UPDATE 2-Chesapeake raises $412 million in production deal

(Recasts first paragraph, adds share price, company background, analyst comment, changes dateline from NEW YORK)

HOUSTON, Jan 5 (Reuters) - U.S. natural gas producer Chesapeake Energy Corp (CHK.N), which slashed spending last year to shore up its liquidity, said on Monday it raised $412 million from the sale of gas output and assets in the U.S. South to investors of Argonaut Private Equity.

The price fell short of the company's estimate to raise $425 million to $475 million from the deal. But Chesapeake's shares rose 4 percent as investors cheered the fact that the company was able to complete a deal in a tight credit market, analysts said.

"We view this transaction positively as it represents another milestone toward Chesapeake's goal of building larger cash reserves over the next two years," Simmons & Co. Int'l said in a note to clients.

The sale, under a volumetric production payment (VPP), was financed by Goldman Sachs Group Inc's (GS.N) GS Loan partners. The transaction values the gas at $4.20 per thousand cubic feet from the assets in the Anadarko and Arkoma basins with proved reserves of 98 billion cubic feet equivalent and current net production of 60 million cfe per day.

In a typical VPP, the buyer is entitled to receive a share of oil or gas produced on certain acreage in exchange for an upfront payment.

Chesapeake, which borrowed heavily to expand an ambitious drilling program when natural gas prices were higher, has scrambled to raise cash in recent months. Last year, it cut its drilling budget four times and announced plans to raise cash through production payments and joint ventures.

The Oklahoma-based company said the VPP closed on Dec. 31 and will be treated as a sale for accounting purposes. Chesapeake was advised in the deal by Jefferies Randall & Dewey of Houston.

Shares of Chesapeake were up 74 cents at $18.01 on the New York Stock Exchange. The stock's advances were in line with a 3.6 percent gain in the American Stock Exchange index of natural gas companies .XNG. (Reporting by Matt Daily in New York and Anna Driver in Houston; Editing by Steve Orlofsky, Dave Zimmerman)