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UPDATE 2-Canada's Husky Energy sees lower oil prices, cuts spending for next two years

Arunima Kumar and Rod Nickel

two years@ (Adds CEO comment on egress and curtailments, share activity)

Dec 2 (Reuters) - Canadian oil and gas producer Husky Energy Inc said on Monday it would lower capital spending by C$500 million ($375.9 million) over the next two years to increase free cash flow, in a time of reduced oil price expectations.

Oil producers have been under pressure to return more cash to shareholders. The 16 largest producers in the Canadian province of Alberta are subject to government-mandated production curtailments to avoid pipeline bottlenecks.

With such limits on growth, companies are reducing spending, including 370 layoffs by Husky earlier this year.

Husky, majority-owned by Hong Kong tycoon Li Ka-shing, expects 2020 capital spending to fall to between C$3.2 billion ($2.41 billion) and C$3.4 billion, C$100 million lower than its 2019 forecast of C$3.3 billion to C$3.5 billion. Most cuts next year are focused on Western Canada, but the company said it will continue to spend on high-return Saskatchewan projects.

For 2021, Husky aims to further reduce spending by C$400 million compared with 2019.

Peer Imperial Oil Ltd last month said it would trim 2020 capital spending by C$200 million.

Calgary, Alberta-based Husky assumed a West Texas Intermediate crude oil price of $55 per barrel from 2020-21, down from its previous expectation of $60 per barrel.

Husky shares were down 0.3% at C$9.64 in Toronto.

Husky plans to generate C$500 million of free cash flow before dividends in 2020, growing to C$1.5 billion in 2021.

Alberta imposed curtailments in January to ease congested pipelines and Premier Jason Kenney has said they may stay in place through 2020.

New capacity created through small improvements to existing pipelines, the startup this week of Enbridge Inc's Line 3 replacement in Canada, and increased rail hauling may collectively add 500,000 barrels per day of export transport, Husky Chief Executive Rob Peabody said.

"We continue to see reasonably good progress in creating new export options here," Peabody said on a conference call. "That's why I'm hopeful, moving out of the first quarter we'll start seeing some real relief (on curtailments). But we've made an assumption for the middle of the year."

Husky expects average annual 2020 production to be 295,000-310,000 barrels of oil equivalent per day (boepd), higher than 2019 guidance of 290,000-305,000 boepd. The company expects total refining throughput between 320,000 and 340,000 barrels per day for 2020.

Husky in October reported a 50% drop in third-quarter profit due to lower U.S. refining margins and oil prices. ($1 = 1.3301 Canadian dollars) (Reporting by Arunima Kumar in Bengaluru and Rod Nickel in Winnipeg, Manitoba Editing by Arun Koyyur and Matthew Lewis)