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MEG Energy CEO William McCaffrey

Chris Bolin/Copyright 2010 Chris Bolin Photography Inc.

Oil sands producer MEG Energy Corp. has cut the target price for an initial public offering by about 17 per cent as it seeks to finance a big expansion of its northern Alberta operations.

According to a source with knowledge of the IPO, MEG will now market the shares at between $35 and $39 each - down from a target range of $42 to $48 - to raise between $700-million and $780-million.

The company will issue 20 million shares, 13 per cent fewer than the 23 million originally planned. The issue is likely to be priced on Wednesday and close on Aug. 6.

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MEG Energy, 17 per cent owned by China's CNOOC Ltd., had originally sought to raise more than $1-billion. That would have made it one of the largest IPOs on the Canadian market in a decade.

MEG's offering follows Athabasca Oil Sands Corp.'s IPO in April, which raised $1.35-billion and was the largest in a decade, before the stock was hit by a big selloff.

"The appetite for massive IPOs in the oil sector is just not there, it seems," said one portfolio manager who does not plan to buy into the MEG deal. "Athabasca left a bit of a bad taste in some people's mouths."

Athabasca's stock fared poorly from the outset, falling 40 per cent amid market turbulence that saw other companies shelve plans to go public.

MEG has stated previously that, unlike Athabasca, which is in the planning stages of an oil sands project, it already has a producing project and is raising cash to expand existing operations.

The IPO funds will go toward the development of the Christina Lake oil sands project, which can currently produce 25,000 barrels per day.

The project's next phase is designed to produce 35,000 bpd, with construction on the thermal project - where steam is pumped into tarry bitumen deposits so they can flow to the surface. The project is slated to begin next year.

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Future expansion could bring output at the site south of Fort McMurray, Alta., to 210,000 bpd.

The MEG IPO will be offered through a long-form prospectus in Canada and private placement in the United States and overseas.

The deal is being led by Credit Suisse Securities (Canada), BMO Nesbitt Burns Inc., Barclays Capital Canada Inc. and Morgan Stanley Canada Ltd., and will be co-managed by TD Securities Inc., Goldman Sachs Canada Inc., Scotia Capital Inc., FirstEnergy Capital Corp. and Peters & Co Ltd.

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