ATP Oil & Gas (Nasdaq: ATPG) is an oil and natural gas deepwater development and production company with properties in the Gulf of Mexico and off the coast of the United Kingdom in the North Sea. It also has deepwater drilling interests in the Mediterranean Sea off the coast of Israel.

Today, let's look at three things investors should be watching regarding ATP Oil & Gas, as they'll provide us with better insight into the company.

1. Shimshon well
The white knight for ATP Oil & Gas shareholders could turn out to be the company's deepwater interests off the coast of Israel in the Levant Basin. Preliminary estimates signal that the Shimshon well possesses between 2.5 trillion cubic feet to 3.4 TCF of natural gas. That's a potential game-changer for ATP, which has struggled to grow its production.

Two particular aspects of this find make it particularly notable (beyond the fact that we're talking about 3 TCF of natural gas). First, European and Asian demand for natural gas is high, and so are prices for the cleaner-energy resource. U.S. prices for natural gas may be near decade lows, but that's not the case across the water. Higher prices should mean considerably better cash flow for ATP.

Secondly, Noble Energy's (NYSE: NBL) success in the region bodes well for ATP's prospects. Noble Energy had previously been the only other foreign company with the rights to drill off of Israel, so this could be a detriment to them. However, with claims to approximately 20 TCF of natural gas according to estimates, I don't think Noble shareholders will be crying the blues.

2. Gulf of Mexico drilling demand and Clipper development
Even with properties in the North Sea and hope abounding off the coast of Israel, it should be noted that a vast majority of ATP's revenue still is tied to production in the Gulf of Mexico. It's therefore imperative that drilling demand remains strong and that it continues to find ways to boost production in the region.

The big news for investors here is that ATP expects its two wells in the Clipper Field region of the Gulf to be operational by either later in the third quarter or early in the fourth quarter. The two wells are expected to add an additional 22,000 barrels of oil equivalent per day according to Foolish energy sector savant Isac Simon. That represents an 89% increase over ATP's production levels in 2011 and will tie its two wells directly into Murphy Oil's (NYSE: MUR) Front Runner production facility.

Prior to Clipper, ATP has faced a world of problems. The Deepwater Horizon disaster and subsequent spill in 2010 placed a temporary moratorium on drilling from which ATP still hasn't fully recovered. On the other hand, deepwater driller Ensco (NYSE: ESV) is back to operating at near full capacity in the Gulf, and Cobalt International Energy (NYSE: CIE) is planning to drill three additional wells in the Gulf on top of the one it's working on now. Things are progressing quickly for ATP's peers, but not for ATP itself.

3. The debt dilemma
Perhaps nothing needs more watching than ATP's rising debt levels, which threaten to hurl this company into bankruptcy court by 2015 (or sooner) if it can't figure out a way to boost production and cash flow quickly.

ATP boasts a balance sheet with over $2 billion in debt, of which $1.5 billion comes due in May 2015. At its current rate of production, there is precisely zero chance of paying that debt off without a massive secondary offering, which would dilute shareholder value to smithereens. Based on ATP's first-quarter interest payment of $76.5 million, the company will be divvying out more than $300 million in just interest expenses each year; not a very pretty picture if you ask me.

Even worse, ATP has failed to consistently produce positive cash flow over the past couple of years. It's therefore imperative for ATP to quickly and successfully build out its properties so that it can begin generating enough cash flow to cover its rapidly approaching debt window.

Foolish roundup
Now that you know what to watch for, it should be easier to analyze ATP Oil & Gas' successes and pitfalls in the future, and hopefully you'll gain a competitive investing edge.

If you're still craving even more info on ATP Oil & Gas, I would recommend adding the stock to your free and personalized watchlist so you can keep up on all of the latest news with the company.

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