It appears to me that this is set up to be a full-flow filter. You can see a fitting welded or braised to the right of the bypass filter dump fitting. That is the outlet from the pump that normally connects to the main oil gallery. Now the main oil gallery is fed by the hose coming from the filter to the fitting that used to feed the bypass filter.
I set up a late-block 261 for a full flow filter last summer and remember well the associated hassles. And that had the factory plug that provided for that option. If one does such a modification, 1/2", braided-steel lines, not 3/8", and AN fittings are the way to go and don't buy cheap ones. They leak. Shield whatever lines you use from exhaust heat if it's going to be in truck service. I'm not sure it was worth the trouble. I now have a Franz toilet paper filter besides the full flow as the micron size of available full-flow filters it pretty big. A good one with small pores it the Wix 51515. it's taller than most with low pressure drop.
