Fuel that has gone through the engine unburned. Find out why it is not running smoothly and the goo problem will take care of itself. (SOME discharge is normal, but that is obscene).
Running too rich? maybe. Ruptured fuel pump diaphragm? maybe (if it has one). Running on one cylinder? More likely. Do some diagnosing before tearing into stuff.
It’s a 40e71b. I bought it in this condition. It seems to be using an excessive amount of fuel, most of which is running out the exhaust. I’ve pulled the carburetor off and cleaned it. The main jet and idle feed are clean. The needle valve and float test fine. It has spark on both leads. Both plugs look the same - dry and black. The oil return hose for the crankcase is missing. Don’t know if that would affect it too much though.
Oil return hose? Are you referring to the oil recirculation line, that goes from the lower crankshaft bearing to the upper crankshaft bearing?
Did you mix the fuel when the oils was added? If not, the oil will tend to settle at the bottom of the tank and for awhile the engine will get a very oil-rich mixture, then as the tank empties, almost no oil
I tried to hint at it, but make sure it is actually running on both cylinders, and reasonably equal power on each. Do that by removing and grounding one spark plug lead and see how it runs. Then do the same with the other one.
How far open do you have those carb needle valves? They are capable of dumping an enormous amount of fuel into the cylinders if open too far. 5/8 - 3/4 turn on high speed and 1-1/2 turns on slow speed for a beginning point.
Did you even bother to check for a ruptured fuel pump diaphragm or just reject the idea? EASY test is just unscrew it from the motor, leaving hoses connected, and give the primer bulb a squeeze. If gas squirts out the back side, the diaphragm is shot.
I admit, that has to be the worst case of 'some kind of guck' in a test tank, that I have seen.
I guess it could be a high fuel level, missing hi speed jet, a ruptured diaphragm, and no spark, combined
Edit: A 1971 40 hp would have an adjustable Hi Speed Needle, not a fixed jet
50:1 is 2 1/2 to 3 oz. 2-cycle oil per gallon of gas. Get a spark tester and measure spark gap on each lead. If spark is good (3/8 to 1/2 inch, and sharp), I would do the air mix as F_R suggests (initial settings shown). Look for a lean final setting (clockwise). Clean and regap plugs, and use the recommended plugs (Champion J4C gapped at .030).
With that much fouling, think I would pull off the l.u. and hose out the top of the leg and the bottom -- power wash would be good. Then have at it again. Sink it deep -- I would shoot for half way up the leg.
Thanks for the suggestions. It had spark on both HT leads but one spark plug wasn’t firing. There is so much oil in the leg that it keeps coming out but it looks like it is clearing. The high speed jet was too far out as well, probably because it was trying to run on one cylinder.