This paper examines the relationship between executive stock options (ESOs) and risk-taking behavior, focusing on oil and gas firms. The study investigates whether ESOs provide incentives for managers to invest in risky projects. Using a simultaneous equations approach, the authors find that ESO risk incentives are positively associated with future exploration risk taking. Additionally, they find that ESO risk incentives are negatively related to oil price hedging in a system where both ESO risk incentives and hedging are endogenous variables. The results suggest that ESOs provide managers with incentives to mitigate risk-related incentive problems. The study also highlights the importance of accounting disclosures in measuring exploration risk and the role of ESOs in influencing managerial risk-taking behavior. The findings are consistent with the hypothesis that ESOs reduce managerial incentive problems by motivating them to invest in risky projects. The study acknowledges the limitations of its sample and suggests that future research could assess the robustness of its findings across a broader cross-section of firms and industries.This paper examines the relationship between executive stock options (ESOs) and risk-taking behavior, focusing on oil and gas firms. The study investigates whether ESOs provide incentives for managers to invest in risky projects. Using a simultaneous equations approach, the authors find that ESO risk incentives are positively associated with future exploration risk taking. Additionally, they find that ESO risk incentives are negatively related to oil price hedging in a system where both ESO risk incentives and hedging are endogenous variables. The results suggest that ESOs provide managers with incentives to mitigate risk-related incentive problems. The study also highlights the importance of accounting disclosures in measuring exploration risk and the role of ESOs in influencing managerial risk-taking behavior. The findings are consistent with the hypothesis that ESOs reduce managerial incentive problems by motivating them to invest in risky projects. The study acknowledges the limitations of its sample and suggests that future research could assess the robustness of its findings across a broader cross-section of firms and industries.