Saudi Arabia is in advanced discussions with the U.S. government about buying two frigates based on a coastal warship that Lockheed Martin Corp is building for the U.S. Navy, and could reach agreement by the end of the year, according to sources familiar with the talks.

The frigate sale, valued at well over $1 billion, will be the cornerstone of a long-delayed multi billion dollar modernization of the Royal Saudi Navy’s Gulf-patroling eastern fleet of aging U.S. warships and would include smaller patrol boats. It underscores the strong business and military ties between the two countries, despite tensions over the U.S.-ledIran nuclear deal.

Paperwork for the Saudi deal could be finalized by year’s end, the sources told Reuters this week. The larger modernization effort will encompass training, infrastructure and anti-submarine warfare equipment, and could include orders from other countries, the sources said. […]