Abstract: Aimed at the main contradictions in oilfield development and the geological problems remaining to be resolved in oilfield production, this article describes the reservoir characteristics of Dong Ⅲ formation, through high-distinguish sequence correlation, microstructure research, microfacies division, flow unit research, permeability parameter changes after water flooding, and numerical simulatlon, etc. Dong Ⅲ formation is vertically subdivided into 10 time-strata units and 25 individual sand bodies. Through the research on micropore structure, percolation screen and interconnection, pore structure and flow units are subdivided. Reservoir heterogeneity and changes of permeability parameters are also studied. Eventually, the distribution pattern of residual oil is put forward based on the research accomplishments. Effective adjusting project is made combined with production development, and has gained economic benefit in field testing.