Re: Catastrophic engine failure avoided by a hair....
Sometimes oil or carbon mixed with the moisture that accumulates in the exhaust will spew out when you first start an engine. I don't think I've ever seen a vehecle spew out oil unless the rings were broken. Either way, it looks like a rebuild and I would check the cylinders for tapering or out of round.
I agree that badly worn valve guides are a possibility. Especially if you see bluish smoke when you first crank it up.
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