FairStar said the decision was made after results from a drill stem test were inconclusive and further examination indicated that the drill stem test tool opened prematurely within the hole, giving a miss run result.
The test was carried out over an interval of natural gas show encountered while drilling in the Warina sands.
Hunt Energy's Rig 3 will remain at the well site while further evaluation and testing is carried out.
Fairstar has paid Knight $1 million for the cost of drilling the well to earn a 60% stake in PEP 165.
The company has previously said that regional seismic data has shown Cooper Basin-equivalent sections may be present in the permit.
