Natural Resources Canada Quarterly Financial Report (Unaudited) for the Quarter Ended December 31, 2019

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 asCanada’s Budget 2019. 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, allocations through the Budget Implementation Vote, and allocations from Treasury Board central votes for the operating and capital budget carry forward for the 2019-20 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 December 31, 2019, which include Main Estimates and allocations from the Budget Implementation Vote for which full supply was released. The details presented in this report focus on and compare the third quarter results of 2019-20 with those of 2018-19.

Authorities

As per Table 1, presented at the end of this document, and on Graph 1 below, as at December 31, 2019, NRCan has authorities available for use of $2,516.9 million in 2019-20 compared to $1,524.0 million as of December 31, 2018, for a net increase of $992.9 million or 65.2%.

Graph 1

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Graph 1 Comparison of Authorities as at December 31, 2019

(in millions of dollars)	Fiscal year 2018-19	Fiscal year 2019-20
	total available for use for the year ending 31-Mar-19	total available for use for the year ending 31-Mar-20
Vote 1 - Operating	585	613
Vote 5 - Capital	32	17
Vote 10 - Grants and contributions	439	489
Statutory	468	1,397
Total budgetary authorities	1,524	2,517

The increase of $992.9 million in authorities in 2019-20 compared to 2018-19 is primarily due to an increase in statutory authorities (most notably $950 million for the Federation of Canadian Municipalities, who administer the Green Municipal Fund). It also reflects the net effect of 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 (2019-20 compared with 2018-19)

Changes to Voted and Statutory Authorities (2019-20 compared with 2018-19)

(in $000s
Total available for use for the year ending March 31, 2019	1,524,000
Vote 1 - Operating
New funding for Trans Mountain Expansion Project Reconsideration Process	12,637
New funding for collective bargaining to cover wage increases for 2019-20 and retroactive payments for 2018-19	9,675
Increased funding for Impact Assessment and Regulatory Measures Programs	9,155
New funding for Ensuring Better Disaster Management Preparation Program	6,346
New funding for Strong Arctic and Northern Communities Program	6,226
Reduction in Operating Budget Carry Forward due to a lower lapse in 2018-19	(10,879)
Decrease in funding for Geo Mapping for Energy and Minerals Initiative as it nears completion of current phase	(3,201)
Various minor net decreases	(1,689)
Sub total Vote 1 - Operating	28,270

Changes to Voted and Statutory Authorities (2019-20 compared with 2018-19)

Vote 5 - Capital
Reduction in  Capital Budget Carry Forward due to a lower lapse in 2018-19	(8,103)
Decrease for the Federal Infrastructure Initiative as the program has ended	(7,200)
Various minor net increases	374
Sub total Vote 5 - Capital	(14,929)

Changes to Voted and Statutory Authorities (2019-20 compared with 2018-19)

Vote 10 - Grants & Contributions
New and increased funding for the Green Infrastructure initiative	32,879
Increased funding year-over-year for the Softwood Lumber Action Plan due to previously approved reprofile	14,200
Increased funding for Advancing Clean Technology	10,512
New funding for Zero Emission Vehicles Program	9,350
New funding for Engaging Indigenous Communities in Major Resource Projects	7,740
Increased funding for Protecting Jobs in Eastern Canada’s Forestry Sector (Spruce Budworm Early Intervention Strategy)	5,300
Increased funding for Green Construction Through Wood	4,307
New funding for Trans Mountain Expansion Project Reconsideration Process	3,500
Reduction in funding year-over-year for the ecoENERGY for Renewable Power program as the program nears completion	(30,067)
Decrease for the Youth Employment Strategy Green Jobs program, pending renewal of funding later in 2019-20	(8,400)
Various minor net increases	1,057
Sub total Vote 10 - Grants & Contributions	50,378

Changes to Voted and Statutory Authorities (2019-20 compared with 2018-19)

Statutory
New Funding for the Federation of Canadian Municipalities - Green Municipal Fund	950,000
Employee Benefit Plan (EBP) adjustments, due to salary adjustments in 2019-20 compared to 2018-19	2,701
Contribution to the Canada/Newfoundland Offshore Petroleum Board due to increased level of activity.	640
Minister of Natural Resources – Salary and motor car allowance	2
Newfoundland Offshore Petroleum Resource Revenue Fund adjustment, as it was forecasted at the time of Main Estimates that less revenue would be collected in 2019-20 than in 2018-19, due to fluctuations in oil prices, variances in production and a decrease in planned expenditures.*	(18,342)
Nova Scotia Offshore Revenue Account, as revenues are to cease due to the end of production at the Deep Panuke and the Sable Offshore Energy Project in 2018. *	(5,356)
Payments of the Crown Share Adjustment for Nova Scotia Offshore Petroleum Resources, as it is expected to cease in 2019-20, due to the end of natural gas production at the Deep Panuke and the Sable Offshore Energy Projects projects.	(438)
Contribution to the Canada/Nova Scotia Offshore Petroleum Board due to a lower level of activity.	(50)
Sub total Statutory	929,157
Total Increase from Previous Year	992,876
Total available for use for the year ending March 31, 2020	2,516,876

* 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.

Budgetary Expenditures by Standard Object

The spending for the quarter ending December 31, 2019 amounts to $316.5 million or 12.6% of total funding available for the fiscal year, compared to $330.9 million or 21.7% for the same quarter last year. This decrease of $14.4 million in spending is mainly related to a decrease in transfer payments in 2019-20 compared to the same type of expenditures in 2018-19 offset by an increase in personnel expenditures. 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 at at December 31, 2019

(in thousands of dollars)	Fiscal year 2018-19	Fiscal year 2019-20
	Expended during the quarter ended 31-Dec-18	Expended during the quarter ended 31-Dec-19
Personnel	110,231	127,815
Acquisition of land, buildings, and works	2,079	5,707
Transfer payments	177,551	144,548
All Other Standard Objects	41,042	38,439
Total net budgetary expenditures	330,903	316,509

Variance in Budgetary Expenditures by Standard Object (2019-20 compared with 2018-19)

(in $000s)
Standard Object	Explanation	Variance between 2019-20 and 2018-19 Q3 expenditures October 1 to December 31	Variance between 2019-20 and 2018-19 YTD expenditures April 1 to December 31
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.	17,584	30,033
Acquisition of land, buildings and works	The increase is mainly due to the Watermain and Sanitary Sewer Replacement Project at the Bells Corner Complex, which was more advanced in the third quarter of 2019-20.	3,628	114
Transfer Payments	The decrease in the third quarter is mainly attributed to Statutory Atlantic Offshore transfers as a result of lower production and oil prices compared to last year. This is partially offset by an increase in contribution payments. The year-to-date increase is mainly attributed to a statutory payment in 2019-20 to the Federation of Canadian Municipalities for the purpose of providing funding to the Green Municipal Fund.	(33,002)	972,176
All Other Standard Objects	Minor increases and decreases within different standard objects.	(2,602)	2,811
Total Variance		(14,392)	1,005,134

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 economic benefits, accounting for about 17% of Canada’s nominal Gross Domestic Product and the support of 1.7 million jobs in 2018. Furthermore, our natural resources sectors inform Canada’s environmental performance. Our collective challenge is to set and implement a plan that will ensure that the natural resources sectors are competitive while continuing to adopt sustainable development practices as we move towards a low carbon future.

During the third quarter of 2019-20, the department focused on managing its risks to advance priorities in the areas of energy infrastructure and market access, a modernized regulatory environment, Canada-U.S. relations, clean technology, and Indigenous reconciliation. NRCan also engaged in several Budget 2019 initiatives supporting Canada’s transition to a low-carbon economy. For example, NRCan continued to drive Canada’s broad-based energy efficiency work, supporting new energy-efficient housing units across the country, and expanding the charging and refueling station network for zero-emission vehicles. In addition, NRCan supported the Government of Canada’s initiative “Just Transition for Canadian Coal Power Workers and Communities” by investing in skills development and training. The department has continued efforts to transform the forest sector and emergency management measures.

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 has continued to pro-actively engage 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 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 department has welcomed the arrival of the Honourable Seamus O’Regan as the new Minister of Natural Resources, as well as Paul Lefebvre as Parliamentary Secretary to the Minister of Natural Resources.

In addition, a realignment exercise was undertaken to strengthen our policy capacity.

Table 1: Statement of Authorities (unaudited)

(in thousands of dollars)	Fiscal year 2019-20			Fiscal year 2018-19
	Total available for use for the year ending March 31, 2020*	Expended during the quarter ended December 31, 2019	Year-to-date used at quarter-end	Total available for use for the year ending March 31, 2019**	Expended during the quarter ended December 31, 2018	Year-to-date used at quarter-end
Vote 1 - Net Operating Expenditures	613,186	151,197	428,009	584,916	135,994	395,345
Vote 5 - Capital Expenditures	17,143	6,191	7,210	32,072	3,182	8,606
Vote 10 - Grants and Contributions	489,199	74,645	144,432	438,821	42,092	99,673
Statutory Payments
Minister of Natural Resources – Salary and motor car allowance	88	12	56	86	22	65
Contributions to employee benefit plans	59,315	14,544	43,633	56,614	13,904	41,710
Contribution to the Canada/Newfoundland Offshore Petroleum Board ***	9,475	(43)	3,369	8,835	(5,230)	(2,023)
Contribution to the Canada/Nova Scotia Offshore Petroleum Board ***	4,305	(2,150)	3	4,355	(977)	(414)
Payments to the Nova Scotia Offshore Revenue Account	-	3,262	4,143	5,356	62,279	64,702
Payments to the Newfoundland Offshore Petroleum Resource Revenue Fund	374,165	68,833	230,408	392,507	79,510	223,227
Crown Share Adjustment Payments for Nova Scotia Offshore Petroleum Resources	-	-	24,862	438	123	123
Spending of amounts equivalent to proceeds from disposal of surplus crown assets	-	18	27	-	4	4
Federation of Canadian Municipalities - Green Municipal Fund	950,000	-	950,000	-	-	-
Total Statutory Payments	1,397,348	84,476	1,256,501	468,191	149,635	327,394
Total Budgetary Authorities	2,516,876	316,509	1,836,152	1,524,000	330,903	831,018
* 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 2019.
** Total available for use includes only authorities available for use and granted by Parliament at quarter-end through the Main Estimates, Supplementary Estimates (A) and Budget Implementation Vote which reflects some measures announced in Budget 2018.
*** The negative amounts in the Offshore Boards are due to the timing of Natural Resources Canada's transfers to, and the timing of cost recovery from, the Offshore Boards.

Table 2: Budgetary Expenditures by Standard Object (unaudited)

(in thousands of dollars)	Fiscal year 2019-20			Fiscal year 2018-19
	Total available for use for the year ending March 31, 2020* †	Expended during the quarter ended December 31, 2019	Year-to-date used at quarter-end	Total available for use for the year ending March 31, 2019**	Expended during the quarter ended December 31, 2018	Year-to-date used at quarter-end
Budgetary Expenditures:
Personnel	462,738	127,815	358,592	433,081	110,231	328,559
Transportation and communication	19,801	4,340	13,206	18,695	4,255	12,045
Information	9,938	2,061	4,805	7,045	1,243	2,851
Professional and special services	130,001	27,152	66,676	141,740	27,782	67,728
Rentals	20,881	1,185	15,294	18,550	2,001	11,618
Repair and maintenance	9,015	894	2,731	7,819	678	2,375
Utilities, materials and supplies	32,274	3,839	10,164	47,562	3,827	9,526
Acquisition of land, buildings and works	6,791	5,707	6,275	14,469	2,079	6,161
Acquisition of machinery and equipment	28,846	2,581	6,094	18,955	2,770	6,706
Transfer payments	1,827,144	144,547	1,357,217	850,312	177,551	385,041
Other subsidies and payments	7,088	2,733	9,006	2,897	3,123	10,992
Total Budgetary Expenditures	2,554,517	322,854	1,850,060	1,561,125	335,540	843,602
Less:
Total  Revenues Netted Against Expenditures	37,641	6,345	13,908	37,125	4,637	12,584
Total Net Budgetary Expenditures	2,516,876	316,509	1,836,152	1,524,000	330,903	831,018
* Total available for use represents planned expenditures for the fiscal year. Planned expenditures reflect some measures announced in Budget 2019.
** Total available for use represents planned expenditures for the fiscal year. Planned expenditures reflect some measures announced in Budget 2018.
†Planned expenditures by standard object have been adjusted to better align with historical spending patterns causing some variances with the planned figures of the previous fiscal year.