Chinese state-run oil firm CNOOC has tentatively decided to bid for U.S. producer Unocal (UCL), a person close to the process told Reuters on Thursday, setting the stage for a potential bidding war with Chevron Corp. (CVX).

The preliminary decision was made after CNOOC's board of directors met for several hours in Beijing on Wednesday night, the source, who spoke on condition of anonymity, told Reuters.

It was not known when CNOOC (search) would make a final decision on a Unocal bid because details of a formal offer are still being finalized, the source said, without providing further details or comment.

CNOOC is preparing documentation on the planned bid, which could be filed with the Hong Kong stock exchange as early as Thursday, another source said.

The Financial Times reported on its Web site that the bid would be worth over $19 billion, or at least $65 per Unocal share, in addition to taking on $1.6 billion of debt.

The news came as Chevron moved to complete a deal to acquire Unocal it struck in April. A top Chevron executive said the company could close the deal as soon as August.

"We're doing everything we can to move this quickly," George Kirkland, Chevron's global head of exploration and production, said at the Reuters Energy Summit in New York on Wednesday. "I think we could be closed in the August timeframe."

Chevron in April beat out CNOOC and other potential suitors to win a tight race to ink a deal to buy Unocal, which has an attractive portfolio of assets in Asia, for about $16.4 billion. Chevron would also take on $1.6 billion in debt.

The Chevron deal carries a $500 million break-up fee, meaning any new suitor would have to pay Chevron $500 million.

If CNOOC was to acquire Unocal, it would be the biggest-ever overseas acquisition by a Chinese firm.

Most watchers have said a counter-bid would harm CNOOC due to high costs, and investors have already been penalizing CNOOC by dumping its shares.

It also faces political obstacles in the United States given that CNOOC Ltd. is largely controlled by the Chinese government.

U.S. Energy Secretary Sam Bodman (search) refused to speculate on Wednesday how the Bush administration would react to a bid by CNOOC for Unocal, except to say it would trigger a "complex" government review.

CNOOC, with over $1.4 billion in overseas investment, aspires to become a major regional liquefied natural gas producer. It made a last-minute decision earlier this year not to bid for Unocal in the face of opposition from some independent board directors.

CNOOC's original planned bid was more attractive than Chevron's offer -- structured as 75 percent in Chevron stock and the rest in cash.

Despite Chevron's winning bid, CNOOC said as recently as this month it was still considering a counter-offer.

Industry sources say CNOOC's new management, led by chairman Fu Chengyu, is eager to make its mark and to boost the domestic ranking of CNOOC, now a distant number three after PetroChina (search) and Sinopec.