The compressor is working correctly. When it's used as an A/C compressor, it holds the oil in suspension in the refrigerant to lube the upper cylinders. There is actually an oil passage between the crankcase and head.
I had a problem with too much oil too, some people don't. I did the fix described on this page to my compressor.
http://www.jedi.com/obiwan/jeep/yorkair.html
Bob
tufcj