Im convinced it isnt water Its been driven far enought to dry things out. So I guess we start with pulling plugs then a compression check. Whats the diff between wet, and dry check?
A dry test you just pull the plug and go. do this one first.
The wet test, you take an oil squirt can and give 2-3 squirts of oil down the spark plug hole and do another compression test.
If the cylinder reading increases wet than dry, then your problem is in the rings. If it is the same wet and dry, then you need to look at the valve (seals & guides).
The squirts of oil help temporarily seal the rings for the wet test.
You can then do a leakdown test to see if it is in an intake or exhaust valve or blowby.