I have the isky o-ring tool. I cut the groove in the block, let the wire stand up about .008 and use a copper head gasket. I don't cut the receiver groove in the head unless it is a high boost or ultra high compression engine. But the way madscientist posted is the correct way to do it. Last year I did my street car a 410 based on a 360 with a procharger at about 6 lbs of boost. It blew a felpro head gasket on the dyno. So I used a .040 copper gasket and just the ring in the block, worked OK. As far as sealing the oil and water ports, I use some stuff called motoseal its a thin silicone used for metal to metal cover on motorcycles seems to work great.

https://www.permatex.com/products/uncategorized/permatex-motoseal-1-ultimate-gasket-maker-grey/