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Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended December 31, 2016

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, Supplementary Estimates (A) and Supplementary Estimates (B), as well as Canada’s Budget 2016. 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) seeks to enhance the responsible development and use of Canada’s natural resources and the competitiveness of Canada’s natural resource sectors. The Department is an established leader in science and technology in the fields of energy, forests, and minerals and metals, and applies its expertise in earth sciences to build and maintain an up-to-date knowledge base of Canada’s landmass. NRCan develops policies and programs that enhance the contribution of the natural resource sectors to the economy and improve the quality of life of Canadians.Footnote 1

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, Supplementary Estimates (A) and Supplementary Estimates (B) for the 2016-17 fiscal year. This quarterly report has been prepared using a special purpose financial reporting framework.

The authority of Parliament is required before monies 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.

As part of the Parliamentary business of supply, the Main Estimates must be tabled in Parliament on or before March 1 preceding the new fiscal year. As the Federal Budget is typically tabled around the same time as Main Estimates, measures announced in the Budget are not included in Main Estimates for either 2015-16 or 2016-17.   

In fiscal year 2016-17, frozen allotments have been established by Treasury Board authority in departmental votes to prohibit the spending of funds identified as savings measures in Budget 2016. The changes to departmental authorities for future years will be implemented through the Annual Reference Level Update, as approved by Treasury Board, and reflected in the subsequent Main Estimates tabled in Parliament. The same approach was taken in 2015-16 for savings measures in Budget 2015.

NRCan uses the full accrual method of accounting to prepare and present its annual unaudited departmental financial statements, which are part of the Departmental Performance Report. However, the expenditure 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 at December 31, 2016, including Main Estimates, Supplementary Estimates (A) and Supplementary Estimates (B), for which full supply was released. The details presented in this report focus on and compare the third quarter results of 2016-17 with those of 2015-16.

Authorities

As per Table 1, presented at the end of this document, and on Graph 1 below, as at December 31, 2016 NRCan has authorities available for use of $1,743.3 million in 2016-17 compared to $2,523.2 million as of December 31, 2015, for a net decrease of $779.9 million or 31%.

Graph 1

Text version
Graph 1 Variance in Authorities as at December 31, 2016
(in millions of dollars) Fiscal year 2015-16
total available for use for the year ending
31-Mar-16
Fiscal year 2016-17
total available for use for the year ending
31-Mar-17
Vote 1 - Operating 924 565
Vote 5 - Capital 54 88
Vote 10 - Grants and contributions 307 288
Statutory  1,239 803
Total budgetary authorities 2,523 1,743

The decrease of $779.9 million in authorities in 2016-17 compared to 2015-16 is explained by the net effect of both increases and decreases 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 decrease of $359.0 million between the authorities available for use at the end of the third quarters of 2016-17 ($564.7 million) and 2015-16 ($923.7 million) is explained mainly by the following year-over-year changes:

Decreases:

  • $395.2 million for the transfer of responsibility for the Nuclear Legacy Liabilities Program and Port Hope Area Initiative to Atomic Energy Canada Limited (AECL); and
  • $7.3 million for the Operating Budget Carry Forward as there were fewer authorities available to carry forward in 2016-17.

Increases:

  • $14.5 million for the Soldier Settlement Board mineral rights and implementation of the transfer agreement with the Government of Manitoba, most of which was reprofiled from fiscal year 2015-16 to 2016-17;
  • $7.0 million for the transfers from Capital to Operating, as part of planned decrease in capital expenditures;
  • $5.0 million for the United Nations Convention on the Law of the Sea (UNCLOS) - Mapping of the North Pole, due to a planned adjustment to the program financial profile;
  • $3.3 million for Major Project Management Office Initiative; similar funding for 2015-16 was only received in the fourth quarter of 2015-16;  
  • $2.9 million for the Protection of Marine and Coastal areas, a new initiative announced in Budget 2016;
  • $2.8 million for the Accelerated Infrastructure Program (AIP), as this program received additional funds via Budget 2016; and
  • $2.4 million for the modernization of the National Energy Board, a new initiative in 2016-17.

For Vote 5 capital expenditures, a net increase of $33.4 million between the authorities available for use at the end of the third quarters of 2016-17 ($87.7 million) and 2015-16 ($54.3 million) is explained mainly by the following year-over-year changes:

Increases:

  • $29.2 million for the AIP, as this program received additional funds via Budget 2016;
  • $6.1 million for the Enhancing National Earthquake Monitoring initiative, due to a planned adjustment to the program financial profile; and
  • $4.9 million for the Capital Budget Carry Forward as there were more authorities to carry forward in 2016-17.

Decrease:

  • $7.0 million for the transfers from Capital to Operating, as part of planned decrease in capital expenditures.

For Vote 10 grants and contributions, a net decrease of $19.0 million between the authorities available for use at the end of the third quarters of 2016-17 ($287.6 million) and 2015-16 ($306.6 million) is explained mainly by the following year-over-year changes:

Decreases:

  • $25.7 million for the Climate Change Renewal, as the envelope - announced in Budget 2016- was at a lower level than that of 2015-16;
  • $22.0 million for ecoENERGY for Biofuels, due to a planned adjustment to the program financial profile; and
  • $13.6 million for the Wind Power Production Incentive Program, due to a planned adjustment in the program financial profile.

Increases:

  • $13.8 million for the Investments in Forest Industry Transformation (IFIT) program, due to a planned adjustment to the program financial profile;  
  • $11.3 million for the Sustainable Development Technology Canada (SDTC) Sustainable Development Technology Fund, due to a planned adjustment to the program financial profile from $6.0 million in 2015-16 to $46.2 million in 2016-17, offset by a decrease of $28.9 million for the transfer of responsibility for SDTC to the Department of Innovation, Science and Economic Development via the 2016-17 Supplementary Estimates (A);
  • $12.9 million for the Green Infrastructure, a group of new initiatives announced in Budget 2016; and
  • $4.9 million for cleaner oil and gas technologies, a new initiative announced in Budget 2016.

For statutory items, a net decrease of $435.5 million between the authorities available for use at the end of the third quarters of 2016-17 ($803.2 million) and 2015-16 ($1,238.7 million) is explained mainly by:

Decreases:

  • $368.1 million in the Newfoundland Offshore Petroleum Resource Revenue Fund, as forecasts at the time of Main Estimates were that less revenue would be collected in 2016-17 than in 2015-16, due to lower oil pricesFootnote 2;
  • $59.9 million in the Nova Scotia Offshore Revenue Account, as forecasts at the time of Main Estimates were that less revenue would be collected in 2016-17 than in 2015-16 due to decreased production and lower natural gas pricesFootnote 2; and
  • $10.6 million pertaining to the Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources, due to a planned adjustment to the financial profile.

Increase:

  • $3.2 million in Employee Benefit Plan adjustment, mostly due to the increased rate in 2016-17 compared to 2015-16.

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 December 31, 2016 amounts to $286.2 million or 16% of total funding available for the current fiscal year, compared to $254.8 million or 10% for the same quarter of the previous fiscal year. This increase of $31.4 million is mainly related to increased expenditures for transfer payments in 2016-17 compared to transfer payments in 2015-16. Further analysis has been done on standard objects with significant expenses, which is presented on Graph 2 below; and Table 2 at the end of this document presents the spending for all standard objects.

Graph 2

Text version
Graph 2 Variance in Expenditures for Significant Standard Objects for the Third Quarter only as at December 31, 2015 and 2016
(in thousands of dollars) Fiscal year 2015-16
Expended during the quarter ended
31-Dec-15
Fiscal year 2016-17
Expended during the quarter ended
31-Dec-16
Personnel 100,123 100,373
Professional and special services 38,504 25,906
Transfer payments 108,774 140,080
All Other Standard Objects 7,352 19,854
Total net budgetary expenditures 254,753 286,213

For the personnel expenditures, there are no significant variances between the third quarters of 2016-17 and 2015-16.

The net decrease of $3.6 million in personnel expenditures between the year-to-date expenditures at the end of the third quarters of 2016-17 ($303.9 million) and 2015-16 ($307.5 million) is mainly due to the sun-setting of the ecoENERGY for Biofuels program and changes in the Energy Efficiency program structure.

The net decrease of $12.6 million in expenditures for professional and special services between the third quarters of 2016-17 ($25.9 million) and 2015-16 ($38.5 million) is mainly explained by the following:  

Decreases:

  • $10.0 million for the transfer of responsibility for the Nuclear Legacy Liabilities Program and Port Hope Area Initiative to AECL in 2015-16; 
  • $1.6 million due to changes in the Energy Efficiency program design and the sun-setting of the ecoENERGY for Biofuels program; and
  • $0.7 million due to the completion of the operational phase of the Cold Stream Well Remediation initiative in 2015-16.

Increase:

  • $1.2 million due to higher litigation expenses related to softwood lumber in the third quarter of the current fiscal year compared to the same period in 2015-16.

The net decrease of $80.1 million in expenditures for professional and special services between the year-to-date expenditures at the end of the third quarters of 2016-17 ($71.2 million) and 2015-16 ($151.3 million) is mainly due to the same reasons as above.

The net increase of $31.3 million in expenditures for transfer payments between the third quarters of 2016-17 ($140.1 million) and 2015-16 ($108.8 million) primarily consists of:

Increases:

  • $32.6 million for statutory Atlantic offshore transfers due to more payments being made in comparison to the third quarter of 2015-16;
  • $4.5 million related to the timing differences of the receipt and processing of invoices; and
  • $2.5 million for the Expanding Market Opportunities program, as there were higher claim requests in comparison to the third quarter of 2015-16.

Decreases:

  • $4.4 million for IFIT contribution program as there were lower payment requests in comparison to the third quarter of 2015-16; and
  • $3.8 million related to the completion of the ecoENERGY Innovation Initiative in 2015-16.

The net increase of $44.0 million in expenditures for transfer payments between the year-to-date expenditures at the end of the third quarter of 2016-17 ($380.6 million) and 2015-16 ($336.6 million) is mainly related to the same reasons as above as well as the payments made to SDTC in the first quarter of 2016-17.

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

3. Risks and Uncertainties

NRCan recognizes that a solid understanding of its risk environment is fundamental to achieving its strategic outcomes and maintaining operational efficiency and effectiveness. NRCan sees risk management as an essential element in developing and implementing efficient, effective and relevant policies, programs, science and technology and internal services. 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 bring large economic benefits, accounting for about 17% of Canada’s nominal gross domestic product and 1.77 million jobs. Furthermore, they inform Canada’s environmental performance.

Our collective challenge, which is also an opportunity, 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.

Over the last few months, the Government of Canada has undertaken a whole-of-government approach to further address these challenges, leveraging the resources and input of NRCan and multiple other departments. Some specific initiatives include:

  1. Announcing a price on carbon;
  2. Identifying a set of actions on energy that will be undertaken with the provinces and territories and contributing to the Pan-Canadian Framework on Clean Growth and Climate Change; and
  3. Approving the Pacific NorthWest Liquefied Natural Gas facilities, the Trans Mountain Expansion and Line 3 Pipeline Replacement Project to move resources to new markets as well as to create jobs and opportunities across the country.

NRCan is closely monitoring the impacts of these and other developments and taking actions to ensure that our resource sectors remain a source of jobs, prosperity and opportunity in a world that values sustainable practices. Among the key events that have marked the third quarter are the Organization of the Petroleum Exporting Countries (OPEC) agreement to cut production for the first time in eight years, and the United States (US) election. In response, the department has quickly engaged with the new US administration to discuss matters of common interest.

In addition to being responsive to its external context, NRCan also manages uncertainties regarding its future funding level and spending. The Department continues to manage the costs related to unfunded collective bargaining. In response, it tracks 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 integrate risk information into strategic and operational decision making.

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

No significant change in relation to operations, personnel or programs occurred during the third quarter of 2016-17.

Original signed by:

___________________________________________
Christyne Tremblay
Deputy Minister

February 27, 2017
Ottawa, Canada

___________________________________________
Cheri Crosby, CPA
Chief Financial Officer

February 16, 2017
Ottawa, Canada  

 
Table 1:  Statement of Authorities (unaudited)  
(in thousands of dollars) Fiscal year 2016-17 Fiscal year 2015-16
Total available for use for the year ending March 31, 2017* Used during the quarter ended December 31, 2016 Used year-to-date at quarter-end Total available
for use for the year ending March 31, 2016**
Used during
the quarter
ended December 31, 2015
Used year-
to-date at quarter-end
Vote 1 - Net Operating Expenditures 564,744 111,400 364,227 923,658 124,029 448,741
Vote 5 - Capital Expenditures 87,738 19,072 35,337 54,302 7,565 14,388
Vote 10 - Grants and Contributions 287,564 47,893 128,062 306,609 46,670 121,906
Statutory Payments  
Minister of Natural Resources – Salary
and motor car allowance
84 30 49 82 16 57
Contributions to employee benefit plans 59,826 13,325 39,973 56,645 14,082 42,249
Spending of amounts equivalent to proceeds 
from disposal of surplus crown assets
- 105 106 - 285 285
Canada Foundation for Sustainable
Development Technology Grant
- - 2,290 - 338 338
Contribution to the Canada/
Newfoundland Offshore Petroleum Board
8,835 (55) 4,363 8,835 1,822 6,240
Contribution to the Canada/Nova Scotia
Offshore Petroleum Board
4,013 (184) 1,994 3,965 - 2,121
Payments to the Nova Scotia Offshore
Revenue Account
14,828 5,416 8,360 74,752 5,472 14,751
Payments to the Newfoundland Offshore
Petroleum Resource Revenue Fund
713,253 89,211 236,267 1,081,331 54,473 178,954
Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources 2,408 - 1,607 13,055 - 12,322
Total Statutory Payments 803,247 107,848 295,009 1,238,666 76,488 257,317
Total Budgetary Authorities 1,743,293 286,213 822,635 2,523,235 254,752 842,352

* Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimates, Supplementary Estimates (A), Supplementary Estimates (B), and carry forward from 2015-16; and reflects some measures announced in Budget 2016.
** Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimates, Supplementary Estimates (A), Supplementary Estimates (B), and carry forward from 2014-15; and reflects some measures announced in Budget 2015.

Table 2:  Budgetary Expenditures by Standard Object (unaudited)
(in thousands of dollars)

 

Fiscal year 2016-17 Fiscal year 2015-16
Planned expenditures for the year ending March 31, 2017* Expended during the quarter ended December 31, 2016 Year-to-date used at Quarter-end Planned expenditures for the year ending March 31, 2016** Expended during the quarter ended December 31, 2015 Year-to-date used at Quarter-end
Budgetary Expenditures:  
Personnel 403,872 100,373 303,944 394,827 100,123 307,544
Transportation and communication 14,675 3,009 9,792 15,926 3,822 10,261
Information 9,349 975 2,781 12,915 779 2,038
Professional and special services 142,952 25,906 71,212 523,576 38,504 151,288
Rentals 33,170 1,591 15,251 15,276 1,986 15,599
Repair and maintenance 4,157 7,527 12,059 9,832 2,722 5,356
Utilities, materials and supplies 34,084 4,100 11,104 33,329 3,613 10,018
Acquisition of land, buildings and works 38,068 155 155 7,071 553 1,018
Acquisition of machinery and equipment 51,681 6,177 11,630 51,483 2,375 5,637
Transfer payments 1,030,901 140,080 380,641 1,488,547 108,774 336,631
Other subsidies and payments 19,254 4,294 23,042 5,532 696 15,011
Total Budgetary Expenditures 1,782,163 294,187 841,611 2,558,313 263,947 860,401
Less:  
Total  Revenues Netted Against Expenditures 38,870 7,974 18,976 35,079 9,194 18,049
Total Net Budgetary Expenditures 1,743,293 286,213 822,635 2,523,235 254,753 842,352

* Planned expenditures reflect some measures announced in Budget 2016.
** Planned expenditures reflect some measures announced in Budget 2015.

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