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OK, well sorry to hear there was water in the gearcase. Like N2F says, resealing that gearcase probably is the hardest part of the job. It is best to pressure test first to see where the actually leaks are occurring. Pull the prop off, perhaps there is fishline behind the prop getting caught in the seal. It is also important to check the washer seals for the drain screws. There is supposed to be one and only one washer/gasket behind each of the screws…Usually, on the older engines, these washer seals are stuck in the gear housing, but it is possible for the washer/seal to come out with the screws…. So, if someone inadvertently swaps the screws, one might have two washer/seals, while the other screw has none. Instant oil leak. It is also possible that someone has added an extra washer/seal where it was not needed which can create a leak also. Sometimes, if you are lucky, the cause of a gearcase leak can be this simple. Don’t get your hopes up, but it is possible.
OK, so your powerhead appears to be in decent compression, your compression numbers were normal.
Your gearcase has water in it, pretty common for an engine this old, most likely needs a complete seal job…More on that later….
So, it seems like your next step is to remove the powerhead so the gearcase can be removed…There are seven screws that hold the powerhead onto the exhaust housing. The engine looks to be a fresh water engine, so the screws should loosen up without too much fuss. Why don’t you try loosening all the seven screws and let us know how you make out….Don’t force them if they are stuck, you may have to use heat. Make sure you use a decent larger screwdriver that fits into the screw heads nicely…
If you get the powerhead off easily, go ahead and disconnect the shift rod from the shift handle, remove the four gearcase bolts, then remove the gearcase…
I would put an add in the wanted section of our classifieds here, someone will have a decent carb for you….D
I know that Ben Dittmar has a nice youtube video on servicing one of these engines, including resealing the gearcase…