Based on analysis of newly collected 3D seismic and drilled well data, the geological structure and fault system of Baodao sag have been systematically examined to figure out characteristics of the transition fault terrace belt and its control on the formation of natural gas reservoirs. The research results show that the Baodao sag has the northern fault terrace belt, central depression belt and southern slope belt developed, among them, the northern fault terrace belt consists of multiple transition fault terrace belts such as Baodao B, A and C from west to east which control the source rocks, traps, reservoirs, oil and gas migration and hydrocarbon enrichment in the Baodao sag. The activity of the main fault of the transition belt in the sedimentary period of Yacheng Formation in the Early Oligocene controlled the hydrocarbon generation kitchen and hydrocarbon generation potential. From west to east, getting closer to the provenance, the transition belt increased in activity strength, thickness of source rock and scale of delta, and had multiple hydrocarbon generation depressions developed. The main fault had local compression under the background of tension and torsion, giving rise to composite traps under the background of large nose structure, and the Baodao A and Baodao C traps to the east are larger than Baodao B trap. Multiple fault terraces controlled the material source input from the uplift area to form large delta sand bodies, and the synthetic transition belt of the west and middle sections and the gentle slope of the east section of the F12 fault in the Baodao A transition belt controlled the input of two major material sources, giving rise to a number of delta lobes in the west and east branches. The large structural ridge formed under the control of the main fault close to the hydrocarbon generation center allows efficient migration and accumulation of oil and gas. The combination mode and active time of the main faults matched well with the natural gas charging period, resulting in the hydrocarbon gas enrichment. Baodao A transition belt is adjacent to Baodao 27, 25 and 21 lows, where large braided river delta deposits supplied by Shenhu uplift provenance develop, and it is characterized by large structural ridges allowing high efficient hydrocarbon accumulation, parallel combination of main faults and early cessation of faulting activity, so it is a favorable area for hydrocarbon gas accumulation. Thick high-quality gas reservoirs have been revealed through drilling, leading to the discovery of the first large-scale gas field in Baodo 21-1 of Baodao sag. This discovery also confirms that the north transition zone of Songnan-Baodao sag has good reservoir forming conditions, and the transition fault terrace belt has great exploration potential eastward.