Low compression, pony motor

I have a D 2 3J. Compression on No 1 cylinder was 48 pounds, No 2 was 44. It was hard to start and I detected water in the oil and it had a lot of blow back thru the oil fill pipe, so I removed the pony and took it apart. Inside the engine things looked better than I expected. The valve seats were not like new, but not terrible. I had expected a couple of broken rings but all were in one piece.
I plan on grinding the valves and replacing the rings.
The old head gaskets were not in bad shape but will be replaced.
If anybody knows of anything else that could cause low compression (Valve guides?) I would appreciate hearing about it. Thanks in advance!

Hi Dogger,
sounds like you're looking at the key things. Note with the valves, you adjust them by grinding the end of the valve stem for clearance, so lap them without the follower, and then adjust for clearance. You could also give the cylinder bores a light hone to freshen them up for the new rings. Make sure your carb and mag/plugs/wires are in good shape because they have the biggest bearing on how well the pony runs.
Cheers,
Neil

Those pilot motors are not high compression engines, from what I've heard here in the past, 50-60 pounds compression is considered good, she will be better than new now!😆
Regards
Mike