If you see a small, thin streak of milky-colored oil coming from the bottom of the lower unit of the motor, you must replace the prop shaft seals. Changing the seals on the prop shaft of Mercruiser engine is a project for winter or the off-season. Replacing the seals themselves is a straightforward job, but before you can replace them, you have to run an obstacle course through your motor's lower unit.
Remove the prop from the engine by bending the retaining tabs that hold the prop nut. Then use a wrench to remove the propeller from the shaft pulling straight out.
Use a hammer and punch to remove the carrier nut. The carrier nut is a large ring with slots cut into it and held in place by a tab. Bend the tab back. Set the punch against the end of one of the slots in the carrier nut and tap the nut with the hammer until it comes loose.
Use a slide hammer to remove the carrier. Once you have removed the carrier, you will have access to the seals, shaft and O-ring. Use the punch to remove the O-ring and the seals from the shaft.
Push the seals onto the shaft and slide them into place. Replace the O-ring and push the carrier back into place. You may need to use the slide hammer to ensure that the carrier is firmly seated.
Screw the carrier nut onto the carrier and tighten by striking it lightly with the hammer and punch. Bend the tab over the carrier nut to secure it in place.
Lubricate the prop shaft and the splines on the prop shaft. Slide the propeller straight on to the shaft. Screw the propeller nut into place and bend the tabs over the propeller nut
A special tool, the Mercruiser Bearing Carrier Removal Tool--part number 91-31229A7, will remove both the carrier nut and the carrier. The tool is available through your Mercury dealer.