During the Tertiary, the western part of the northern Sangre de Cristo Range dropped 16,000 ft (4,877 m) to become what is now known as the San Luis basin. The foreland basin formerly adjacent to and west of the range remained intact but was subsequently concealed by 10,000 ft (3,048 m) of volcanic deposits. The existence of this concealed basin, a northeastern arm of the San Juan basin, was first suggested by Vincent Kelly who named it the San Juan sag.

Oil, which was generated in the underlying Mancos Shale, migrated upward into vesicles and fractures in volcanic rocks. In at least two places, oil is currently seeping onto the volcanic surface or into overlying soil. These oil occurrences encouraged geologic and geophysical exploration and have led to confirmation by drilling that the basin exists.

Porous reservoirs in both Tertiary sedimentary rocks and volcanic rocks overlie a 2,000 ft (610 m) Cretaceous Mancos Shale source rock. Within the Mancos Shale are fractured reservoirs, volcanic sills that have reservoir potential where fractured or porous, and stray sandstones. The Dakota Formation underlies the Mancos Shale and is about 200 ft (61 m) thick in this area. In addition, the Jurassic section has potential for source rocks in the Todilto Formation and reservoir rocks in the Entrada and Junction Creek Sandstones.

The San Juan sag, a newly discovered basin of 2,600 mi² (6,734 km²) is a frontier for Colorado oil and gas exploration.

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