The Flames announced the deal Thursday but did not release the terms. TSN in Canada reported Thursday the deal is $10 million for two years, which includes a $2 million signing bonus.
"The Calgary Flames have signed restricted free agent Ryan O'Reilly to an offer sheet. Under the rules pertaining to an offer sheet, we will allow the process to transpire. We will not provide any further comment until the process is complete," Flames general manager Jay Feaster said in a statement.
The Colorado Avalanche have seven days to match the offer. If they don't they will receive Calgary's first- and third-round picks in the NHL draft. If they retain O'Reilly, they cannot trade the forward for a year from the date of the signing.
The Avalanche released a statement acknowledging the signing, but said they would not comment further until they decide whether or not to match it.
O'Reilly, 22, has not played this season while trying to work out a contract with Colorado.
The forward was the team's leading scorer last season with 55 points. He was the 33rd pick in the 2009 draft and in three seasons has 39 goals and 69 assists in 236 career games.