Well,its proboly leaking most of the oil through the valve guides.You might just put rings in and get the head fixed if you dont have a lot of ring groove.The compression is because your valves are closing and rings arent wore completely out.The oil leaks in through the valve guides,not the valve seats.When motors are cold,or wound up high,lots of oil is being squirted on the valve system on the top of the head.All that oil has to run back down to the pan through a couple of small holes.Especially when its cold,it will keep too much oil up on top,the old rubber seals on the valves have probly long ago crumbled and fell off,then oil runs down the guides,and into the combustion chamber,fouling plugs,making oil come out the exhaust,and smoking.If you just fix the valves the rings sometimes go out quick after that because of more compression with the valve system fixed.Rings have a tension to them,as they wear the top of the cylinder gets worn out worse than the bottom,meaning the top of the cylinder gets bigger and kind of egg shaped,When the rings go up and down they move in and out slightly and get worn in.The more they move,just like twisting a piece of baling wire,after a while it gets soft enough to break.Instead of a ring breaking(they can)loosing tension is enough to loose compression,one of the required things an internal combustion motor needs to run and start with out being pulled.If your cylinder has more than 10 thousandths groove more at the top than at the bottom you need to bore it or replace the sleeves if your motor has them.A hair out of your head is about 7 thousandths so 10 thousandths is not much.
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