Carbonaceous materials are thermally upgraded in a pressurized steam environment to remove moisture and other byproducts. A variety of water/solid separation devices may be employed in a process vessel to maximize moisture removal from the upgraded charge. Heating media inlet nozzles and process chamber vents are strategically positioned at the process vessel wall to minimize short circuiting of heating media to vessel outlet vents and to continuously separate hot water removed from the charge and condensed steam, such that the upgraded material removed from the process vessel is not discharged with accompanying free moisture. After upgrading, the charge may be rehydrated to improve its stability during shipping and storage.