Real Madrid have confirmed that they are holding talks with Pepe regarding a contract extension.
The Portuguese centre-half has made more than 100 appearances for Real since joining the club in 2007.
With Pepe reported to be attracting interest from Manchester United and Chelsea, Real are hoping they can convince Pepe to prolong his association with their club.
Director general Jorge Valdano admits contract talks have already begun and he is optimistic regarding a deal being agreed.
“The negotiations with Pepe are going well,” he said.
“He is an excellent person and one of the best central defenders in the world.
“It is true that we have been talking for some time, but I am confident that he will choose to stay on at Real Madrid.”