Colorado's oil producers are bracing for a new fee associated with their production as part of a compromise the industry reached with environmental groups that were pushing for more stringent regulations on drilling.

Colorado, the fourth largest oil producing state in the U.S., is a frequent battleground for the oil industry and environmentalists, who over the years have pushed for tougher regulations on fossil fuel production.

The deal reached this week will eliminate several proposed ballot measures targeting the fossil fuel industry ahead of this year's election, including one that would have halted drilling in summer months.

As part of the compromise, producers will get hit with a fee that fluctuates with market prices on every barrel of oil produced in the state.

"We’re not huge fans of the fee dynamic / structure," said analysts for investment firm TPH&Co. in a note, adding it is estimated to generate some $140 million in revenue.

The proposed legislation is supported by environmental groups including Earthjustice and Earthworks, as well as major producers in the state including Chevron and Occidental.

“We are glad to avoid ballot measures filed by the oil and gas industry to roll back the climate progress that Coloradans need and want”, said Margaret Kran-Annexstein, director of the Colorado Sierra Club.

Chevron and Occidental deferred to the Colorado Oil and Gas Association for comment.

"Political and legislative stability and certainty is vital to our industry’s future success here, and we’re pleased to see our state’s political leaders share that vision", said Dan Haley Colorado Oil and Gas Association president and CEO.

The compromise will also fund efforts to cap abandoned and low producing wells and set new emissions reduction targets.

The state already has some of the country's stiffest regulations on methane emissions. The prospect of additional regulations has still drawn some criticism from the industry.

“The Governor needs to give our regulatory systems a chance to work before agreeing to any more regulations,” said Rich Frommer, retired CEO of Great Western Petroleum, and current director of two Colorado based energy companies.