Obtaining new drilling permits in the Gulf of Mexico was one of the best things to happen to ATP Oil & Gas (Nasdaq: ATPG) in recent times. But I think the best days for investors are yet to come with this volatile small cap.

As of now, there is nothing spectacular about the company's financials. Crippled by a lack of operational drilling from its Gulf reserves, this was probably one of the worst years of its existence. But this is exactly why I'm interested in this company.

Blessing in disguise?
Since the end of February, the stock has tanked 20%, even though the company had received its permits to resume drilling in the Gulf back in March. But the best part is this: Mr. Market is not really thinking much about its future growth prospects.

At the end of last year, ATP's net proved reserves stood at 126 million barrels of oil equivalent. Out of this, 66% of oil and 67% of natural gas reserves for the company lie in the Gulf of Mexico. Only 13% of the total reserves are producing as of now. The other 87% are yet to be developed or developed but not producing. Naturally, under these circumstances, numbers are going to look terrible. And yet there is huge potential for growth.

Current valuations of the stock look pretty unimpressive. Price-to-book stands at 8.22 times. The market thinks ATP's assets are overvalued. But again, that's because only 13% of the reserves are currently producing.

The real story
The company's forward price to earnings tell a slightly different story. This stands at 7.61 -- on par with fellow Gulf operators such as Eni (NYSE: E), which stands at 7.53. Noble Energy (NYSE: NBL) looks more expensive at 12.80. BHP Billiton's (NYSE: BHP) forward P/E stands at 11.27. ATP is priced competitively. This alone is not convincing enough, but there's more.

What I would look for is the total enterprise value of the company to discounted net future cash flow. This shows how expensive the company is with respect to future cash flow. This figure comes to 1.22 times. For a fully integrated company operating in the Gulf like Chevron (NYSE: CVX), this figure stands at 1.75. Noble comes to 1.69. In other words, ATP is highly undervalued with respect to its future cash flows. ATP currently screams a buy to me.

Foolish bottom line
With new assets acquired offshore Israel and a massive opportunity sitting in the Gulf, the future looks very promising for ATP. Foolish investors must definitely take a second look into this stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.