Abstract: The third horizon of Funing Formation of the northern Jiangsu basin is a low-middle permeability formation, research on reseroir sensibility and damage mechanism was made based on formation damage factor analysis of the overall process of oil field development, it is proved that the drilling fluids and injected water are two major formation damage factors. Reservoir protection drilling fluid technology was studied, arid the modified mixed metal layered hydroxide compound drilling fluid system and shield diverting agents to protect formation are developped. The field practice has proved that the new type drilling fluid system can conspicuously lower skin factor, the average output of field practice oil well is 30% more than that of the adjacent wells, the reservoir protective results is conspicuous.