  In [OW2,OW3], the authors studied the nonlinear elliptic system $$
\overline{\partial}^\pi w = 0, \, d(w^*\lambda \circ j) = 0 $$ without
involving symplectization for each given contact triad $(Q,\lambda, J)$, and
established the a priori $W^{k,2}$ elliptic estimates and proved the asymptotic
(subsequence) convergence of the map $w: \dot \Sigma \to Q$ for any solution,
called a contact instanton, on $\dot \Sigma$ under the hypothesis
$\|w^*\lambda\|_{C^0} < \infty$ and $d^\pi w \in L^2 \cap L^4$. The asymptotic
limit of a contact instanton is a `spiraling' instanton along a `rotating' Reeb
orbit near each puncture on a punctured Riemann surface $\dot \Sigma$. Each
limiting Reeb orbit carries a `charge' arising from the integral of $w^*\lambda
\circ j$. In this article, we further develop analysis of contact instantons,
especially the $W^{1,p}$ estimate for $p > 2$ (or the $C^1$-estimate), which is
essential for the study of compactfication of the moduli space and the relevant
Fredholm theory for contact instantons. In particular, we define a Hofer-type
off-shell energy $E^\lambda(j,w)$ for any pair $(j,w)$ with a smooth map $w$
satisfying $d(w^*\lambda \circ j) = 0$, and develop the bubbling-off analysis
and prove an $\epsilon$-regularity result. We also develop the relevant
Fredholm theory and carry out index calculations (for the case of vanishing
charge).
