You're right about the hole, it is a water drain. Oil there is bad. Have
you checked the oil? You should before using it again. Leaking oil is
often accompanied by water leaking into the outdrive and that is really bad.
Loosen the lower plug while the top plug is still in and see if any water
comes out or the oil is milky. It could be a number of different seals.
When one goes most people have them all replaced. It takes a bunch of
special merc tools.

wrote in message
oups.com...
I have an alpha 1 outdrive with oil leaking out of the small drain hole
on the starboard side. Not the "oil" drain hole. This hole is a
smaller drain hole on the opposite side from the oil drain and vent
holes and toward the front of the outdrive. With the outdrive in the
"trailer" position, this hole is pretty much the lowest point on the
gear housing. I think it is there to let water drain from the prop
shaft area when the outdrive is in the "trailer" position. Since oil
is coming out, does this indicate a bad prop shaft seal or an internal
seal inside the unit? I'm trying to figure out where to start and if
I'm even on the right track.