I have a Johnson and an Evinrude same year and both 5.5 hp. Both have poor compression, under 60 on both holes 🙁 . Will be getting into them later this summer. I noticed the Johnson has a bit of oil under the mag. These do not have seals do they? What can you do for that. 1957 is my favorite year for OMC and I would like to save them. The Johnson looks good enough that it does not need to be painted except for the lower unit, its Blue. I will first pull the heads and exhaust covers to get a better feel for what ails them.
I would try a different compression guage. They have been known to be inaccurate
Very good motors. You will enjoy them.
If you find a little oil under the mag, that is coming out through the top bearing. A little bit will be normal, after almost sixty years. I would just clean it out completely when you tune it up. If it gets oily in there again real soon, then it may likely be a bad upper bearing. Also make sure that the little rubber hose on the side of the engine block is in good shape and doesnt leak
The oil may be from a previous owner getting carried away by over lubricating the mag plate, or the felt wick for the points cam. Any oil coming up the crankshaft is supposed to get slung off the slinger into the channel that feeds the oil return tube drain. Can you wiggle the crank fore and aft ?
I often find on them excess oil there from as 60 years of not being cleaned. A little will get past the slinger. Clean it up, re grease with a THIN coat, and all should be good. Unless the bearing is shot.
I guess you will know if the head gasket is damaged, rings stuck, etc… when you investigate.
I went to 2 gauges a couple years ago, as you say, they sometimes fail to give proper readings. They are reading about the same. There is no noticeable side to side movement of the crank, but I will see better when I remove the mag & plate. I have tuned and serviced 3 of these ( 59’s)for a friend and they really run nice.