You probably have a bad head gasket or rotten cylinder head into the combustion chamber. they rot out right near the compression ring and early signs are what you have. Let it go and the area will eventually leak enough and hydraulic the cylinder/s. i have 40 years experience and its not the crankcase fumes.
https://cimg3.ibsrv.net/gimg/www.off...2613327e5.jpeg
https://cimg4.ibsrv.net/gimg/www.off...e181648dc.jpeg

photos are of 1988 small block fresh water heads, been sitting outside hence the surface rust.

Ok, thanks. I will discuss this with the engine guys here. I will keep you updated!

i see you have aluminum intakes. The heat crossover below the carb, the gasket area corrodes and could leak exhaust gasses into the lifter valley area causing a smog problem also.

I know this issue. Fortunately these are almost new and sealed properly. The previous owner had these installed. They are actually non-marine, we coated the water passages with fuel tank sealant compound... remains to be seen if it keeps the corrosion out.

Ok, we will pull the engines and do a leak and compression tests, after that decide if we should pull the heads.

An update for this thread - one whole cylinder bank was full of oil, it seems that the previous owner had installed piston rings incorrectly, locks were missing and on top of each other so it blew down into the crankshaft.
Also, water jackets are almost rotted through, but not yet. Sin
https://cimg5.ibsrv.net/gimg/www.off...530e177261.jpg
ce the heads are off, I was wondering is it possible to fix (weld) them.

I know this is an old thread - but to conclude the issue if anyone searches something similar.
I rebuilt the engine, probably fixed a lot of soon-to-be problems, got new heads etc. But this problem did not go away. Finally, after months of troubleshooting - it was badly adjusted throttle cable that caused this. The idle was adjusted to the cable moving back and forth when close to idle. When throttling the cable moved more, and all the flex in the linkages accumulated and voila, it died.

Not the carb, not engine internals, not distributor, not the module.

When we pulled the crankshaft breather tube getting the diagnosis, and it started working properly - probably the mechanic who pulled it accidentally touched the throttle cable next to it and that caused it to run again.

So a lot of troubleshooting, but this issue has been solved. It took 4.5k and a year of fixing everything else to finally reach this absurdly simple solution.