Abstract: The Erlian basin has been made a target for oil and gas exploration only recently. From a preliminary analysis of the conditions of oil generation of the basin in the light of its regional geological setting and tile geochemical indices of the source rock, it is proposed that the dark mudstone containing abundant organic matter as source material of oil predominanly of the mixed type, is the main source rock of the basin. The threshold depth for oil occurrence in the various depressions is determined on the basis of oil generation ratio, reflectance of vitrinites, distribution of n-alkanes and the character of clay minerals.