Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended September 30, 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 (A) for the 2023-24 fiscal year, as well as budget adjustments approved by Treasury Board (TB) up to September 30, 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 September 30, 2023, which include Main Estimates and Supplementary Estimates (A) for which full supply was released, as well as TB approved adjustments. The details presented in this report focus on and compare the second 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 September 30, 2023, NRCan has authorities available for use of $4,951.0M compared to $3,650.9M in 2022-23, for a net increase of $1,300.1M or 35.6%.

Graph 1

Text Version

Graph 1 : Comparison of Authorities as at September 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	759	846
Vote 5 - Capital	42	39
Vote 10 - Grants and contributions	2,245	2,279
Statutory	605	1,787
Total budgetary authorities	3,651	4,951

The increase of $1,300.1M in authorities in 2023-24 compared to 2022-23 is mainly explained by the increase within the statutory authorities of $1,182.4M 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	3,650,892
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	56,527
Sub–total Vote 1 - Operating	87,166
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	4,147
Sub–total Vote 5 - Capital	(3,184)
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
Partnering 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 increases 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	9,746
Sub–total Statutory	1,182,392
Total increase from previous year due to year-over-year changes	1,300,096
Total available for use for the year ending March 31, 2024	4,950,988

2.2. Budgetary Expenditures by Standard Object

The spending for the quarter ending September 30, 2023 amounts to $814.3M or 16.4% of total funding available for the fiscal year, compared to $454.4M or 12.4% for the same quarter last year. This increase of $359.9M 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 September 30, 2023

(in millions of dollars)	Fiscal year 2022-23	Fiscal year 2023-24
	Expended during the quarter ended 30-Sep-22	Expended during the quarter ended 30-Sep-23
Personnel	141	161
Professional and special services	32	38
Transfer payments	253	591
All Other Standard Objects	28	24
Total net budgetary expenditures	454	814

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 Q2 expenditures	Variance between 2023-24 and 2022-23 year-to-date
Personnel	The increase is mainly due to programming growth related to various initiatives such as 2 Billion Trees (2BT), Greener Homes (GH), 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 related to enhance cyber security and corporate services as well as salary pay increases that were processed during the 2nd quarter this year following the ratification of collective agreements for multiple employee groups.	20,713	33,520
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; and annual recurring payments processed earlier this year.	6,336	10,565
Transfer Payments	The increase is mainly attributed to Statutory Offshore transfer payments (province of Newfoundland and Labrador); new spending for 2BT and SREP; increase in payments under the Greener Home Program, completed earlier this fiscal year and the Science and Technology Internship Program which received increased budget this year.	337,898	405,462
Other subsidies and payments	The decrease is mainly attributed to the timing of OGD transfers expected to occur in the next quarter. This decrease is offset by an increase related to disbursements of ex-gratia payments for the Atomic Workers Recognition Program.	(6,890)	361
All Other Standard Objects	Represents minor increases and/or decreases across all other Standard Objects.	1,779	6,985
Total Variance		359,836	456,893

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. In addition, Canada continues to support national and international focus on actions to confront the impacts of a changing climate and major climate events that are becoming more prevalent. NRCan maintains its ongoing work with other government departments, provincial partners, and Indigenous Partners -to address risks that have an impact on the environment and natural resources sector while strengthening the economy for all Canadians.

The global economy continues to face an elevated level of uncertainty due to Azerbaijan’s incursion into Armenia, the war between Israel and Hamas, the ongoing war in Ukraine, 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 persistent inflation, high borrowing costs and labour shortages, in the context of a global economic slowdown.

Real GDP of the natural resources sector dropped 0.3% in the second quarter of 2023 relative to the previous quarter. In contrast, the economy-wide real GDP was essentially unchanged at 0.7%. Growing drought and wildfires in many regions of the country contributed to lower forestry and logging production in the quarter. Mining, quarrying, and oil and gas extraction contracted as forest fires affected activity in natural gas and crude oil extraction in Alberta, and iron ore mining in Quebec and Newfoundland and Labrador. As for the employment level, the natural resources sector grew by just 0.7% in the second quarter of 2023, compared to a 2.5% increase across the entire Canadian economy. The International Monetary Fund revised down its 2023 forecast for Canadian GDP growth to 1.3% from 1.7%, in its October World Economic Outlook, citing tighter credit conditions, a decline in world trade growth and a tight labor market.

The accelerating transition to net-zero has started a global race to attract investments in building clean economies and Canada must keep pace. 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.

NRCan is maintaining its focus to strengthen the Department’s capabilities in which 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. As outlined in the 2023-24 Departmental Plan, the Department is monitoring six strategic risks and three operational risks. Strategic risks impact the organization’s ability to deliver expected outcomes, which can harm the organization’s ability to grow and prosper. Concurrently, operational risks stem from inadequate or failed internal procedures or external events. NRCan will monitor these key corporate risks closely and routinely to inform leadership not only on risk status but also 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 2^nd quarter of 2023-24, namely:

• Effective July 24^th, Michael Vandergrift was appointed Deputy Minister of Natural Resources and Jeffrey Labonté, previously Assistant Deputy Minister, Lands and Minerals Sector (ADM LMS) of NRCan, became Associate Deputy Minister. As a result, Rinaldo Jeanty assumed the role of Associate ADM LMS on an interim basis.
• Effective August 21^st, Kimberly Lavoie took on the role of ADM for Nokwewashk.
• Effective August 21^st, Shirley Carruthers, Chief Financial Officer and Assistant Deputy Minister, Corporate Management Services Sector of NRCan, became Chief Financial Officer and Assistant Deputy Minister of Global Affairs Canada. Francis Brisson was appointed to the position effective October 23^rd, 2023.

Finally, further to the Budget 2023 reduction measures, the department completed its programs and operations review in support of the government's efforts to refocus spending.