To really understand a stock, you just have to get down and dirty, break out your pencil, and really weigh the risk-versus-reward potential of the company you're following. Let's look at the good and the bad at ATP Oil & Gas (Nasdaq: ATPG), to see whether the stock is a good value or a potential money pit.

The good
ATP shareholders can breath a sigh of relief this week after news that federal regulators granted Noble Energy (NYSE: NBL) the first permit to begin deepwater drilling since April's disastrous spill in the Gulf of Mexico. ATP's specialty is in deepwater drilling, and as fellow Fool Dan Dzombak points out, it ranks fourth behind only Royal Dutch Shell (NYSE: RDS-A), BP (NYSE: BP) and Anadarko (NYSE: APC) in total deepwater wellbores in the Gulf of Mexico. Its experience here could be its ticket to being gobbled up by a larger rival.

A lot of buzz has also been created about ATP purchasing five new permits off the coast of Israel in what could be another huge oil field find. What I think investors are truly undervaluing, though, are ATP's natural gas reserves. The disconnect we're witnessing between oil and natural gas pricing simply can't last, and natural gas prices should rally in the not-so-distant future. ATP looks well-positioned to capitalize on any rally in natural gas prices.

The bad
A high level of short interest isn't going to give you a foolproof way of determining if a stock is going to head lower, but ATP's short interest of 43% is astronomically high and could signal trouble ahead. Short-sellers have been piling onto the company especially hard after the drilling moratorium in the Gulf since 62% of ATP's proven reserves of oil are located in the Gulf.

Perhaps the driving force behind the high short ratio is ATP's mountain of debt. The company's debt to equity ratio stands at a blistering 6.25, and it faces paying back roughly $1 billion in loans in the next two to four years. The company will likely just issue more debt to retire these loans, but this vicious debt cycle could indeed be ATP's demise.

The takeaway
ATP's value really comes down to a question of whether it's worth taking on a company loaded with debt for the chance at finding the next mega oil field. I feel the answer here is yes; the company is worth the risk. You could easily find high gross margins above 80% and less debt from rival Cimarex Energy (NYSE: XEC), but the experience and potential for a large find is simply too strong with ATP. Its natural gas reserves also seem critically underappreciated. If you've been teetering, it may not hurt to take another look at ATP Oil & Gas.

What are your thoughts on the future of ATP Oil & Gas? Share them below in the comments section and consider adding the stocks mentioned here and your own personal holdings to My Watchlist.

Fool contributor Sean Williams does not own shares in any companies mentioned in this article, but would love to shoot a shotgun into the ground and have a bubbling crude come up. You can follow him on CAPS under the screen name TMFUltraLong. The Fool owns shares of Noble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that is more valuable than Texas tea.