Download Article

RWP 22-05, May 2022; updated June 2023

Following the arrival of news that fracking technology was commercially viable, leaseholders of gas rights in Texas' Barnett Shale borrowed $12,800 more than non-leaseholders during 2003-2008. Ninety percent of leaseholders' borrowing occurred before they signed a lease. Expected royalties from fracking leases could not be collateralized, suggesting that expectations of increased permanent income rather than relaxed credit constraints drove leaseholder borrowing. We show that leaseholder borrowing is consistent with plausible expectations of gas prices and royalties. When natural gas prices unexpectedly crashed during 2009-2019, bankruptcy rates of leaseholders and nonleaseholders were no different, suggesting leaseholder borrowing was not impulsive.

JEL classifications: D12, G51, Q33

Article Citation

  • Berkowitz, Daniel, Andrew J. Boslett, Jason P. Brown, and Jeremy G. Weber. 2022. “Rational but Not Prescient: Borrowing during the Fracking Boom.” Federal Reserve Bank of Kansas City, Research Working Paper no. 22-05, May. Available at External Link


Jason P. Brown

Vice President and Economist

Jason Brown is a Vice President and Economist in the Economic Research Department of the Federal Reserve Bank of Kansas City. In this role, he coordinates the regional and commod…