When energy investors want to gauge the industry's health, the pulse of drilling, M&A and capex commitments are three tell-tale indicators. Unfortunately, the energy sector has recently struggled with a series of events that challenged companies' efforts to grow production through the drillbit, acquire assets, secure capital and produce positive returns for investors.

In 2009, news announcements in the energy space were dominated by companies' struggles to stay afloat during the financial crisis. In the latter half of 2010, the news was even bleaker in the wake of the Gulf of Mexico oil spill and the regulatory ruckus that followed.

Here at the start of 2011, we might be tempted to call the last few quarters "write-offs." However, as reports on the state of the industry in 2010 begin to trickle in, the pulse rate, if you will, is pretty strong.

Although U.S. oil and gas drilling in 2010 remained below 2008 levels, an estimated 10,487 oil wells, gas wells and dry holes were completed in the fourth quarter of last year, up 37% from fourth-quarter 2009, according to the American Petroleum Institute's recent well completion report. A total of 37,892 wells were drilled for 2010, up 12% from 2009.

Hazem Arafa, director of the institute's statistics department, says, "As the nation continues to struggle with a weak economy, the oil and natural gas industry has shown that it is willing and able to increase production to meet growing energy demand and put people back to work. With public policies that provide opportunity for responsible exploration and production as well as the certainty needed for any business to succeed, we can and will accelerate job creation and economic growth throughout the economy."

API estimates show that the resurgence in oil-well completion activity that began earlier in the decade continues as an estimated 5,715 oil wells were drilled in the fourth quarter of 2010, a 65% increase from year-ago levels. API also reported total estimated footage of 69.2 million feet drilled in the fourth quarter of 2010, a 45% increase from the same period in 2009.

For most of this decade, natural gas has been the primary target for domestic drilling. However, the API report shows that, for the first time since 1996, the estimated number of oil wells drilled in a year outnumbers gas wells (19,451 to 14,324 for 2010).

Meanwhile, worldwide transactions involving upstream oil and gas assets reached a record $107 billion in 2010, according to IHS Herold's 2011 Global Upstream M&A Review. This is a whopping 160% increase (above 2009) in total asset deal value, which was driven by spending by national oil companies, BP's divestiture programs (to pay for the Macondo oil spill), ConocoPhillips, Suncor Energy Inc. and Devon Energy Corp., as well as major JVs in North American shale plays.

Availability of capital, strong oil prices, and an emphasis on portfolio rationalization to position companies for the next market cycle drove the increases in transaction value in 2010, according to Ernst & Young. The E&Y team expects that this year, with gas prices depressed, investors will be looking for gas plays with strong liquid content, though ongoing regulatory and legislative uncertainty may slow the pace of negotiations.

Many factors will drive deal flow this year, according to the firm, including private equity—under pressure to deploy or repatriate capital—spurring additional M&A activity; liquidity returning to the markets and making deals possible; and depressed gas prices causing a shift in spending from gas to oil.

On the capex-budget side of the equation, Barclays Capital's semiannual Original E&P Spending Survey of 402 oil and gas companies forecasts that 2011 global E&P expenditures will grow 11% to $490 billion from $442 billion in 2010. In the U.S., the firm expects upstream capital spending budgets to rise 8.1% this year to $93.6 billion, and most of this will be directed towards conventional oil plays, liquid-rich reservoirs and oil shales.

In spite of the drilling challenges following the oil spill in the Gulf, the latest Global Offshore Prospects report from global energy services, research and analysis firm Douglas-Westwood also anticipates worldwide offshore oil and gas spending will reach new highs this year. Worldwide deepwater capex is expected to reach $31 billion in 2011 and slightly more than $35 billion by 2014.

While some of the grim moments of the past two years certainly impacted the sector, it's heartening to see that oil and gas companies are pressing onward in drilling, development and asset growth, ever nimble in finding opportunities, cash and even deals in the midst of unpredictable markets.