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Despite some revisions over the years, the basic structure of the Indonesian PSC has been the same for many years. Many oil and gas field developments have been developed based on these terms. However, with many areas of Indonesia becoming more mature, the terms are now less likely to encourage significant international investors in undertaking further exploration and field development. This paper analyses the economics of Indonesian PSCs with particular attention to First Tranche Petroleum, depreciation for cost recovery, cost recovery ceilings and domestic oil obligations. It will demonstrate that the terms for conventional Indonesian PSCs are severe and economically inefficient or inflexible. Because of this, the terms are likely to inhibit the development of marginal fields. Therefore they are less likely to optimise overall Government revenue than if more flexible terms applied. The paper suggests ways in which the Indonesian PSC terms can be made more flexible to cater for a wide range of exploration and development conditions and ensure that the terms are robust to future uncertainties in the economic environment.