Abstract: The organic geochemistry and petrology of source rocks determine the hydrocarbon generation potential of the Banqiao Sag. In this study, organic geochemistry and petrology were used to determine the abundance of organic matter (OM), OM type, OM maturity, and sedimentary environments of the source rocks, collected from Cenozoic Shahejie Formation, Banqiao Sag, Bohai Bay Basin, China. Vitrinite and liptinite are the main maceral composition of the source rocks, and range from 18% to 81% and from 2% to 82% on a mineral matter free (MMF) basis, respectively. The values of vitrinite reflectance (Ro) (0.36%–1.20%) and the Tmax values (397–486 °C) show that the thermal maturity range from low mature to peak-maturity. The abundance of OM varies between 0.22% and 4.37%, suggesting that the source rocks of the Shahejie (Es) Formation are mainly fair to good source rocks. The Rock-Eval pyrolysis results show that the source rocks have good petroleum generation potential. The amount of free hydrocarbons (S1) and hydrocarbons generated from pyrolysis (S2) range within 0.01–3.70 mg/g, and 0.04–29.17 mg/g. The hydrogen index (HI) varies between 18.18 and 741.13 mg HC/g TOC, with most of the samples appearing to be mainly Type II kerogen, and thereby exhibiting the ability to generate both oil and gas. The ratios of Pr/Ph, the cross plot of Pr/nC17–Ph/nC18, the cross plot of C29/C27–Pr/Ph, and ternary of dibenzothiophene, dibenzofuran, and fluorene, indicate that the Shahejie Formation deposited in suboxic and weak reducing environments. The main biological source is from advanced plants. The maceral composition and rock pyrolysis data indicate the kerogen type is a humic type or mixed sapropelic-humic type. The source rocks of the Shahejie (Es) Formation occur in the oil window, and the abundant organic richness, humic kerogen demonstrate that these rocks are effective oil and gas source rocks. The mudstone rocks in the Shahejie Formation are the main source of oil and gas and represent the main exploration target for the Banqiao Sag. This study enhances the great prospect of oil and gas production in the Banqiao Sag.