Abstract: The Block Hangjinqi has abundant natural gas reserves, the drilling of which was seriously affected by borehole wall instability and mud losses. Studies have been conducted on the prevention and control of these problems with drilling fluids based on the understanding of the geological nature of the area. Analyses of the physical properties of the formation showed that faults were developed in this area. Existence of mudstones with low cementing strength and developed microfractures leads to borehole wall instability and mud losses. To resolve these problems, a temperature sensitive deformable plugging agent SMSHIELD-2, a high efficiency lubricant SMLUB-E and a lost circulation material SMGF-1 were developed to formulate a drilling fluid that can maintain borehole wall stable and to control mud losses. Laboratory experimental results showed that a drilling fluid containing 1% SMSHIELD-2 had its HTHP filtration rate reduced to 15 mL, and the toughness of the mud cake was enhanced. Addition of SMLUB-E into the drilling fluid reduced its extreme-pressure coefficient of friction to 0.033. SMGF-1 is made of particulate materials of different sizes and can remarkably increase the pressure bearing capacity of the formation and reduce the amount of lost mud. By carefully selecting drilling fluid additives an anti-sloughing drilling fluid and a mud loss control fluid were formulated. The drilling fluids were tested on two wells in Block Hangjinqi, and the fragile formations were drilled through successfully with no delay. No borehole wall instability has ever been encountered in drilling the mud stone formation, and the percent hole enlargement was less than 5%.