Alay Basin is located at the northern margin of Tethyan structural belt and belongs to an intermontane basin that developed from Paleozoic basement. During Mesozoic-Cenozoic, the basin underwent the following main tectonic evolution phases: epicontinental sea sedimentation, pseudo-foreland basin, intermontane basin, depression and basin-shaping phases. It is characterized by continental-marine interaction, various depositions, multistage superposition and fault-depression conversion. The condition of petroleum geology of the basin is similar to that of Filgarna Basin. Better match of hydrocarbon source rocks, reservoirs and cap rocks indicate that the main hydrocarbon source rocks are Paleogene black shale, Cretaceous limestone and Lower-Middle Jurassic coal-bearing formation; the chief reservoir beds are fractured carbonate rocks and sandy conglomerates; the regional cap rocks are the Upper Jurassic to Pliocene shales and anhydrite rocks. Well-developed folds with anticlines, fault blocks and fault noses are in majority. All conditions imply good hydrocarbon potential and oil and gas prospecting.