I had the same thing happening to my 1978 35hp. I replaced the prop shaft seals and all is good. With basic mechanical skills, factory shop manual, and U-Tube it's not hard. I didn't have a small flywheel puller for the bearing cage, but I made one with some all-thread rod and a chunk of flat bar stock. I didn't have the stuff to pressure test it but no water in the oil or leaks in two seasons. I got lucky. Good luck.