,782
Other subsidies and payments	2,894	8,791
All Other Standard Objects	9,382	12,303
Total net budgetary expenditures	241,000	362,589

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

(in $000s)
Standard Object	Explanation	Variance between 2021-22 and 2020-21 Q2 expenditures July 1 to September 30	Variance between 2020-21 and 2021-22 year-to-date expenditures April 1 to September 30
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.	9,915	17,595
Professional and special services	The decrease in the second quarter spending is mainly due to the timing of payments from one year to the next to support SAP Maintenance and Upgrades as well as Real Property requirements. The increase in year-to-date expenditures relates to the resumption of regular activities, with the COVID-19 pandemic having less of an impact on the operating environment.	(4,724)	1,069
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 as well as payments related to Emission Reduction Fund contribution program.	107,580	151,935
Other subsidies and payments	The increase is mainly attributed timing of OGD transfers and associated payments from one year to the next due to COVID-19 lockdowns and labs not being operational in fiscal year 2020-21.	5,897	8,659
All Other Standard Objects	Minor increases within different standard objects.	2,922	4,920
Total Variance		121,590	184,178

3. Risks and Uncertainties

Natural resources is an important driver for economic growth across Canada. Many of the risks from earlier in the year are persisting, as COVID-19 continues to pose a hindrance to rapid economic recovery. The delta variant has remained a source of ongoing concern despite over 81% of the eligible population fully vaccinated. The disruption in international supply chains coupled with the anticipated impact of the fourth wave continues to cause uncertainty. Short-term expectations for Canada indicates a decline in the impacts of the ongoing fourth wave and several organizations have introduced mandates while preparing for a staggered full re-entry to workplace, albeit with flexibility depending on sectors. Consequently, the previously anticipated recovery might extend into 2022.

Since the first quarter of 2021, real GDP for the natural resources sector rose by 0.3%, while Canada’s economy-wide GDP declined by 0.1%. Employment in the natural resources sector also rose by 1%, compared to 2.9% growth across the entire economy. Economic recovery is underway. Employment in natural resources sector is 0.6% below the pre-pandemic level in February 2020, while the current real GDP for the natural resources sector is within 1.9% of pre-pandemic levels. In October 2021, the International Monetary Fund revised its forecast for Canadian GDP growth down to 5.7% in 2021, from 6.3% earlier this year due to the effects of the Delta and newer variants of the coronavirus, supply chain disruptions and inflation concerns.

NRCan continues to manage a number of risks (internal and external) to deliver on is mandate and fulfill its core responsibilities to provide improved quality of life for Canadians by ensuring that resources are developed sustainably, competitively and inclusively. The framework put in place has equipped the department with a solid understanding of its risk environment and strengthened the capacity to manage changes and uncertainties by defining and understanding the factors that drive risk from operational and strategic perspectives. An important aspect of operational risk management is the coordinated planning for a return to the workplace by employees, while ensuring a safe work environment.

The department continues to focus on addressing strategic uncertainties that might hamper economic recovery with new initiatives such as the Emissions Reduction Fund (ERF), aimed at helping oil and gas companies with funds to invest in green solutions to reduce GHGs while retaining jobs. Similarly, Budget 2021 provided funding to NRCan to support research, development, and demonstrations that would improve the commercial scale viability of carbon capture, utilization, and storage technologies. These initiatives, in addition to programs such as the Canada Greener Homes Grant, will foster recovery.

NRCan continued to work with central agencies and other government departments to develop targeted mitigation initiatives that addressed generalized and natural resources sector specific risks while stabilizing and supporting the economy. Risk and uncertainties on economic recovery, clean growth, and inclusivity remain relevant and NRCan will continue to monitor and integrate risk information into strategic and operational decision-making to support Canadians, and the natural resources sector through the ongoing impacts of COVID-19 and beyond.

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

Subsequent to quarter end, Prime Minister Trudeau appointed the Honourable Jonathan Wilkinson as Minister of Natural Resources Canada.

No other significant change in relation to operations, personnel or programs occurred during the second 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.

Original signed by:

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Jean Francois Tremblay
Deputy Minister

Date signed: November 23, 2021
Ottawa, Canada