While drones may have hit a saturation point in the consumer markets, the industrial markets have barely dipped their toes in the water.
In this clip from Industry Focus: Energy, Taylor Muckerman and Dylan Lewis talk about how the energy and industrials sectors are using drones today, why many of the biggest players are investing in the technology to get it off the ground, some of the most exciting potential-use cases that drones offer companies all across the board from BP (NYSE:BP) to Total (NYSE:TOT), and how massive the industrial drone market could be once it takes off.
A full transcript follows the video.
This podcast was recorded on Nov. 17, 2016.
Taylor Muckerman: So, I guess we could turn it to the enterprise side here, the oil and gas industry.
Dylan Lewis: I'll say, I'm definitely a little bearish on the consumer side of the drone market.
Muckerman: Kind of like 3D printing -- you see tons of enterprise opportunity, but it's kind of floundered on the consumer side.
Lewis: Yeah, we talk about the price points. I looked at a study from droneanalyst.com, they did a survey in early 2016, so it's a little outdated, but they found that 70% of drone buyers paid more than $1,000 for their devices, and the vast majority fell between $1,000 and $4,000. That's kind of an inaccessible price point for a lot of people. I think it makes it tough to jump into something where you're like, "What's the use case for this?" If you're a professional photographer, it totally makes sense.
Muckerman: Yeah, you make your money back very quickly because it's an added value to your services. But if you're a hobbyist, it's going to sit in a closet most of the time.
Lewis: Yeah. Our man behind the glass, Austin Morgan, owns one, and he does a lot of video work, so it totally makes sense.
Muckerman: Not the GoPro. He owns a drone. He's much more of a savant than that, I guess you could say.
Lewis: He knows the market better than we do.
Muckerman: That's right. Again, not a publicly traded company that he owns, but he's also interested in the DJI market. Interesting there. But, when you look at these drones, $1,000, $2,000, 4,000 even, not so much when you're Chevron or BP, companies that have been using drones -- not from a GoPro or a DJI. They're using companies that are small and niche players that are focused on delivering drones that have these capabilities to inspect offshore oil wells, inspect pipelines, inspect construction sites. Intel even has a drone that's specifically made for construction and field inspection.
Lewis: Isn't GE one of the big players in the drone space, and they just launched something?
Muckerman: They very might well have. I know the Internet of Things is very important to them, and sensor development. So sure, they're definitely in the business of driving technology in the oil and gas space, because oil and gas is a very important side of their business. They just teamed up with Baker Hughes in one of the largest deals that we've seen in some time in the oil and gas services sector, which is a sector of the oil and gas industry that I could really see thriving on drone usage. Some estimates out there for enterprise use of drones are near $150 billion total market opportunity. So, there's definitely some legs here.
Lewis: For context, that is a sliver of the expectations for the consumer market.
Muckerman: Yeah, absolutely. When you're looking at this, this is all about cost savings, safety and efficiency for these companies. Some estimates out there are saying that a drone performing inspections of an offshore oil rig could save up to 80% in terms of cost and efficiency, versus a manned operation.
Lewis: What do those inspections look like?
Muckerman: They're covering the entire well. These wells are miles offshore, very turbulent waters. When you have a manned inspection, these can last anywhere from a few weeks up to seven weeks, and they have to transport these fellows back and forth either on a helicopter or by boat. It's expensive. They have to feed them, house them. So, when you look at a job like this taking up to seven weeks -- or seven two-week shifts, even, so 14 weeks -- and a drone, they're saying, could do it in less than a handful of days, at a tenth of the cost.
Lewis: And I'm guessing it's a lot less risky to have a machine out there, rather than having humans out there doing stuff.
Muckerman: Yeah. And you can contract folks. It's somewhat of a growing job market right now, where people are becoming certified drone pilots, and being contracted ...
Lewis: It's kind of a sweet gig.
Muckerman: Yeah, it is. If you're interested, you can do it -- not entirely online, but you can get a head start online. I believe the FAA discussed this in their Part 107, which they announced in January, the Summary of Small Unmanned Aircraft Rules, basically saying they can't be more than 55 pounds, you have to have a visual line-of-sight, 400 feet is the max altitude unless there's an obstruction, then you can climb 400 feet above it, and then, 100 mph ground speed is the max there. But, certification doesn't seem to be all that difficult, so you're seeing folks who aren't necessarily in the oil and gas industry coming on board to fly these drones, do these pipeline inspections, do these oil rig inspections, and it's saving a lot of money here in the sector. Total is even building the 11th fastest and most powerful supercomputer in the world, as an oil and gas company, just to process a lot of the data that they see coming forth because drones and the visual data they're able to provide is going to be the largest supply of data these companies are expecting. BP is spending $100 million to amp up its own supercomputer in the next year or two. So, they're getting ready for it, and it seems to be wise to cater to companies that are making tens, twenties hundreds of billions of dollars a year, where this is actually a cost savings rather than a hobby for them.
Lewis: Yeah. I think investors are naturally going to think, "OK, on the enterprise side ... " we threw out some big names, like GE and Intel. Their enterprise drone segment might not move the needle all that much. I think the way you have to look at it is, as an energy investor, you want to see the companies you're invested in putting money and resources toward these types of things. It seems like, that's what the best-in-class type technology is at this point. You're going to be more efficient. There's some exploration type of stuff that people are doing with drones as well, right?
Muckerman: Yeah, they're strapping on some 3D-imaging capabilities to these drones, seismic capabilities to these drones. When you're talking about where they're looking for oil nowadays, it's not necessarily in the plains of West Texas. It's in the Arctic, it's in very deep offshore fields -- places where it's not very hospitable to send a human. That might be the forefront of the forefront right now -- is the use and exploration. But, that's definitely the future here. Because the low-hanging fruit is obviously inspections. You're on the rig already, you're flying around, you can see it, and it's just capturing images rather than analyzing data in real time as the drone itself. So, I think exploration is definitely the future of drone use, but right now, the low-hanging fruit is inspections, and that's vitally important because, if you look at the BP explosion in 2010?
Lewis: Deepwater? The movie just came out.
Muckerman: Yeah, it did. I haven't seen it and I probably won't see it. It's a little too extravagant of a story for me, after reading a few books about it, I'll settle for that. No, I think that, when you look at the cost that BP incurred -- they're still incurring -- because of that, if even a small portion of that could have been prevented by the use of drones, and more in-depth inspections .... This allows them to be carried out much more frequently, too. If it's a tenth of the cost, even if you carry out five extra inspections, you're still saving off of just one inspection. I look at this as, that's the most important part, in my mind -- not only cost savings, but the preventative nature, in terms of saving lives, saving oil, saving the environment. So, there's huge implications, not just monetarily.
Lewis: Just like in healthcare, preventative medicine does the body well.
Muckerman: Absolutely. And they're talking about the companies that are analyzing the data from these drones being able to then take that and use it in a predictive nature, in terms of maybe predicting where corrosion might occur more frequently based on, maybe, drips that are supposed to occur, but they might occur in the same spot, repeatedly, constantly dinging the same part of the machinery, corroding some of the steel in the pipelines. You have people out there walking these hundreds of miles of pipelines right now. It takes weeks. And, the human eye can miss a lot. So, they're strapping infrared cameras onto drones, and buzzing right over these things.
Lewis: One of the things I thought I read was talking about how it's not only detection, but it's also severity, with this type of stuff. It can appreciate the magnitude of a leak, or something like that, which is a level that humans don't have. It's slightly different analytics.
Muckerman: Yeah, and it's real time, because you're sending that back to a human, or a supercomputer, like the one that Total has built -- it surprised me to see that an oil and gas company has the 11th most powerful computer in the world. Total is at the forefront of a lot of things. Very big owner of SunPower and renewable energy, but also still very heavily into oil and natural gas.
Lewis: Are they kind of the name to know, in terms of best-in-class, when it comes to this stuff?
Muckerman: It seems to be that. When you're looking at the integrated oil companies, that includes Exxon, Chevron, BP, Shell, Total. Yeah, I think, if you want the most diversified integrated oil and gas company, Total would be the one. They're a majority shareholder of SunPower, and they were one of the first to get on board with the use of drones in inspections. So, yeah, if you're looking for a company thinking about the future, and acting on the future, Total might be that one.
Dylan Lewis owns shares of ExxonMobil. Taylor Muckerman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends GoPro. The Motley Fool owns shares of ExxonMobil and General Electric and has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. The Motley Fool recommends Chevron, Intel, and Total. 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.