NOTICE OF ARBITRATION

(UNCITRAL Arbitration Rules, Article 3)

Speculative Drilling, Co. (hereafter referred to as SPECULATIVE) is engaged in the business of exploring for oil. It carries out those activities in a number of countries. It is incorporated in the country of Mediterraneo and has its principal place of business at 123 Water Street, Petroleum City, Mediterraneo.

Deep Well Drilling, Inc. (hereafter referred to as DEEP WELL) is also engaged in the business of exploring for oil. It also carries out those activities in a number of countries. It is incorporated in the country of Equatoriana and has its principal place of business at 1 Deep Well Place, Industrial City, Equatoriana.

Both companies are currently active in the country of Polarity. For the past ten years DEEP WELL has been developing a field known as "Active #1". SPECULATIVE has been exploring in a new field known as "Active #2".

On 13 May 1997 DEEP WELL offered to sell to SPECULATIVE its drilling rig number 23 for 30,000,000 Equatoriana dollars (E$30,000,000). (Claimant's Exhibits Nos. 1 and 2) Article 9 of the draft contract proposed by DEEP WELL contained an arbitration clause calling for ad hoc arbitration of disputes under the UNCITRAL Arbitration Rules. Any such arbitrations were to be administered by the International Arbitration Center of Danubia. SPECULATIVE accepted the offer by telefax dated 5 June 1997, and the contract was concluded at that time. (Claimant's Exhibit No. 5) For reasons to be discussed further in this arbitration DEEP WELL disagreed that SPECULATIVE had accepted the offer and on 6 June 1997 it asserted that it had withdrawn the offer by its letter of 3 June 1997. (Claimant's Exhibits Nos. 4 and 6) Because DEEP WELL threatened to sell the drilling rig to a third party, on 28 June 1997 SPECULATIVE requested the Commercial Court of Mediterraneo to order DEEP WELL

To proceed to arbitration under the arbitration clause in the contract, and
Not to sell the drilling rig to any third party pending resolution of the dispute between SPECULATIVE and DEEP WELL.

Although DEEP WELL insisted to the Commercial Court that no contract had been concluded, and therefore no arbitration agreement existed, it withdrew its resistance to an order of the Court referring the dispute to arbitration on the same terms as were contained in the draft contract of 13 May 1997. In respect of the SPECULATIVE request that DEEP WELL should not sell the rig to a third party pending resolution of the dispute between SPECULATIVE and DEEP WELL, the Commercial Court stated that it would issue the order, but that the order would extend only until 14 April 1998. In the view of the Court that would be sufficient time for the Arbitral Tribunal to be convened and to decide whether a contract had been concluded between SPECULATIVE and DEEP WELL. If the Tribunal found that a contract of sale had been concluded, it would be up to the Tribunal to decide whether a further order should extend the period during which DEEP WELL would be prohibited from selling the drilling rig to any third party

The Commercial Court conditioned its order on the posting of security by SPECULATIVE in the form of a bank guarantee in the amount of E$20,000,000. The bank guarantee was issued by the Bank of Commerce of Equatoriana and the Commercial Court issued its order on 15 July 1997. (Claimant's Exhibit No. 7)

By this Notice of Arbitration SPECULATIVE demands that the dispute be referred to arbitration in accord with the order of the Commercial Court of Mediterraneo dated 15 July 1997.

Declare that a contract of sale of the oil drilling rig was entered into between DEEP WELL as seller and SPECULATIVE as buyer on the terms contained in the DEEP WELL offer of 13 May 1997 and accepted by SPECULATIVE on 5 June 1997;
Order DEEP WELL to deliver the drilling rig to SPECULATIVE if SPECULATIVE should decide to take the rig in accord with articles 5 and 6 of the contract.
Order DEEP WELL not to sell the drilling rig to any other party prior to the determination to be made by SPECULATIVE in accord with article 6 of the contract,

SPECULATIVE appoints Dr. ____________________ as its arbitrator as provided in article 7 of the UNCITRAL Arbitration Rules.

(Signed)______________
For Speculative Drilling, Co.
Attorneys

6 August 1997
Date