10-Q: United States 12 Month Natural Gas Fund (UNL) Reports Q1 2024 Results

United States 12 Month Natural Gas Fund, LP (UNL) reports a net loss of $2.28 million for the quarter ended March 31, 2024, compared to a net loss of $7.60 million for the same period in 2023.

Summary

• United States 12 Month Natural Gas Fund, LP (UNL) reported a net loss of $2.278 million for the three months ended March 31, 2024.
• This compares to a net loss of $7.597 million for the same period in 2023.
• The net loss per limited partner share was $0.81, compared to $5.58 in the prior year.
• As of March 31, 2024, UNL had 2,200,000 shares outstanding.
• The fund's investment objective is to track the average daily percentage changes in the spot price of natural gas, as measured by the average of the prices of 12 natural gas futures contracts.
• UNL primarily invests in natural gas futures contracts traded on the NYMEX, ICE Futures Europe and ICE Futures U.S.
• The fund's per share NAV decreased from $8.58 on December 31, 2023, to $7.77 on March 31, 2024.
• The average daily change in the average of the prices of the Benchmark Futures Contracts was 0.198%, while the average daily change in the per share NAV of UNL over the same time period was 0.215% for the 30-valuation days ended March 31, 2024.
• The management fee that UNL is contractually obligated to pay USCF was reduced from 0.75% per annum to 0.60% per annum effective May 1, 2024.
• Simultaneously, the voluntary fee waiver, pursuant to which USCF paid certain expenses on a discretionary basis typically borne by UNL, where expenses exceed 0.15% (15 basis points) of UNLs NAV, on an annualized basis, was terminated and no longer in effect as of May 1, 2024.

Sentiment

Score: 5

Explanation: The report presents mixed signals. While the net loss decreased compared to the previous year, the fund still experienced a loss and a decrease in NAV. The reduction in management fees is a positive development, but the termination of the expense waiver offsets some of that benefit. Overall, the sentiment is neutral.

Positives

• The net loss decreased significantly from $7.597 million in Q1 2023 to $2.278 million in Q1 2024.
• Average interest rates earned on short-term investments held by UNL, including cash, cash equivalents and Treasuries, were higher during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
• The management fee that UNL is contractually obligated to pay USCF was reduced from 0.75% per annum to 0.60% per annum effective May 1, 2024.

Negatives

• UNL reported a net loss of $2.278 million for the three months ended March 31, 2024.
• The fund's per share NAV decreased from $8.58 on December 31, 2023, to $7.77 on March 31, 2024.
• The increase in total fees and other expenses excluding management fees for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, was due primarily to an increase in reporting costs and professional fees.

Risks

• Geopolitical risk, including as a result of the Russia-Ukraine war and Middle East conflict, has the potential to create further supply disruptions and sanctions, which could lead to further volatility.
• In a rising rate environment, UNL may not be able to fully invest at prevailing rates until any current investments in Treasury Bills mature in order to avoid selling those investments at a loss.
• UNL may potentially lose money by investing in government money market funds.
• UNL's investments in Natural Gas Interests may be subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons.
• Drastic market occurrences could ultimately lead to the loss of all or substantially all of an investor's capital.

Future Outlook

The document discusses the potential impact of various factors, including geopolitical events, regulatory changes, and market conditions, on UNL's ability to meet its investment objective and track its benchmark.

Management Comments

• USCF believes that market arbitrage opportunities will cause daily changes in UNL's share price on the NYSE Arca on a percentage basis to closely track daily changes in UNL's per share NAV on a percentage basis.
• USCF further believes that daily changes in the average prices of the Benchmark Futures Contracts have historically closely tracked the daily changes in spot price of natural gas.
• USCF believes that the net effect of these relationships will be that the daily changes in the price of UNL's shares on the NYSE Arca on a percentage basis will closely track the daily changes in the spot price of a MMBtu of natural gas on a percentage basis, plus interest earned on UNL's collateral holdings, less UNL's expenses.

Industry Context

The report provides context on the natural gas market, including factors influencing prices such as domestic supply and demand, exports, and geopolitical events like the Russia-Ukraine war.

Comparison to Industry Standards

• The document does not provide a direct comparison to industry standards.
• However, it mentions other related public funds managed by USCF, such as USO, UNG, USL, UGA, and BNO, suggesting a peer group within the USCF family of funds.
• The report details UNL's tracking performance relative to its benchmark, which is a common metric for evaluating the performance of exchange-traded funds (ETFs) and commodity pools.
• The report mentions the impact of contango and backwardation, which are well-known phenomena in commodity futures markets and affect the returns of funds like UNL.

Legal Proceedings

• USCF and USO were named as defendants in an action filed by Optimum Strategies Fund I, LP, but the court granted the USO defendants motion to dismiss the complaint.
• USCF and USO announced a resolution with each of the SEC and the CFTC relating to matters set forth in certain Wells Notices.
• USCF, USO, John P. Love, and Stuart P. Crumbaugh were named as defendants in a putative class action filed by purported shareholder Robert Lucas, and USCF, USO, and the individual defendants intend to vigorously contest such claims.
• Purported shareholder Momo Wang filed a putative class action complaint against defendants USO, USCF, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, Malcolm R. Fobes, III, ABN Amro, BNP Paribas Securities Corp., Citadel Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Goldman Sachs & Company, JP Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Company Inc., Nomura Securities International Inc., RBC Capital Markets LLC, SG Americas Securities LLC, UBS Securities LLC, and Virtu Financial BD LLC, but the Wang Class Action was voluntarily dismissed on August 4, 2020.
• Purported shareholder Darshan Mehan filed a derivative action on behalf of nominal defendant USO, against defendants USCF, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes, III, and USCF, USO, and the other defendants intend to vigorously contest such claims.
• Purported shareholders Michael Cantrell and AML Pharm. Inc. DBA Golden International filed two separate derivative actions on behalf of nominal defendant USO, against defendants USCF, John P. Love, Stuart P. Crumbaugh, Andrew F Ngim, Gordon L. Ellis, Malcolm R. Fobes, III, Nicholas D. Gerber, Robert L. Nguyen, and Peter M. Robinson in the U.S. District Court for the Southern District of New York at Civil Action No. 1:20-cv-06974 (the Cantrell Action) and Civil Action No. 1:20-cv-06981 (the AML Action), respectively, and USCF, USO, and the other defendants intend to vigorously contest the claims in In re United States Oil Fund, LP Derivative Litigation.

Related Party Transactions

• USCF, as the general partner, receives a management fee from UNL.
• USCF pays the fees of the Marketing Agent and BNY Mellon for their services.
• UNL and the Related Public Funds pay a licensing fee to the NYMEX.

Stakeholder Impact

• Shareholders are impacted by the fund's performance, including changes in NAV and market price.
• Authorized Participants are affected by the creation and redemption fees and procedures.
• The fund's investment decisions and expenses impact its ability to track its benchmark, which is relevant to investors seeking exposure to natural gas prices.

Key Dates

Keywords

natural gas, futures contracts, UNL, United States 12 Month Natural Gas Fund, commodity pool, net asset value, NYMEX, ICE Futures, USCF, financial results