Ahead of Wednesday’s OPEC meeting, it was announced that Nabors Industries LTD (NBR) would partner with state-owned Saudi Aramco to oversee and operate an undisclosed number of new onshore drilling rigs.  

The partners will contribute rigs to the overall count, which is expected to number in the dozens. The joint venture will begin operations in the second quarter of 2017, according to sources familiar with the deal.

This project is one of the first that Saudi Aramco is undertaking in order to boost employment and build local equipment manufacturing infrastructure. (See also: Saudi Aramco Will Reveal Just How Much Oil Saudi Arabia Has.)

Nabors, Saudi Aramco to Develop Onshore Rigs

In addition to rigs, both partners are also contributing money to the relationship.

Insiders have cited Nabors' willingness to pour capital into the deal as part of the reason they were selected to be the cornerstone of the new Saudi initiative. (For more on Nabors' core business, see: Analyzing Seadrill's Return on Equity.)

The wells are expected to be clustered around existing manufacturing facilities that can contribute to the upkeep and sustainability of the rigs. For instance, Saudi workers will now be able to cast and forge replacement parts, reducing the country’s reliance on maintenance contracts. 

Nabors' Profitable Saudi Relationship

For their part, Nabors has built a very close and lucrative partnership with the Saudi government. International sales account for a full 25% of Nabors’ 2015 revenue, and a large portion of that came from Saudi Arabia. 

The relationship between Nabors and the Saudi Arabian government is a longstanding one. Nabors has worked successfully with the Saudis for decades, but never this closely. The company was given one of the top spots in Saudi Arabia’s next-generation energy overhaul.

Nabors President and CEO Anthony Petrello said of the partnership, “We welcome this opportunity to expand [our] relationship, extend our commitment to the kingdom and create a long-term, profitable growth partnership with high-skills career opportunities for Saudi employees. This venture represents a new chapter in the operator-contractor relationship.”

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