First welcome to the MMI forum.
Yes to draining the oil.
Yes it can be done in the water by being prepared and getting everything loose when ready to slide the shaft.
Once you have cleaned the shaft with a soft wire brush you can ease the packing and yes it will leak. Then the shaft will easily slide back. If you can get the shaft free of the coupling attach a hose clamp tightly to the end of the shaft. Then slide the shaft back to the clamp and re-tighten the packing gland. Hopefully that will give you enough room. Do all of the above when prepared and very little water will ingress. Be sure not to slide the shaft to far depending on prop to rudder clearance.
Dave Neptune