Does the oil smell like gas? You could pull out a sample and have it analyzed, for either gas or water. Sometimes with the style of oil dipstick tube used you can get misleading readings when you first check it. Does this engine have the type of dipstick tube that goes all the way down to the bottom of the oil pan? I know OMC used this style and Volvo did also, but that may have changed on later ones. At any rate with that style of tube, what can happen is this:
the engine has been sitting, when you first check it the level is high, but if you pull the stick out and let the level in the tube stabilize for a few moments it will read correct.
after the engine has been running, the opposite will happen. It will read low at first and then when it stabilizes it will read correctly. Takes a minute or 2.
I think what happens is when the engine is shut off, the air in the tube is warm, then when it cools it pulls more oil up into the tube, that's why the initial cold reading is high. When the engine has been run the opposite happens, the warm air in the tube keeps the oil from reading correctly until you pull the stick out and that allows the level to equalize.
If the dipstick tube goes right into the block, like on an automotive application, then this does not apply. I'd still get the oil analyzed if you can. It will answer all your questions. Blackstone labs is excellent but it takes a while, maybe try Ted's test because if there is water in the oil you want it out fast!
